Companies in the news ... and how they were assessed
Stagecoach/firstgroup/mtr: Chinese efficiency
In a “shock” shake-up of one of Britain’s most established rail franchises, Stagecoach is to end its operation of South West Trains – the network based in London’s Waterloo, said the London Evening Standard. Transport Secretary Chris Grayling is instead putting his faith in a joint venture between Firstgroup and Hong Kong’s MTR, which will run the franchise for seven years starting in August. Grayling waxed lyrical about MTR’S great record for efficiency: it currently runs “one of the world’s busiest metro services”, in Hong Kong. RMT union leader Mick Cash countered that another “foreign state operator” is “set to make a killing at the British taxpayer’s expense”. The deal is “quite a blow” for Stagecoach, which has been running the service since privatisation 20 years ago, said Alistair Osborne in The Times. Could the taxpayer really be worse off too? Quite possibly, if the loss of this franchise hits Stagecoach’s cash cushion. Having bid a “crackpot” £3.3bn in 2014 to run the East Coast line, the group admitted recently that revenues from that franchise are “below our original plans”. Without South West Trains, Stagecoach has no “buffer to absorb poor East Coast performance” – an “ominous” development “on a route that has already seen two financial crashes”.
Tesco: destructive deal?
“Everyone wants a piece of Tesco,” said John Foley on Reuters Breakingviews. The supermarket has agreed to pay a £129m fine to the Serious Fraud Office to settle an accounting scandal unveiled in 2014, which saw it overstate profits by £263m after falsely booking payments from suppliers. In a deal struck with the City regulator this week, Tesco also agreed to pay up to £85m in compensation to investors who bought securities just before the accounting problems were disclosed. Three former executives are due to go on trial for fraud in September, but the scandal “is already history” for the grocer. Only two of its current 12-person board “were there when the accounting fiddles took place”, and CEO Dave Lewis’ “hands are clean”. A far more pressing problem for Lewis, said Graham Ruddick in The Guardian, is a rebellion over his planned £3.7bn takeover of Booker, the grocery wholesaler. Two of Tesco’s biggest shareholders, Schroders and Artisan Partners, have urged it to withdraw on the grounds that “the high price being paid” could lead to “the destruction of value”. Expect a tussle ahead.
Corporate sponsorship: wilting flower power
The Chelsea Flower Show has always been “a blue-chip event” for companies looking to impress the “high society figures who attend”, said Conor Sullivan in the Financial Times. Perhaps not this year. The number of show gardens has “more than halved” to just eight following “a sharp fall in corporate sponsorship”. The Royal Horticultural Society, which runs the event, blamed the drop on “uncertain times”: the deadline for entering gardens for this year’s show was soon after last June’s Brexit vote, when there were widespread fears that the economy would slow. But Jackie Fast of the sponsorship agency Slingshot claimed the root of the problem was that firms are becoming “more rigorous in assessing the return on investment” from sponsorships, and that Chelsea’s numbers didn’t stack up. Among the companies that have pulled out are Harrods and the Telegraph Group. The cosmetics brand L’occitane is also having a “rest” year.