For short and sharp, read long and slow when talking of the R-word
Mervyn King, Governor of the Bank of England, certainly wasn’t pulling his punches in Leeds last night. In a blunt speech Mr King uttered the “R-word”, warning that “it now seems likely that the UK economy is entering a recession”.
By Richard FletcherLast Updated: 8:40AM BST 22 Oct 2008
If that wasn’t bad enough, the Governor provided a rare insight into the worst-case scenarios that the BoE has grappled with in recent weeks. “Not since the beginning of the First World War has our banking system been so close to collapse,” he said.
The speech topped a day of gloomy economic news that included a dire industrial trends survey from the CBI which showed that even if the financial markets are returning to normal, the downturn in the real economy has a lot further to run. Meanwhile, Capital Economics predicted house prices could drop by 35pc, which, if correct, would be the biggest fall ever recorded.
It seems our only hope is that this is a short, sharp recession.
Unfortunately, I even have bad news on that front: the Governor ruled out a “quickie” recession last night, warning that it would be “long, slow haul” before the economy returns to normal.
Arcadia’s debt beats Debenhams’ £1bn
The Bank of England Governor may be gloomy but Sir Philip Green laid on a Champagne breakfast for 125 loyal lieutenants yesterday at the Arcadia headquarters just off Oxford Street. As his senior team tucked into eggs Benedict and bacon (or yoghurt and orange juice for the more health-conscious) Sir Philip unveiled Arcadia’s full-year results and presented a jeroboam of Champagne to the heads of the fashion group’s brands.
Given the carnage on the high street, the billionaire retailer can be rightly proud of the results announced by Arcadia yesterday: a 0.6pc fall in sales and 6.1pc fall in operating profit.
A sterling performance by Topshop finally laid to rest the suggestion that it was former brand director Jane Shepherdson who drove its phenomenal success. Meanwhile, Yasmin Yusuf’s success in reviving Miss Selfridge may leave beleaguered M&S shareholders asking why they didn’t hold on to their former creative director of womenswear.
A short stroll down Oxford Street at Debenhams’ headquarters, Rob Templeman, the department store chain’s chief executive, was taking the red pen to its dividend – which he slashed from 6.3p a share to 3p a share.
Both Debenhams and Arcadia are stealing market share from a battered M&S. Like Arcadia, Debenhams’ 0.9pc fall in like-for-like sales is a (relatively) good performance in the current market.
But no matter how impressive Templeman’s performance, the market has become obsessed by the level of debt in the Debenhams business. With almost identical sales, Sir Philip is servicing £695m of debt at Arcadia, while at Debenhams Templeman is having to juggle just shy of £1bn (a hangover from the leveraged buy-out of the retailer by a private equity group in late 2003).
Yesterday, Templeman laid out his plans to reduce the burden: cutting costs, reining back capital expenditure and asking shareholders to take what is left of the dividend in shares rather than cash.
Templeman has a record of delivering: but slashing the group’s debt will take years, not months. And all the time Sir Philip is busy plotting – eyeing up retail brands including those owned by troubled Icelandic investor Baugur. Not only do his two businesses – Arcadia and Bhs – have relatively conservative borrowings, we can safely assume that Sir Philip still has a large chunk of the £1.2bn dividend he paid himself in 2005.
Its may only be a short stroll down Oxford Street from Arcadia to Debenhams but the two retailers are worlds apart in an environment where cash is king.
Evolution bags a banking bargain
Sir Philip is not the only entrepreneur who has been rummaging around the wreckage that is now Iceland.
Alex Snow, chief executive of Evolution, appears to have bagged a bargain by buying Singer & Friedlander Investment Management from the administrator to failed Icelandic bank Kaupthing.
Evolution has paid just a “few million pounds” for the business, which manages £1.5bn on behalf of 4,000 private clients. In better times, the fund management arm would have sold for closer to £30m (valued on the basis of 3pc of funds under management).
If Evolution’s investment management business – Williams de Broë – can retain the Singer & Friedlander clients, the funds under management will grow by 50pc on the back of the deal.
Until the onset of the credit crunch, Snow had been under pressure from activist shareholders to return the pile of cash the group was sitting on – pressure he largely resisted. Having done so, he is now putting his £150m war chest to good use.
richard.fletcher@telegraph.co.uk
http://www.telegraph.co.uk/finance/comment/richardfletcher/3237854/For-short-and-sharp-read-long-and-slow-when-talking-of-the-R-word.html
Comment:
There are opportunities in this dire economic times.
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