ISSUES – MILIBAND, RUDD, SUTHERLAND & MORRISON

Having been enjoying the revelries below Cleeve Hill for the last couple of days, I felt I should reflect on a few issues that have manifested themselves.

LABOUR & THE EU

Some of the media’s comments to the effect that Ed Miliband may well have outflanked PM Cameron by refusing to endorse an ‘in-out’ referendum on EU membership, I find totally incomprehensible. Miliband has been spending far too much time with Lord Mandelson and Roland Rudd on this subject. They are both obsessed with being engulfed in EU bureaucracy, as is DPM Clegg. Consequently they fervently believe that pulling out of the EU will cost jobs in spades. I cannot buy that notion at all. Trade will always carry on, based on the fact that, as Leslie Crowther said all those years ago –“Come on down if the price is right!” Roland Rudd gives so much PR spin to FTSE 100 CEOs and FDS and they are terrified, on his advice, of considering the benefits of business life without the EU, rather than look at the merits of trading with that great big wide world. Mr Rudd just seems incapable of comprehending the fact that business in this country grows from innovation; therefore SMES. From what I have heard from the rhetoric of Messrs Miliband, Balls, Burnham and others, Labour’s attitude to taxation damages innovation and added to EU bureaucracy means higher unemployment here in dear Old Blighty! It is great that PM Cameron thinks he can persuade Merkel and the boys and girls in 27 EU countries with Merkel’s help to come around to his way of thinking! Here’s hoping but it might be folly to hold your breath! Though I respect Lord Ashcroft, surely I could be forgiven for thinking that Lord A is venting his spleen on the Conservative party for not listening to him in the same manner that Michael Hintze seems to have withdrawn financial support from the Tories, having been similarly irritated!

As for Euan Sutherland, having been persuaded to leave Kingfisher to become CEO of the whole Cooperative Group, he rattled the market’s cage by drawing stumps on his further commitment to the Coop, after only 8 months in the plate, stating quite vehemently that the Coop was ungovernable. Some thought he threw his toys out of the pram having met resistance to his financial demands, which I suspect he agreed in advance. However public opinion was such, as it was towards Stephen Hester, that his demands were unpalatable which forced him to back down. Many, including me thought he handled his remuneration package of £3.6 million quite clumsily after quite a short period in the job, by attempting to gain favour for his demands through Facebook. That was not clever. In fact it was pathetic, bordering on unprofessional.

However the corporate governance issue is a REAL problem, which needs to be addressed. When Peter Marks quite rightly left the Coop, the magnitude of the problem was known. Not only was the bank’s £1.5 billion capital ‘black hole’ known about, but also the poor quality of the existing management manifested itself. Frankly Mr Sutherland is an executive with recognised talent. However his timing was awful. Being a mutual, there is no scope for a share incentive scheme based on futuristic bonuses. However this problem could have been overcome by agreeing a bonus in 2/3 years’ time based on achievement. The general public was not in the mood to accept his massive demands in the current climate.

Some believe that Sutherland will be hard to replace. Well that may be so. However this job is not about money only. It’s about kudos, charisma, power, inter personal skills and achievement. With Lord Myners as chairman of the bank, I cannot believe that with his and other contacts, the right blend of management cannot be found. Perhaps Richard Pennycook, Morrison’s former FD under Marc Bolland and current acting CEO of the Coop could be the right man? If not there must be several highly qualified CEOs who would give their eye-teeth in accepting the challenge.

WM MORRISON – the best quote I have heard today – “Morrison has been caught with its strategic pants around its ankles and the market is now administering a generous napalm enema. Getting the company back onto the right track is likely to be equally painful for shareholders.” – Mike Ingram – BGC Partners
This is an awful set of numbers and investors were unappreciative. A large raspberry was blown from EC2/3/4 and Canary Wharf and it is rumoured to have been heard across the dales north of Bradford in Bronte country. Investors larruped the shares sending them down 11% (25p) to 2017p. This is a huge move for a FTSE 100 company.

The CEO Dalton Phillips probably arrived to replace Bolland when Wm Morrison had already fallen behind the curve. Like for like sales were down 2.8% in the last quarter and profits for the year were poor with little prospect of an immediate recovery. Morrison is so far off the pace with convenient stores and a competitive on-line service that it will take Phillips months to catch up, if his colleagues and shareholders are patient enough. As we understand it, Morrison is still scheduled to open new supermarkets in 2015 rather than focus on small convenient stores. There will come a time when it is right to buy this stock, but many say not now. Who knows returning to private equity ownership cannot be entirely ruled out, with a view to nursing the company back to full health out of the scrutiny of the general public.

These are David Buik personal views

Twitter – @truemagic68

David Buik

Market Commentator

D +44 (0)20 7886 2775
Panmure Gordon & Co
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