8 Aug 2021

Back in 2014 I delivered a presentation on “Turning a good idea into an investment”. Among the precious jewels of advice was this observation.  Milestones should be plausible and realistic. We should feel that a start-up company knows what it hopes to do next week, next month, next quarter. If someone tries to interest me in a business that has invented a device that makes perfect poached eggs, I don’t want to be shown a graph of estimated global egg consumption up till 2020. I want to be shown a poached egg. I hardly need to point out that today’s politicians love to announce targets that are a long way into the future.  COVID 19 – HEADLESS CHICKENS GO VIRAL The Covid-19 pandemic has given us the rare sight of politicians made to take short-term decisions with quick measurable consequences. It has been their ultimate discomfort zone. It has not been pretty to watch but it has been instructive.  Responsibility has been outsourced with urgency – decision-making has effectively been devolved to rolling committees of the unelected who might or might not have the necessary scientific qualifications.  More surprising to me has been that the terror has spread to opposition parties whose positions have been as difficult to nail down as a smack of jellyfish at high tide. Perhaps it is not surprising, though it is certainly not admirable, that the leaders of nations prefer to bask in the warm waters of the infinity pool. BEING BRAVE AND DECISIVE ABOUT THE YEAR 2100 If future targets were awarded Oscars, the winner of best picture would be that one about the global temperature in 2100. Essentially it seeks to restrict the temperature rise between two dates; the first being when no one alive today had been born and the second where all today’s decision makers will be dead. It is a fine example of something that is beyond accountability due to lack of proper data.  I doubt if one person in fifty realises that the self-congratulatory COP 2016 Paris meeting was promising something to be realised 84 years into the future.  Given that there is little sign that China and India (for example) are taking...

29 Sep 2020

AIRLINES – INSOLVENCY DENIAL IMPEDES RESTRUCTURING The airline industry as we know it is finished, according to Hubert Horan, a transport and aviation consultant.  After the dotcom bubble downturn in 2001 airline revenues fell by 6% and this resulted in much consolidation of the industry with transatlantic services becoming concentrated in the hands of a handful of players. Long haul and business travel has fallen this year by up to 90%. For US airlines, whose domestic business has held up better, this amounts to a 75% fall in volumes and an 85% revenue decline.  Horan estimates that the airlines might be able to shed up to 40% of their costs over the next two years. Meaning that they will be burning cash as fast as they burn jet fuel. Back in Europe, IAG (which is the holding company of BA) reported an impressive decline of 96.7% in Q2 passenger revenues. Easyjet, which was effectively grounded by pan European closed borders saw its revenues decline by a scarcely credible 99.6% over the same period. Things started to look up for the European domestic companies in Q3 but the latest warnings of a second wave of infections have, according to Michael O’Leary of Ryanair, dealt another mortal blow to winter bookings.  The business models of Easyjet and Ryanair are based on the economics of full planes and they are both in balance sheet survival mode. Easyjet has raised a total of £2.4 billion through a combination of capital increase, aircraft sale and leaseback and government and bank loans. Easyjet burned £774 million cash in calendar Q2 so we can all do our own sums. Hubert Horan believes that all the major airlines are effectively bust and should rightly file for bankruptcy. Yet the managements, supported by government aid, are trying to preserve the companies’ equity capital (and their own jobs and shareholdings). I hear a lot about the EU’s aversion to state aid (apparently a sticking point in any Brexit deal) but it hasn’t stopped the German Federal Republic from offering aid of up to €9 billion to keep Lufthansa airbourne. Air France/KLM has done even better with €10.4 billion from the French and Dutch governments....

5 Jun 2016

Back in November one of my first ever blogs was about M&S. The shares were trading at 389p and I wrote that only takeover interest could justify a higher price but I thought that the pension liabilities made that a very unlikely prospect. For reasons which were and remain unclear to me the shares touched 600p last year but M&S has not yet been taken over and they have now tumbled all the way back to 355p. A battered low-end competitor BHS has just been closed with 11,000 jobs lost and 164 stores closed. It is no surprise that it was the pension liabilities that provoked the final bullet to the head. In addition, Austen Reed is closing 120 outlets at the cost of 1000 jobs and Matalan is reportedly struggling under its debt burden. (Matalan’s founder loaded it with extra debt in order to pay himself a dividend – sound familiar?) A hard-headed analysis might suggest that the closure of a competitor is good news for the other clothing retailers but on 25 May M&S shares were hammered following publication of its 2015/16 results. Excluding last week’s ex-dividend adjustment they are down 17% (from 445p). For the nth year, M&S is having trouble with its Clothing business. The CEO was ridiculed for referring to the core customer as “Mrs M&S” though the results presentation offered the slightly surprising observation that 42% of its 32 million customers are men. I seriously doubt if there is any company on which more people have an opinion than M&S. There are millions of experts out there. I can read in the presentation what customers are complaining about. There is too much choice, too much fashion at the expense of style, too many sizes out of stock and not enough consistency about price and value. As someone burdened by little interest in shopping or retailing I must say that none of that looks impossible to fix. You can also shop at M&S online though I don’t know how well it works or whether that would appeal to the 78% of customers who are 35 or over (still reading the presentation). Following the rather negative publicity and the share...