If one chief executive can epitomise the turn of the business cycle, it is British Land’s Chris Grigg. A banker by background, he took the top job at the property group in the depths of the financial crisis. He will leave it almost 12 years later with the industry squarely in another downturn and the company’s shares at roughly a 50 per cent discount to net asset value.
It is an infelicitous end to a creditable stretch at the company. In 2008, the industry expected a property veteran to take charge following City man Stephen Hester’s stint as CEO. British Land turned instead to the ex-Goldman and Barclays financier. He came in, pulled off a cash call and deleveraged the overstretched balance sheet, earning him considerable acclaim.
But his method, selling a 50 per cent stake in the Broadgate development to Blackstone at the bottom of the cycle to get the debt down and fund other investments, subsequently proved controversial. Such criticisms have an element of “Captain Hindsight” about them, the moniker the prime minister uses to disparage the opposition leader’s critique of his flawed coronavirus response.
At the time, British Land was overexposed to two flagship assets: London’s Broadgate office complex and Sheffield’s Meadowhall shopping centre. Waiting a year would have been better, but Mr Grigg was nonetheless right to cut its exposure. No one complains now about the decision to reduce the group’s stake in Meadowhall.
Mr Grigg’s second, more serious mistake, was his failure to realise the scale and pace of change coming to bricks and mortar retail. He is frank in recognising he left it too late to exit more of the group’s portfolio.
His successes, funded by the proceeds of the asset sales and a second cash call, have been some of London’s finest office spaces. The three mixed-use campuses at Broadgate, Regent’s Place and Paddington Central are major assets. The development and timely sale of the Cheesegrater City skyscraper proved a triumph.
Critics will argue that Mr Grigg has had time — and a wall of quantitative-easing cash — on his side. He rode the upswing after 2009. His errors in retail have failed to insulate investors as the cycle started to turn.
That fails to do Mr Grigg justice. He steered British Land comfortably clear of the fates of Hammerson and Intu, both undone by debt. He navigated Brexit turmoil commendably. And the Broadgate disposal notwithstanding, his commitment to the capital’s workplaces served the group well — until the current crisis hit. No one can begrudge him his own exit as the next cycle starts.
Morrisons gives you more
No ducking around the aisles here. Wm Morrison has ditched the traditional Covid-19 waiver, providing both an interim dividend and guidance, Louise Lucas writes. It expects profits to rise for the full year — less vague than it might sound given the supermarket’s 25 per cent drop in underlying pre-tax profits to £148m in the first half.
Morrisons, like its peers, is reaping both benefits and drawbacks. Sales, with the exception of fuel, are increasing as we all bake, spring clean and eat more: up 8.7 per cent. But profit margins are being pummelled by added costs wrought by online deliveries, extra staff and wastage. All told, Morrisons bill for extras in the first half came to £155m, or £62m after netting out the £93m of business rates relief.
Six weeks in, Morrisons presumably reckons it has a decent handle on how the second half will pan out. But not everything points to a strong uplift. Customers are veering towards cheaper goods. Rising unemployment and jitters over job security speak to more modest shopping baskets. Others — pensioners, say, missing their dividends — will also be obliged to cut back. For its part, Morrisons has reduced the price of more than 400 goods. Matching the first half’s rise in sales will be a tough ask.
Costs will continue to pile up: Morrisons is flagging another £70m-85m, with roughly half of that going to staff bonuses. Wastage will be key. Supermarkets got caught on the hop with Easter eggs: rows and rows had to be junked as lockdown put paid to extended family gatherings, complete with chocolate treats. At this stage — schools and many office workers back, but fresh curbs on group get-togethers coming into effect on Monday — it is too early to tell what Christmas will look like. Supermarkets, like other stockists, will be relying on at least some guesswork.
To pull off its guidance, Morrisons will need to turn in pre-tax profits in excess of about £260m in the current half. Against the risks, it expects £137m of business rate relief that will turn the costs into a net benefit of about £60m. Fuel sales are ticking back upwards but, as a low-margin business, that has less impact on the bottom line. Morrisons has proved itself a good egg through the crisis, doing its bit for NHS workers, food banks and its own staff. Investors, who had knocked the share price down more than 4 per cent in early-afternoon trade, clearly need a bit more convincing.
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