RUTH SUNDERLAND: Businesses are singing the Brexit blues 


Back in those long ago, barely remembered days before the referendum, companies used to blame the weather if their profits dropped.

Either it was too hot, too cold or too wet. No one seemed to have told them about the unpredictable British seasons.

Now they blame Brexit. Or as newsagent McColl’s did when its shares fell to near record lows yesterday, they blame the weather and Brexit.

Businesses now blame both the weather and Brexit for their falling profits

Businesses now blame both the weather and Brexit for their falling profits

Amigo, a sub-prime lending business whose shares fell dramatically yesterday, cited the possibility of No Deal as a risk to its bottom line: if the economy tanks, it could mean more borrowers are unable to pay their debts.

Software group Micro Focus, whose shares plunged after a profit warning, said its problems are down to a ‘deteriorating macro environment’. Translated into English, that means they are worried about Brexit plus Trump and his trade war, plus Germany’s weak economy.

Recruitment company Hays, another whose profits took a hit, was also complaining that ‘macro-economic conditions’ had become ‘increasingly difficult’.

There are, of course, other explanations.

Micro Focus has been under the cosh ever since it took over the software business of Hewlett Packard Enterprise a couple of years ago in an $8.8billion deal that resulted in a severe case of indigestion.

The interestingly named Amigo, whose interest charges of a smidge under 50 per cent APR are far from friendly, is arguably more susceptible to customer complaints and a crackdown by regulators than it is to Brexit.

Hopes that the London Stock Exchange might play host to the world’s biggest float – of giant Saudi oil enterprise Aramco – have also been hit. It is apparently looking at a two-stage share offering on the Saudi and Tokyo exchanges instead.

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Advisers have apparently got cold feet about London because of uncertainty around Brexit. Again, there are multiple agendas at work, so it isn’t that simple.

But whatever the reasons, a string of firms with falling profits, the cold-shoulder from Aramco, and a slide in sterling don’t add up to a mood-enhancing tonic. 

Boris the Booster wants to lift the economy by sheer force of positivity, but not everyone got the memo.

Promises, promises

Call me cynical, but I am not entirely reassured that Andrea Leadsom, the Business Secretary, has been talking to Advent to extract reassurances over our national interest if it takes over Cobham.

The now notorious takeover of Cadbury by US cheese-maker Kraft a decade ago, with its broken promises over a factory closure, woke politicians up to the fact there are real risks to British jobs, pensions, R&D and investment when firms are taken over.

'I am not entirely reassured that Andrea Leadsom has been talking to Advent to extract reassurances over our national interest if it takes over Cobham,' says R. Sunderland

‘I am not entirely reassured that Andrea Leadsom has been talking to Advent to extract reassurances over our national interest if it takes over Cobham,’ says R. Sunderland

In the case of Cobham, there is also a national security and defence aspect. Advent will probably offer to sign up for a similar list of undertakings as Melrose did at the time of its hostile bid for engineer GKN.

These included promises to keep the headquarters here, to remain listed on the London Stock Exchange, to maintain R&D spending and to have a majority of UK-resident directors. This sounds deceptively soothing. Any undertakings by Advent will be presented as ‘legally binding’, but clever lawyers can find a way round most things.

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They are likely to be time-limited, possibly for five years, which is not a long stretch in engineering terms. And there may be other undesirable and unforeseen eventualities not covered by the pledges.

With Melrose, the authorities can wave big sticks at the directors because it is a UK listed company, whose founders are British. Advent, however, is a US private equity firm and so the authorities may have less leverage over their future behaviour.

The risk is that predators make undertakings as a sop that turn out not to be worth the paper they are written on.

Green Steel

It’s welcome news that the Government is spending £390million on low-carbon technology, much of which will go to the steel industry.

But the new Clean Steel Fund will not, of itself, reverse years of government policy that have landed UK producers with far heavier energy bills than competitors: the difference between this country and Germany, for example, is £55million a year. A little-known fact is that plants are also hit by the heavy business rates that have hurt shops on the High Street.

Let’s not cavil. This is a step in the right direction. Now the Government needs to take another, and rethink its attitude towards British Steel. Waving through a sale to the Turkish military pension fund is not the best way to ensure the future of such a vital strategic industry.

 



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