Retail

There's no justification for Waitrose keeping its Covid rate relief cash | Nils Pratley


On the face of it, you might think the John Lewis Partnership is entitled to every penny of government support it can lay its hands on. It’s just reported a thumping annual loss of £517m as it took a £648m hit against the value of its department stores, eight of which closed for good last July. If pandemic support was designed to help businesses in crisis and minimise job losses, what’s the problem?

It’s the fact that the picture was very different at Waitrose, recipient of £85m of the partnership’s overall tally of £190m of government support. The supermarket chain’s sales were up 10% and top-line profits improved by £82m to £1.1bn.

To be scrupulously fair, the latter figure is a trading number, and so ignores central costs, some of which will have been inflated by the boom in online deliveries. Even so, the broad picture is correct: in financial terms, Waitrose did OK. So why can’t the chain follow Tesco, Sainsbury’s, Morrison’s and Asda and return its relief from business rates?

None of the pleas from the boardroom are persuasive. The partnership may think of itself as a single entity, but the relevant consideration with a property-based tax is surely whether the stores were open. The department stores were closed for 20 weeks, so, fine, keep that pot of money. But £85m of relief for Waitrose can’t be justified.

Dame Sharon White, the chair, has overseen a decent crisis-fighting exercise at the department stores. Even if more stores may be lost as the pandemic compounds the effects of past overexpansion, the trading figures were better than feared. But on the Waitrose rates relief money, she made the wrong call.

A Royce Trent XWB engines on the assembly line at Rolls-Royce’s factory in Derby.
A Royce Trent XWB engine on the assembly line at Rolls-Royce’s factory in Derby. Photograph: Paul Ellis/AFP/Getty Images

Rolls-Royce throttles back

“The worst is now well behind us,” said the Rolls-Royce chief executive, Warren East, after a year in which the engine-maker clocked up a colossal loss of £4bn.

The bigger question, though, is how long recovery takes. The best that can be said is that Rolls’ predictions, made at the time of its £2bn rights issue last October, have proved roughly accurate so far.

One critical measure is engine flying hours, since it dictates the revenues received under maintenance contracts with big airlines. Rolls had assumed 2020 would see a fall to 45% of 2019’s level – in the event it got 43%, which is near enough.

For this year it thinks 55%, then 80% in 2022. The latter is a downgrade from 90% since the last finger-in-air exercise, which is not an immaterial difference since the rule of thumb says each percentage point equates to £30m of receipts.

But East is sticking to his critical forecast that Rolls will generate £750m of cash in 2022, which is the point at which the enormous restructuring exercise, involving 9,000 job losses, can be said to have worked.

While it waits, Rolls would benefit from good news elsewhere in its business. The government has put a few quid behind the development of small modular reactors that look a smarter and lower-cost nuclear option than more Hinkley Point-style mega-constructions. The Rolls-led consortium could do with an actual order.

The HSBC logo on an bank branch in the City of London
The HSBC logo on one of its bank branches in the City of London. Photograph: Facundo Arrizabalaga/EPA

HSBC lumps it on coal

The juiciest scrap during the upcoming season of corporate annual meetings was meant to be at HSBC, where a group of 15 fund management houses had filed a resolution calling on the bank to curtail its financing of fossil fuels.

The resolution would probably have struggled to achieve the necessary 75% supermajority, but the potential for embarrassment for HSBC was high.

Amundi, Europe’s largest fund manager, was in the rebels’ camp. BlackRock, the world’s biggest, was under pressure to join, and thereby back the chief executive Larry Fink’s high-minded climate words with hard votes.

Thursday, however, brought news of a peace deal. HSBC will volunteer its own resolution to phase out the financing of coal and set targets to align its lending with the Paris agreement. In return, the shareholders will drop their proposal.

Investors still have to back the board-led resolution and HSBC still has to live up to its commitments. But it is the first time that ShareAction, the charity that led the negotiations with HSBC, has withdrawn a shareholder resolution, so it’s a landmark event of sorts. It should also put other big lenders under useful pressure.

It’s just a shame we’ll have to wait until the next showdown to discover if BlackRock and Fink are serious.



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