19 August 2012

That was week ending 17th August 2012

Invisible Transport Secretary

It was announced last week that FirstGroup had won the new franchise to run the West Coast line, outbidding the current operator Virgin Trains. The deciding factor appears to be First Group’s offer of £5.5bn for the franchise, 15pc more than Virgin’s. However the more I look at this the weirder the whole thing becomes.
The award of a rail franchise of this importance and value is a heady brew of business, the economy and politics. The interests of the taxpayer are not just about maximising the revenues from the franchise. This service and its operations are important national assets which must be sustained and enhanced into the future. And yet the government has accepted the highest bid from an operator with debt of 170pc of its market value and a revenue plan based on almost everything going right. Moreover FirstGroup would only have to pay £245m to hand the franchise back to the government if things don’t work out, so that is the extent of their risk. A case of heads they win, tails they don’t lose much. This happened with the East Coast line and that is still with the taxpayer 3 years later. At this rate the railways will be re-nationalised by stealth in about 10 years!
FirstGroup’s CEO Tim O’Toole says their bid is a “deliverable proposition” but Sir Richard Branson says it runs the risk of “almost certain bankruptcy”. They both would say that wouldn’t they. Sir Richard has cleverly almost attained the status of national treasure to become about the only high profile business person who currently could claim to be trusted by the public at large. Indeed if a public vote had been used to decide who should get the West Coast line then Virgin Trains would have won by a landslide. Curiously though Virgin have spent over £60m bidding for rail contracts over the last few years and failed to win a single one of them. What is it that the government and the transport ministry in particular don’t like or trust about Sir Richard and Virgin?
This is where the Transport Secretary Justine Greening comes in, or at least where she should come in. I cannot yet find a single statement or even a single word from her on the outcome of the West Coast Franchise bid. Usually when I dig into a politician’s background these days I invariably find that they are professional politicians who have never done a proper job. However not so with Ms Greening. She has an economics degree, an MBA and trained and qualified as an accountant. She worked as an accountant and finance manager for PWC, GSK and Centrica before going into politics. Consequently she should be perfectly capable of explaining to us ordinary mortals why accepting FirstGroup’s bid is in the interests of the taxpayers. Whilst she is at it she can also explain the logic of the latest fare increases. If they are needed to provide further investment in the rail system, then a bit more on how this is supposed to work would be welcome. Frankly I think it is the least she should do, otherwise what the hell is she there for? In fact is she actually there at all?
I predict this one will end in tears, though it may take some time before the tears begin to flow, by which time all the key players, including Ms Greening will have moved on.

The invisible CEO

Before Facebook’s IPO I urged anyone even vaguely contemplating buying the shares to go nowhere near them. Last week the shares dropped to $19.69, nearly half their listing price. Now I am not a professional share tipper or anything remotely like it but I can apply commonsense. One of the reasons I urged people to avoid the IPO is that Facebook’s CEO Mark Zuckerberg had declared himself not interested in making money. My reasoning was that if he is not interested in making money then that is exactly what is likely to happen. I don’t mind him not making money for himself, but I do mind him not making it for me.
Anyway his goal has been achieved, he is not making money and neither is anyone else. However just like our transport secretary we have heard nothing from him. He got married and went in his honeymoon immediately after the IPO, which is a pretty smart move in the light of what has happened to the share price. Surely he must be back from honeymoon by now and he must have some views that he could share with his deluded shareholders? However if he is not interested in making money then perhaps he feels it is all going according to plan, so what’s to say!

Invisible crisis

The tactic of sending all the Eurozone governments on holiday at the same time seems to have worked because for more than a month now it as if the financial crisis had never happened. Just occasionally there has been the odd bloop of news bubbling up like in a very slow cooking Bolognese sauce, but nothing to get alarmed about. Last week Greece even managed to sell €4bn worth of bonds which means they won’t default on an ECB bond repayment due this Monday. Borrowing money in order to pay money back is classed as good news now. Further “good news” was that Spain borrowed a record €402 from the ECB during July.
The Greek PM travels to Germany this week to meet Angela Merkel to ask for extra time (at least 2 years) to meet the austerity targets set in the second Greek bailout. A spokesperson for stern Auntie Angela declared “The German position, which is the European position, is based on the memorandum of understanding, which is the foundation”. A small prize to anyone who can tell me what that actually means, though to me it sounds like “flogging will continue until moral improves”. Which is not much comfort for the Greek PM?

And finally – the disappearing Dandy

The really sad news last week for any of us over 50 (or possibly 55) is that the Dandy comic is to cease publication. We may not have read it for many years but we would like to think that it is still there. When I read what they have tried to do to maintain its readership, introducing celebrity themed comic strips featuring Simon Cowell, Jamie Oliver and Jeremy Clarkson I realised where they have been going wrong.
They have been trying to appeal to children, when of course their real market is with adults who have never grown up, i.e. most men. By just sticking to their tried and tested formula with Korky the cat, Desperate Dan and Lord Snooty and his friends the Dandy would have been what it has always been and might still be there. Sometimes the real customers for your product or service may not be who you think they are.
There is some hope however in a witty observation from Letty Sykes from Rainham in Essex. In her letter to the Telegraph she writes “For me Desperate Dan will live on as long as Wayne Rooney Plays football”.
Have a good week.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

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