Citywatch

How to get rid of a chief exec. Part I.

July 2nd, 2009

By Tom Bill

Goodbye Mr Chip: But who pulled the trigger?

It would take three or four months to find a new chief exec for a company like Wolseley.

So it’s arguably no coincidence that it was three or four months ago Wolseley went cap in hand to investors to fund a £1bn rights issue.

“Here’s your money,” the big institutions could well have begun, “now what are we getting in return?”

The head of Chip Hornsby could well be the answer – replaced as he was “with immediate effect” this week by former Alliance UniChem boss Ian Meakins. Chairman John Whybrow has denied there was investor pressure but Wolseley isn’t exaclty a “hire ‘em fire ‘em” type company - it has had two finance directors in something like 30 years.

Hornsby, described by one analyst as “an American but modest”, carried on the spending spree at the top of the market began by predecessor Charlie Banks that saw the building materials giant run into financial trouble earlier this year.

“A first class logistics man but a questionable strategic thinker”, was how another described him.

Either way he has left his job – a move the share price shows was broadly welcomed in City circles.

In general terms, the big institutions such as Standard Life, Schroders and Fidelity certainly appear to have more sway in times when going to your bank to raise a sum like £1bn could be a much more costly Plan B.

They have corporate governance people who specialise in the kind of tricky conversation that many think took place at Wolseley. As one analsyt explained: “They will pick up the phone to the chairman and put things in fairly diplomatic terms like: ‘We are disappointed with the company’s recent performance. Clearly it is your decision but we would expect to see some board changes to reflect our disappointment.’”

After pausing for thought, he added: “Actually they would probably use much blunter language in this day and age.”

So will others get rights issue phobia now? Afraid of what might be demanded of them in return?

“If it’s obvious someone on the board was at fault for a given problem, maybe,” said one analyst.

“Take Peter Redfern at Taylor Wimpey,” they added. “It was technically the institutions who pushed for more debt in the equation as part of the Wimpey/Woodrow all-share merger in the form of a share buy-back to sweeten the deal.”

They added: “Plus he’s likeable and the saying “God loves a tryer” comes to mind in his case. People can see how hard he ran around trying his hardest to get the refinancing done and he gets credit for that.”

Who’d have thought it? Pete Redfern: the Carlos Tevez of construction.

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Pidgley hands over keys to kingdom if not the crown

June 26th, 2009

By Tom Bill

Take good care of my baby: Pidgley hands over to Rob Perrins.

Around eighty bankers, analysts and lawyers squashed into a  meeting room at UBS this morning to hear Tony Pidgley’s swansong as managing director of Berkeley.

Despite speaking for 45 minutes there was still enough energy in the room for a round of applause at the end. “It’s been a while since I’ve heard a housebuilding boss get one of those,” said one present.

They added: “It was a funny atmosphere. Because of who he is, Berkeley presentations can sometimes turn into a love-in.”

He will certainly be an almost impossible act to follow after he moves upstairs to become chairman but what of Rob Perrins – his FD and freshly-anointed successor?

Perrins has been openly earmarked for the hot seat after a failed coup for control of the company in 2003 by Tony Pidgley junior. (”He’s a good lad, an ambitious lad. It’s always been his ambition to run Berkeleys, but I wasn’t going to deliver my business to him.”)

Pidgley admitted once that he got on better with his son after he left the company but there must be an emotional twinge of “what might have been” about the whole thing. 

But back to this morning and one analyst said Perrins came across a little nervously. At one stage someone even had the courage to question the wisdom of an FD stepping into the chief execuive’s role – or the more British “managing director” in Berkeley’s case.

In stepped Pidgley with a long and glowing eulogy about Perrins, asking people to trust his judgement. Who would dare argue on that score?

The fact Perrins is still at a company that one analsyt said has “chewed its way through several FDs” in the past also says a lot. 

The outgoing Berkeley chair is Victoria Mitchell, who normally sits quietly in the front row of these presentations. You can’t imagine Pidgley doing the same given the company he founded 33 years ago is very much his ”baby” .

Another at the event said:  “If I was Perrins I’d be a bit nervous about being handed the keys to the kingdom while the king is still in residence.”

Pidgley deserved the applause he got this morning but it makes you wonder how difficult it will be to resist an encore or two in future.

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Telford buys contractor… and breathing space

June 24th, 2009

By Tom Bill

A million pounds. Telford Homes has just "bought" six of these.

When AIM-listed housebuilder Telford announced yesterday it had paid £6.3m for fit-out contractor Clifford Contracting, the news must have caused a few people to do a double-take at their computer screens.

In a City statement, the east London developer talked a lot about loan notes, call option agreements and aggregate considerations.

Behind the jargon, what it’s actually done is raise £6.3m in a hurry.

Telford wanted the £6.3m Clifford had sitting in its bank account so it paid £6.3m to buy the company in the form of loan notes and new shares.

Net result: it raises £6.3m and has a few years to pay the money back at more favourable rates than the bank would offer. A sort of back-door rights issue without the big share dilution.

As the company’s straight-talking chief exec Andrew Wiseman says: “It’s quite an innovative way of doing things and it’s a show of strength for our banks.”

The reason it needs the money is easy to guess. Wiseman has said there may be a £12m funding hole as buyers pull out of completions this year. Of the 600 units the company hoped to sell before the end of this year, he expects 10% to fall through as mortgage funding dries up. At about £200,000 a pop, that adds up to £12m.

Wiseman says the £6.3m will be enough to tide it over if the market doesn’t lurch further downwards but says plans are in place with its banks should it need more.

The company has until June 2014 to pay the money back, by which time it is banking on a recovery. The interest rate climbs from 4.5% to 8.9% in October but Telford was vague about what the rate was beyond September 2010.

Wiseman admitted: “Yes it does go up steeply after that but we hope to have paid it back by then.”

Nothing like gentle understatement, is there?

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Is Mrs Pidgley missing her horses?

April 29th, 2009

By Tom Bill

Diamonit - one in the Pidgley's former collection of thoroughbreds

Earlier this week the wife of Berkeley boss Tony Pidgley sold 250,000 shares in the company. It leaves her with just over half a million but at £9.60 a pop she netted £2.4m from the deal.

The wife of FD and Pidgley protege Rob Perrins offloaded the same amount and director Tony Carey bagged £960,000 by selling 100,000 shares.

Guessing the reason behind the sell-off is a futile task but share dealing that involves the man whose every move is watched closely by other housebuilders and the City is a fun sport.

Earlier this year the Pidgleys sold their entire collection of award-winning horses and Dressage Daily reported that it was to allow Mrs Pidgley to spend time with her family for the next three years.

Could it be she’s missing life in the saddle and now has her eye on a new steed?

More plausibly perhaps the sell-off could be interpretted as Tony Pidgley thinking housebuilder share prices have run too far in recent months.

He tapped the market for £50m earlier this year and since February Berkeley shares have climbed from 760p to over £10 on the back of improved sentiment towards the sector as a whole.

But most agree it won’t last as unemployment bites. “It shows he thinks the bottom of the market isn’t here as he previously indicated,” said one analyst.

Possibly, but the bottom of the housing market in London and the bottom of the share price cycle are not necessarily the same thing.

“It could be that they sold their shares simply to diversify their interests,” said another analyst.

Equally plausible but far less exciting.

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Budget 2009: Draw your own conclusions, if you can

April 23rd, 2009

By Tom Bill

OK, how much do you want?

“I can’t quite decide whether it was smoke or mirrors,” said KBC Peel Hunt analyst Robin Hardy in summing up yesterday’s Budget.

Most observers said the Chancellor’s economic growth forecasts were chipper to say the least and when asked to pick out the positives, there was generally an uneasy silence at the other end of the phone.

So, first of all housing.

The good news was the £50bn mortgage backed security guarantee scheme, which will initially run to October.

The bad news is that the take-up is expected to be nowhere near £50bn.

Under the plan, banks can bundle up and sell off mortgage debt and a third of lending was funded in this way before the world economy was brought to its knees.

The cynical would argue it was similar ”bundling up and selling” of mortgage debt that brought the world economy to its knees in the first place.

Charlie Campbell at Liberum Capital questioned the appetite to buy mortgage debt, even though it was underwritten by the government and the banks themselves appear to think take-up will be poor.

Hardy added: “There’s about £240bn of government debt to be issued elsewhere and the terms may be more attractive.”

And what of the £400m to kick start stalled housing projects?

The money will be spent on upfront infrastructure costs on mothballed sites. But aren’t mothballed sites mothballed for a reason? The housebuilders don’t want to commit to building anything they are not sure they can sell.

As Persimmon reminded us this morning in a trading update: “pricing and margins remain under pressure”.

For the contractors there was even less to go on.

Capital spending as a proportion of GDP will halve from 2.6% to 1.25% by 2013/14.

But Kevin Cammack at Cenkos Securities said there was little to be gleaned from that.  “Any spending forecasts beyond next year’s election are not worth the paper they’re written on.”

Within that nebulous forecast, there is even less clarity on how deep cuts may be from the school or hospital building programme.

Although you’d think any government would choose to leave a few potholes in the road rather than suffer the bad PR of an unbuilt hospital wing or academy.

For small businesses the top-up scheme for credit insurance will be a help provided companies can get it in the first place or it hasn’t been slashed so far that government match-funding will be meaningless.

The tax deferral scheme whereby businesses can shelve tax payments and the ability to carry back losses against past profits  will stop some businesses going under. For now anyway.

And perhaps that’s the plan – if unemployment hits 4m the government would be under even more pressure than it is already.

But that political goal could slow eventual recovery. The flipside of capitalism is that it will kill weak businesses. The government wanted unbridled capitalism on the way up but doesn’t appear to on the way down.

As Hardy says: “The reason the recovery was so strong after the last recession in the mid 1990s is because a lot of inefficiency had been taken out of the economy.”

As today’s front page of The Sun said: “At least it’s sunny“.

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Taylor Wimpey: How long before it does the ‘rights’ thing?

April 8th, 2009

By Tom Bill

A £400,000 Ferrari Enzo: Taylor Wimpey now pays the equivalent each day in interest

When Taylor Wimpey announced that it had all but dotted the i’s and crossed the t’s on its £1.6bn refinancing deal yesterday, there was a palpable sense of “thank God for that” around the City.

The 10-month marathon had been brought to an end and when one deal insider was asked by Building for a quote, they replied:  “Aren’t you bored of writing about this yet?”

So, the company lives – and that’s all yesterday’s announcement really tells us.

That and how tough it is to get money out of the banks at the moment.

At a whacking interest rate of 9% it will cost them about £144m a year to service the debt. That’s £395,000 every single day in interest – or one  Ferrari Enzo. Roughly. That must really sting when the base rate is 0.5%.

They’ll clearly need to get selling some houses fast.

As one analyst said: “It shows other housebuilders that they really don’t want to go back to the bank in any way, shape or form because they’ve missed covenants.”

But selling houses is not simple in this market and so a rights issue looms large. It’s a complicated bit of number crunching but if they fail to raise £350m by 2010 it will hit them in the pocket by about £80m a year.

It’s a no-brainer surely.

The question is when they go to investors. Waiting for the share price to rise in order to raise proportionately more cash could prove risky but investors will not be massively interested until the market has some semblance of stability in it.

The whole mess must leave TW finance director Chris Rickard wondering what his predecessor Peter Johnson was playing at during his 21 months at the company.

Poor management and accounting systems at TW have repeatedly been blamed for the excruciating delays in getting the deal done.

Some suggest Johnson was only made FD at all because he came from Taylor Woodrow and was used to strike a balance in the boardroom after the meger with George Wimpey in 2007.

Either way, Rickard has had to come and pick up the many pieces and you wonder whether he’ll stick around or he’s had enough after being parachuted in by the banks last October.

Another deal insider was asked whether Rickard had ever cursed the mess he had inherited.

“He doesn’t strike me as the cursing type,” they replied drily.

You’d have thought he would be quietly swearing under his breath at this mess though.

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The Wrekin Ruby. The Italian valuers know “niente”.

March 17th, 2009

By Tom Bill

So, what’s the truth behind the Wrekin ruby?

In case you havent heard, it’s the £11m gemstone owner David Unwin junior used to shore up the balance sheet of the Shropshire based civil engineering specialist before it went under last week.

Wrekin’s last company accounts claim it was valued at £11m by the Istituto Gemmologico Italiano in Valenza on 31 August 2007.

Its existence still has to be verified by administrator Ernst & Young, which is presumably keen to get its hands on the sparkler.

The following transcript of a conversation with Loredana Prosperi, a bemused doctor at the aforementioned Italian establishment, shouldn’t fill the accountant with massive hope.

The gist: Ruby, what ruby?

LP: As I explained, our institute is an education institute and we have a laboratory and we give certifications not valuations. Also as I explained already on 31 August 2007 we were closed for one month’s holiday.

Building: Did you ever see the ruby?

LP: I don’t remember a ruby as important as that and I would remember.

Building: So you didn’t receive it?

LP: No. We never received a ruby from that company. It’s a very strange thing. I had no contact with that company. I heard their name for the first time yesterday.

Building: So the news was a surprise to you?

LP: Yes, a very big surprise, although it is good publicity for us.

Building: Have you ever had contact with David Unwin or any of his companies?

LP: No.

Building: What was the last English company you worked for?

LP: We have never worked for an English company. Our customers are from Italy, Switzerland and Greece. In London you have very good places to value gemstones, so why use us? This is very strange for me. If they have a certificate they can give us the number and we can check with our records but there is nothing in the database.

Building: Does the Valenza office issue certificates?

LP: No. It only has teaching facilities no laboratory.

Not looking good, is it?

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The power of the brand

February 26th, 2009

By Tom Bill

So, Sir Robert McAlpine is the best brand in construction.

So says a new list of the top 500 “business superbrands” in the UK anyway.

The pathologically secretive contractor came in at number 101 on a list that was topped by Google, Rolls Royce and Sony.

So publicity-shy is the company that the top story on the “news” section of its website after the list was announced began:

“We demolished a bridge spanning the M1 in the East Midlands over the weekend of January 17th, successfully completing the work ahead of our 9am deadline on the Sunday.”

Great.

It was followed by Balfour Beatty at number 108, a company that would no doubt adopt a similarly reticent approach to the outside world if it wasn’t listed.

The results are essentially a triumph of construction hoardings over press releases and probably had quite a lot to do with the building work going on through the office window of the marketing and ad types that drew up the list.

If marks were to be awarded for effort the top contractor would surely have to be Rok – a smiling child and a branded hard hat in every shot.

It is interesting to note the perception of outsiders to an industry but the merit of the list is seriously called into question when you see that Jarvis (361) ranks 12 places above Carillion (373).

Maybe that’s the price Carillion pays for having a silly name though. Tarmac, the moniker it once went under, came in at 97.

Others on the list:
JCB (56)
Tarmac (97)
Blue Circle (144)
Costain (216)
Land Securities (246)
British Land (265)
British Gypsum (271)
Skanska (293)
Kier (360)
Saint Gobain (362)
Wolseley (440)

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White Young Green gives City a nasty surprise

February 25th, 2009

By Tom Bill

Could White Young Green soon be going Dutch?

All is clearly not well at engineering consultant White Young Green.

It took the City by surprise today by bringing forward its half-year results from Friday at the eleventh hour. If there’s one thing the market hates even more than bad news it’s ”sudden” news.

Combine that with the fact it also flagged a potential covenant breach and the result was that a third of its market cap was promptly wiped out. Compare a share price of 31p to £4.65 this time last year.

It also wiped £8m from its books after admitting it wasn’t going to recover certain sums it was owed.

And some also have argued that it’s carrying an awful lot of goodwill after the acquisition of AKT last year – which at £10.5m was not exactly seen as the bargain of the century. Will further writedowns have to follow?

It all adds up to a bit of a mess for recently appointed MD Paul Hamer and it will be interesting to hear what he has in store for the company.

The group has already rebuffed the advances of one possible suitor – understood to have been Dutch giant Arcadis.

Today it looks more vulnerable than ever. With fellow countryman Grontmij also understood to be keeping a keen eye on the UK consultancy sector, maybe Hamer will need to start brushing up on his Dutch.

“Nee bedankt” means “no thanks” by the way, Paul.

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War, Peace and Taylor Wimpey

February 18th, 2009

By Tom Bill

The Taylor Wimpey debt talks: A struggle of epic proportions

“I am so fed up with this process.”

This was the verdict of someone involved in the fraught and never-ending Taylor Wimpey debt talks this week.

They were referring to the latest delay in signing off on a restructuring deal that has been more than six months in the making.

Pen was expected to be put to paper this month after chief executive Pete Redfern alluded to the date in a leaked pre-xmas email to staff.

Frustration is clearly setting in and the source said more urgency on the part of the accountants crunching Taylor Wimpey’s numbers would have helped.

Not that anyone is suggesting the plug will be pulled.

Providing a colourful insight into the trials and tribulations of the Taylor Wimpey rescue deal, they said: “This thing has been a War & Peace saga, it’s been so frustrating.”

There is a further set of numbers to be examined next week, which the source said should be the last hurdle – with the emphasis on “should”.

They added: “To tell you the truth this has been so numbing that I don’t even know if they are monthly or weekly figures.”

It didn’t come as a big shock to one City analyst, who said: “It doesn’t surprise me things are taking so long. The company is an amalgamation of a load of other companies and has pretty poor management and accounting systems.”

Perhaps a look at how the 1,500-page Tolstoy epic ends would make those involved speed things up?

By the last page most of its 580 characters are dead.

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