Azure Global : 11/27/13

Wednesday 27 November 2013

Law firm Clifford Chance analyses Royal Mail's property portfolio

Evaluation comes amid criticism that property portfolio may have been undervalued and Royal Mail sold off on the cheap

Clifford Chance, the "Magic Circle" City law firm with links to some of the leading investors in Royal Mail, has been privately analysing the newly floated company's portfolio of 2,000 UK properties.

News of the evaluation comes a week after MPs on the Department for Business, Innovation & Skills select committee probed bankers on the value of the newly privatised company's property portfolio, amid criticisms that it may have been undervalued and that Royal Mail sold off on the cheap. Vince Cable and Michael Fallon, the ministers who led the controversial flotation, are set to appear in front of the committee on Wednesday.

It is not clear which client has engaged the law firm, but Clifford Chance has previously represented organisations including the Children's Investment Fund and GIC, Singapore's sovereign wealth fund, who are two of Royal Mail's largest shareholders.

The Guardian understands that Clifford Chance has received a report containing details of around 800 properties held by the Royal Mail subsidiary Royal Mail Estates which are registered with the Land Registry in England and Wales.

The portfolio includes a string of sorting offices and plots of land – such as the Mount Pleasant and Nine Elms sites in central London which are part of three property redevelopment plans already predicted to make Royal Mail around £300m. Around 95% of the portfolio is freehold property.

As a large proportion of the portfolio consists of sorting offices, investors are unlikely to be able to dispose of them for a quick profit as the business needs the sites to operate. However, analysts have estimated that there could be around £100m of Royal Mail properties that are surplus to requirements, while the fact that the group owns so many freeholds was always likely to attract certain sections of the property industry, at a time when businesses selling their properties for cash and then leasing them back appears to be coming back into fashion.

A spokesman for Royal Mail said the company had "pursued" sale and leaseback in the past, but it was not currently "a key part of our strategy".

However, the UK supermarket group Morrisons announced in September that it would review its £9bn property portfolio with a view to doing such a deal.

The Morrisons announcement came only five years after Sir Ken Morrison, the chairman who led the company for 50 years, said that sale and leaseback was anathema to the grocer.

Aside from the 800 properties registered to Royal Mail Estates, there are further sites in Scotland and Northern Ireland, while the remainder that take the total to 2,000 are largely made up of leasehold sites that Royal Mail has occupied for less than 10 years.

Royal Mail floated last month at an initial value of £3.3bn, but the shares quickly soared prompting criticisms that the taxpayer may have been shortchanged. When the stock exchange closed on Tuesday evening, the company was worth £5.3bn.

Ofgem not a 'toothless tiger' in fight against rising energy prices, insists boss

Andrew Wright tells MPs he agrees with consumers who think the retail energy market is not working well

Ofgem boss Andrew Wright says he understands public anger at rising energy prices but has denied his organisation is guilty of "feeble regulation".

Wright acknowledged "deep distrust" of the big six energy companies – British Gas, npower, SSE, Scottish Power, E.ON and EDF – as some customers face price rises of more than 10% as winter kicks in.

Addressing MPs on the Commons energy and climate change committee, Wright said rising prices, years of aggressive doorstep selling, confusing tariffs and complexity when consumers wanted to switch providers had all created negative perceptions of the industry.

"I completely understand why people feel frustrated and angry about rising energy bills. Prices have more than doubled over the last 10 years at a time when incomes have been squeezed, and consumers are not convinced that price increases that they see are either fair or justified," he said.

"Consumers have a perception that the market is not working well and that's something that we agree with. We think the retail market is not working as well as it should do."

When asked whether Ofgem was a "toothless tiger", failing to address rising prices and accusations of unfair profit taking among companies, he said it was acting within its statutory regulatory framework and rejected the idea he was supportive of the rises.

"I never said it was OK. I have not said this level of profit is right or acceptable. If companies imply we think 5% is right, we've never said that."

He said that politicians were right to debate the issue of rising energy price rises but when questioned about Labour leader Ed Miliband's promise to freeze prices he did not appear to be enthusiastic.

"The sort of things we would consider are, does it have an adverse impact on consumers and on the investment that's needed?

"It is obviously necessary to allow companies to recover the revenues that they need to be able to run their businesses effectively. They should have no guarantee of profits but an efficient business serving customers should be able to recover the costs that they incur. So any arrangement that doesn't allow them to do that potentially puts at risk investment in the industry."

His comments came a day after Ofgem published a report which found that profits per customer rose by 77% last year, from £30 to £53, driven by higher prices and increased demand for heating during last year's cold weather.

The average profit margin for supplying energy to households in 2012 was 4.3%, up from 2.8% in 2011, with total profits from supplying energy to households and businesses rising from £1.25bn to £1.6bn last year.

Article Source : http://www.guardian.co.uk
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Local government cuts unfair to north-east, say councils

The average council in the north-east will lose £665 per person against £305 in the south-east by 2017-18

Councils in the north-east of England will lose more than twice as much funding per person as those in the south-east over the next five years, according to a local government lobby group which says government cuts are widening England's economic divide.

A group of mainly urban councils says its calculations, based on cuts already pushed through and changes in local funding to come, suggest the average council in the north-east will lose £665 per person, compared with £305 in the south-east, by 2017-18.

Sigoma, the Special Interest Group of Municipal Authorities, representing large towns and cities in the northern, Midlands and south coast regions of England, accused the government of pushing some councils to breaking point and warned: "Any economic recovery may bypass parts of the UK."

But the government rejected the calculations and pointed to other figures suggesting some northern councils have considerably more spending power than the national average.

Sigoma, which is part of the Local Government Association, said its report took into account new funding structures and welfare changes. It argued that the changes meant councils suffering the largest cuts were often those facing the highest costs.

Its report, timed to coincide with an opposition day debate on the cost of living, said: "The government has failed to consider the cumulative impact of their reforms on councils, only assessing one change at a time. The large number of changes means that the same councils are being hit again and again with cuts in funding. Following years of disproportionate funding cuts councils have had to find significant savings so far; with opportunities for further savings now harder to find and given the rising cost of adult social care, some services are now at breaking point."

The councils are calling on the chancellor, George Osborne, to heed their warning that services will suffer as he prepares to present his autumn statement next week, when he will outline government tax and spending plans.

Steve Houghton, Sigoma chair and leader of Barnsley council, said his group's assessment "shows the government's complete disregard for the mounting pressure faced by certain councils and the pain it is causing their residents".

He added: "The government must make fair funding a key priority to allow councils to provide essential services without the growing distraction of a service failure."

However, local government minister Brandon Lewis rejected the report. "This crude lobbying exercise is based on made-up extrapolations designed to scaremonger rather than inform public debate. Council funding is fair to north, south, rural and urban areas. It is distributed to ensure the smallest reductions for the councils most reliant on government support," he said.

He referred to documents from the House of Commons library that showed that north of England councils have more spending power per household than their southern counterparts. "This year Newcastle has a spending power per household which is £300 more than the national average and £700 more than Wokingham, for example," Lewis added.

Labour says it will use its opposition day – when opposition parties can choose a topic for debate – to highlight a "growing cost of living crisis" across Britain caused by prices rising faster than wages. The party says London, Yorkshire and the Humber, the North West, Wales and the East of England have seen the biggest falls in real wages since 2010.

A separate report warns of a growing north-south divide in the jobs market as a southern construction boom fuels demand for workers in the south.

The focus on homebuilding and infrastructure projects like Crossrail in the South has seen almost half of the 55,663 construction vacancies advertised in October fall in London and the South East, according to a monthly labour market report from jobs search website Adzuna. Only 6% of advertised vacancies were in the North West and 3% were in the North East.

Across all sectors of the economy nine of the top ten cities to find a job are in the South, where there are twice as many vacancies as jobseekers, Adzuna said. Nine of the worst ten cities to find a job are in the North, with more than 20 jobseekers for each vacancy in Salford, the Wirral, Sunderland, and Hull

Tesco's grim trading update will prompt questions about chief's strategy

Tesco is expected to unveil another grim trading update next week which is likely to prompt new questions about whether the turnaround strategy of chief executive Phil Clarke is working.

A flurry of City analyst research notes out yesterday predicted disappointing sales data when the UK's biggest grocer reveals its third quarter sales update. Barclays, Shore Capital and Deutsche Bank all expect no progress in the grocer's crucial UK market - which still accounts for 70% of group profits - after flat sales at the time of the last update.

Retail analyst James Collins at Deutsche Bank, Tesco's joint house broker, is forecasting a 1.5% decline in the most recent like-for-like UK sales.

He said: "We expect third-quarter like-for-like trends to have deteriorated in most markets versus the second quarter, most notably in the UK, Thailand, Ireland and Korea."

Barclays' James Anstead is predicting a 1.8% drop. He said: "It seems unlikely that Tesco's third quarter trading statement will be the turning point that the market is looking for."

Shore Capital's Clive Black is expecting a sales decline of 1-2%.

Tesco was one of the biggest FTSE-100 fallers. The shares lost more than 2.5% to close at 345p. Two years ago they were changing hands at 405p. JP Morgan yesterday cut its price target from 335p to 315p, Deutsche Bank reduced its target from 405p to 386p.

Tesco's main problems are in the UK, where it is losing business to upmarket rivals like Waitrose and the hard discounters, especially Aldi and Lidl. It is also struggling to catch up with a move away from big weekly shopping trips to out-of-town hypermarkets and a shift to online shopping.

Last week research group Kantar reported that all four of the big UKsupermarkets were losing market share, for the first time in more than a decade.

Clarke is 18 months into a £1bn transformation plan for Tesco's UK stores, which ranges from employing more store staff to revamping tired hypermarkets, improving the food on the shelves and trying to make faster headway in online shopping.

In an interview with the Sunday Times last weekend, Tesco's chairman Sir Richard Broadbent admitted the grocer had become too inward-looking over recent years and "had lost touch with the outside world". He said that a turnaround would not be rapid and that innovation - such as Tesco's new Hudl tablet computer - was key to the retailer's revival.

But at Tesco's last financial results it became clear that the grocer also has substantial problems overseas. Clarke, who led the international business before he took over the top job, reported declining like-for-like sales in every one of its international markets, which spread from Turkey to Thailand. Profits in Europe were down more than 70%.