Miami Phil faces Mitie challenges
We can imagine how Phil Bentley might have taken the headhunter’s call that resulted in his appointment as chief executive of troubled outsourcer Mitie. It would have been another sunny day in Miami. He’d have popped the roof of the Camaro so everyone could hear Celia Cruz singing “La Vida Es Un Carnaval” as he cruised down Ocean Drive.
Sure, he’d do the job. He was back in the market looking to run another FTSE 250 company after Liberty Global agreed to buy Caribbean-focused Cable and Wireless Communications for £3.5bn.
But we also have to imagine the former boss of British Gas frowning as he disconnected. He’d have looked at the beach, the palm trees and the taco stands, and he’d have thought: “Mitie? A mop-and-bucket outsourcer no one likes? Starting in December? On a Bristol business park? Really?”
Running Mitie, which warned on profits last month, is a tough gig. The group specialises in low-margin work at a time when state spending is being squeezed, interventionism is pushing up wage rates and private sector clients are fearful of Brexit. Investors have derated the sector since G4S and Serco dropped operational clangers. Capita, one of the most highly rated in the sector, published a profits warning of its own less than a fortnight ago.
Mr Bentley’s task, alongside other would-be trouble shooters such as Serco’s Rupert Soames, is to restore faith in the robustness of underlying earnings. These are hard to predict because outsourcers are diverse conglomerates. Profits at Mitie are expected to drop £20m to about £125m in the current financial year.
Mr Bentley, who will replace Ruby McGregor-Smith, should go in hard. He should review all contracts, taking write-offs where needed. He should close or sell a weak healthcare unit.
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Baroness McGregor-Smith did a good job building up Mitie over 10 years, a feat no longer reflected in the share price. But her sensitivity to criticism, especially from the City, earned her the nickname “the prickly peer”.
At least Mr Bentley will not get beaten up for increasing profits, as he was at British Gas. And if things are getting him down, he can always stick a salsa tune on his in-car stereo as he drives to work in chilly Bristol.
Turkey shooting is axiomatically easy. So is the means by which turnround investors can give pension scheme members a proper plucking when the sponsoring employer fails. The problem has been highlighted by a report into the pre-pack administration of Bernard Matthews, poultry breeder and some-time supplier of Turkey Twizzlers.
Lombard recently speculated small-time private equity group owner Rutland Partners could do tolerably from the imminent £87.5m sale of Bernard Matthews to chook ‘n’ gobbler tycoon Ranjit Boparan. The payout would come thanks to hefty loans Rutland made to Bernard Matthews.
Prem Sikka confirms this in a report for MPs written after a pre-pack “that seems to have been carefully crafted… to dump the pension scheme”. The University of Essex accounting professor says Rutland should get back £39m. That compares with exposure for its class of lender of £43.6m, according to the administrator’s report.
The defined benefit pension scheme, which has an estimated deficit of £20m will, in contrast, only get 1p in the pound from the pre-pack. Members will suffer a haircut as the scheme slides into the industry-funded Pension Protection Fund.
Prof Sikka is overdoing it in suggesting pension schemes should have first call on pre-pack paybacks. This would deter banks from lending. But incentives are poorly aligned when investors in distressed companies can limit their downside at the expense of pensioners and the PPF by using loans. The government should put a stop to the practice, ignoring the protests of turnround operators such as Rutland. Turkeys never vote for Christmas.
KO’ed in Bamako
Zambian economist Dambisa Moyo argued private investment could rescue Africa from dependency on handouts in her fine 2009 book Dead Aid. The closure of Randgold’s Bamako office by the Malian government shows why many corporations have been disinvesting instead.
For Mark Bristow, swashbuckling boss of the FTSE 100 gold miner, it’s just one of those small inconveniences, like an insurgency or a rock crusher with indigestion. Bosses less closely modelled on Indiana Jones would be more spooked by ministers shuttering your shop over a tax dispute.
Investors trust Mr Bristow to sort it out. They also expect Randgold, prized for its efficient Malian mines (which remain open), to outperform the likes of Barrick Gold, whatever the gyrations of the gold price. Ms Moyo is a director of the Canadian group, as she is of Barclays. The bank, piquantly, is selling its African division.