Financial Times UK 30Jan2020

Thursday 30 January 2020 ★ FINANCIAL TIMES 19

UK COMPANIES

Arrival

UPS delivers boost

Electric van makerArrival

has received an order for up to

20,000 custom delivery vehicles

fromUPSin a deal worth hundreds

of millions to the British start-up.

UPS has ordered 10,000 purpose-

built vans to be rolled out between

2020 and 2024 with the option to

purchase another 10,000 in 2023.

The vans will be produced at

Arrival’s UK sites in Bicester and

Banbury, as well as a new plant in

Reading, one in the US in New

Jersey and another in mainland

Europe. Deliveries begin this year.

Peter Campbell

Sports Direct

Documents battle

Sports Directis battling to prevent

“private” documents it provided to

its accountants being handed to

regulators, in a court case that is

being closely watched by the audit

profession.

The retailer, majority owned by

billionaireMike Ashley, argued in a

Court of Appeal hearing yesterday

that it had a “fundamental right” to

keep private legal documents that it

gave to Grant Thornton and

Deloitte in the course of their work

for the company.

It is attempting to overturn a

High Court ruling from 2018 that

ordered it to hand over 40 company

documents to the Financial

Reporting Council, the audit

regulator, in relation to its

investigation of Grant Thornton’s

audit of the business in 2016.

Tabby Kinder

BHS

Former director barred

A former BHS director pursued over

the collapse of the department

store group has agreed to a five-

year ban on holding similar roles at

other organisations.

The Insolvency Service said

Lennart Henningson, 64, did not

dispute that, while serving as a BHS

director, he transferred £1.5m from

the floundering company to a

Swedish subsidiary he controlled

while the retailer was already in an

insolvency procedure.

Mr Henningson had argued he

was not been present at the

meeting when administration was

discussed. Mr Henningson could

not be reached for comment. The

Insolvency Service declined to

comment.Jonathan Eley

Brewin Dolphin

Chief Nicol to retire

Brewin Dolphin, the UK wealth

manager, has announced thatDavid

Nicolwill retire as chief executive in

June. Mr Nicol will be succeeded by

Robin Beer, head of Brewin

Dolphin’s intermediaries, charity,

professional services and digital

businesses.

Simon Miller, chairman of Brewin

Dolphin, thanked Mr Nicol for his

“outstanding contribution” to the

company over the past eight years,

which has seen funds under

management almost double from

£26bn to £48.5bn.Chris Flood

Briefs

Ding ding. A fifth of shareholders of
Virgin Money have bloodied the nose
of the bank at its annual shareholder-
board boxing match after it raised the
pay of its top executiveDavid Duffyby
8 8 per cent last year.
Mr Duffy pocketed £3.4m, roughly
equivalent to the pay of Jes Staley, boss
of Barclays, a bank that is multiples
bigger than Virgin Money.
After a third of voters opposed the
2018 remuneration report, the group
said it had listened and worked to
ensure pay to board executives was
“aligned with shareholder experience”.
It is hard to see how Mr Duffy’s pay
matches shareholder suffering. The
group’s pre-tax losses widened from
£164m to £232m in the year to
September as costs tied to the payment
protection insurance scandal rose. It
doesn’t pay a dividend. Fears that the

challenger might call on shareholders

for cash were calmed by the group’s

capital buffers and a common equity

tier 1 ratio of 13 per cent. But the

shares are half their 2018 peak.

GazillionaireRichard Branson, who

owns 13 per cent of the group, may not

mind. Other investors really should.

Analysts have pencilled in pre-tax

profits for Virgin Money of £319m in

2020. But profitability is far from sure.
      Tuesday’s trading update didn’t
      provide much good news. The group
      has cut back its mortgage book to
      protect itself from brutal competition.
      Net interest margins — the spread
      between what Virgin pays for funds
      and what it earns from lending — have
      slipped from about 1.78 per cent to
      1.66 per cent. If rates fall again today,
      it will sting.
      The company says it is satisfied it has
      exercised “appropriate restraint” by
      reducing top bosses’ bonuses and
      freezing salaries. Mr Duffy received a
      £445,000 bonus, against £620,000 last
      year. His total remuneration was
      bumped up by a one-off £1.3m bung
      linked to the demerger of Yorkshire
      and Clydesdale banks — which became

Virgin Money — from National

Australia Bank in 2015. Still, the

company paid a pension contribution

equivalent to a fifth of his salary.

Colleagues received 13 per cent. HSBC,

Barclays, Royal Bank of Scotland and

Lloyds are all cutting executive pension

contributions following pressure from

governance champions.

A few days ago Virgin Money

chairman Jim Pettigrew announced his

retirement next year, as Virgin’s pay

policy comes up for the triannual vote.

That should top his successor’s to-do

list. It may be the moment to test the

perennial defence of well-paid models

and corporate bosses: “We won’t get

out of bed for less”.

Oh no Ovo

Ovo Energy is now well and truly one of

the UK’s Big Six. Not just because it is

the second-largest retail energy

supplier, after its purchase of SSE’s

retail business completed this month.

What really marks the transition

from upstart to establishment member

is the £8.9m penalty the energy

regulator Ofgem has slapped on Ovo.

That comes in at just under the £9.5m

that the biggest supplier, British Gas,

paid in 2017 for similar failings.

Ovo was billed as being different.

Back in 2009, when City trader

Stephen Fitzpatrickset it up, it was all

the things the Big Six were not: a tech-

enabled eco-warrior market disrupter.

Now it has the problems of the big

boys, plus a few of its own.

Chief among them is that it is in an

industry where no one makes much

money. Competition from the likes of

Ovo, Octopus and Bulb has seen to

that. For start-ups, growth is always the

priority and losses — like the £52m

operating loss made by Ovo in 2018 —

excusable. But only for so long. Ovo is a

start-up no more. Backers Mitsubishi

Corporation and Mayfair Equity

Partners will soon push for profits.

And jejune ambition is no excuse for

failing customers. The regulator has no

tolerance for a culture of growth now,

compliance later. Ovo’s “mission” may

be to make energy “cheaper, greener

and simpler”. But Ofgem found Ovo’s

systems so bad, customers couldn’t tell

if that was true. Statements were

wrong or incomplete. Some were

overcharged; others paid too little.

The veneer of greenery may soon

fade, too. Only a few energy groups

contract with renewable generators to

boost green production. Ovo gets its

green credentials from cheap

certificates. The approach has been

called out by consumer activists.

For all that, customers still rate Ovo

highly. In an industry where big usually

means bad, Ovo must spread the love

for its flagship brand to the newly

acquired SSE customers. That would

really put it above the rest.

Walls closing in on Intu

Shopping centre owner Intu has agreed

to put escape rooms in Norwich’s

Chapelfield. It must escape its own

puzzleland first. The group is finalising

a cash call. It needs £1bn-plus. But

yesterday, the sliding value of the

MetroCentre in Gateshead triggered

lender alarms. The walls are closing in.

Ovo: [email protected]

[email protected]

Virgin Money’s next chairman needs to cut Duffy’s pay down to size

Drax has been forced to pause plans to

build a large gas power plant in

Yorkshire after environmental lawyers

launched a High Court challenge

against the government’s decision to

approve the project.

ClientEarth, a non-profit group that

has successfully sued the government

over air pollution, was set to announce

today that it had launched the action

challenging the decision by Andrea

Leadsom, energy secretary, to wave the

scheme through.

Mrs Leadsom approved the scheme

in October even though the Planning

Inspectorate had previously

recommended withholding consent on

grounds that the gas plant would

undermine the UK’s commitment to

cutting greenhouse gas emissions.

In 2017, Drax said it would start

the planning process to build up to

3.6 gigawatts of gas electricity

generation at its plant in Selby,

North Yorkshire, turning the site

into Europe’s largest gas plant.

Drax has since said it had initial

plans to install only up to 1.8GW

of combined cycle gas turbines — an

efficient form of generating

electricity from gas — at the site.

The Selby plant currently runs

largely on burning wood pellets but

still has coal units.Nathalie Thomas

Drax on hold

Environment

challenge to

power plant

N AT H A L I E T H O M A S— EDINBURGH

Ovois to pay £8.9m in fines after the
energy regulator reprimanded it for giv-
ing customers “inaccurate” or “incom-
plete”informationoverfiveyears.
Ofgem listed a series of failings by
Britain’s second-largest energy supplier,
whichhascaughtattentionoverthepast
decade by attacking the business mod-
els of the former “Big Six” of British Gas,
EDF Energy, Eon, Npower, Scottish-
PowerandSSE.
Ofgem said the Bristol-based private
company had sent inaccurate annual
statements to more than half a million
customers between July 2015 and Feb-
ruary 2018, or not sent an annual state-
mentatalltosomecustomers.
Other problems included underesti-
mating customers’ energy consumption
one winter, leading to households being
overorundercharged.
Ovo was also criticised for incorrectly
chargingsomecustomerswhousedpre-
paymentmeterstosettletheirbillsafter
prices were capped for such consumers,
which often include poorer households,
in2017.
Overall the problems, which were put
down to failings in Ovo’s IT systems and
compliance processes, occurred over
fiveyears,saidOfgem.
The fines will leave Ovo red-faced just
a fortnight after it completed a game-
changing £500m deal for the British
domestic arm ofSSE, which turned it
into one of the biggest energy suppliers

in the country, second only toBritish

Gas. SSE exited the market via the deal

while another Big Six supplierNpower

hasbeenfoldedintoEon.

Stephen Fitzpatrick, a former City

trader, has sent sparks flying in the

energy industry since founding Ovo in

2009 by lambasting the pricing models

ofhisbiggerrivals

Ofgem also highlighted that Ovo did

not report the majority of issues itself

“despite being aware of them and was

slowtoputthingsright”.

Anthony Pygram, director of conduct

and enforcement at Ofgem, said: “The

supplier did not prioritise putting these

issues right whilst its business was

expanding.”

Ofgem added that Ovo had accepted

the breaches and had taken corrective

action, including writing off all amounts

that were owed by customers who had

beenchargedincorrectrates.

Ovo, which last year sold a 20 per cent

stake to Japan’sMitsubishi Corporation,

said it “holds itself to high standards”

but admitted “we have not always got it

right”. “We accept Ofgem’s findings of

issues regarding estimation processes,

information formatting and pricing

errors,”itsaid.

Regulators and politicians have

encouraged new entrants to the energy

market but it has not always been plain

sailing,withalitanyofsmallersuppliers

havinggonebustinthepastfewyears.

Ofgem said yesterday that another

energy “challenger”,Utility Warehouse,

would refund and compensate more

than 3,400 customers who were over-

charged when a wide-ranging energy

pricecapwasintroducedlastyear.

See Lombard

Energy

Ovo fined £8.9m

for series of

customer errors

Ofgem accuses newly

enlarged group of sending

inaccurate statements

Chris Ratcliffe/Bloomberg

N I C H O L A S M E G AW
RETAIL BANKING CORRESPONDENT

Virgin Moneysuffered its second con-
secutive shareholder revolt at its
annual meeting yesterday, after the
bank was accused of paying its top
executives disproportionately large
bonuses and ignoring concerns raised
byinvestorslastyear.

Almost a fifth of voting shareholders
opposed the bank’s remuneration
report, a smaller proportion than last
year but still one of the largest protests
againstamajorbankinrecentyears.
A spokesperson for Virgin Money,
which was known as CYBG until it
bought the previous Virgin Money busi-
ness and renamed itself last year, said it
was “pleased with the outcome of the
votes” and would “continue to engage

regularly with our major holders”. Chief

executive David Duffy was paid £3.4m

in the bank’s last financial year, an 84

per cent increase on 2018. The large rise

was due in part to a payment linked to

CYBG’s demerger fromNational Aus-

tralia Bankin 2015. However, influen-

tial shareholder advisory group ISS said

the bank also paid excessive bonuses

considering its poor recent financial

performance.

Virgin made a loss for the second year

running in the 12 months to September,

as it was hit by costs relating to the pay-

ment protection insurance scandal and

intense competition in the mortgage

market. ISS said it was particularly con-

cerned that the bank had not responded

to the significant protest at last year’s

AGM, when more than a third of votes

werecastagainstthepayreport.

Adrian Grace, chair of Virgin Money’s

remuneration committee, wrote in the

bank’s most recent annual report that it

had “engaged with the group’s largest

shareholders... to better understand

the underlying concerns that may have

contributed to the voting outcome”, but

said its final policy showed “an appro-

priatelevelofrestraint”.

Last week Virgin Money began the

search for a new chairman ahead of the

departure ofJim Pettigrew, who has led

thebanksinceitseparatedfromNAB.

Sharesinthelenderhavefallen34per

cent since it completed the takeover of

the previous Virgin Money, although

they have picked up in recent months

because of signs of stabilisation in the

mortgage market and greater confi-

dencearoundBrexit.

See Lombard

Banks

Virgin Money shareholders revolt over pay

P E T E R S M I T H A N D OW E N WA L K E R

Investors inNeil Woodford’s defunct

Equity Income fund will incur winding

up costs of at least £10m, according to

thefund’sadministrator,withafurther

£22.5m needed to honour funding

promises made to young companies by

theformerstarmanager.

Link Fund Solutions said yesterday that

it had already paid £5m for transaction

fees, brokerage costs, legal and audit

fees over the past three months and had

estimated additional costs for these

servicesof£5.34m.

BlackRock and PJT Partners, Paul

Taubman’s boutique bank, were

appointed last year to sell the assets left

in the fund, which had been frozen to

investor withdrawals since June follow-

ing an investor exodus and chronic

underperformance. Other service pro-

viders to the fund include auditors

Grant Thornton and Northern Trust,

theUSdepositorybank.

The wind-up costs heap further mis-

ery on Mr Woodford’s investors, which

were told on Tuesday that they faced

losses of at least a fifth on the bulk of

their holdings. Link said yesterday that

the value of the fund had fallen 19.7 per

cent between its June suspension and

January 24. Over the same time period,

theFTSEAll-Sharerose9.65percent.

The £10m fees come on top of the

£13.8m that Mr Woodford and his

business partner, Craig Newman,

extractedasdividendsinthefinalfinan-

cialyear,whichbroughtthetotalreaped

bythepairsince2014to£112m.

Further losses are expected as PJT

Partners attempts to sell off the fund’s

hard-to-sell assets. Investors are due to

receive their first repayment from the

bustedfundtoday.

Kent county council pension fund,

which had £263m tied up in the fund,

said it had been told by Link that it

would receive an initial repayment of

£138.9m.

Investors were hit by another blow

later on Tuesday asRutherford Health,

a cancer therapy company in which Mr

Woodford was a big investor, called in a

£7.5m cash commitment from the

EquityIncomefund.MrWoodford,who

invested in the business across his three

main funds, agreed to buy Rutherford

shares for £80m in cash when the com-

panyfloatedlastyear.

Equity Income now owns 26.8 per

cent of the business but is restricted to

just19.5percentofitsvotingrights.

Financials

Woodford’s investors face further costs blow

Kate

Burgess

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