the times | Friday August 28 2020 1GM 39
Business
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2014 2016 2018 2020Source: RefinitivShare price
Fines against employers that are late
with making staff pension contribu-
tions have collapsed by 80 per cent
since the regulator relaxed rules forc-
ing them to be prompt.
The Pensions Regulator said that
total enforcement cases against em-
ployers in the three months to June had
fallen by more than half to 15,733 com-
pared with the previous quarter.
Of those, fixed-penalty notices for
unpaid contributions fell from 9,913 to
1,555, while the more serious escalating
penalty notices had reduced from 3,571
to 625.
The collapse in cases comes after the
Industrial giant hits
brace position
N
o wonder the Rolls-
Royce finance chief is
off. What beancounter
wouldn’t be alarmed at
these half-year figures: a
record £5.4 billion pre-tax loss; a
£2.8 billion cash burn; and a warning
that net debt is heading for
£3.5 billion this year?
One look at that lot and Stephen
Daintith has reached for his
parachute. He’s off to Ocado: home
of regular, though smaller, losses,
plus delivery dog food and arsonist
robots. True, you can hardly blame
him for joining a bigger group.
Remarkably, Ocado’s now four times
the size of Rolls: a market value of
£19 billion versus just £4.8 billion, on
shares down 1.2 per cent to 250p for
the Derby-based engine maker.
But no surprise Rolls boss Warren
East is “disappointed” to see him go.
Mr Daintith’s only been aboard
since April 2017. And it’s hardly the
greatest show of confidence in Rolls’
virus recovery powers, not least
when the board is toying with its big
imponderable: when exactly should
it raise fresh equity?
A hefty cash-call looks inevitable,
as the results drove home, even if
they were skewed by £1.2 billion of
Covid-related civil aerospace write-
offs and an impressive £2.6 billion
hit to the dollar hedging book. The
question is when Rolls should tap
the market for fresh cash. On this,
investors are split. The shares are
already down two thirds in 12
months. So, rather than have a
dilutive, discounted fundraising,
long-standing shareholders want to
wait in the hope of recovery.
Newbie, or potential, investors see a
chance to get in cheaply.
Either way has its risks. To save
cash, Rolls has instigated painful
cost-cuts, including the loss of 9,000
jobs. Indeed, Mr Daintith is not
being allowed out until he has
delivered this year’s promised
£1 billion cost savings. But 2020 will
still see a £4 billion cash outflow,
thanks to all the tarmacked planes.
With Airbus and Boeing cutting
production, demand for Rolls’
engines has plunged. Instead of last
year’s 450 deliveries, it now expects
only 250 a year out to 2022. On top,
it’s grappling with nosediving
revenues from “flying hours”:
income from having its engines in
the skies. That totted up to
£3.9 billion last year. But Rolls
reckons it’ll only manage 45 per
cent of that in 2020 and no more
than 90 per cent by 2022.
Rolls has £8.1 billion of liquidity in
the tank: enough to last 18 months
under its “base case scenario”, which
envisages no second global
lockdown. But that shrinks to 12
months under its “severe but
plausible downside scenario”, with a
second wave stopping travel. To
boot, it’s highly geared, with
Standard & Poor’s having cut Rolls’
credit rating to junk: a big problem
for a company that admits “a strong
balance sheet is required for the
markets in which we operate”.
Yes, Rolls has assets to sell:
£2 billion of potential disposals,
including Spanish aerospace wing
ITP Aero. But it looks a forced
seller. And the risk is that a leverage
problem morphs into a liquidity
crisis. Mr East cannot afford thesort of tailspin where the longer he
waits to raise equity, the more the
share price slides. Seeing the finance
chief bale out hardly helps.Flutter f lush
S
o that’s the new skill everyone
learnt during lockdown: online
poker. It’s left gambling outfit
Flutter royally flush, at least in a
pro-forma sort of way, given the
interim figures were skewed by its
£10 billion merger with The Stars
Group, the Canadian owner of the
Pokerstars and Sky Bet brands
(report, page 42).
Apparently, with sporting events
restricted to Belarusian football and
Japanese ping-pong, families got
together online for a hard night’s
Texas hold’em. It’s one reason the
group shrugged off a torrid six
months for what used to be the core
of the business: the Paddy Power
Betfair sports books, where operating
profits fell 42 per cent to £69 million
online and last time’s £16 million
profits turned into £31 million losses
at the betting shops.
Peter Jackson, the Flutter boss,
was already a big fan of “scale and
diversity” in an industry always
prone to a regulatory crackdown
somewhere. But he “wouldn’t have
imagined” he’d be vindicated so
soon, with the pandemic making his
point for him. His Stars deal only
closed in May, with various costs
knocking reported pre-tax profits
70 per cent lower to £24 million. But
analysts focused on the 31 per cent
rise in “pro-forma adjusted ebitda”:
a nebulous metric, but, at
£684 million, well ahead of the wide
£450 million to £550 million
consensus. The shares slipped 1 per
cent to £124.75. But they’re up
around £50 since March.
Stars brings its challenges:
underinvestment, a £65 million bill
for “switching off” dodgier markets
and a curious, though tiny, pre-paid
wallet arrangement with the UK
arm of Wirecard, a business now
being sold by the liquidators. Yet
Stars also brings potential. Not least
now everyone’s addicted to poker.Lack of interest
T
oday’s central banking puzzler:
what’s the point of letting
inflation overshoot a 2 per
cent target if you can’t even get it to
that figure? Jerome Powell’s policy
shift was branded “seismic” by
Monex Europe. But wouldn’t it be
more seismic if the Fed hadn’t
routinely missed 2 per cent? US
inflation’s averaged 1.3 per cent since- True, the corona cocktail of
zero rates and $700 billion of QE —
plus trillions of government
stimulus — might eventually do the
trick. And Mr Powell has sensibly
concluded that America can have a
“robust job market”, with maximum
employment, without consumer
prices letting rip. Indeed, the
inclusive benefits of that, not least
for poorer workers, outweigh the
risks. But otherwise Mr Powell had
a key, guessable message: there’ll be
no rise in interest rates for years.
[email protected]business commentary Alistair Osborne
Engineer’s
finance chief
heads over
to Ocado
Ashley ArmstrongThe finance chief of Rolls-Royce is
leaving to take up the same role with
Ocado, where Duncan Tatton-Brown
is quitting after eight years during
which the online grocer’s shares have
leapt in value by 3,500 per cent.
Stephen Daintith, 56, is expected to
oversee £1 billion of cost-cutting at
Rolls this year before leaving to replace
Mr Tatton-Brown, 55, who will be stay-
ing on as a non-executive director of
three Ocado subsidiaries.
Mr Tatton-Brown is understood to be
standing down to spend more time with
his son, who has Hodgkins lymphoma,
a form of blood cancer. Mr Tatton-
Brown has raised money for Teenage
Cancer charities and hospitals.
“This is an amazing business with
huge growth opportunities,” he said.
“Family circumstances, however, mean
that this is the right time for me to step
down from my role. Ocado now has the
financial capital required to take
advantage of the global acceleration of
online channel shift.”
When Mr Tatton-Brown joined
Ocado, its shares were worth 70p; they
closed yesterday at £25.20 after a steep
rise in the past two years as the com-
pany licensed its technology to over-
seas retailers. Its growth has continued
this year as the coronavirus pandemic
accelerated the shift to online grocery
shopping.
Tim Steiner, 50, Ocado’s chief execu-
tive, said: “Duncan has made a critical
contribution to our growth and the
successful execution of our strategy.”
Before joining Rolls-Royce, Mr Dain-
tith was finance chief of Daily Mail &
General Trust, Dow Jones and News
International. He has held senior roles
at British American Tobacco, Forte and
the Civil Aviation Authority.Relaxed pension rules ‘reduce fines’
regulator eased the rules so that
pension platforms had to report back-
sliding employers only after they were
more than 150 days late passing on con-
tributions. Previously it was 90 days.
That led to concerns that employers
could make deductions from pay pack-
ets and cling on to the money for as long
as five months before paying it over. If
they went bust in the meantime, the
money might never reach the employ-
ees’ pension pots.
The regulator insisted yesterday that
it “has not seen a significant or unusual
spike in missed pension contributions
to date”. However, it was not clear
whether that was because it is now no
longer told by platforms until employ-ers had slipped further behind in their
payments.
In April, the regulator took what it
called a “pragmatic” decision to give
employers more breathing space
because of the pandemic. The rule re-
laxation was temporary, the regulator
said, and was “kept under review.”
Employers deduct 5 per cent of
pensionable pay from employees’ pay
packets, add in a contribution of 3 per
cent themselves and send both at the
same time to the pension provider.
Lateness can be punished by an
initial fixed penalty of £400, followed
by escalating fines of £10,000 per day
for the biggest employers and £50 a day
for the smallest.Patrick Hosking Financial Editor
Trent 1000 for the Boeing 787
costing the company £2.4 billion in
re-engineering programmes and
compensation to airlines. Yet the
bottom line is that because the
Royal Navy and the Royal Air Force
rely on it, no government can ever
let Rolls-Royce fail. The company
has not specifically asked the
Treasury for a bailout, but it is very
much on ministers’ radar.
In reality, the biggest favour the
prime minister could do for Rolls is
to open air bridges to the United
States and other long-haul
destinations and to get British
Airways and Virgin Atlantic jets, and
their Rolls’ engines, flying again.an analyst at Jefferies, Rolls’ house
broker, remains one of the
company’s unabashed flag-wavers.
He believes that Rolls’ shares can
make their way back to 500p on the
back of £2 billion of disposals and a
£2 billion discounted rights issue.
Achieving those would enable the
company to win back its credit
status with the rating agencies that
have dispatched Rolls’ present
£4 billion debt to junk grade,
meaning that any further borrowing
will come at prohibitive cost.
Though with reservations about
Rolls’ exposure to renewed
lockdowns and the ability to succeed
with disposals and fundraisings, Mr
Morris said: “We see no reason to be
discouraged. Rolls-Royce will do
whatever it takes to guard
shareholder value.”
That may be a fresh turn of events
for a company whose shares halved
between August 2018 and the pre-
pandemic period, and then halved
again as the implications of the virus
became plain. In recent weeks two
big investment funds gave up on the
company and checked out of the
stock.
The copper-bottomed business
model of making large engines and
then getting revenues on their use
for the next 25 years has looked a
little dented, with the misfiring