Angry shareholders, slower US growth and a steel pensions timebomb
It’s been a packed day of frustrated shareholders and gloomy economic news.
Before we go here’s a summary of the main business stories:
- There have been widespread moves to oppose executive pay deals, including the majority of investors at Shire pharmaceuticals failing to support a 25% rise for its chief executive
- There was a big upset at the AGM of engineering group Weir with a 72% vote against a proposed remuneration policy
- At the Schroders AGM, shareholders registered their frustration with the elevation of former chief executive Michael Dobson to chairman.
- There was also a protest over pay at FTSE 100 building materials business CRH’s AGM
- In a seemingly pre-emptive move ahead of WPP’s own AGM in June, boss Sir Martin Sorrell has been out and about defending his bumper £70m pay package
- In other company news, bailed out bank RBS has admitted further delays in offloading 300 Williams & Glyn branches
- Business secretary Sajid Javid was quizzed by parliament’s BIS committee about Britain’s steel industry, where he said admitted that, with hindsight, he should have flown to Mumbai last month as Tata’s board decided what to do with its UK steel plants.
- Tata Steel UK’s CEO Bimlendra Jha, also before the BIS committee today, told MPs there would be “very bad consequences for the taxpayer” if the pension liabilities of almost £15bn facing the business are not dealt with.
- In economic news, the US suffered a sharp slowdown in economic growth in the opening quarter of this year
- In the UK, Bank of England governor Mark Carney has noted signs of a slowdown amid jitters around June’s referendum on EU membership. Meanwhile an economists for Brexit report claimed output would be higher, the City would thrive, the trade deficit would be smaller and unemployment lower outside the EU
- In US company news, Shrek is coming under the same roof as Gru after after confirmation from Comcast’s NBCUniversal that it has lined up a $3.8bn deal to buy DreamWorks Animation
- After UK retailer BHS collapsed into administration on Monday Sir Philip Green and Dominic Chappell face being hauled in front of MPs to explain their management of the company
- The person who put forward Sir Philip Green for a knighthood has said he should be stripped of the honour if his handling of BHS is found to have lacked integrity
- Stock markets had a weak start on disappointment over the lack of fresh stimulus from the Bank of Japan
- And finally, as jitters return over Greece’s bailout deal, reports from Brussels suggest Athens and its international lenders are almost in full agreement on a package of reforms. But a set of contingency steps requested by eurozone ministers last Friday still needs work, a top EU official tells Reuters.
Phew! And now it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
Following the upset at Weir’s AGM, the engineering company’s chairman, Charles Berry, has issued a statement (which, in a sign they are not letting earlier hopes go, contains quite a lot of “would haves”).
Here’s an extract from the statement (with my bolding up of some key points):
“The Board are pleased that shareholders have endorsed the vast majority of resolutions at today’s Annual General Meeting. The Group’s resolution on the Directors’ Remuneration Policy did not gain sufficient support and will not now proceed. During an extensive consultation period, the Board had tried to forge a consensus between different shareholder views.
“The Group’s proposed policy would have offered senior management greater stability through the introduction of restricted stock awards in return for a substantial reduction in the maximum award available to the most senior Executive Director from 250% of salary to 165%. Restricted stock awards do not come with direct performance criteria but closely align senior management incentives with shareholder interests, as their value is dependent on share price performance, with the award taking five years to fully vest. In addition, the Remuneration Committee would have had the power to claw back restricted awards if necessary.
“The policy was designed to ensure fairness and consistency across senior management levels and followed extensive consultation with shareholders, who held a wide range of views. During those discussions there was broad acknowledgement of the issue facing many companies, including Weir, of how to effectively recruit, retain and incentivise senior management, across multiple territories, when market conditions beyond their control remain challenging for a sustained period.
“In Weir’s case, these market conditions have recently included a significant fall in commodity prices as a result of oversupply in mining and oil markets and a slowdown in global economic growth. Given the volatility in end markets, the Group’s Remuneration Committee has highlighted the difficulty in setting meaningful financial performance targets over the three-year period required by the current Long Term Incentive Plan.”
“While acknowledging the issue faced by the Group, a majority of shareholders were clearly uncomfortable with a new approach which did not follow standard UK practice. However, as the Interim Report by the Investment Association’s Executive Remuneration Working Group recently suggested, standard practice in the UK may not be sufficiently flexible and companies should be allowed ‘to propose the remuneration structure that is in their judgement most appropriate’ including consideration of the introduction of restricted stock.”
Updated
Weir Group voted down on pay policy
Some late, breaking AGM news now and the shareholder spring is in full flow with a big upset for engineering group Weir.
There was a 72.4% vote against Weir’s remuneration policy.
The Glasgow engineer had two votes on pay, and the policy vote was also going to be subject to close scrutiny given it included a share award which was not linked to performance.
Weir had argued it had used this policy for US directors and said the pay for the chief executive was down last year.
Ahead of the vote, Hermes, representing pension funds, had said: “We are recommending to clients that they vote against, due to the proposed award of restricted shares which are not tied to performance targets.”
So it’s back to the drawing board for Weir.
And so the shareholder protests continue: Engineering company Weir gets a 72.4% vote against the remuneration policy
— Jill Treanor (@jilltreanor) April 28, 2016
Weir says it will continue to operate under the remuneration policy which was approved by shareholders in 2014
— Jill Treanor (@jilltreanor) April 28, 2016
Updated
FTSE erases losses to finish marginally up on the day
On financial markets, London shares have managed to claw back some ground this afternoon and the FTSE 100 erased early losses to finish virtually unchanged on the day.
The London bluechips index is 2.5 points higher at 6,322.40. It had earlier dropped sharply as markets around the world were dragged lower on disappointment at the Japanese central bank’s decision not to come up with any fresh stimulus measures.
It’s a similar story of little change on the day across European stock markets with France’s CAC40 index down just 0.3% and Germany’s Dax up 0.1%. Spain’s Ibex has fared worse, down 0.8%.
Another FTSE 100 company -building materials business CRH - has also had a protest over pay, this time a binding vote over policy.
Jill Treanor reports that just over 40% of shareholders voted against the new pay policy - which covers the next three years - and which increases the chief executive’s pay potential by 50%.
CRH, as an Irish incorporate company but listed in London, did not technically have to put its pay policy to a vote.
Its remuneration report, which covers pay for 2015, had an 8% vote against.
Back to AGM showdowns now and my colleague Julia Kollewe has been at the Schroders AGM today, where shareholders registered their frustration with the elevation of former chief executive Michael Dobson, who ran the investment firm for more than 14 years, to chairman.
Julia reports:
Nearly 15% voted against Dobson’s re-election, and almost 12% voted against Lord Howard of Penrith, the senior independent director who oversaw the move.
Hermes, which represents pension funds and had urged other investors to oppose Dobson’s promotion, voted against both.
It is a sizeable protest vote, given that the Schroders family owns 48% of the shares. Some 4% of investors voted against the firm’s remuneration report.
At the meeting in London, Lord Howard said the company was aware that it was breaching corporate governance guidelines by making Dobson chairman, but defended his promotion. “We thought he was such a good and such an obvious candidate,” he said.
One of the biggest fund managers in the City, Schroders had consulted its 10 largest investors, and “overall we received considerable, a lot of support” although he admitted that there were “some shareholders who had concerns”. Howard said the company would continue to talk to them.
Royal London Asset Management voted against Schroders’ pay policy and the appointment of Dobson as chair. Its corporate governance manager Ashley Hamilton Claxton said: “Although Mr Dobson was successful in leading the company as CEO, his appointment as chairman is inappropriate and in clear violation of the corporate governance code.”
There have been fresh developments in the BHS story this afternoon.
Following the retailer’s collapse into administration on Monday, Sir Philip Green and Dominic Chappell face being hauled in front of MPs to explain their management of the company after an influential parliamentary committee launched an inquiry into the department store chain.
We've launched our inquiry looking into the sale and acquisition of #BHS. Find out more about the inquiry: https://t.co/g54k9Lp4AC
— BIS Committee (@CommonsBIS) April 28, 2016
Graham Ruddick reports:
The Commons Business, Innovation and Skills (BIS) select committee has announced it will explore the sale and acquisition of BHS, including whether the directors of Green’s Arcadia and Retail Acquisitions acted as best they could to fulfil their statutory duties.
BHS called in administrators on Monday, putting almost 11,000 jobs at risk. The retailer was owned by Green for 15 years until he sold it for £1 last March to Retail Acquisitions, a consortium of little-known accountants and lawyers led by Chappell.
BHS’s collapse has caused controversy because it has been saddled with a £571m pension deficit despite Green collecting more than £580m in dividends, rent and interest payments during his ownership, with Retail Acquisitions receiving payments of more than £25m from BHS over the last 13 months.
The full story:
Minions married up with Shrek in DreamWorks deal
In US company news, Disney will have to size up to a formidable rival after confirmation from Comcast’s NBCUniversal that it has lined up a $3.8bn deal to buy DreamWorks Animation, maker of hits from Shrek to Kung Fu Panda.
The deal will see DreamWorks Animation come under the same roof as NBCUniversal-owned Illumination Entertainment, maker of the hugely profitable Despicable Me films and spin-off Minions.
The deal, a healthy premium on DreamWorks Animation’s $2.3bn stock market valuation, is expected to close by the end of the year subject to clearance by competition regulators, reports Mark Sweney.
Mark’s full story:
Back with the main economic story of the afternoon, the sharp slowdown in US GDP growth in the first quarter, as reported earlier, forms part of a worrying global trend, in the eyes of our economics editor Larry Elliott.
Central bankers around the world are getting diminishing returns on their actions and all the major economies are expanding more weakly than they were in the middle of last year.
The global economy is running out of steam and the conventional weapons are increasingly ineffective. This is not about blizzards shutting factories in Michigan. It goes much deeper than that,” writes Larry.
Here’s the full comment:
Sticking with UK news for a moment, Jill Treanor and Julia Kollewe have been following shareholder rebellions over pay today.
They have more details on the majority of investors at Shire pharmaceuticals failing to support a 25% pay rise for its chief executive, Flemming Ørnskov. The report continues:
The increase in his salary to $1.7m (£1.2m) means Ørnskov’s bonuses are also going up, a move which shareholders had been urged to protest against before the annual meeting on Thursday.
The advisory pay vote squeezed through, as holders of 50.5% of the shares in the Dublin-based but London-listed FTSE 100 company voted in favour – but if deliberate abstentions were included, support for the board fell just below 50%.
It builds on the defiant mood in which the AGM season started earlier this month when there were “no votes” at two FTSE 100 companies – BP and Smith & Nephew – on the same day. Mining company Anglo American has also faced protests over pay, with more than 40% of investors voting against its remuneration report last week.
Jill and Julia’s full story is here:
Carney cites EU referendum risks as he notes UK slowdown
Bank of England governor Mark Carney has been in Stockport this week and talking about the EU referendum again.
Growth appears to be slowing ahead of June’s vote, said Carney, who has previously warned that Britain’s economy could struggle to grow after a decision to quit the European Union. The referendum itself posed a significant risk to the economy, the Canadian said.
He told the Stockport Express newspaper: “In the very short term the economy appears to be slowing, probably related to issues around the referendum. One of the responsibilities of the Bank of England is to manage risk and financial stability.
“Risks around the referendum are the biggest risks facing the UK economy, we have contingency planning to decrease the potential impacts of uncertainty.”
As we reported yesterday, the latest official figures showed UK economic growth slowed markedly in the first quarter of this year to 0.4% from 0.6% in the final three months of 2015. But economists are divided over how much of the slowdown could be blamed on the referendum.
The full interview with Carney, including him fessing up to drinking a whole half pint of beer while on duty (gasp!) is here.
#BankofEngland Governer Mark Carney in #Stockport to talk potential #Brexit and beer https://t.co/siGlflCLhC pic.twitter.com/o04nVLW6ky
— Stockport Express (@stockportnews) April 28, 2016
In other UK news... the business select committee has launched a full inquiry into the collapse of high street chain BHS.
They will investigate the sale of the business by Sir Philip Green for £1 last year, what due diligence was done by the buyers, and whether the taxpayer is now on the hook for BHS’s pension bill.
Iain Wright MP, committee chair, says:
“The collapse of BHS brings misery and uncertainty for thousands of workers and also places a potentially significant burden on the taxpayer in the form of pension liabilities.
The sale and acquisition of BHS raises real questions about whether directors acted in the best long-term interests of the company and their employees. Is there too much of an incentive in the system for owners to asset-strip, take out vast sums for personal gain, and then dump and run leaving the taxpayer to pick up the tab when the company fails, rather than create value for the long-term?
Back in the UK, Royal Bank of Scotland has admitted that it will probably fail to sell its Williams & Glyn division by the end of next year.
It has just warned that City that it will probably miss a deadline of the end of 2017 to offload more than 300 branches, due to the complexity of separating customers from the rest of RBS.
The overall financial impact on RBS is now likely to be significantly greater than previously estimated, it admits.
RBS shares have been hit hard, down 4.6%.
This is the third year running in which US growth has been alarmingly weak in the January-March quarter.
US Q1 GDP +0.5%. That's annualized, so economy virtually ground to a halt. GDP trend pretty clear in last two years: pic.twitter.com/xYVAAnHcmp
— Jamie McGeever (@ReutersJamie) April 28, 2016
Weak growth = no June rate hike
There’s no chance of the US central bank raising interest rates while growth is so weak, argues Tom Floyd of Foenix Partners.
According to Floyd, Americans can stop worrying that interest rates might rise in June.
Despite the Fed’s best efforts to leave the door open for a hike at the next meeting, today’s GDP data risks blowing it firmly shut. The data, showing a rise of just 0.5% in the first quarter versus expectations of a rise of 0.7%, undermines the more hawkish Fed tone from last night and does little to justify an imminent raise.
Although the Fed dropped language acknowledging global risks it is worth noting the next meeting is only 8 days before the next major global risk event, the Brexit vote.
In light of the soft data and the looming referendum, a June hike is looking increasingly unlikely with Janet Yellen’s attempts to convince markets to the contrary becoming largely futile. Traders will remain rightly sceptical.
Nancy Curtin, Chief Investment Officer at Close Brothers Asset Management, is also concerned by the slowdown in US growth:
“The US economy hasn’t run aground by any means, but it is navigating more difficult domestic waters than three months ago. Growth has been weighed down by weak performances in the manufacturing and energy sectors due to the strong dollar and volatile oil prices. On top of this, consumer confidence has been knocked recently, impacting retail sales.
“Although today’s results clearly indicate a slowdown in growth, it’s important to remember that the US economy has still expanded. The labour market is in reasonably good shape, and global risks seem to be slightly more muted than at the start of the year. This will help support domestic momentum as the year progresses.
Paul Sommerville of Sommerville Advisory Markets says an annualised growth rate of 0.5% is ‘woeful’.
This is America’s weakest quarterly growth rate in almost two years:
Q1 keeps up its 'low-growth' reputation. US #GDP growth in Q1 +0.5% annualized, below expectations. pic.twitter.com/K87sDaTR40
— jeroen blokland (@jsblokland) April 28, 2016
And while consumer spending is up, exports and business spending have fallen - suggesting the US recovery is uneven, as well as weak.
Updated
US economy almost stalls
Breaking news from America: The US economy has barely grown at all in the last three months.
US GDP expanded by 0.5%, on an annualised basis, according to the US commerce department.
That’s a quarterly growth rate of just 0.125% - a very measly outcome - and weaker than the 0.4% which Britain reported yesterday.
Although consumer spending rose by 1.9%, business investment tumbled by 5.9%, suggesting corporations cut back sharply.
U.S. GDP +0.5%. Business spending down 5.9%, the biggest drop since the waning days of the recession.
— Jeffrey Sparshott (@jeffsparshott) April 28, 2016
Here’s Graham Ruddick’s early story about this morning’s session, in which Tata Steel’s UK boss warned of ‘disaster’ looming unless a deal is reached.
Sajid Javid's testimony: What we learned
Sajid Javid has been spoken of as a future prime minister. Even Forbes Magazine got in on the act, saying it would be a cheering rags-to-riches story if Javid got the keys to Number 10.
But his hopes of a glittering career are now tightly bound with the future of Britain’s steel industry. Today’s session showed us that:
1) Javid regrets that fateful trip to Australia.
He freely admitted that, with hindsight, he should have flown to Mumbai last month as Tata’s board decided what to do with its UK steel plants.
He also insists it wouldn’t have done any good, as his department has been working behind the scenes since February. But we’ll never know if Tata might have softened the tone of its announcement, if Javid had been banging on the boardroom door promising to do whatever it took to keep the mills running.
Javid failed to shake off the impression that the government was caught out by Tata’s decision - suggesting it didn’t actually have a full grip on the crisis.
And if Port Talbot closes, Javid may go down in political history as the man who took his teenage daughter on a jolly to Australia as the steel industry burned. Harsh game, politics.
2) It’s all about the pensions.
Javid agreed with Tata’s Steel UK SEO Bimlendra Jha that the pension liabilities are crucial.
Several potential buyers have already said they wouldn’t take them on, so Tata and the government need to find a way of resolving the £15bn scheme, and its deficit.
Javid claims that Tata’s pension scheme is not a ‘major risk’ to taxpayers. But that’s not the same as saying taxpayers won’t pay a penny....
And don’t forget that Jha warned of economic and social disaster if the pension problem isn’t dealt with...
3) The government won’t own more than 25% of British steel.
Javid is committed to taking a 25% stake in Tata UK, if it helps find a buyer. But that’s his limit - anything more would, in his view, be counterproductive. That’s a typically Thatcherite view, and means full nationalisation isn’t on the cards.
Updated
Q: Finally, what can you do to reassure customers and suppliers to keep working with Tata steel at this time?
Sajid Javid says he has already written to all Tata’s customers and suppliers, and contacted the largest ones directly.
He has also asked Tata to give similar reassurances.
But the biggest comfort I can give is the action that we are prepared to take, and how far we will go to get a deal.
That means customers and suppliers can look at this and say ‘this business has a long-term future’.
It’s an ongoing process too - we need to keep reassuring people.
Javid concludes the session by insisting that the government is doing everything it can, along with other partners such as the Welsh government and unions.
The Community union couldn’t be more helpful if it tried, he concludes.
That’s the end of the session.
Javid: We want a quick deal
Q: If a potential buyer says it needs nine months to agree a deal, but Tata insist on a quick deal, would you step in with a bridging loan?
I’m not going to rule anything out, Javid replies, but the focus is to find a commercial operator quickly.
A nine-month process isn’t in anyone’s interest.
Q: You have offered to take a 25% stake in Tata UK. Is that your maximum limit?
Javid says his offer of 25% co-ownership was designed to show potential buyers that he’s serious about getting a deal.
But the 25% figure is important - if you go over that, the government would be a significant shareholder, and too closely involved.
Q: How long would you be prepared to hold this stake before looking to exit?
Javid says it’s too early to say.
Q: Unions have told us they would favour scrapping the lesser duty rule, in favour of a new solution just for the steel sector. Is this under consideration?
Javid says he still supports the lesser duty rule [this is the rule that prevents higher tariffs being imposed on Chinese steel]
The lesser duty rule works, Javid insists. Its intention is to stop dumping or provide compensation.
If we scrapped it, we would have spent an extra £500m on the solar industry for example [because the lesser duty rule covers a range of industries, not just steel]
Q: Do you believe Tata are a responsible seller, given they didn’t fully brief you about their plans for a quick sale?
Yes, Javid replies, based on the conversations I’d had with them. They have approached this issue responsibly.
Q: Is there timeline appropriate? They are talking about finding a buyer within weeks, but this will take months.
Tata are losing money every day, so they can’t have unlimited time. But it is important that they do everything possible to find a responsible buyer.
I have every reason to believe that when they promise to be responsible, that will be reflected in the timeline, Javid hints.
MPs are questioning whether Sajid Javid is really doing enough to help the steel industry.
I will do everything in my power to help, but I cannot influence the price of steel, says Javid
Q: But what about tariffs? Should the EU move faster to identify problems?
Speed of action is an issue, Javid replies -- that’s why I called a meeting last year to look at the issue of dumping. Europe must move faster.
Reminder: Javid actually blocked a measure to impose higher tariffs on Chinese steel imports....
Javid wants speed of action in trade defence and tariffs?! Why was he blocking tariff increases at an EU council level then?
— Tom Blenkinsop (@TomBlenkinsop) April 28, 2016
But the business secretary is adamant that tariffs can work. Take wire rod imports - they have gone from 67,000 tonnes to zero.
Javid: Pension scheme isn't a major risk to taxpayers
Q: What is your working assumption about the pension liabilities, if there is a successful sale?
Javid says commercial sensitivities prevent him saying too much.
But several potential buyers have said they wouldn’t be interested if they had to take on Tata’s pension liabilities.
It’s a big scheme, with 130,000 members, and it’s relatively expensive.
Q: So might the public purse be left ‘holding the baby’?
No, Javid replies. Discussions are already underway to finding a solution.
Q: You really don’t think it’s a risk?
It’s not a major risk to the public purse, no, Javid insists.
Most positive comments by Javid, is his view re: BSPS and pensions issue not being insurmountable. That is positive.
— Tom Blenkinsop (@TomBlenkinsop) April 28, 2016
Q: What top three lessons can we learn from the Scottish government’s deal to save two Tata steel plants?
Javid says it’s hard to learn lessons - given the Scottish plans were steel mills (recycling steel) rather than a blast furnace (which makes new metal). And it only involved 300 jobs.
Q: But surely we can learn lessons from Scotland’s speed of response? (they brokered a deal which say Tata sell the site to Liberty House).
Javid doesn’t accept that Westminster have been acting too slowly. But we must help workers to keep their skills ‘fresh’, or reskill if needed.
The committee aren’t impressed with Javid’s claims that Britain is getting better at using home-smelted steel for big government contracts.
They point out that the Minister for Defence Procurement has admitted he doesn’t have the full records of where it sourced its steel from (details).
Javid reiterates that the situation is improving. But we can’t always assume that a UK steelmaker will make the most competitive bid for a project....
Updated
Compared to his BIS predecessors Lord Mandelson and Vince Cable, Javid comes across as notably detached from industry and its views
— Graham Ruddick (@GrahamtRuddick) April 28, 2016
Q: Why hasn’t the government moved faster to change procurement rules to use more UK steel in infrastructure projects?
Javid says the government needed to ensure the changes were legally watertight. Changes are being made, and they will make a difference.
But he accepts that they have not made an impact yet.
Javid has been accused of misleading the committee over SSI Redcar, by Labour MP Tom Blenkinsop, who represents Middlesbrough South and East Cleveland.
Javid saying there wasn't a single buyer for SSI last autumn, is just a flat out lie.
— Tom Blenkinsop (@TomBlenkinsop) April 28, 2016
Javid has just come out with the £80m figure again which just another LIE!
— Tom Blenkinsop (@TomBlenkinsop) April 28, 2016
Updated
Redcar steel closure was an 'absolute disgrace'
The committee asks why Javid allowed the steel works at Redcar to close last autumn.
Q: Why did you rejecting an offer from one company to keep the coke ovens open, and “shut the door rapidly” on negotiations?
Javid insists that the Redcar plant didn’t have a viable future, and no serious offers. So given the uncertainty facing workers, he wanted to quickly arrange a package to help them retrain and find new jobs.
Committee chairman Iain Wright isn’t impressed, telling the secretary of state that he should have allowed Redcar to be mothballed.
Instead, Javid allowed the “absolute tragedy” of a hard closure.
We’ve lost those skills from the steel industry for ever.....
And an absolute disgrace that it was allowed to happened on your watch.
Q: Anna Soubry says she heard about Tata’s plans via Twitter. You were on the other side of the world - how can you claim you were in control?
Javid reiterates that commercial sensitivity stopped the government from saying more.
MPs on BIS committee say Sajid Javid has given impression during steel crisis that he is not in control of situation, he is denying this
— Graham Ruddick (@GrahamtRuddick) April 28, 2016
Q: The government has given some very mixed messages - first saying that nationalisation was off the table, but now offering to do whatever it takes.
Do you accept you have been on the back foot throughout this crisis?
Javid denies this, claiming the government’s message has been consistent despite the pressure not to release commercially sensitive decisions.
He points out that minister Anna Soubry didn’t rule out nationalisation, but then adds:
Rarely is nationalisation a solution - the best companies are in private hands.
Q: You’re doing it again - ‘rarely’ is not a decisive word. It doesn’t suggest a clear-cut plan to what’s been unfolding.
Javid repeats that he is under control. It has taken time for Tata to release info about its own plans, and the government has been reacting and adding its own detail.
Javid’s decision to fly to Australia last month, not Mumbai, is particularly sensitive as he also took his teenage daughter along.
Javid says ministers 'have to be ready to turn back' when they are on trade missions (even to Australia with daughter in tow)
— James Tapsfield (@JamesTapsfield) April 28, 2016
Javid is asked about his dislike of "industrial strategy". He replies that manufacturing declined from 18% to 10% of GDP under Labour.
— Jim Pickard (@PickardJE) April 28, 2016
Q: Businesses complain about the lack of a level playing field, so what can be done to help firms compete with German firms?
Javid says that more needs to be done on energy costs -- an issue which Tata UK raised earlier in this session.
Some early reaction to Javid’s testimony:
Sajid Javid seems to be getting into a tangle. Admits he knew Tata was considering closing Port Talbot, but not clear why not in Mumbai
— Graham Ruddick (@GrahamtRuddick) April 28, 2016
Javid admits that "with benefit of hindsight" he would have gone to Mumbai for Tata board meeting last month
— Graham Ruddick (@GrahamtRuddick) April 28, 2016
Javid: With hindsight, I should have gone to Mumbai
Q: If you could turn the clock back a month, would you have attended that meeting in Mumbai rather than going to Australia?
Of course, says Sajid Jabid. With the benefit of hindsight, knowing what Tata would say and how it would be reported.
But the reality is that he must travel as part of his role as business secretary.
-
Key point: Javid admits he should have attended crunch board meeting in Mumbai.
Updated
Javid: I wasn't blindsided by Tata
Q: Isn’t the truth that you were blindsided by Tata, which is why you set off to Australia leaving no-one in London who could deal with this crisis?
No, Javid insists. Tata is a large global business, so people in every management layer don’t always have all the information about what’s happening.
He denies that a better early warning system would have helped.
Q: It looked like you were on the back foot after the Mumbai meeting, in panic mode and scrambling around to get the initiative.
Javid denied that he should have flown to Mumbai for the board meeting - that would have been far too late. It might have made a great photo opportunity, but it wouldn’t have helped.
Instead, our work in the weeks before the meeting were crucial. And the government couldn’t have shared some information because it was legally sensitive - announcing it could have made the situation worse.
Q: So when the Tata board met in Mumbai in late March, were you convinced that they had dropped the idea of complete closure and were looking for a buyer?
Yes, says Javid.
Q: So did Tata mislead you?
No, says Javid. But he was surprised by the speed at which Tata was looking to sell up.
Q: Frankly, secretary of state, I don’t understand why you weren’t in Mumbai, says Iain Wright.
Javid repeats that he had been shocked to learn in February that Port Talbot could close, but he had then begun looking for a buyer. So he was startled by newspaper reports that the board decided to settle the issue ‘within weeks’
That is not what we agreed with Tata, and that’s not what they are not planning to do.
Javid says he went on his (infamous) trade mission to Australia knowing that he could return if needed - as he did.
Javid: We learned in February
Sajid Javid has arrived, flanked by two senior officials.
Iain Wright, BIS committee chair, goes first:
Q: You told the House on 11 April that Tata were seriously considering closing Port Talbot.
The CEO of Tata UK has questioned that this morning [earlier] - so who actually told you, and when?
Javid says that Tata India (so not the UK branch) told him in mid-February that they were considering shutting Port Talbot and focusing on the rest of their UK operations.
We then worked intensively to try to persuade Tata to keep funding their operations, and embark on a turnaround plan.
But it became clear that the board might not accept that, so we began considering whether an alternative owner could be found instead - and considering what we could do to assist
Q: What did you do between mid-February and the Mumbai board meeting at the end of March when the decision to sell up was taken?
Javid says he asked the company if there was anything we could do that would prevent them from closing Port Talbot. And the short answer was no.
There were things they wanted us to do for the rest of the business - but I kept my focus on saving Port Talbot. So we began considering whether another buyer could be found.
Tata is a global producer, not just a UK one, so there may be another company who could take their operations on.
We should hear from the business secretary in a moment....
Sajid Javid up next at @CommonsBIS let's hope he's asked by @IainWrightMP et al whether his decision to fly to Australia was a mistake...
— Simon Neville (@SimonNeville) April 28, 2016
What we learned from Tata boss
That’s the end of the session with Bimlendra Jha, so what did MPs learn from the Tata UK boss?
1) The pension issue is absolutely crucial.
No potential buyer is going to buy Port Talbot, and Tata’s other steel plants, without some solution
Tata’s pension fund has £15bn of liabilities, and an estimated deficit of under £500m.
The collapse of high street chain BHS showed that pension black holes get bigger when a firm goes under, as potential losses are “crystallised”.
Jha insisted that there are ways of fixing this problem, without using public money; hopefully Sajid Javid can give more details shortly.
2) Tata insists it kept the government in the loop.
The “writing was on the wall all the time”, Jha insists, when quizzed about exactly when it warned the government that the situation was unsustainable. That raises fresh questions about Javid’s decision to fly to Australia as the crisis escalated.
3) Can Port Talbot be saved, in current climate?
Jha says there are “serious question marks” over the South Wales plant. And he pinned the blame firmly on high costs, such as energy and business rates, that are making it unprofitable.
We would not be selling up if we could make money, he insists.
4) This crisis could still end very badly.
As he urged the government to address the pension issue, Jha warned that the stakes are terribly high.
It’s not just the four thousand or so workers at Port Talbot, but the “economic and social consequences of that kind of disaster” if steel fails.
Q: What can be done to remove uncertainty and help solve this crisis?
This uncertainty is exactly why we need an accelerated timescale for this sale, says Bimlendra Jha.
He may still be bristling from that criticism that Tata want ‘non-binding’ letters of intent from potential buyers next week).
We must remove uncertainty among customers, suppliers and staff.
The government have given us letters, which we can use to reassure suppliers, he adds.
Q: What happens to Tata UK’s pension liabilities if Port Talbot closes or is sold?
The number of contributors goes down by 4,700, Jha replies, so the burden increases and the scheme becomes weaker.
Updated
Bimlendra Jha then gives MPs a lesson in running a manufacturing giant in the 21st century.
UK manufacturing is in decline, and when we hurt ourselves with high energy costs or business rates you hurt the whole industry. And when a firm can easily move over the Channel and buy energy cheaper, the situation quickly worsens.
We cannot be the ones who shut the door on the industrial revolution which began in this country, Jha declares, jabbing at his desk.
And this chart, from retail commentator Paul Mitchell, shows how rates have gone up and up:
@graemewearden Javid and his Government's part they played with the ever increasing business rates burden for Tata. pic.twitter.com/irXDmKr09m
— Paul Mitchell (@PaulTMRetail) April 28, 2016
Tata: No buyer unless pension liabilities are fixed
Q: We’ve heard a lot about pensions liabilities at BHS this week, but those liabilities would be dwarfed by Tata Steel’s liabilities. What consideration have you taken about potential liabilities to the UK taxpayer?
We need to be aware that if this pension fund liability is not taken care of, there is no buyer sitting out there to buy this business, CEO Jha replies.
[Tata UK has a pension scheme of around £15bn, and a deficit of around £485m]
If we don’t solve this problem, we are staring at some very bad consequences for the UK taxpayers, Jha continues. It’s not just the Tata Steel workers, it’s the entire supply chain and the entire communities that demand on it.
Jha says:
I don’t know what arithmetic has been done on the economic and social consequences of that kind of disaster....
Key point: Tata says no buyer for its steel works unless pension fund liability is addressed
Q: What about your arithmetic? You bought this business, and you knew about the liabilities at the time...
We have kept it funded, Jha interjects
Q: But is there a wider issue about businesses walking away from their liabilities?
Tata have constantly put money into the pension fund. We have had constant dialogue with our trade union partners.
Jha then says Tata has been speaking to the government about finding solutions that would not involve public money or hurt the company.
He suggests that a move to a defined contribution scheme, rather than a final salary scheme, would help.
Updated
"Serious question marks" about Port Talbot's viability
Q: Do all communications between Tata and the UK government go through you, Mr Jha?
No, replies Jha (who took over as CEO earlier this month)
So you can’t be sure that Tata didn’t privately tell the government months ago that it was considering closure (as Sajid Javid told MPs this month).
Jha confirms that this is true, but then warns:
There are serious question marks about the viability of Port Talbot.
TATA STEEL UK CEO JHA SAYS SERIOUS QUESTION MARKS OVER VIABILITY OF PORT TALBOT STEEL PLANT
— MineForNothing (@minefornothing) April 28, 2016
Updated
Q: Does Tata believe the UK government is open to buying British steel for infrastructure projects?
Marc Meyohas of Greybull Capital says the government is open to dialogue on this issue, and it’s crucial that this dialogue delivers results.
The government have made it clear they are behind the industry, he says.
Q: Anything in writing?
Not to us, Meyohas replies.
Tata boss: The writing was on the wall all the time
Q: How long have you been talking intensively with the UK government?
We have been talking to the government on a daily basis for months, Bimlendra Jha says. There is now also a team from Tata’s in
Q: When did you tell the government that the situation was so serious?
Jha can’t say exactly when it happened, during the ongoing dialogue over issues such as business rates.
Q: When did you decide to pull out of the UK?
At the board meeting of 29 March, when the board released that the losses were unsustainable.
Q: But the government would have known how serious things were?
The writing was on the wall all the time, Jha says. It’s hard to say when the penny drops in someone’s mind, though.
- Key point: Tata says government was aware of how serious the problems were.
The commitee turn to Marc Meyohas of Greybull Capital, which is funding a management buyout of Tata’s site in Scunthorpe.
We are confident that the management plan to turn Scunthorpe around will work, says Meyohas.
Q: Will it work better than your involvement with Comet (the UK retailer which collapsed in 2012)?
We only had a small involvement in Comet, Meyohas insists.
There is great sadness that we are leaving the UK, Jha concludes, but we must be responsible to our shareholders too.
Q: Is the government doing enough?
Tata UK CEO Bimlendra Jha says there is a growing awareness that more needs to be done, such as on energy costs.
But there are serious structural weaknesses - Tata UK would not be loss-making if we had Germany’s energy costs.
Q: Would you be selling the business if there wasn’t an uneven playing field?
We wouldn’t not be selling the business if it wasn’t loss-making, Jha insists.
Tata has put in £1.5bn in capital expenditure, and written off £2bn, and hasn’t taken a divident from the UK operations in the last nine years.
We have taken all the hit, all the time.
Updated
Tata: We can't keep sites running indefinitely
Q: What is the timescale for a sale?
There is no deaddrop time, but given the losses, urgency is important as we can’t continue to bleed money.
Q: Can you guarantee that you will keep the UK operations running until a buyer is found to save jobs?
We cannot give any such commitment
Q: So do you have an internal deadline?
Jha insists that Tata is a responsible seller, however...
What if no buyer emerges? We cannot continue to bleed.
Updated
Iain Wright asks why Tata has asked potential buyers to submit offers by next week. Why is the timescale so short?
Our world reknown advisors believe this is a liberal timescale compared to what administrators would do, says Bimlendra Jha.
Iain Wright, committee chairman, begins by asking Bimlendra Jha when Tata first began considering closing its UK steel operations rather than selling it.
We haven’t said we are planning to close it, Jha replies.
But the secretary of state told Parliament he was told privately several weeks ago that Tata was considering immediate closure, Wright says.
Our board meeting only decided to exit the UK, Jha says.
Wright asks if Tata intimated to the government that you might simply close the sites?
No. Jha insists. There is a very difficult business case to continue with Port Talbot.
Therefore, we must find a buyer who can make the whole UK strip system work - both Port Talbot, and the downstream operations.
Steel hearing begins
The hearing on the Steel Industry is starting now, the Grimond Room of the House of Commons.
The first witnesses are Bimlendra Jha, CEO of Tata Steel UK, and Marc Meyohas, partner of Greybull Capital.
A month ago, the crisis in Britain’s steel industry appeared to be career-defining for Sajid Javid. Not in a good way, either.
Famously, the business secretary jetted off to a trip to Australia just as Tata’s board took the momentous decision to sell all its UK operations.
He was then dragged back to Britain (with a non-too-impressed teenage daughter in tow), and only reached Port Talbot on April 1 three days after the story broke.
Over the last month, Javid should have had his head down helping to find a buyer for Tata’s UK steelworkers and save around 40,000 jobs.
Last week, he announced that the government would provide hundreds of millions of pounds in state support, such as loans and grants, and possibly even an equity stake.
Today’s steel hearing comes two days after prime minister David Cameron visited Tata’s main blast furnace on the south coast of Wales:
The Press Association explains:
Prime Minister David Cameron visited the Tata Steel works in Port Talbot, South Wales, on Tuesday to assure workers, unions and bosses of the Government’s commitment to support the future of steel-making at the under-threat plant.
Unions welcomed the recent offer of state support for potential buyers, but stressed that any action must cover plants across the whole country and not just in Wales.
Mr Rickhuss said the Prime Minister had “looked proud steelworkers in the eye and promised to do all he could to protect their jobs”, and said his union would “hold him at his word”.
European stock markets have been dragged down by disappointment that the Bank of Japan didn’t unleash more stimulus today.
In London, the FTSE 100 has shed 40 points or 0.6%, and there are similar losses in Paris and Frankfurt.
Tony Cross, market analyst at Trustnet Direct, says:
London equities have been rattled in early trade with the shock news that the Bank of Japan offered no further stimulus being seen as a key factor in driving sentiment.
Shareholder revolts today?
Britain’s investors have a great chance to protest against excessive boardroom pay today.
No fewer than 26 companies are holding annual general meetings today, and there could be revolts against remuneration policies at several major companies including drugs firm Shire Pharmaceuticals, and engineering group Weir.
My colleague Jill Treanor explains:
The votes on pay at Shire Pharmaceuticals, CRH (a building materials business) and Weir are expected to be tight, especially at Shire – where chief executive Flemming Ørnskov is receiving a 25% rise in his salary to $1.7m (£1.2m).
Updated
Japanese stock market takes a tumble
Investors in Japan are nursing heavy losses today after the country’s central bank defied expectations of yet more stimulus measures.
The main Japanese stock index, the Nikkei, has slumped by 3.6% and the yen has soared against the US dollar.
USD/JPY plunges >3 big figures on BOJ's no move, the biggest fall since Aug and third biggest since 2008-09 crisis pic.twitter.com/t8nboTGoel
— Jamie McGeever (@ReutersJamie) April 28, 2016
All because the Bank of Japan left its (already sizeable) stimulus programme unchanged at today’s policy meeting.
Economists had been expecting another big move - further rate cuts and yet more electronic money-printing, to try and get Japan’s growth and inflation rate up.
So, bad news for plucky investors. But perhaps a victory for those who argue monetary policy shouldn’t be the only tool fighting the economic malaise.
Central banks re QE, alternating: "It's not working. We must do more of it!" "It's not working. We must do less of it!"
— Marc Andreessen (@pmarca) April 28, 2016
The agenda: Steel hearing, and US growth figures
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The future of Britain’s steel industry is under scrutiny today, as MPs investigate efforts to save tens of thousands of jobs at Tata’s operations across the UK.
Business secretary Sajid Javid will be quizzed about the government’s plans this morning, at 10.30am.
Before that, the BIS select committee will also hear from Bimlendra Jha, chief executive of Tata and Marc Meyohas of Greybull Capital, which is buying Tata’s plant at Scunthorpe.
MPs are presumably going to ask how the UK steel industry reached this plight, the issue of Chinese steel dumping, and the government’s offer to partly nationalise the sites.
They should also probe reports that Tata might actually keep the sites, a month after shocking Britain by putting them up for sale.
Here’s the key timings:
At 9.10am
- Bimlendra Jha, CEO, Tata Steel UK
- Marc Meyohas, Partner, Greybull Capital LLP
At 9.50am
- Fergus Ewing MSP, Minister for Business, Energy and Tourism
- Edwina Hart AM, Minister for Economy, Science and Transport
- Tom Blenkinsop MP, Chair, All Party Parliamentary Group for the Steel and Metal Related Industry
- Gareth Stace, Director, UK Steel
- Roy Rickhuss, General Secretary of Community and Chair of the National Trade Union Steel Coordinating Committee
At 10.30am
- The Rt Hon Sajid Javid MP, Secretary of State, Department for Business, Innovation and Skills
- Niall McKenzie, Director, Infrastructure & Materials, Department for Business, Innovation and Skills
- Anthony Odgers, Deputy Chief Executive and Director, Corporate Finance UK Government Investments
Also coming up today....
At 1.30pm, we find out how the US economy fared in the last quarter. Economists expect a sharp slowdown, to a quarterly rate of just 0.15%.
That would make Britain’s slowdown, to 0.4%, look quite decent - and would also fuel concerns that the global economy is weakening.
In the City, Lloyds bank is reporting financial results.
And the Greek bailout crisis is also rumbling on.
Prime Minister Alexis Tsipras is due to speak to European Council President Donald Tusk today, after Tusk rejected his call on Wednesday for a leaders’ summit to discuss Greece’s bailout talks.
I’ll be tracking all the main events through the day....
Updated
