Eyebrows raised over choice for chairman
In the league of I-kid-you-nots, this really does take some beating: “Ofcom appoints Luke Johnson as chairman of Channel 4.”
For those who have never heard of the man, Ofcom informs us that this is the chairman of Signature restaurants “. . . a well known and successful entrepreneur, he is also a columnist on the Sunday Telegraph and a governor of the London Institute . . . Mr Johnson began his career with BMP advertising agency, subsequently joining Kleinwort Benson as a media analyst. Previous directorships include PizzaExpress, My Kinda Town, American Port Services, Abacus Recruitment, Whittards of Chelsea and Nightfreight . . .”
David Currie, Ofcom’s chairman, adds that “Luke combines an outstanding commercial and strategic track record with a passion for public service broadcasting and Channel 4”.
We didn’t previously know about the public service passion, which we’ll take as a given for now. But as for the “outstanding commercial and strategic track record?” Some in the City and the wider business community may quibble with that.
We think this is a controversial appointment. What fun.
Spilt milk
Parmalat’s collapse in Italy has carried a strange absurdity ever since the company began to unravel apace back in November.
At that time the focus was on an obscure hedge fund based in the Cayman Islands, which was supposedly investing euros 500m (pounds 344m) of Parmalat’s cash in the “leisure and pleasure” sector. Of course, it was doing nothing of the kind – the money didn’t exist.
Since then the scandal has become hyper-inflationary, with the supposedly black hole in the accounts widening to an impressive euros 14bn. This week we learned from PricewaterhouseCoopers, the accountants charged with adding up Parmalat’s real numbers, that debt was actually eight-times the level previously disclosed.
On the face of it, this is a difficult concept to get your head around. It is well known that company executives are sometimes tempted to puff profits or inflate revenues to flatter their apparent performance. They have also been known to hide potential liabilities.
But hiding regular debts is highly irregular. One company’s debt is another party’s asset. And to hide euros 14bn of the stuff sounds particularly heroic.
Of course, this is not the precise case. Parmalat did not hide debts – it invented assets instead. It is net debt that has risen from a reported euros 1.8bn to euros 14.3bn, since the financial undertakers now running the business have not been able to find any liquid resources to speak of.
Over the years founder Calisto Tanzi and his associates seem to have pursued a stupidly simple fraud. They invented revenues, which gave them false profits – numbers which were put in front of investment banks who then sold new Parmalat debt to investors. Fresh money from the capital markets was then used to meet interest payments on the debt and plug any awkward holes.
It was a straightforward pyramid scheme and yet none of the corporate financiers, auditors, financial analysts, credit-rating agencies dealing with the company noticed anything amiss.
Which is quite extraordinary, especially since the evidence that something was wrong was staring them in the face.
As a producer and distributor of milk, water, fruit juice and biscuits, Parmalat was a straightforward business, dealing in largely commoditised, low-margin products.
Yet the company was regularly reporting margins of up to 10%, despite the fact that its big competitors were producing margins of 4-6%. No one seems to have asked the question why Parmalat was able to operate so much more profitably.
All those who invested in or lent money to this company must feel really, really stupid.
Warranty woes
Electricals retailer Kesa had a touch of the Sir Phil Watts about it yesterday. It popped out a Christmas trading update and then refused to pop over the parapet to answer any questions.
As with Sir Phil’s Shell, the group uttered some twaddle about proximity to results statements to justify its low pro file. So we can only muse on why exactly Kesa has chosen to provide a set of like-for-like sales figures – +3.9% – for its Comet chain that exclude the sale of extended warranties.
Warranties are those breakdown insurance policies that over- eager salesmen always seem so keen to sell. In the wake of last year’s competition commission investigation into these warranties, sales have plunged.
They are pretty crucial to retailers such as Comet because they rake in substantial profits. But Kesa’s like-for-likes just ignore anything that has not been performing.
The group has not done it before. They are not like-for-likes. They are meaningless and they are another reason why the whole farce of producing like-for-like figures should be subject to some outside regulation that might make it harder for individual retailers to twist and spin their own numbers.
