Home retail Sorry Sainsbury's but the pandemic also created a financial windfall | Nils Pratley

Sorry Sainsbury's but the pandemic also created a financial windfall | Nils Pratley


Another day, another supermarket chief executive pleading that his company somehow deserves its business rates freebie because it’s had to suffer extra costs in “feeding the nation”. All that hand sanitiser, plus the burden of paying so many staff to shield at home, adds up, don’t you know?

Simon Roberts of Sainsbury’s offered other arguments: in the age of Amazon, the business rates system is unfair on bricks and mortar retailers. As if to reinforce his point, he unveiled plans to shut the doors permanently on 420 Argos standalone shops, with the potential loss of 3,500 jobs.

You can understand why he’s so prickly. The symmetry is awkward: Sainsbury’s received relief on business rates worth £230m in the first half of its financial year, and now it’s paying £231m in dividends to shareholders. Since the Qatar Investment Authority, with a 21% stake, will be the biggest beneficiary, it’s not too much of a stretch to say Sainsbury’s is also feeding the nation of Qatar with dividends.

To be scrupulously fair, a few of Roberts’ points were accurate. Yes, the business rates system is rotten. Yes, the biggest chunk of the divi, worth £160m, relates to the pre-Covid financial period. And, yes, one shouldn’t mix apples and pears: dividends and relief on rates are different items.

But those arguments all miss the glaring inconsistency at heart of this issue. Rishi Sunak gave retailers relief on a property-based tax because most shops had to close during the first lockdown. But supermarkets remained open and, indeed, enjoyed a boom. They should never have been included in the rates giveaway.

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Sainsbury’s revenues, like Tesco’s and Morrisons’, were the strongest in years. With the rates freebie covering most of the extra Covid costs, Sainsbury’s underlying pre-tax profits surged by 26% to £301m in the half-year. The pandemic created a logistical challenge, but also a financial windfall.

The mistake is really the chancellor’s, of course. Over a full year, the supermarket industry will benefit from rates relief worth roughly £1.5bn, money that would surely have been better directed at the hospitality or events industries. There is roughly zero chance of Sainsbury’s, Tesco or Morrisons’s returning a few quid to the Treasury – but they should.

WH Smith board joins list of indecent packages

Remuneration committees need to calm down. The pandemic has crumpled a lot of companies’ share prices, and thus the value of many executives’ share-based incentives. But the apparent rush to reload directors with new bumper pay packages is indecent.

The latest example is WH Smith. The board had the notion that now would be a fine moment to hand chief executive Carl Cowling a share-incentive package worth almost £5m, Sky News reported on Thursday.

The thin justification, it seems, was that there’s a big rebuilding job to do at WH Smith after the hit to the stores in airports and train stations; a three-year arrangement, in place of annual awards, would keep Cowling keen for the long-term, went the thinking.

Forget it. The board cannot possibly know when normal service will resume in the travel market. WH Smith had to raise £165m from shareholders for pandemic protection as recently as April. Setting fair performance hurdles is virtually impossible at the moment.

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Fund managers killed the board’s proposal before it could become formalised – quite right too. A £5m package would have been wildly over the top in the current climate. If Cowling has to rub along for a while on his basic salary of £525,000, so be it.

Insurers don’t stir patriotic feelings

Stephen Hester’s decluttering and cost-cutting strategy at RSA, the FTSE 100 insurer, always seemed designed to attract a bid, and now it’s happened. Canada’s Intact Financial and Denmark’s Tryg are in talks to agree a joint-offer at £7.1bn.

RSA’s board says it’s minded to accept, which is no surprise whatsoever. At 685p a share, the bid would equate to a takeover premium of roughly 50%, which doesn’t come along often in the insurance game.

Nor, one suspects, will there be any wailing over the loss of a large British company to an overseas predator. Insurers don’t stir patriotic feelings. Nobody was bothered back in 2015 when Zurich attempted a bid for RSA before walking away.

It feels a shame, though. RSA has had setbacks in the last couple of years. But, slimmed to its UK, Canada and Scandinavia core, it looked a more coherent and promising set-up than, say, Aviva. Too late now.



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