Jeremy Warner's Outlook: GUS joins the fashion for focus in doing the splits, but is this really the right approach?

For a world which is meant to have fallen out of love with conglomerates, and instead requires managements to "focus" on their "core competences", it is interesting to reflect on the fact that the world's biggest company by market capitalisation, and one of its most successful to boot, GE of the US, is - er - still a conglomerate. Indeed, GE is not just any old conglomerate, it is the big great grand daddy of all conglomerates, having virtually invented the genre 30 or more years ago.

The tradition isn't entirely dead in Britain either, though post the break-up of Hanson and BTR, there are few major examples of the beast still in existence. One of them is GUS. Not for much longer, to judge by the outcome of the group's strategic review. As expected, this has concluded that the Burberry fashion business be wholly demerged later this year, and that at some unspecified date in the future, a further separation of Experian, the credit information and market research company, from the Argos and Homebase retailing interests takes place.

John Peace, the chief executive, and his chairman, Sir Victor Blank, have plainly been persuaded that this is the right thing to do, but you get the sense that they are not entirely convinced. GUS has been an extraordinarily successful company in recent years, across all three of the group's legs, and although these are very different enterprises, Mr Peace has succeeded in establishing some of the same unity of management purpose and culture, reporting systems and financial controls that marks GE, with its vast range of unconnected businesses, out from the pack.

Will GUS be worth more as three companies than it is as just one? The evidence of Burberry, where a minority has been publicly traded for some years now, suggests that it ought to be, for it allows investors to buy into the businesses they really want to back, rather than an amorphous mass of different ones. Yet GUS is already quite fully valued and there are no guarantees. Far from creating more value, some past break-ups have succeeded only in replacing a big and strong company with a number of smaller and weaker ones.

The benefits of size, from lower cost of capital to cross promotion and enhanced buying power, may in some cases outweigh the supposed advantages of management focus. In the 1980s, conglomerates would trade at a premium because of the assumed management expertise of their promoters. In the 1990s, the conglomerate premium was replaced with the conglomerate discount. These things go in cycles, and who knows, there may come a day when bankers will again demand the mutually supporting attributes of larger collections of businesses?

In the meantime, Mr Peace intends to delay the demerger of Argos and Homebase from Experian for at least as long as it takes to know what the consumer downturn is going to do to the British retailing interests. The only focus management needs right now is that of running their business. The last thing that's wanted is the distraction of a demerger. Mr Peace has established an impressive track record since to the bemusement of the City he was plucked from obscurity to run the show. Few are going to quarrel with his judgement now.

A Kiwi solution to the pensions crisis

A harbinger of things to come in the United Kingdom? The government of New Zealand has just announced a major pensions reform which may provide a model for Britain as policy makers wrestle with the problem of what to do about our own "pensions timebomb".

New Zealand is the only developed country in the world which has no form of state sponsored, earnings related pension provision. Instead it relies solely on a flat rate pension, payable to all out of general taxation. This is relatively higher than our own basic state pension, and again unlike our own, it is entirely non contributory, whereas in Britain you have to have worked 44 years to gain full entitlement. There is, however, nothing on top, even in the form of tax reliefs to encourage saving.

The National Association of Pension Funds favours a similar, "citizen's pension" for Britain, as do the Liberal Democrats. On the other hand Adair Turner, the chairman of the Pensions Commission, while recognising the attractions of simplicity that any such system would have, has expressed reservations, not least about how you fund a higher, flat rate pension out of general taxation as the demographics of greater longevity begin to kick in.

Perhaps surprisingly, the New Zealanders have had second thoughts too. The chief disadvantage of the flat rate system, besides cost, is that however high you set the pension, it won't satisfy most people's expectation of sufficient money for a decent old age, yet by providing a safety net against outright poverty, it may discourage extra provision on top.

Belatedly, New Zealand has woken up to the fact that not enough is being saved to provide for decent pensions. The solutions settled upon is both simple and ingenious. Employees will be required to pay 5 per cent of earnings into a state sponsored, funded scheme, thereby gaining the advantage of very low administrative and fund management costs, but have the ability to opt out if that's what they want. In this way the government neatly gets round the charge of compelling people to save against their will while at the same time recognising the fact that many people have to be required to save before they'll do it.

New Zealand is a small country on the other side of the world, but if it can act as the model for Britain's Monetary Policy Committee, arguably the most important macroeconomic reform of the past 10 years, then why not our pensions system too?

Mr Turner, whose final set of recommendations on pensions reform are due to be published this autumn, is adamant that no conclusions have yet been reached on any of the big imponderables - compulsory versus voluntary, pay as you go against funded, and so on.

Yet the drift of his thinking, and the consensus he's trying to establish is already obvious. His concerns about a simple flat rate pension system have already been noted. Increasingly his public pronouncements focus on what form of state sponsored earnings related provision might be possible, it being generally accepted that the present earnings related scheme, Serps, is a busted flush.

He was at it again last night, at the Investment Management Association annual dinner, extolling some of the other virtues of a Kiwi-type model. One is the much lower administrative and fund management costs the state can achieve buying the services wholesale, equal perhaps to as little as 0.1 per cent of the accrued pension rights. If such tiny costs can be achieved, this transforms the economics of saving, even for the low paid, where the amounts put away tend to be too small as things stand for the savings industry to want to be bothered with.

Making a rational proposal, along the lines of the New Zealand model or otherwise, is one thing. Persuading the politicians to enact it is quite another.

Miracle needed to meet growth target

Yesterday's downward revision to the growth figures for the first three months of this year means the Chancellor needs something of a miracle to happen in the economy to meet his growth forecast for this year of 3 per cent to 3.5 per cent. With the consumer slowdown now firmly entrenched, miracles look thin on the ground. If the Bank of England were to cut interest rates next month, it's possible that might do the trick, though the Bank's duty to meet the inflation target would hardly justify such a move. Alternatively, the Treasury could open the flood gates of Government even further. Either way, the Chancellor's framework of economic management faces its toughest challenge yet.

j.warner@independent.co.uk

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