Jeremy Warner's Outlook: Industrial legend dies with a whimper, yet for shareholders it is not such a bad ending

Reckitt is showing Unilever the way; Design fault which is loose change for BP
Click to follow
The Independent Online

Both in its technology and scale, this one-time champion of the UK telecoms-equipment industry has long trailed larger US and European counterparts. It only really continued to exist thanks to the patronage of British Telecom.

The company's fate was sealed when BT decided to put competitiveness and customer care before national loyalties and abandoned Marconi as a favoured supplier. With some justification, Marconi complained that it would never have happened anywhere else in Europe, yet it is much more important to Britain's overall competitiveness as a national economy that it should have a state-of-the-art communications infrastructure than it should support a second-rate national supplier.

Folding the remains of Marconi into the much more credible Ericsson should in any case help support more British jobs and research and development in this sector than would have happened if Marconi had soldiered on alone.

As for shareholders, they've done better than they might have expected in view of the fact that until quite recently it was widely assumed that BT had signed Marconi's death warrant by refusing to make the company a supplier for its "21st century network". Instead they get 275p a share in cash and participation in what should be, assuming the company doesn't revisit the folly of aggressive acquisition making, a growth business in outsourced telecoms-equipment servicing.

The curiosity of this deal is in the participation of the Pensions Regulator, the first high-profile case of it we've seen. The remaining company, Telent, is assumed to be too small to be a credible sponsor of such such a large legacy pension fund, so nearly £200m of Ericsson's money is to be used to pay down the deficit. In addition, the regulator has insisted that Telent keeps £500m in an escrow account as a cushion against the possibility that further deficits might open up in future that Telent is unable to fund.

Mike Parton, Marconi's chief executive, expresses the hope that shareholders might get their hands on at least some of this money sooner rather than later if some third party could be persuaded to acquire the pension fund, rather in the same way as Resolution and others have been buying up closed life funds.

I wish him luck, for it would have to be an exceptionally well-capitalised company with an equally exceptional appetite for risk that would take on the potentially open-ended liability of a final-salary pension fund. It therefore seems rather unlikely that the present fashion for consolidating closed life funds will spread to pension funds. Be that as it may, shareholders ought eventually to get something back assuming mortality rates don't show further dramatic improvements. It may be a long wait though.

Reckitt is showing Unilever the way

It was an unusual moment for Bart Becht, the chief executive of Reckitt Benckiser, yesterday. All of a sudden, the pin-up boy of the consumer-products sector was announcing a set of results which, for the first time in years, fell short of the City's, admittedly high, expectations of him.

Yet although the results may have been disappointing by Reckitt's standards, it was still the sort of performance that would have had them dancing for joy round at Unilever's temporary head office near London's Blackfriars bridge. The company has moved out of the art-deco splendour of its nearby home while the building undergoes refurbishment.

It is Unilever's turn to report third-quarter figures next week, and although they are likely to show renewed signs of progress, it's a racing certainty they won't be anywhere near as good, either in terms of top- or bottom-line growth, as Reckitt. While Reckitt has surged ahead in recent years, Unilever, its larger Anglo-Dutch rival, has stalled.

OK, so the comparison is not, strictly speaking, fair. For a start, the two companies are not in exactly the same product categories. Reckitt is strong in household products, such as Dettol antiseptics and Vanish stain removers, while Unilever's brands are mainly in foods and personal hygiene.

Reckitt is also a lot smaller, making above market trend growth easier to achieve. Yet the fact remains that Reckitt has managed to be a good deal more innovative and fleet of foot over the past five years than Unilever, and this is the main reason why Reckitt has been growing more strongly. Just look at the unlikely growth of its household-cleaning product, the absurdly named but obviously hugely popular Cillit Bang.

This is not to say that Unilever has entirely given up on innovation. It has some great new products coming to the market, particularly in the area of health drinks, one of which has so impressed a Dutch medical insurance company that it distributes the product free to all its policyholders to help reduce levels of cholesterol.

Yet across the piste as a whole, there's plainly been an innovative deficit, which I cannot help but think is not entirely down to doomed efforts to meet short-term earnings targets. It may also have been caused by the extensive brand cull the company engaged in some years back.

Patrick Cescau, the chief executive, continues to insist that this was the right thing to do, and it certainly fits in with the modern fashion in brand management. Yet to concentrate all your efforts and resource on fewer brands may also discourage the creation of new ones. The old Unilever strategy of "shelf packing", where the idea was to occupy as much of the supermarket's available shelf space as possible by offering myriad different brands, may have been the more effective one.

Reckitt seems to generate new brands, or variations of older ones, almost by the day. There's no doubt which approach has worked best. It is now almost exactly a year since the French-born M. Cescau moved into Niall FitzGerald's shoes, first as joint executive chairman, and now that the roles have been separated, as chief executive.

While M. Cescau continues to beaver away at reshaping the company, having abandoned formal growth and earnings targets while he resettles the business model, his chairman, Anthony Burgmans, is off reviewing the company's corporate structure, including its split domicile and listing. Whether the board opts to do a Shell and votes for a wholly unified structure - it already has a unified board - remains to be seen.

The obstacles - tax and national sensitivities - remain daunting, yet no one would have structured Unilever as it is now had the whole thing been set up today. The present structure is a continued source of duplication, bureaucracy and compromise, which goes a long way to explaining the innovative deficit just discussed. Anglo-Dutch that it is, Reckitt has never suffered from this handicap.

Design fault which is loose change for BP

BP is being forced to spend $250m (£140m) to correct a design fault in one of its rigs in the Gulf of Mexico. This would be enough to sink many even quite large companies. With oil still at $60 a barrel, it barely registers as a negative at all for BP. Yet even Lord Browne, the chief executive, must look after the pennies if he is to stay true to his famous capital disciplines.

j.warner@independent.co.uk

Comments