Michael Harrison's Outlook: Something quite seismic is happening at Shell, you can be sure of that

Odds shorten on summer rate cut - Dixons adjusts to life after Stanley
Click to follow
The Independent Online

How many barrels are in a Big Cat and how many Big Cats make an Elephant? There is a new language at Shell to go with the new corporate structure which shareholders are being asked to approve next week. And while much of the terminology will remain comprehensible only to oilmen, there is a very palpable sense that what we are witnessing is the emergence of a new Shell.

How many barrels are in a Big Cat and how many Big Cats make an Elephant? There is a new language at Shell to go with the new corporate structure which shareholders are being asked to approve next week. And while much of the terminology will remain comprehensible only to oilmen, there is a very palpable sense that what we are witnessing is the emergence of a new Shell.

In the space of a year, the chief executive Jeroen van der Veer has swept away a century of conservative, in-bred tradition. Five days from now Shell will shed its split personality and its historical baggage and re-emerge as a single company with one board, one chief executive and one headquarters. No big deal, the rest of the oil industry may say. But within Shell, the ramifications are seismic.

The Kremlin that is the Shell Centre on London's South Bank is being dismantled. The board is being shrunk to fit. The company is becoming more flexible on the inside and more accountable on the outside. Fresh blood is being injected into a business where inertia was once the order of the day and staff turnover was less than 2 per cent a year. No wonder it was called the civil service of the oil industry.

Moreover, the obsession with production targets and the over-reliance on big, established fields, which caused the demise of the previous management as Shell scrambled to replace the oil it pumped with over-inflated estimates of reserves, is giving way to a more adventurous approach. There will still be the Big Cats (discoveries containing more than 100 million barrels of oil) and Shell will triple the number of Elephants (projects involving more than $1bn of investment). But there will also be more resources to put more Pots on the fire - clever ideas that may one day gush oil - and 10 new chief scientists to champion them at senior levels within the organisation. There will also be much more reliance on "unconventional hydrocarbons" such as oil sands, where the bitumen coating is stripped off and processed into synthetic crude.

Of course, an oil price approaching $60 provides the ideal environment for Shell to take these sorts of risks. But, as Mr van der Veer points out, these days the economics of exploration depend as much on the slice of the cake host governments insist on as the price of a barrel.

Green energy gets only a walk-on role in Shell's vision of what the next 10 years holds. It intends creating a new CO 2 czar to exploit the opportunities for trading in carbon emissions. But the prohibitively expensive cost of wind and solar will limit Shell's portfolio of renewable projects.

Mr van der Veer has christened his philosophy "enterprise first". Of course it is a cliché but at least it is better than the company's previous mantra of safety first. Shell is ready to embrace it with gusto and so surely will its shareholders.

Odds shorten on summer rate cut

It is two years since anyone on the Bank of England's Monetary Policy Committee voted for a cut in interest rates. The fact that two of them did so this month demonstrates the speed with which sentiment has changed since it was only a month ago that one of the Bank's deputy governors, Sir Andrew Large, was still arguing the case for an increase in the cost of borrowing. One of the rate-cutters was the outside member Marion Bell, who signed off from the committee with a reminder of her doveish credentials. Her replacement, David Walton of Goldman Sachs, while not exactly a hawk, does not have anything like his predecessor's tendencies.

By far the more significant vote for a rate cut, however, came from Charlie Bean, who is not just an insider but the Bank's chief economist and the man who scripts its quarterly Inflation Report. He felt that a quarter point cut was needed to prevent the slowdown in consumer spending turning into a rout. The seven members who voted for no change felt that more evidence was needed that this was indeed the case.

With the Governor Mervyn King chiding dealers for overreacting to a speech last month which was wrongly interpreted as signifying a more hawkish stance, the money markets are in a high state of excitement. There is, says the Governor, no formulated policy of dispatching outriders to guide the market as to the likely direction of interest rates.

There is, however, the Inflation Report and a track record of rate changes coinciding with its publication to enable the Bank to explain the context of and rationale for its actions. The next report is in August and Mr Bean will already be addressing his thoughts to it. October still remains the likeliest month for a cut in borrowing costs but the odds on August are shortening dramatically.

Dixons adjusts to life after Stanley

Welcome to DSG International. You may know it better as Dixons but we have decided to re-christen the business Definite Stanley's Gone. A change of name invariably says something about a company and while the familiar Dixons brand will still adorn the high street, there is no better indication that the era of Sir Stanley Kalms, the group's founder, is well and truly over than the new set of initials by which the parent company will henceforth be known.

His successor John Clare has actually been running the shop on his own for nearly three years but in that time the retail environment has changed beyond all recognition. Mr Clare describes the trading outlook as "challenging", which is retail speak for carnage and for the evidence you need to look no further than PC World, where the value of like-for-like sales fell by 7 per cent in the second half of the year even though the amount of hardware leaving the shops actually rose. Price deflation, driven in part by the ease with which consumers can now buy online, has hit personal computers perhaps the hardest. But life is tough as well for the mainstream Dixons stores as staples such as DVD players and Freeview boxes tumble in price.

The rot has been stopped at Dixons with a store closure programme which has removed smaller, less efficient high street outlets, enabling like-for-like sales to rise 4 per cent for the year. The motto now across the group is cost cutting. Mr Clare, like most other retailers, has been accustomed to inventing new ways of promoting his products and lifting top-line sales. Now his focus is on achieving the efficiency gains that will enable the business to subsidise the price reductions that its customers have come to expect.

In fairness, DSG International also reflects the fact that Dixons is a different animal from the beast Sir Stanley left behind. This year, nearly one-third of its sales will come from abroad and the group has planted its flag everywhere from France and Italy to Poland, Scandinavia and the Ukraine.

The bizarre decision to begin selling kitchens in Currys has been killed off less than a year after it was dreamed up on the grounds that the retail space can be used much more effectively to shift fridges and washing machines. But as the housing market shrinks and with it the number of people on the move, Currys will find it hard to attract the footfall to match its increased floor space. When is that cut in interest rates coming? Tomorrow would not be too soon for Mr Clare.

m.harrison@independent.co.uk

Comments