View from City Road: FT reflects changing reality

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The Independent Online
Anyone who has spent time poring over the Financial Times trying to find the share price of a company that does not fall into one of the more obvious groupings will be pleased by the news that the sometimes haphazard classification has been brought up to date.

Few investors can think of the companies they have bought as 'other industrials' or, worse still, 'miscellaneous' - a ragbag that includes giants such as BAT Industries as well as toy companies, photocopier distributors and much else besides. It makes eminent sense for the FT, the Stock Exchange and the actuarial profession to provide a more meaningful service to investors.

We said 'anyone will be pleased'. That is not quite right. The Rank Organisation - best known for its cinemas, bingo clubs and casinos - has been labelled an office machinery company, on the strength of its large investment in Rank Xerox, a business that it neither manages nor controls. This does not make sense. If something looks like a duck, and sounds like a duck, it probably is a duck. Rank thinks it is a leisure company - and so do most investors.

This is the most striking anomaly to emerge from the new classification. Others among the 303 companies reclassified will no doubt have objections - not least because their new labels will alter the earnings benchmarks against which their performances are measured. The FT-SE Actuaries Committee will listen to complaints, but will finally decide according to the perceived interests of investors.

BTR and Williams Holdings can have few objections to being called conglomerates, and British Gas is obviously in the business of gas distribution. BAT is huge in both tobacco and insurance, and so unlike any other UK listed company that it has been given the tobacco sub-sector all to itself.

To a large measure, the new classification simply reflects the change in economic realities since the last big review more than 20 years ago. The share of UK output represented by manufacturing has declined while the service sector has grown and grown.

It does not make sense to persist with a consumer group that represents nearly a third of the market's capitalisation - nor with the appallingly vague 'other group', which accounts for another quarter. Similarly, the rise of the pharmaceutical industry demands that it should be stripped out of health and household.