James Ashton: G4S and Serco became slick bidding machines, not service providers

Outlook

Whatever happened to the FTSE 100’s conglomerates? The blue-chip index used to be littered with them, be it Bowater, which encompassed diesel engines, stamps and telephone cards; Lord Weinstock’s GEC, straddling electronics, defence and shipbuilding; or Lord Hanson’s Embassy cigarettes, building aggregates and Buxted chickens.

The argument to investors of owning assets that had so little in common with one another was that when one part wasn’t doing well, another would pick up the slack. Over time, and with the passing of these companies’ forceful leaders, the City tired of the lack of focus and break-ups became the norm.

But to say that the FTSE 100 doesn’t feature conglomerates today would be to misunderstand how some of our largest firms operate. They’re still there – they’re just labelled differently.

In rejecting a £1.6bn offer for its cash-handling arm, G4S not only reminds us of its conglomerate characteristics, but points out that under Ashley Almanza, the new boss, it is no mood to get rid of them.

It wasn’t so long ago that Nick Buckles, Mr Almanza’s predecessor, told me simply that the way it would manage increasing its workforce to some 1.1 million people – more than many small countries – from acquiring Danish rival ISS would be to get his country managers to take the strain. Investors made sure that deal never happened and what with the London Olympics security fiasco, Mr Buckles exited too.

These outsourcing companies have been a modern economic miracle, taking on virtually any task for the public sector and completing it for a discounted price. As the departure last week of Chris Hyman from the helm of Serco after grave errors in the electronic tagging of prisoners demonstrated, it couldn’t go on forever.

When one enterprise manages such disparate activities as RAF aviation support, out-of-hours medical care and London bike rental, you have to wonder if even a Lord Hanson would be able to keep tabs on it all.

What G4S and Serco have in common is the client, not the contract. In order to feed the growth that investors have come to expect, they have become slick bidding machines first, deliverers of great work second.

As he prepares next week’s strategy update, has Mr Almanza been listening closely? Of course, with so much public sector work, the Government has a role to play in the shape of these companies. After all, the Cabinet Office minister, Francis Maude, is always saying how he wants to outsource more work to the small business sector.

M&S may still be too middle of the road

D-Day is fast approaching for Marks & Spencer. How should Marc Bolland and his team play it? With results due on Bonfire Night, I predict someone is going to get burned.

It is apparent that the make-or-break autumn/winter range has been fine at best, without exactly setting the world alight. My unscientific straw poll suggests that shoppers love the price but aren’t so sure about the quality. The company has done its best to gloss over stock problems.

M&S clothing still falls between stools. Mid-market, mid-priced – the original squeezed middle which has seen many of its core shoppers head down the price curve for bargains at Primark and H&M, or upmarket for the odd luxury garment.

Mr Bolland, who has had three-and-a-half years to get to grips with M&S, should push it upmarket, as the chain is trying to do in overseas franchises. Burberry and Topshop have shown how much British fashion is prized in foreign climes.

Two questions emerge as 5 November nears. At what point do the company’s shareholders decide it is time for a change at the top? And when they do, will the M&S chairman, Robert Swannell, have the gumption to pull the trigger?

Remember, his many years reading the City at Schroders and Citigroup include helping to fend off Sir Philip Green’s takeover attempt of the retailer nine years ago. But his hands-on experience of the sector is relatively thin, comprising the chairing of HMV for two years. During that time, the shares headed south after an ill-fated expansion into concert venues, which ignored the real problem of working out what to do with the music seller’s high street footprint.

True, Mr Bolland has marketing excellence earned in his Heineken days and he can hold a room in the palm of his hand. But can the Dutchman spot a weak fashion buyer on his team at 30 paces, like veteran garmentos such as Sir Philip or Paul Marchant of Primark?

Supporters say he doesn’t have to. Non-food boss John Dixon or style chief Belinda Earl are there to do that. But if Mr Dixon can fix clothing in the same way as he fixed M&S’s sumptuous food offering beforehand, then surely the board’s problem of who to try out next at the helm has already been solved?

Curry houses have a beef with prices

Lunch with a food industry veteran last week revealed some startling facts about the economic downturn. Apparently Britain’s curry houses were hit exceptionally hard by all those eat-in-for-a-tenner offers that supermarkets promoted heavily.

And just as consumers began spending more on nights out, those Indian eateries whose speciality is beef dishes are having to contend with higher prices. Apparently British cattle farmers are having a bumper year. It is something to do with those food companies who were previously content to let their supply chain extend to somewhere just outside Bucharest taking more care about what ends up in their burgers.