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EasyJet shares come down to earth after years of stratospheric returns
Published in Guardian on 2016-10-06T18:56:41+00:00
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Negative Comments

Egbert Hakker:
We fly as before Brexit does not make much difference because EasyJet will become an EU co

Positive Comments

Just remember to get out of easyJet in good time before Brexit, as this is one business that will be cruicified by restricted travel to and from the EU.

I suspect Easyjet is oversold. Opportunity?

Mike Kane:
SVG Capital needs to do something about Brand Energy, one of the companies it owns. Their bonds have been downgraded deep into junk territory. They need to change the management totally. They need to get rid of the CEO and the ex-GE people he brought in. The Houston area is especially bad and the executives there should be removed immediately. The latest Moody’s report said the only thing good about the company is that it can still borrow money. That’s pathetic. That shows how horrible the CEO and his ex-GE friends have been. Brand Energy may be the biggest joke in private equity today. SVG Capital needs to stop letting the CEO of Brand get away with his nepotism and incompetence.

As Policy and Research Director of ICSA: The Governance Institute, I feel I should respond. We disagree with Andrew Tyrie’s view that our guidance on minute taking is inadequate. This is not because we do not believe that board minutes should record areas of substantive disagreement among directors. They should, and our guidance says so. The minutes of a meeting should include details of decisions made, the reasons for them, actions arising if applicable and the key points of the discussion. This should be sufficient to enable someone not at the meeting to understand not only what decisions the board made but why they made them. Subject only to the need to be balanced, that summary of the discussion should include coverage of material challenge. However, the overwhelming majority of board decisions are reached by consensus. There may well be a number of views expressed in discussion which may, or may not, form part of the collective decision. The discussion is an important element of the board decision-making process and will often include constructive challenge. That is different from dissent, which we believe should be, and have been told is, rare in board meetings. A director may well express differing views during a discussion that ultimately results in unanimous agreement, but it is important to distinguish between this and a situation where a director feels the need to disagree publicly with the final decision. Given the collective responsibility of a unitary board, we believe that there should be a high bar before this happens – it is not something that directors take lightly. We therefore believe it entirely appropriate that directors be asked to confirm their formal disagreement with a decision before that dissent is recorded. The guidance clearly states that a chairman can direct that a director’s dissent be recorded even where an individual does not make a request for their dissenting view to be noted in the minutes. We also offer a suggestion as to how dissent might be recorded. We consider this to be helpful rather than unhelpful.

EasyJet needs to improve its timekeeping if it wants to retain its customers and to offer proper explanations to frustrated passengers. On a recent weekend visit to friends in Poland the scheduled late afternoon flight from Gatwick arrived so late the last train from Krakow Airport into the city had gone and only three border officials were left to handle a planeful of families returning for a Polish public holiday. Three days later the return flight due into Gatwick by 11pm was so late the first train home -- long after the Underground system had closed -- landed me home just two hours before I was due to start a day's work. In Poland I was told many preferred RyanAir despite its downsides because it generally kept better time

Controversy Analysis

EasyJet shares come down to earth after years of stratospheric returns
Published in Guardian on 2016-10-06T18:56:41+00:00

So much for the idea that easyJet could improve its profits every year. Those investors who enjoyed the shares splendid run from 300p in 2011 to 18 in 2015 have discovered that volatility has not been abolished in the airline game. EasyJet says its profits will fall 28% in the financial year that closed last month. Its shares have almost halved in value in 12 months and now stand at 933p, down 7% on Thursday.

The vote for Brexit is merely the lesser of two upsets. A weak sterling has been unhelpful to the tune of 90m for a company that flies over so much eurozone airspace and pays so many landing charges in euros. The greater impact has come from disruption, strikes by air-traffic controllers and the effects of terrorist attacks in Nice, Paris and Brussels.

Revenue per seat is running at 8% below last year, sending a strong signal that, behind a year of extraordinary events, there is a European short-haul market that simply has too much capacity. Cheap oil has encouraged too much expansion. Dont worry, the chief executive, Dame Carolyn McCall, says soothingly, the current environment is tough for all airlines, but history shows that at times like this the strongest airlines become stronger.

Ultimately, shes right. EasyJet still expects to make pre-tax profits of about 490m in the year. That is a commanding position from which to sit back and wait for weak airlines to shrink, go bust or seek shelter. The trouble is, the wait can be long in an industry where optimism is ingrained. Air Berlin is slashing capacity after being thrown a lifeline by Lufthansa but easyJet (and Ryanair for that matter) would prefer to see more radicalism.

Meanwhile, easyJet itself has been adding capacity 6% last year, 8% this year. A cheerful interpretation says the new routes will intensify rivals pain and bring long-term reward. Alternatively, easyJet has stepped up expansion at the wrong moment.

A comfort for shareholders is a chunky dividend set at 50% of post-tax earnings, giving a yield of 5.7% at the reduced share price. But prospects for earnings themselves are the real worry. One tough year could be viewed as exceptional, but the City is expecting at least three before the clouds clear. That is how life used to run for airlines, and probably does still.

Tough tactics backfire for HarbourVests bid for SVG Capital

It ought to be hard to lose a 1bn takeover bid when you start with 51% support and are offering hard cash. Yet HarbourVest, the Boston outfit stalking the quoted private equity fund SVG Capital, looks to be heading for defeat.

At the eleventh hour, SVG has produced a more convincing white knight than it had managed to previously. Goldman Sachs plus a Canadian pension fund two credible outfits have put an offer on the table worth about 680p a share, versus HarbourVests 650p.

Conceivably, SVG shareholders could still prefer the lower offer because it is more certain and the cash would arrive sooner. But thats not the way to bet. Two big institutions, Aviva Investors and Legal & General Investment Management, have withdrawn their support for HarbourVests proposal and SVGs share price, at 667p, says the Goldman consortium will win.

The difference between the two offers works out at about 35m almost nothing in the context of 1bn contest but HarbourVest cannot match Goldmans price because it declared its bid final on day one. Aggression appears to have backfired. For the sake of a cherry on top of the cake, HarbourVest will probably lose. Well played, SVG chair Lynn Fordham, for scratching out a few extra quid for her shareholders, but HarbourVests tactics were baffling.

Andrew Tyrie: board record-keepers must do better Poor minuting of board meetings means lessons may not be learned when businesses fail, says Andrew Tyrie. Photograph: Laura Lean/PA

The fastidious Andrew Tyrie strikes again. The chairman of the Treasury select committee is one of very few MPs who could provoke a heated argument over the accuracy of board minutes. He is also right to do so.

Tyries complaint is that the minutes of the failed Royal Bank of Scotland and HBOS were next to useless for investigators conducting postmortems. If the non-executive directors were doing their job of challenging management and assessing risks, it was impossible to tell from written records. Disagreements werent routinely recorded, so the minutes could not serve as a black box to help prevent future mistakes. Sort it out, Tyrie told the Institute of Chartered Secretaries and Administrators (Icsa) last year.

The body has failed to do so, says Tyrie now. Its response is deeply flawed and inadequate because it clings to the idea that directors must actively demand that their dissent be noted, he suggests. That, as Tyrie implies, seems unhelpful and defensive.

Simon Osborne, who might have expected a quiet life as chief executive of Icsa, is the man in the firing line. I would be very grateful if Icsa could take another look, writes Tryie, terribly politely. Translation: do so before I summon the chancellor and the governor of the Bank of England.