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| Should Network Rail be split up? | Should Network Rail be split up? |
| (about 7 hours later) | |
| Patrick McLoughlin wants to “pause” investment on two key rail routes while he “resets” Network Rail’s investment programme. If the transport secretary can’t speak plainly, let’s say it for him. All sides have been engaged in wishful thinking on a grand scale and the government’s boasts about the coming “northern powerhouse” look a lot less impressive after a collision with reality on the railways. | Patrick McLoughlin wants to “pause” investment on two key rail routes while he “resets” Network Rail’s investment programme. If the transport secretary can’t speak plainly, let’s say it for him. All sides have been engaged in wishful thinking on a grand scale and the government’s boasts about the coming “northern powerhouse” look a lot less impressive after a collision with reality on the railways. |
| After a single lap of the track, Network Rail’s five-year spending and funding programme for 2014-19 – a dense work of 950 pages from the Office of Rail and Road – will have to be shredded. All the projects won’t be built within the £38bn budget. The lines where electrification will be “paused” are the TransPennine service and the London to Sheffield route. | After a single lap of the track, Network Rail’s five-year spending and funding programme for 2014-19 – a dense work of 950 pages from the Office of Rail and Road – will have to be shredded. All the projects won’t be built within the £38bn budget. The lines where electrification will be “paused” are the TransPennine service and the London to Sheffield route. |
| Related: Network Rail boss replaced and upgrades shelved as costs spiral | Related: Network Rail boss replaced and upgrades shelved as costs spiral |
| Who’s to blame? McLoughlin says all the problems “could and should have been foreseen by Network Rail.” Over at the manager of Britain’s railways, there’s a strong hint that the imposed targets were near-impossible to achieve in the first place. New-ish chief executive Mark Carne dutifully confessed to corporate over-optimism but added, pointedly, that the body had “signed up to highly ambitious five-year targets set by the regulator.” There’s probably truth in both versions. | Who’s to blame? McLoughlin says all the problems “could and should have been foreseen by Network Rail.” Over at the manager of Britain’s railways, there’s a strong hint that the imposed targets were near-impossible to achieve in the first place. New-ish chief executive Mark Carne dutifully confessed to corporate over-optimism but added, pointedly, that the body had “signed up to highly ambitious five-year targets set by the regulator.” There’s probably truth in both versions. |
| What’s the solution? That’s the important question, but it’s also where the tale becomes even fuzzier. McLoughlin has appointed a new chairman of Network Rail in the form of Sir Peter Hendy, current transport commissioner in London. He’s tweaked governance by removing the 46 “public members” and installing his own special director. Dame Colette Bowe, when she’s not trying to make bankers behave better as chair of the Banking Standards Review Council, will make recommendations on better investment planning. | What’s the solution? That’s the important question, but it’s also where the tale becomes even fuzzier. McLoughlin has appointed a new chairman of Network Rail in the form of Sir Peter Hendy, current transport commissioner in London. He’s tweaked governance by removing the 46 “public members” and installing his own special director. Dame Colette Bowe, when she’s not trying to make bankers behave better as chair of the Banking Standards Review Council, will make recommendations on better investment planning. |
| New faces may help but, to get a measure of how deep Network Rail’s problems go, read a speech Carne gave in February. Network Rail’s chief executive is an oilman from Shell and compared the safety record of the two industries. Network Rail’s passenger safety performance is currently the best in Europe but its record for injuries among its workers is shocking. | New faces may help but, to get a measure of how deep Network Rail’s problems go, read a speech Carne gave in February. Network Rail’s chief executive is an oilman from Shell and compared the safety record of the two industries. Network Rail’s passenger safety performance is currently the best in Europe but its record for injuries among its workers is shocking. |
| Some 600 railway employees and contractors a year are injured to the extent that they can’t return to work the next day. In the oil and gas industry, the comparable figure for the same numbers of hours worked would be fewer than 60. “Our work practices have not kept pace with comparable heavy engineering industries,” he concluded. | Some 600 railway employees and contractors a year are injured to the extent that they can’t return to work the next day. In the oil and gas industry, the comparable figure for the same numbers of hours worked would be fewer than 60. “Our work practices have not kept pace with comparable heavy engineering industries,” he concluded. |
| The open question is whether the necessary improvements can happen within a timeframe acceptable to government and passengers. It’s hard to be confident. The Treasury looks at Network Rail’s £37.8bn of debt, now firmly on the government’s balance sheet on the orders of the EU, and shudders. | The open question is whether the necessary improvements can happen within a timeframe acceptable to government and passengers. It’s hard to be confident. The Treasury looks at Network Rail’s £37.8bn of debt, now firmly on the government’s balance sheet on the orders of the EU, and shudders. |
| Unless matters improve quickly, one suspects the government will be tempted to make more radical reforms. Network Rail is forming clearer regional divisions internally. Could the entire company be split formally into separate units in the interests of competition and easier decision-making? It’s a plausible long-term strategy on paper; in practice, the short-term effect might be more confusion, frustration and missed targets. | Unless matters improve quickly, one suspects the government will be tempted to make more radical reforms. Network Rail is forming clearer regional divisions internally. Could the entire company be split formally into separate units in the interests of competition and easier decision-making? It’s a plausible long-term strategy on paper; in practice, the short-term effect might be more confusion, frustration and missed targets. |
| At the moment, though, nothing should be ruled out. The relationship between government and Network Rail is in danger of becoming dysfunctional. | At the moment, though, nothing should be ruled out. The relationship between government and Network Rail is in danger of becoming dysfunctional. |
| Packaging premium | Packaging premium |
| It’s got a dull name and it operates in a less-than-fashionable industry, but let’s hear a cheer for DS Smith, British champion of cardboard boxes. The company is one of those FTSE 250 businesses that deserve more attention for its quiet achievements overseas. | It’s got a dull name and it operates in a less-than-fashionable industry, but let’s hear a cheer for DS Smith, British champion of cardboard boxes. The company is one of those FTSE 250 businesses that deserve more attention for its quiet achievements overseas. |
| Smith’s big bet was the €1.6bn purchase of Swedish rival SCA Packaging in 2012. That deal has delivered in spades as the cost savings have arrived as advertised. The share price has risen from 150p to 390p since the purchase. | Smith’s big bet was the €1.6bn purchase of Swedish rival SCA Packaging in 2012. That deal has delivered in spades as the cost savings have arrived as advertised. The share price has risen from 150p to 390p since the purchase. |
| Supplying packaging to the likes of Unilever and Nestle sound like a low-margin game but, at the operating level, Smith produced 8.8%, which translated to a one-fifth rise to £200m in pre-tax profits. Chief executive Miles Roberts reckons margins could get better yet. He lifted the formal medium-term target by a percentage point to 8%-10%. | Supplying packaging to the likes of Unilever and Nestle sound like a low-margin game but, at the operating level, Smith produced 8.8%, which translated to a one-fifth rise to £200m in pre-tax profits. Chief executive Miles Roberts reckons margins could get better yet. He lifted the formal medium-term target by a percentage point to 8%-10%. |
| Smith now operates in 27 European countries, which creates opportunities for add-on purchases. It picked up 10% of the Spanish corrugated packaging market on Thursday via a €190m deal with a long-standing local partner. | Smith now operates in 27 European countries, which creates opportunities for add-on purchases. It picked up 10% of the Spanish corrugated packaging market on Thursday via a €190m deal with a long-standing local partner. |
| One wouldn’t describe the shares as cheap any longer – they trade on 16 times last year’s earnings. In retrospect, the moment to pounce was last summer when the market was fretting about the effects of a weak euro. But there’s still a dividend yield of 3% and return on capital employed is 14.6%. In an industry with high barriers to entry, that’s not bad – at least by comparison with some more famous FTSE 100 names. | |
| Taxi wars | Taxi wars |
| Boris Johnson’s attitude to app-based cab operator Uber seems to change by the week, but this sounds more like it. “It is not fair that a black-taxi driver has to spend four years getting the Knowledge and somebody else can just cruise in and take up the trade without really knowing how London works and how it all fits together,” said the London mayor. | Boris Johnson’s attitude to app-based cab operator Uber seems to change by the week, but this sounds more like it. “It is not fair that a black-taxi driver has to spend four years getting the Knowledge and somebody else can just cruise in and take up the trade without really knowing how London works and how it all fits together,” said the London mayor. |
| Quite right. Black taxis, high-quality vehicles with trained drivers, have been regarded as a public good for years, even if not everybody loves them. It seems bizarre to undermine the system just because a “brash” (Johnson’s description) US company can make mobile phones act as meters. | Quite right. Black taxis, high-quality vehicles with trained drivers, have been regarded as a public good for years, even if not everybody loves them. It seems bizarre to undermine the system just because a “brash” (Johnson’s description) US company can make mobile phones act as meters. |
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