Tag Archives: Nils Pratley

Choo Choo Ego

Before we get to the article ‘Can the cost of HS2 be justified?‘ (at https://www.theguardian.com/uk-news/2020/feb/03/at-307m-per-mile-of-track-can-the-cost-of-hs2-be-justified), I need to take a step back, you see when I was young, stupid, eager and sceptic 6 years ago (I am still all that except young), I wrote on August 16th 2013 ‘Political ego and their costs‘ (at https://lawlordtobe.com/2013/08/16/political-ego-and-their-costs/), there I wrote “As reported by the Guardian in July, there have been voices that the high speed North-South line, which will cost to the scope of 40 billion Euro is going in a not dissimilar direction. Even though the UK government is claiming a 20% nett return, the additional factors might have not been weighted enough. Consider that the current issues involving price hikes for train rides are growing between 4% and 9%, the group that can no longer afford these kinds of prices is growing fast. More important, these price hikes are now pushing people away from rail and towards buses for the sheer cost of it. This is an entirely opposing reaction to what the UK government needs it to be.

Those in favour of HS2 claim in the quote “This is a massively misleading oversimplification because it doesn’t take into account the significant financial returns that will be generated from an investment in high-speed rail.”

There was already a clear path of non-affordability and I am happy that people almost 7 years later give us ‘At £307m per mile of track, can the cost of HS2 be justified?‘, there is hardly an economy, there are spending sprees all over the place and the infrastructure needs serious fixing, yet some MP’s thought it was a good feeling (their ego) to give out 40 billion on a train ride that has more problems than fixes. 

The idea that the required budget has more than doubled requires a few more investigations of those trying to push this project. So even as we go with “Allan Cook ordered a “chairman’s stocktake” when he arrived at HS2 in December 2018 and last September came up with £72bn-£78bn in 2015 prices, or £81bn-£88bn in 2019 prices.

Nils Pratley informs us on the The official Oakervee report, which concludes that if problems are not fixed, the outstanding bill will increase with an additional £20,000,000,000. So there is that to look forward to. As such as we consider “Every escalation in costs has dented the economic case for HS2 – £106bn equates to an astonishing £307m per mile to build 345 miles of high-speed track.” I was of the mind that a clear case could not be made when it was still a mere £40 billion. Even as we are given “Government studies used to say the full Y-shaped line would generate benefits of £2.30-£2.50 for every pound spent.” It is not merely disputed, I wonder where the actual data on that model is. You see, if we take time into consideration between Leeds to Birmingham, how much time gain will the traveller see if we compare normal train versus high speed train and is that person willing to pay for that difference. In light of the Oakervee report where they give us “put the benefits at only £1.50 for every £1 spent. Lord Berkeley, the dissenting member of the Oakervee panel, reckons 60p is more like it“. The argument from Lord Berkeley is important. He gives us “running 18 trains per hour, as assumed in original projections of HS2’s revenues, is impossible. No other high-speed network in the world achieves that“, which amounts to one train every 3.5 minutes. In what reality do we have that many people travelling from one end to the other? Even when we accept that 14 trains is possible, the entire matter is set on trains that will never reach 50% filling (personal view). In all this we still need to consider that this is a train that merely stops at large cities, in all this I have some serious questions on the entire project and the stage of how many tickets will be sold, for as I see it at present, we are sold a bag of goods (optionally containing one High Speed Train) with a lot of problems that could have been seen in 2013, all this to feed the ego of politicians?

 

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The Outsourcer’s Furlong

The race is on, we heard last year just how poorly the setting of Interserve was. We all head how Interserve served the people the small fact that they were half a billion (in £) in debt. I discussed it last December (at https://lawlordtobe.com/2018/12/17/one-to-the-hospital-one-to-the-morgue/) in the article ‘One to the hospital, one to the morgue‘, and if the previous financial model applies, there is every consideration that so far another £200 million has been added to the debt. The guardian gives us: “the directors danced around the issue. A “fully consensual” financial restructuring would be preferable but Interserve was “also actively preparing alternative plans to ensure the proposed transaction can be implemented in the event that shareholder approval is not forthcoming”“, and as they very correctly state it ‘What alternative arrangements?

In this Coltrane and Farringdon Capital Management have between them one third of the equity and the message of “the proposed £480m debt-for-equity rescue in which the banks would take control and current investors would be diluted to just 2.5% ownership“, you can imagine that these two campers were not happy. They stand to lose it all if things go pear shaped, the awkward impact of a wrong investment made bare. The fact that these two could stagger it all if there is not a full house (which is the most likely event), could stop everything and as the Guardian states (to be more specific Nils Pratley does at https://www.theguardian.com/business/nils-pratley-on-finance/2019/feb/13/interserve-needs-a-plan-b-given-the-rebellion-over-its-current-plan), a plan B is needed. I personally think that a plan C is equally essential. At present chairman Glyn Barker has his work cut out for him, not only are 45,000 out of the 74,000 employees in the UK and they are waited with baited breath, there are more than two parties that are on the ropes and he needs the bulk to fall in line with his vision. One part is the lucrative Interserve Saudi Arabia. Even as it is profitable now, it is also in demand now, auctioning it off to Salini Impregilo could give them a decent reduction in debt overnight and with matters in Saudi Arabia as they go, Salini Impregilo needs the workforce, they are scoring job after job and at some point the workforce will not hold up to the scrutiny of deadlines. As it includes presence in the UAE, Interserve might want to choose dollars for doughnuts before the stage has changed and all that they can hope for is 10 cents to the dollar, because at the stage where two players having one third push for change, Salini Impregilo merely needs to wait for Interserve parties to become utterly desperate and that given stage is a little more realistic than some players are comfortable with.

If debt reduction is the goal and we see that their Middle Eastern part involves:

  • Hospitality and leisure
  • Oil and gas
  • Retail
  • Transport and infrastructure

I see at least three branches that could be pruned and it is a first step to push Interserve back to their core and optionally into a field where cost becomes increasingly lower than the current balance statements require them to be. A similar view could be held for the US and Asia. I wonder just how profitable these branches are, the total debt implies that it goes way beyond the UK (or the UK part is optionally mismanaged in the most dreadful way). I am not implying or judging, half a billion in debt is doing that for me pretty convincingly.

So as the Times gives us: “The New York hedge fund attempting to derail the £905 million rescue plan at Interserve is nursing losses of nearly 90 per cent on a £25 million bet that the public services contractor could recover without falling into the hands of its lenders“, we also see another side. The fact that we see someone hedging 3% into moving away from the £900 million rescue plan, and losing 90% of their attempt also implies that the tress intensifies. Another view is given by the Financial Times (at https://www.ft.com/content/8cd9d920-2b98-11e9-a5ab-ff8ef2b976c7) with: ‘Hedge fund in Interserve feud profited from Carillion collapse‘, with the addition “Coltrane Asset Management, the biggest investor in Interserve, earned £4m wagering on Carillion’s collapse by selling its shares short“, so why give them any consideration? the fact that they decided to add a 20+% share in Interserve with the assumed and highly likely path to try that trick a second time implies that they have no vested interest in the firm, merely a need for greed. So why cater to that? When we are given: “Carillion collapsed in January 2018 leaving banks, investors and pensioners nursing heavy losses and the government struggling to deliver key services such as hospital cleaning and school meals. Some 3,000 staff lost their jobs, with another 14,000 transferred to other employers, in one of the biggest corporate failures in British history“, we know that this was not the fault of Coltrane Asset Management, yet they had no issue selling it all down the drain as it allowed them to fill their pockets. We get it and we do understand that Coltrane is in it for the money, that is how the cookie crumbles, yet when we see the impact on an optional 74,000 employees, we need to look beyond. It is not like Coltrane is taking over and making it a profitable setting, are they?

We do get that Coltrane is not the actual evil party in this, unless they explored short selling here too, at that point they are on their own. Coltrane is not without teeth, the mere setting of shareholders losing out on their investment will make them gang together and plenty of them are small investors; it is their retirement that is at stake. Scottish pubs tycoon Alan Macintosh is also still an element in all this, the swap would make him massively rich so he is willing to stick with the plan, there are still 6 weeks until the deadline gives us the setting of the battle line that will be drawn, and where that ends is anyone’s guess. yet as the Financial Times points out “People close to Coltrane said it was confident of winning support from the numerous smaller investors — which include Hargreaves Lansdown and Standard Life“, those with their retirement savings in the balance will turn to Coltrane soon enough, some will be scared enough to offer their part to Coltrane at any amount that gives them more than 30 cents to the dollar, giving Coltrane the option to upgrade the size of the bat that they wield in this encounter, leaving the people at Interserve with little to work with, and in light that there is no plan B or a plan C, gives more and more the impression that they never properly prepared for this war, making the outcome of a win for Coltrane against them a rather large likelihood.

So who goes to a war theatre without at least three options ready? Anyone who starts a tactic without two alternative routes handy at any given time is merely on a one way street to defeat. That is not predictive, that is an issue that has been gospel since WW1, I would go further that the Siege of Khartoum of 1884 was another example to that premise. In those days there were thousands of Brits sneering and making fun of Muhammad Ahmad bin Abd Allah, in the end he walked into Khartoum leaving mountains of corpses in his wake. From that setting alone, the board of directors at Interserve have made a few too many really poor decisions, when we add that to the pile, we see that Coltrane is not done, not by a long short and when it falls over, Coltrane walks away with an ox-cart of gold and a fair share of the 74,000 employees will not be that lucky.

Those who want a better stage better find themselves a new deal and set themselves as independent contractors finding new alliances. It might be easy for some where the market is vastly on the rise, but that is merely in a few places where the stage can be set to take control of the projects, making the situation of Interserve a lot less manageable soon enough.

I am merely speculating now, yet consider the projects over the last 6 months.

  • Qatar National Theatre
  • Southwark Council
  • Highways England
  • North Lincolnshire Council
  • Durham University

These are merely a few of many projects where ownership of the project could revert to other players if the pressure on that project is high enough. Those customers will need to seek a solution for their invested needs and there is now enough doubt whether Interserve can fulfil its side of those contracts, the mere absence of a plan B would essentially be enough to facilitate for change if the proper cards were played and £150 million is nothing to make fun of.

But that could be merely my wrongful view on the matter, we will know soon enough.

 

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