Ofgem, the energy regulator, has a lot to do. Some 29 retail suppliers have gone bankrupt in the past six months, Gazprom Energy, the Kremlin-backed company that supplies 20% of the UK’s non-domestic market, may soon need near nationalization due to the defection of client companies. In the meantime, the country needs a new energy strategy, for which the contribution of technocrats will be required.
However, Ofgem should still have room to address the issue that money-saving guy Martin Lewis raised with MPs on Tuesday: companies are playing ‘fast and free’ by increasing direct debits from consumers to beyond what is warranted by next month. energy price cap raised to £1,971 for an average household. Which suppliers are guilty, Lewis was asked. Almost all of them, he replied.
We suspect he is right as there is clearly a temptation for loss-making companies to improve their short-term cash positions in the current environment. Consumers are confused about how a 54% increase in the cap is supposed to translate into an adjustment to their direct debit payment. Meanwhile, price competition between firms has disappeared.
In cases where an account is in arrears, a doubling of a monthly charge will be legitimate. But it was alarming that Lewis relayed stories of companies defending over-the-cap increases for customers on credit on the grounds that another hike is on the horizon. This tactic is a test. Yes, the Ofgem rate will probably increase again in October (to £2,500, say the latest projections), but that’s no reason to increase sales in advance, unless customers agree .
Ofgem will be doing everyone a favor when it comes to implementing tougher rules on ring-fencing consumer deposits, reducing the incentive for businesses to borrow, in effect, from bill payers. In the meantime, a general regulatory warning to suppliers would be in order. If Lewis is right, sneaky behavior, to describe it liberally, flies under the radar.
Charles Allen has his work cut out at THG
Finally, a volunteer for the role of chairman of THG, a job that will require more than telling founder, CEO and owner Matt Molding to refrain from blaming his stock market troubles on nasty short sellers.
Charles Allen has had a varied career since his days as a top man at ITV, but probably never came across a company like THG, or The Hut Group as it was. His arrival gives the appearance of normal governance, but it is the substance of any reform that will count.
The easy part should be “refreshing” – in the statement’s polite parlance – a board where the non-executive team is too dominated by representatives of THG’s former private funders.
As for improving transparency, yes, that is obviously necessary. Molding spoke unconvincingly about the alleged hidden value of THG’s Ingenuity division — the part that provides “end-to-end technology services” to other people’s brands — but never offered a breakdown of profits by division to justify bragging. Err on the side of maximum disclosure. Until then, skeptical analysts are entitled to see Ingenuity only as a piecemeal logistics setup.
The critical element will be Allen’s review of strategic options. Japan’s SoftBank Group is unlikely to exercise its option to pay $1.6bn (£1.2bn) for 20% of Ingenuity since THG’s total market capitalization is just £1bn. sterling these days. Instead, the pressing question is whether to proceed with a spinoff of the Lookfantastic-based beauty division, previously announced as the first step in a possible three-way split with the nutrition deal to follow.
Is there any point in corporate gymnastics if online retailers everywhere have lost their exorbitant ratings? Allen would do well to dissuade Molding from his obsession with redeveloping the structure. Just spend the next two years whipping up more makeup and protein shakes and demonstrating that there’s real business at the heart of this confusing enterprise. Visionary stuff can wait.
Kingfisher has DIY comfort
It’s a minor moment in the history of the trade: Kingfisher, B&Q Group and Screwfix, is the third UK retailer to make an annual pre-tax profit of over £1bn. The other two are Marks & Spencer and Tesco.
Kingfisher has benefited from a push from the lockdown and work-from-home factors and does not expect a repeat this year: it is ‘comfortable’ with analyst forecasts of £769m. But there is no reason to fear a post-peak M&S descent into crisis.
DIY is a defensive sector and there are still few signs that the squeeze on household budgets is affecting demand for big-ticket items like kitchens and bathrooms. Meanwhile, the French Castorama and Brico Dépôt channels have been rewired and Screwfix still has scope for expansion. The long-term outlook seems more in line with comfortable Tesco-style reliability.