Lombard

December 10, 2013 2:42 pm

Miners’ retreat rebalances FTSE 100 index

Vedanta and Croda, the two companies set to make their farewells to the FTSE 100 on Wednesday, are two of the only four groups in the blue-chip index with all-male boards.

Their likely departures – to make way for Royal Mail and Ashtead – are not due to some strange power exercised by Vince Cable, even though he has been cross about their lack of diversity. Chemical maker Croda was promoted just last year, and it could be a company like John Wood Group and the London Stock Exchange that quite often drift between the lower reaches of the FTSE 100 and the upper realms of the FTSE 250.

Vedanta’s demotion owes much to the fall in commodity prices. Not that there’s much for FTSE 100 tracker funds to regret about its exit. It is a complex group, controlled by its chairman, Anil Agarwal, whose plan to build India’s first global natural resources group is still very much work in progress. It has had only limited success in reducing its high levels of net debt, and latterly has become dependent on oil and gas earnings rather than its more traditional mining activities. Its market value has slumped by about one-third this year.

Still, its departure is significant. It is the fifth metal and mining group to quit the index this year. Kazakhmys was first followed by Polymetal and Evraz in June and then the famously “more Soviet than City” Eurasian Natural Resources Corporation in September.

For 2013 has been a year of rebalancing for the FTSE 100. Since mid-2007 the mining and metals sector have almost always accounted for more than one-tenth of the index’s market value, reaching as high as 17 per cent. It slipped into single figures in June and once Vedanta has left will stand at little more than half its peak.

As the miners have shrunk, the banking sector has revived. The most striking examples are Barclays, whose market value has risen more than 15 per cent in the past 12 months and Lloyds Banking Group which has gained more than 50 per cent. By September, banks had overtaken oil and gas producers and mining groups to become the largest sector in the FTSE 100 by market value. Thank goodness there’s nothing to worry risk-averse passive investors there.

French Disconnection

France is the world’s most popular holiday destination. It is also – surely – the least popular country for tour group TUI Travel.

Over the year to end-September, customers in Germany and the UK obligingly generated significantly more revenues and underlying operating profit, even though in Germany their numbers were slightly down.

France has gone in a different direction, producing a substantially worse performance, with an underlying operating loss of £59m – sharply up on the £32m the previous year.

Head tour guide Peter Long talks, appropriately enough, about TUI’s French business going on a journey. It is being “re-mixed”. This turns out to mean a substantial cut in capacity through the past year and over the winter, and an emphasis next summer on destinations such as Greece and the Spanish islands instead of north Africa. There’s some serious cost-cutting going on too, with the aim that the French operation should reach break-even in 2014/15.

At the group level, pre-tax profit was hit by £188m of impairment charges (blame the activity holiday division), producing a slight drop to £297m. Still, the underlying earnings growth was sufficiently strong to support a 15 per cent dividend increase.

Having risen more than 30 per cent over the past 12 months, the share price saw a mild dip on Tuesday morning to 374.6p, leaving Europe’s largest tour operator trading on a forward p/e multiple of a little more than 12 times. TUI is a well-run business, but it is in a sector so vulnerable to events that investors need a spirit of adventure.

Women drivers

Even as Mary Barra steps on the gas at General Motors, the brakes still seem to be on when it comes to appointing her equivalents on the UK side of the Atlantic.

The latest example of how much harder it is for a woman than a man to get on at a big plc suggests that a man starting out at a FTSE 100 company is 4.5 times more likely to reach the executive committee.

This figure comes from a slightly rough-and-ready comparison of the gender balance now among at lower level executive roles and those on the brink of the board. But the ratio is still striking.

The group behind the study says that instead of trying to help women adapt to prevailing corporate culture, companies should seek an even gender balance by changing how they behave. We could be in for a long wait on this one.

alison.smith@ft.com

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