Too soon to write off Sir Philip just yet

He may be slimmer, but it is as tempting as ever to take pot-shots at a large, slow-moving target such as Sir Philip Green.

Thursday’s results from Arcadia, the cornerstone of his retailing empire, provided plenty of ammunition for the mob. Sir Philip is not paying himself a dividend this year from the business, which includes TopShop and Miss Selfridge. Operating profits were down 8 per cent in the past financial year, reversing the upward trend of the previous four years. And this comes after Sir Philip’s admission this summer that BHS, his other prominent success story, has lost ground to Marks and Spencer.

Sir Philip must feel that he cannot win. When he takes a jumbo dividend, he draws flak for being greedy. But when he does not, he looks like a failure.

The reality is that Sir Philip hardly needs the money. And his general propensity to siphon cash from businesses by refinancing them is hardly excessive for the sector.

The comparison with Debenhams, which announced results earlier this week, is flattering. Debenhams’ private equity owners took huge dividends from the business during their three years of ownership prior to floating it in May. Its underlying sales over the past seven weeks fell 4.2 per cent. Arcadia’s comparable figure was down only 1 per cent.

Meanwhile, Arcadia’s operating profit margins, while lower than last year, remain among the best in the industry.

Sir Philip’s decision to leave the balance street relatively unstretched by skipping a dividend looks wise. Competition continues to intensify in the British retail sector. The industry is piling on new floorspace – Arcadia included. Costs are rising and consumers continue to force down high-street prices.

Sir Philip is looking and sounding more defensive than he has for some time. But given the mounting pressures, his caution may pay dividends in the end.

Melting confidence

Three months ago, Cadbury Schweppes was talking about easily achieving its sales targets this year – never mind that it had just recalled millions of chocolate bars in the UK amid a salmonella scare.

The confectioner’s confidence melted on Thursday with the admission that sales growth in 2006 would be only in the middle of its targeted range, while margins would be flat.

This is among history’s smaller profit warnings. All the same, it is a fresh embarrassment for Todd Stitzer, Cadbury’s chief executive. Cadbury previously had a reputation for underpromising and overdelivering. Mr Stitzer’s credibility may not be shattered, but it has taken a knock.

Moreover, investors seem unwilling to stomach the explanation that the lowered forecasts can be explained away by the impact of recent hot weather on sales of chocolate in the UK.

The concern is that there may be more permanent forces at work. Consumers are becoming healthier in their tastes; Cadbury’s products look increasingly like those of yesterday’s generation.

True, Cadbury has been moving with the times, acquiring Adams, the US gum company, and Green & Black’s, the organic chocolate producer. The question is whether it is is adapting fast enough.

Mr Stitzer has won plaudits for taking cost out of the business. But the company faces different challenges from here. If he wants to play a leading role as the global sector consolidates, he cannot afford further slips.

UK shows the way

Charles McCreevy, the European Union’s single market commissioner, recently launched a debate on whether it is worth legislating to encourage companies to adopt one-share, one-vote shareholder democracy. This sounds uncontroversial. But there are fears that it might lead to stiff regulation with the risk of unintended consequences.

A study by the Association of British Insurers has found that a third of large companies in Europe restrict voting rights. The problem is less serious among UK companies, although a handful still give preferential treatment to certain shareholders – for example, Schroders, Reuters and DMGT.

As it happens, UK companies may already have shown the way forward. The ABI on Thursday pointed out that during the 1990s it renegotiated preferential voting rights in 12 companies, including Whitbread, WH Smith and GUS. In each case, it was possible to find a deal that created acceptable compensation for shareholders who were losing their historic advantages.

If UK companies and their shareholders can do this over tea and biscuits, perhaps continental counterparts can do the same over coffee and a croissant.

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