Uber was smart to get itself listed on the New York stock exchange before the WeWork fiasco. There’s now a much-needed mood of scepticism on Wall Street towards cash-burning companies whose horizon for profitability stretches into the middle distance. Uber might find it harder today to raise $8bn (£6.2bn) at a whizzy valuation.
As it is, Uber’s shares have reversed by a third since the initial public offering in May and every financial update offers evidence as to why. In the third quarter of this year, the ride-hailing firm improved revenues by 30% year on year to $3.8bn. But losses, even on an adjusted basis, grew by a similar ratio to $585m. All those new ventures, from Uber Eats to electric scooters, are a drag.
On the hardest financial measure – cash – Uber has suffered a $2.5bn outflow so far this year. Yet it remains as hard as ever to see how the numbers will stack up when the “platform” is even bigger. The chief executive, Dara Khosrowshahi, is promising an adjusted top-line profit in 2021, but adjusted returns aren’t usually the ones that matter. Why should share-based payments to staff be excluded? They’re a cost.
In the meantime, claims of first-mover advantage are weakening. Drivers are happy to operate several apps simultaneously and choose the rides they prefer. In food delivery, competition is rife. In the background, there is the threat that gig economy contract workers will eventually have to be treated as employees, at least in some corners of the world; lawmakers in California are leading the charge.
Uber caught Wall Street in generous mood in May and, flush with cash, can keep spending for a while yet, at least in theory. In practice, we may be approaching the point where investors will demand that Uber cuts the luxury adventures such as scooters and tries to make some real money.
Primark owner has pensions blind spot
Associated British Foods has prospered over the years by doing things differently. Its Primark subsidiary refuses to join the online revolution and insists that customers must show up in the shops if they want cheap fashion. The formula works. The chain’s operating profits rose 8% to £913m last year, achieved at a healthy profit margin of 11.7%. A slow but carefully planned push into the US looks promising.
But ABF is being oddly stubborn in another area – executive pensions. This is hot remuneration territory these days and most companies have conceded that change has to happen. It is widely accepted that new boardroom appointments should get the same pension contribution, as a proportion of salary, as the rest of the workforce. And it is usually agreed that existing directors should fall in line within two or three years.
ABF is happy to make future directors comply but is refusing to budge for the current crew, arguing that contracts at appointment should be honoured. So the chief executive, George Weston, who got a £309,000 pension contribution worth 29% of his salary last year, and the finance director, John Bason, who is entitled to 25% of his £703,000 salary, are not being asked to adjust to the general employee rate of 10%.
Feedback from shareholders was “mixed”, the company has admitted, which is normally corporate speak for highly unpopular. As Standard Chartered and other big FTSE 100 names have discovered, investors these days are finally prepared to protest about pension inequalities.
In ABF’s case, it can probably ignore any rebellion at next month’s annual meeting. The company is 54.5% owned by Wittington Investments, itself controlled by the charitable Garfield Weston Foundation, and the home team will back the board.
But ABF has called this wrong. In a “maximum” year, Weston’s pay packet is worth £7m and Bason’s about £4.5m. They could afford some pension modesty. For a FTSE 100 company whose corporate responsibility messaging is more credible than most, ABF’s blind spot is surprising.
Kick Cobham back out of the long grass
The long grass is a popular place at election time, and here’s another sensitive decision that has been booted there: the proposed £4bn takeover of the Dorset-based defence firm Cobham by US private equity outfit Advent International. The business secretary, Andrea Leadsom, needs more time to think about whether to intervene.
The deal itself is depressing on purely commercial grounds. As argued here at the time, Cobham’s directors should have fought harder for independence. But the supposed national security objections have always looked thin since Cobham generates only about 8% of its revenues in the UK.
Maybe Leadsom will be minded to extract a few concessions from Advent about jobs and investment in the UK, but that task ought to be straightforward. Aside from the awkwardness of the timing, it’s not obvious why Leadsom could not move more speedily.