Ofgem, the energy regulator, has a lot on its plate. Some 29 retail suppliers have gone bust in the past six months, Gazprom Energy, the Kremlin-backed company that supplies 20% of the UK’s non-domestic market, may soon need a quasi-nationalisation as corporate customers defect. Meanwhile, the country needs a new energy strategy, for which the technocrats’ input will be required.
There ought still to be space, though, for Ofgem to address the issue that Martin Lewis, the money saving guy, raised with MPs on Tuesday: companies playing “fast and loose” by whacking up consumers’ direct debits beyond what’s justified by next month’s hike in the energy price cap to £1,971 for an average household. Which suppliers are guilty, Lewis was asked. Virtually all of them, he replied.
One suspects he’s right because there is clearly a temptation for loss-making companies to improve their short-term cashflow positions in the current environment. Consumers are confused about the mechanics of how a 54% increase in the cap is supposed to translate into an adjustment in their direct debit payment. Meanwhile, price competition between companies has disappeared.
In cases where an account is in arrears, a doubling of a monthly direct debit will be legitimate. But it was alarming that Lewis relayed tales of companies defending cap-beating increases for in-credit customers on the grounds that a further rise lies around the next corner. That tactic is a try-on. Yes, the Ofgem tariff probably will increase again in October (to £2,500, say latest projections) but that is not a reason to crank up balances in advance unless customers agree.
Ofgem will do everybody a favour when it gets round to implementing stiffer rules on ring-fencing of consumer deposits, thereby reducing the incentive for companies to borrow, in effect, from bill-payers. In the meantime, a general regulatory warning to suppliers would be in order. If Lewis is correct, sneaky behaviour, to describe it generously, is going under the radar.
Charles Allen has his work cut out at THG
Finally, a volunteer for the role of chair of THG, a job that will require more than telling founder, chief executive and landlord Matt Moulding to refrain from blaming his stock market troubles on wicked short-sellers.
Charles Allen has had a wide-ranging career since his days as top man at ITV, but has probably never encountered a company quite like THG, or The Hut Group as it was. His arrival gives the appearance of governance normality, but it’s the substance of any reforms that will count.
The easy part should be “refreshing” – in the statement’s polite language – a board where the crew of non-executives is too dominated by representatives of THG’s former private equity backers.
As for improving transparency, yes, that’s obviously needed. Moulding has warbled unconvincingly about the supposed hidden value within THG’s Ingenuity division – the bit that provides “end-to-end technology services” to other people’s brands – but has never offered a divisional profit breakdown to justify the boasts. Err on the side of maximum disclosure. Until then, sceptical analysts are entitled to see Ingenuity only as a bits-and-pieces logistics set-up.
The critical element will be Allen’s review of strategic options. Japanese group SoftBank surely isn’t going to exercise its option to pay $1.6bn (£1.2bn) for 20% of Ingenuity since THG’s entire market capitalisation is just £1bn these days. Instead, the pressing question is whether to go ahead with a demerger of the Lookfantastic-based beauty division, previously advertised as stage one of an eventual three-way split with the nutrition operation to follow.
Is there any point to the corporate gymnastics if online retailers everywhere have lost their sky-high ratings? Allen would do well to talk Moulding out of his obsession with rejigging the structure. Just spend the next two years flogging more make-up and protein shakes and demonstrating there’s a real business at the heart of this baffling company. Visionary stuff can wait.
Kingfisher has the comfort of DIY
It’s a minor moment in shopkeeping history: Kingfisher, the B&Q and Screwfix group, is the third British retailer to make an annual pre-tax profit of more than £1bn. The other two are Marks & Spencer and Tesco.
Kingfisher enjoyed a push from lockdown and working-from-home factors and is not expecting a repeat this year: it is “comfortable” with analysts’ forecasts of £769m. But there is no reason to fear a M&S-style post-peak descent into crisis.
DIY is a defensive sector and there are fews signs yet that the squeeze on household budgets is affecting demand for big-ticket items like kitchens and bathrooms. Meanwhile, the French Castorama and Brico Dépôt chains have been rewired and Screwfix still has scope for expansion. The long-term outlook looks more in line with comfortable Tesco-style dependability.