Monthly Archives: September 2014

Points of View: Result of the Scottish Referendum

Scotland has voted to stay in the United Kingdom after voters decisively rejected independence after polls throughout the week had suggested that the referendum was too close to call. David Cameron said that he was pleased that the UK would remain together and commitments on extra powers would be honoured “in full”. He also acknowledged that the people of England, Wales and Northern Ireland must have a bigger say over their affairs. All three political parties have undertaken an accelerated agenda to give more tax and spending powers to the Scottish people. The Queen spoke of a spirit of mutual respect and support, to work constructively for the future of Scotland and all parts of the Union.

The result preserved the status quo and avoided scenarios that investors and economists dreaded: a drop in the pound, capital migration from Scotland and a period of profound uncertainty that could have weakened Great Britain’s recovery. Some business investments and house purchases were even put on hold pending results of the vote. Royal Bank of Scotland said it would keep its headquarters in Scotland following the “No” vote. Share prices also rose as Scotland voted against independence. Despite a string of chief executives speaking out against independence in the final days before the referendum, the UK stock market remained remarkably buoyant in the build up to the vote, with analysts suggesting at the time that there was an 80-90% certainty of a “No” vote priced in.  It rarely pays to bet against the market and so it was proved.


Points of View: Scottish Referendum

This week I am focusing on the Scottish Referendum, which is finally coming to a head this Thursday 18 September.

The Yes campaign’s arguments for independence revolve around democracy and wealth. First Minister Alex Salmond argues that an independent Scotland would benefit from the democratic gain of being able to set its own budget and become one of the wealthiest countries in the world thanks to its domestic oil reserves combined with well-developed service and manufacturing industries.

The No campaign, headed by the Tories, Lib Dems and Labour under the Better Together umbrella, highlight the success of the Union and the extreme risks of independence, including currency and funding uncertainty, declining oil revenues, fleeing financial services, increasing pension costs and diminishing political influence.

With polls tightening after a recent surge in support for the Yes campaign, markets have started to discount for the UK’s uncertain future. Sterling has given up recent gains and shares in certain stocks such as financials with a large exposure to Scotland have been volatile.  The broader FTSE 100 share index has been relatively stable, though.  Indeed, weaker sterling is broadly supportive as so many of the index’s constituents make a large proportion of their sales overseas.

Only a simple majority of the 4 million voters – which, for the first time ever, includes those aged 16-17 – is required to secure victory. The results will be announced early on Friday morning. 

Stocks in Focus: Diageo

This week I am taking a closer look at Diageo, which announced its results for the year ended 30th June 2014 last month.  In short, it has been a challenging year for the premium drinks company that owns recognisable brands such as Guinness, Smirnoff and Johnnie Walker amongst others.  Net revenue and operating profit fell by 9% and 10% respectively and earnings per share was down 8%. In particular, the company was hit by an unfavourable fixed foreign exchange policy introduced by the Venezuelan Central Bank.  Anti-extravagance laws in China also affected sales as its government introduced a crackdown on corporate entertaining and lavish gifting aimed at stamping out widespread corruption.

On the plus side, we note that organic profit and dividend per share growth were both positive and broadly in line with market expectations. Furthermore, significant investments in core brands and efficiency improvements should soon start to yield benefits.  In the meantime, Diageo’s margin expansion plan is still on track and its new CEO, Ivan Menezes, is implementing a change in culture to simplify business practices in order to make the company leaner and more agile. Mr Menezes was appointed in July last year having previously held several positions within the company as well as strategic roles within other companies such as Nestle and Whirlpool. It will be interesting to see if the group’s focus on core brands and efficiency gains starts to benefit the company’s performance in due course.

Stocks in focus: Tesco

Last month, I reported on Tesco and the sudden ousting of CEO Philip Clarke. The company is my focus again this week after it issued its third profit warning of the year and announced a 75% cut to its interim dividend. With new CEO Dave Lewis now in position (a month earlier than initially expected), the investment case now hinges on his turnaround strategy.  Technically, he has a strong underlying business to engineer in the right direction; Tesco remains the largest operator in the market by some distance and the associated economies of scale give it a pricing advantage over competitors. Indeed, with the right pricing strategy it has considerable attractions versus the discounters it is presently losing market share to as the likes of Aldi and Lidl typically have small car parks, long queues, a narrow range and no online or fuel offering. However, there will now likely be a period of uncertainty as investors wait for Mr Lewis to flesh out his strategy.  Whether the shares offer value at this depressed level will depend on the success or otherwise of the turnaround plan versus current expectations. On the plus side he appears to have plenty of levers to pull to stem the losses in market share, particularly in respect of pricing. On the downside, margins will be squeezed and there is no guarantee of success.


Marcus Johnson looks for a pact with the devil and how it revives the Liberals.

Imagine the situation – by forming a coalition government you have rescued the country from a disastrous situation – a threat to the existence of the United Kingdom has been averted – victory over the problems made immeasurably worse by an inadequate uninspired and divided previous government has been secured. But it is time for a general election. As leader of the two coalition parties you are faced with a choice – possible defeat or certain eternal damnation for one or both of you – what do you choose? Defeat would be comfortable – although its existence was threatened and much of its power removed over the last few years there is still a comfortable seat in the House of Lords for life for you if you ignore the temptations offered by what many would regard as a pact with the devil. You have done a job most people regarded as impossible and leaving your successors to deal with the huge debt, housing problems, splitting up Europe and the unstable situation in the Middle East must be tempting. So what will you do?

Well, if it was you or me we might rest on our laurels and take a dignified role as an elder statesman – but then again you or I would need burning ambition, a restless desire to dominate, and a determination to achieve power if we were  to be in that position. Perhaps that is not quite what we are, and if we were we might, like Lloyd George and Andrew Bonar Law, decide that our duty to our country to finish the job we had really only partly completed by defeating Germany (and, of course, Austria and Turkey) came first.

Or as others might put it we were greedy for power and would do anything to retain it – even if a pact with the devil was the means.

So why, when everyone else is looking at 1914 and the acceleration of the final disintegration of the Empires which had been the dominant feature of Europe for 2000 years, am I looking at 1918? Because in 2015 David Cameron and Nick Clegg face exactly the same choice as their predecessors 96 years earlier. The conditions are not really the same – the massive slaughter, the social unrest, the violent revolutions have no echoes today, but the reality is that the possibility of a near certain victory if the current coalition goes into the election united behind a single candidate in each constituency is as real today as on 20 November 1918.

Perhaps I should remind you of what the ‘Coupon’ was. It was a letter signed by the Prime Minister and his deputy which very simply said:

“Dear Sir Eric,

We have much pleasure in recognising you as the coalition candidate for [Cambridge]. We have every hope that the electors will return you as their representative in Parliament to support the Government in the great task which lies before it.

Yours truly,

David Lloyd George and Andrew Bonar Law”.

Sir Eric Geddes (later immortalised as the wielder of the famous Geddes Axe and perhaps partly responsible for the Second World War as the originator of the infamous “We will get everything out of her [Germany] that you can squeeze out of a lemon and a bit more. I will squeeze her until you can hear the pips squeak”) duly was returned for Cambridge with more than 75% of the votes. It was the same story in the rest of the country. Voters love coalitions. In 1931 the coalition candidate won 73% of the votes in Cambridge – even at the height of her considerable local popularity Anne Campbell only got to 53% of the vote in 1997.

All David Cameron and Nick Clegg need to do is:-

1)  decide they want to stay one more term

2)  agree a program for the next parliament

3)  agree a division of ministries

4)  select who gets the Coupon

And it is on this last point that the eternal damnation which surrounds Lloyd George and Bonar Law is the worry. David Cameron has a daily reminder of how the coalition was broken in the form of the ‘1922 Committee’ – which is still how the backbench Tories style their parliamentary group.  The two chief whips in 1918 plotted for six months and when they issued the letter it went to only those that the Government liked – Asquith supporters need not apply – and very few Liberals without the Coupon were elected.

If they do want to stay in power our current coalition would be well advised to resist punishing those who have betrayed it. If they seek to punish those who, like Julian Huppert, removed their support when parliament refused to support government action against chemical warfare in Syria they will split both parties. Even those who, like most of the rebels, voted against sanctions on President Assad, not because they liked him but to embarrass the coalition, should get the Coupon. The only selectivity (and the trickiest bit to agree) can be constituencies without a sitting member supporting the coalition – here they are safe in asking candidates to pledge support for the coalition as the price of receiving endorsement. But today they would also need to have an objective rule which determined who was offered the Coupon in each constituency – again to avoid disputes and allegations of favouritism. I would argue that a very simple rule should be applied in all seats held by Labour and the Scottish National party. The percentage vote of the party holding the seat should be used to rank each seat they hold. The coalition parties would then each take alternative slots in the ranked seats. Any attempt to assess winnability or to trade positions would be too divisive.

So if the two leaders go for another term in this way will either or both of them survive the inevitable victory? The 1918 coalition was divided by protectionism and the liberal split was worst on the subject of the treaties governing our relationship with the other European powers. If the 2015 coalition breaks down it is likely to be because David Cameron fails to keep his rabid anti-European activists under control. In coalition there are too few jobs to bribe those who wish to be awkward and it is too easy for backbenchers to get easy applause by pandering to their extreme supporters. If this logic holds then the possibility exists that Nick Clegg would be the beneficiary – 100 years on from the effective disappearance of the Liberals as the alternative governing party he could well be accepting pro-European Tories into his Democratic Liberals and Progressive Conservative Alliance to win the 2018 election.

NW Brown Events

NW Brown Group Ltd is delighted to combine entertaining our clients and associates with supporting local sports and arts throughout the summer.

As the sponsor of the Norfolk 20/20 Cricket Final we were privileged to be part of a great match between Swardeston and Norwich held at Manor Park, home to Horsford Cricket Club

For the second year running NW Brown Group sponsored both The Norfolk & Norwich Festival and The Holt Festival.  We shared two fantastic evenings with clients and experienced the musical talents of Madeleine Peyroux and Sarah Jane Morris.

The weather was kind to us at our Annual Golf Day held at the Gog Magog Golf Club in June and a great day was had by all. We are always keen to hear from our clients as to whether they are golfers, tennis players or prefer spectating at rugby or sailing, or have a particular interest in the arts, so that we can ensure they receive invitations to events that would interest them – please get in touch with Nicole at the address below.

Many of our clients and associates joined us for our summer receptions in Norwich and Cambridge. Those who came along to St John’s College in Cambridge were able to make immediate use of our 40th Anniversary gift of Stormproof Golf Umbrellas and we sincerely thank them for bearing with us on the evening!

Our client seminars have been going from strength to strength with ever expanding numbers of attendees enjoying both the networking opportunities and the knowledgeable expert speakers.  Seminars are a great way for us to impart knowledge whilst getting to know our clients even better. Coming up in the autumn we have seminars at both our Cambridge and Norwich offices where we will give an update on the investment markets and talk about the financial planning services we offer. If you would like to be included on our invitation list for these events please contact Nicole at