News Review 3 Mar: Rio chairman to stand down

Tax reform “urgently needed”

The UK has the capacity to increase the burden on its taxpayers in order to restore the nation’s finances and the tax system itself needs an urgent overhaul, a Treasury select committee has concluded.

The committee was set up in 2020 to examine how the tax system might need to change in a post-pandemic world. It recommends that no major tax changes are introduced until the economy is firing on all cylinders. However it concludes that moderate rises in the rate of corporation tax would be a sensible way to raise revenue without damaging growth, and that a one-off wealth tax could be considered, although it disagreed with the premise of an annual wealth tax.

Apart from stating that taxpayers could bear more tax, areas that the committee felt should be the focus of significant reform included pensions, the taxation of different types of working, capital gains and property. It said costly and regressive higher and additional rate pension tax relief should be curtailed. The ability of the self employed, contractors and limited company directors to access lower rates of tax overall should be prevented with the same rates of tax applying to everyone no matter their employment status. 

The committee’s view is that there is a compelling case for reform of the extensive reliefs and exemptions given on inheritance and capital gains tax. Its verdict on another big tax - Stamp Duty Land Tax - is that it is inefficient and damaging. It should be got rid of and it suggests SDLT and council tax could be replaced by an annual housing levy despite the fact such a measure could “create some very big losers”.  RC

London listing rules set for overhaul 

A government-backed review of the City has called for an overhaul of company listing rules, so that the market in London can compete more closely with New York and Europe, as well as ride the surge of special purchase acquisition vehicles, otherwise known as SPACs. The report, which was led by former EU financial services commissioner Lord Jonathan Hill, proposed allowing dual-class shares. The structure would allow founders greater control over their companies, and might help woo more technology unicorns to list in the UK. Chancellor Rishi Sunak, who commissioned the report, said that he was keen to “move quickly to consult on its recommendations.” LA

Airbnb pins hopes on travel rebound

No one was expecting particularly sunny numbers from Airbnb’s (US:ABNB) 2020, as coronaivrus restrictions brought international travel to a halt. The group, which only listed a few months ago, suffered a $3.9bn loss last year, of which $2.8bn was stock-based compensation. But chief executive Brian Chesky said that the company’s performance last year proved that it was “inherently abtdaptable”, as revenues of $859m in the final quarter of the year comfortably exceeded analyst expectations. While global vaccine efforts look uneven at the moment, demand for longer ‘staycations’ should help tide the group over until a more tangible recovery in travel. LA

Hotel Chocolat buoyed by digital sales

Hotel Chocolat’s (HOTC) UK sales rose more than a tenth during the year to 27 December, as online growth helped to offset the effects of physical store closures under coronavirus restrictions. The chocolate retailer’s UK customer database expanded by almost two-fifths, while its US and Japanese databases grew by 170 per cent and 900 per cent respectively (from a less advanced starting point).

Overall, group revenue rose 11 per cent to £102m while pre-tax profits edged up 3 per cent to £15.5m. Hotel Chocolat almost doubled its net cash over the 12-month period, ending up with £47.6m on its balance sheet. HC

Energean launches $2.5bn bond offering 

Gas developer Energean (ENOG) has announced a major refinancing effort that will see it issue bonds maturing between 2026 and 2031 to raise $2.5bn. The lion’s share of the new money will go to paying off existing debts of $1.45bn and $700m. The company, which is building a major offshore gas project in Israel, will now start a roadshow to sell the bonds to investors, with pricing to be announced following this process. AH

Twitter edges closer to subscription model 

Social media giant Twitter (US:TWTR) is considering the introduction of a ‘super follow’ feature, which would allow users to pay a subscription fee for exclusive content from some accounts. At an annual presentation to analysts last night, the company announced ambitious new growth targets, including 315m monetisable daily active users (DAUs) and $7.5bn in annual revenue in 2023. That is compared to 192m DAUs and $3.72bn in revenue last year. 

If introduced, the subscription features should help Twitter move closer towards those goals. Investors have long called for a means to squeeze more revenue out of its users, and the stock closed 3.7 per cent higher last night. But whether or not anyone will want to pay to get an extra bit of content from accounts that are otherwise free remains unclear. LA

Rio chairman to stand down next year 

Rio Tinto (RIO) chairman Simon Thompson will step down next year over his handling of the Juukan Gorge catastrophe, in which the company blew up a sacred site in Western Australia. His delayed exit means he follows former chief executive Jean-Sebastien Jacques and two other executives out the door. 

Thompson, a former Anglo American (AAL) executive, will not stand for re-election at next year’s AGM. He was appointed chairman in 2018 and has served on the Rio board since 2014. The author of Rio’s poorly-received board review of the events leading to the Juukan Gorge cave destruction, Michael L’Estrange, will also not seek re-election to the board next year. AH

National Grid’s credit rating downgraded

Moody’s and Fitch have downgraded National Grid’s (NG.) credit rating. This follows the group’s announcement that it will invest £10bn in its UK gas and electricity assets over the next five years. When this expenditure is combined with the prospect of lower allowed returns during the next regulatory period, Moody’s says that it “expects pressure on operational cash flows to intensify over the next few years.”

Analysts at broker Jefferies believe that these downgrades will have a limited impact on National Grid’s access to credit. The group had anticipated that this would occur and still plans to increase its annual dividend. It will, however, change its policy from its 2022 financial year, such that the payout will grow in line with the rate of CPIH inflation versus RPI inflation previously.

National Grid has decided to largely accept Ofgem’s final determination for the next five-year period commencing in April. But it is lodging an appeal with the Competition and Markets Authority (CMA) over the proposed cost of equity and outperformance wedge. NK

Bottoms up

This week marked the first trading session for subscription-based wine retailer Virgin Wines (VINO), after the group sold 6.6 million new shares and raised £8.6m in net proceeds as part of its listing on Aim. A further 17.7 million shares were sold by existing holders at the debut valuation of £110m.

The group  sold more than one million cases of wine in 2020, and now counts more than 160,000 active customers.  In the same period, revenues rose 55 per cent to £40.6m, with Ebitda up almost three-fold to £4.5m. MR