Capital tidings from Marks

NO COMPANY in Britain arouses stronger emotions than Marks & Spencer. When this national institution is doing well, the nation feels at ease with itself. When it is in difficulty there is torpor.

For quite a time there were severe doubts whether executive chairman Luc Vandevelde understood its special place in the national culture. Now the doubts are dissipating as his changes make an impact.

Admittedly, the seven weeks to 12 January were an exceptional period when British shoppers were oblivious to the dark economic clouds around them. Moreover, the period covered by the company's latest sales report follows two disastrous Christmases, which make the uplift look better.

But as Vandevelde rightly points out, every season is a new start for a retailer, so there is no point in focusing on the past. As it is, like-for-like sales were up 10.4% in general merchandise, which pulls together clothing, gifts and home furnishings. This puts M&S near the top of the retail class. Food sales, despite the pressure coming from shifts upmarket by Sainsbury et al, outpaced expectations, rising 5.4% on a like-for-like basis.

The particularly good news is that this has been achieved without sacrificing margins. There were no pre-Christmas discounts as in 2001, and when the sales started there was much less surplus stock to knock out.

In the case of M&S, a rising tide will lift all boats. Vandevelde can look forward to a handsome bonus. Brokers are upgrading the profits forecast for the year, with HSBC raising it by 9% to £615m.

Marks may no longer make £1bn a year, as in the halcyon days of Sir Richard Greenbury, but it is back on the right track. Shareholders are reaping rewards. The shares were the best performing in the FTSE in 2001. Although that is scarcely likely to happen again in 2002, the prospects remain better.

Next week the company will unveil a £2bn capital distribution. In essence shareholders will receive one new share for every five held, which they can hold, or sell in the market to raise a taxfree bonus. This pot of gold has been created by some financial engineering including disposals and the sale and leaseback of stores. It means that in future, M&S will be more highly geared than in the past and that rates of return should be higher.

Vandevelde is sensible enough to realise that the consumer boom is not here for ever and that sales growth across the High Street will subside in the months ahead to a more normal 4% to 5% rate.

For a long time M&S shares suffered because of the loss of confidence in the company by UK institutional investors. If the group can show consistency in its performance, the big battalions could be won back, providing some stiff underpinning for the stock.

Shredding Schroders
THE profits warning from aristocratic fund manager Schroders is an embarrassment. Not only is it suffering, like so many, from the slide in equity markets in 2001 but it is also having to acknowledge that its arithmetic went badly wrong the year before.

This must all feel like familiar territory for overpaid chief executive Michael Dobson, who found himself in the hot seat during the Peter Young and Nicola Horlick affairs at Morgan Grenfell, now subsumed within Deutsche Bank.

What is astonishing is that the accounting discrepancies in 2000 were not uncovered either by internal audit or by external auditors PricewaterhouseCoopers.

If a company makes errors in its own billings, overstating income, then one shudders to think how its systems might go wrong when calculating the value of clients' investments. The turmoil at Schroders, since it was cut loose from its investment banking arm to shore up its independence, has been extraordinary.

There has been a careless loss of executives, pension fund mandates dropping away, and poor performance in its funds, all reflected in declining profits. Unless Dobson finds some way of stabilising the ship, there may be an assault from hostile boarders.

Jobs warning
AN ALARMING aspect of the latest unemployment data is the loss of jobs in manufacturing.

In the year to November they fell by 150,000, underlining the deepseated problems of Britain's industry. At present the slack is being taken up by retailing and increasingly by the public sector.

Headline unemployment is the lowest in Europe even after three monthly rises in a row. It would clearly be an enormous mistake to raise interest rates until the first green shoots of recovery are seen.