Long haul ahead for Reuters

TOM Glocer, the chief executive of Reuters, needed a bit of good news having been put through the mill earlier this year over his pay, and it is helpful that the first figures after this so-public questioning of his abilities should be notably better than had been expected.

Turning in £87m profits pre-tax for the first half of the year rather than the £30m predicted by analysts suggests the analysts are probably more overpaid than Glocer, even if the performance is rather less spectacular then it appears at first sight. The improvement comes from getting the benefit of cost cuts earlier than anticipated, which is good, but largely a one-off and not something on which to pin a growth strategy.

The real story is that revenues have fallen by a further 12% and, while there are signs that things are getting better in the US, there is little to cheer about in Asia and even less in Europe. Financial markets are still fragile and securities houses may never have money to burn again like they did in the last decade.

Meanwhile, decline may be slowing, but it is still decline, and Glocer has to use this time to change the culture so that Reuters can live and prosper in more straitened times. I think he can do it, but that is on faith rather than hard evidence. He is still only at the beginning of a long journey.

Storming port
P&O chairman Lord Sterling signed a deal in the Great Hall of the People in Beijing yesterday flanked by Prime Minister Tony Blair on an official visit to that country and the new Chinese Premier Wen Jaibao, which gives his company the rights to manage and develop one of China's ports for the next 30 years.

The port, Qingdao, is a place most people in this country have never heard of and the news caused barely a ruffle in the stock market. It should have caused more than a ruffle, though, because of what it says about the way the world is going, how the balance of economic power in the world is changing and how the centre of gravity for manufactured goods is moving at the most phenomenal rate towards China.

Trade is a tremendous lead indicator of emerging trends and emerging power. Currently, all the ports in Britain added together handle the equivalent of about eight million containers a year. This one port in China will, with a bit of investment from P&O, probably be handling six million containers within five years and will almost certainly be well over eight million inside a decade. By then, one hopes, Britain's total will have gone up too - but it is worth pondering how the throughput of just one port out of several in China will exceed our total in just a few years.

Not bad business for P&O either.

Storing up pain
THE fact that the private equity bid for Debenhams should arrive just as the private equity buyout of Meridien Hotels goes spectacularly pear-shaped brings with it some timely lessons.

The case for the stores bid is that the business is perennially undervalued by the stock market, but has a good trading performance, valuable assets, strong cashflows and suppliers who can be squeezed to improve cashflow. So the bidders can borrow the purchase price, use the company's profits to pay the interest, then flog the whole thing back to the market in five years' time when the fund managers have forgotten they used to own it.

But this is also what they thought about Meridien not so long ago - another business with assets, cashflows and opportunity to squeeze suppliers. Yet it has proved to be a disaster for those providing the capital because they failed to foresee the downturn. The external environment has changed and the hotel business has been devastated by the global slump in business travel because of the financial recession and by the collapse in tourism because of the fear of terrorism. The cashflows are no longer enough to support the mountain of debt.

So the big question is, are stores that different or do they have a natural immunity against recession? They have prospered in recent times but only because people have piled on debt to levels the Bank of England sees as serious cause for concern. They cannot go on spending like that, and the adjustment when it comes could very easily be painful.

The logical move for the long-term investor, therefore, is to invest in hotels on the basis that they are at the bottom of their cycle and sell stores because they are at the top of theirs. So is that what the private equity boys are doing with your pension fund money? Not a bit of it.

Like everybody else they are buying at the top because they cannot believe the good times won't last.