Hard lessons from Lastminute

By THIS IS MONEY
Updated:

 

LASTMINUTE.COM, the internet travel service, did investors an unintended favour today. In the past few months there have been signs that the revival in technology stocks, which was to be welcomed, was beginning to spill over into a repeat of the silly euphoria that cost so many people so much money.

But today a wheel fell off the Lastminute wagon when it reported full-year earnings before depreciation, interest and tax of £24m - some 10% lower than analysts' already-reduced expectations - and gave the market a cold shower.

It was a timely and explicit reminder of how hard it can be to turn even the best internet-based ideas into proper functioning businesses.

In a way, Lastminute's problem is that it has had to do its growing up in public. So the kind of wobbles most businesses go through behind closed doors when still private, it has suffered in the full glare of publicity.

The plus side is that it has had to produce a grown-up response, so the announcement of the bad news comes complete with the recovery package straight from the PR equivalent of Central Casting.

Thus there is appropriate bloodletting in the management ranks - finance director on bike, tough new head of audit committee parachuted in and a new, hands-on chairman to replace Allan Leighton, who was already stepping down to turn his attentions elsewhere - with a major change in the focus of the business.

Out go land-grabbing acquisitions to extend the product range, to be replaced by a total focus on squeezing profit out of assets and businesses already under ownership.

Through acquisition it has got to the position where it is the biggest 'direct to the consumer' travel business in Europe. Now it has to raise its operational game and improve financial controls.

Some say this is the moment of uncomfortable truth - and that margins in the late-booking sector are so thin the business will never make good money. Chief executive Brent Hoberman and his team disagree, but now they have to prove it.

They do have one thing going for them. Lastminute is a tiny business - pre-tax profits were barely £5m, a sum that would be lost as a rounding error in the accounts of most FTSE 100 companies. But it has a level of name recognition to die for.

Trust in the trusts USUALLY, when this Government consults it means it is simply showing a willingness to explain to objectors what it has already decided to do anyway.

Yesterday, however, there was an exception that may disprove the rule. When the Treasury launched its consultation on regulation of the investment trust industry it achieved a measure of surprise: it seems genuinely not to have a pre-set agenda.

Perhaps it is just very well hidden, but a more charitable view is that in the months between the knee-jerk 'something must be done' reaction to the split-capital crisis in investment trusts when the consultation was announced and publication of yesterday's paper, politicians and civil servants have realised they have no idea what to do.

Maybe they don't know what problem they are trying to solve - or can't admit the whole purpose is about political back-covering rather than economic gain. So what ideas they do float are notable for their absence of intellectual coherence.

Thus they could restrict investment trusts to the same range of investments as unit trusts, but if they remove the differentiation between the sectors what is the point of having both?

And what dubious logic elevates the grossly expensive, underperforming and overhyped unit trust sector into a model that investment trusts should wish to emulate anyway?

They could give investment trust investors recourse to the financial Ombudsman so they could get compensation if something goes wrong.

Presumably, losses in the splits crisis would come into this category. But why should an investor be compensated for this kind of management failing when there is no such recompense for someone who put money into Marconi or Shell or the dozens of other companies that crash through a flawed strategy or misplaced management actions?

If the losses are caused by an illegal act, there is always the possibility of compensation through the courts anyway. If, however, it is deemed investment trusts are different because their business is investment, that logic means venture capital trusts, private equity funds and, arguably, property companies, should also come under the Ombudsman - a thought that exposes the idea for the nonsense it is.

The fact is that investment carries risk - and risk means sometimes people will lose money.

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