Member Article

Raindrops, Postponements and Recycling

As I surveyed the multitude of Polish raindrops making their unfettered descent upon a soggy Warsaw football pitch, I realised my Tuesday evening would be a washout.

As that rain fell, it struck me those descending raindrops could in the hands of an eager advertising executive, symbolise world events for October 2012.

From dramatic twenty-four mile plummets, to the latest drop in UK unemployment figures, the fall from grace of the nations favourite “Auntie” or the untimely release of figures causing a collapse in the Google share price, you certainly didn’t need to search far to see gravity and fate hard at work.

For instance, gravity appears to be playing a part in one food chain’s disappointing profit figures.McDonald’s third quarter financials reveal net income fell in its third quarter by nearly four percent.

Not so Big Mac…

This fall has been, somewhat optimistically, attributed to the strength of the US dollar - income from McDonald’s foreign outlets counts for less when converted into dollars. Can this be the sole reason for explaining away these results ? Given the £1.45bn revamp of stores, one could reasonably expect stronger sales figures as these stores come on-stream.

Competition and changing tastes must not be ignored. McDonalds has struggled with stiffer competition from emerging ‘health-conscious’ fast food chains such as Panera Breads coupled with ferocious sales drives from long-time competitors.

McDonalds’ response – the reintroduction of the McRib sandwich. If this is truly the master plan to raise profitability, then perhaps it is time for the group to wake up and smell the McCafe coffee.

If the love affair with fast food is becoming complicated, “it’s not you but me” then the roller coaster affair which is BP continues to thrill and excite. Feuding shareholders, an environmental disaster with the Deepwater Horizon venture and now driven into the arms of the Russian State energy company, Rosneft.

The irony, 25 years ago BP was the UK’s state oil company so a case of how the tables have turned. BP is a joint venture partner in TNK-BP, a troubled but highly profitable venture. Kremlin controlled, Rosneft in a deal worth £17bn is to acquire TNK-BP for a mix of cash and Rosneft shares. This will see BP take a stake of 18.5% in Rosneft. Given the dark art of doing business in Russia perhaps it as no surprise to see that the non-BP partners in TNK-BP appear to be receiving more than BP for their stake.

Igor Sechin of Rosneft may be had his tongue firmly in cheek when commenting on the deal. He said, “I’m especially pleased that BP has chosen to remain as one of the largest investors in the Russian economy.”

When it comes to recycling however the deal with Rosneft is worthy of note. BP has “chosen” to use $4.8bn of the sale proceeds to buy a further 5.66% of Rosneft from the Russian Government at a price of $8 per share. This compares with a market price of $7.13 per share immediately before the deal was announced.

So for BP shareholders as the Polish rain eases, the Russian sun comes out. In the case of McDonald’s – best to indulge in your favourite meal deal and wait for the blue sky to appear.

This was posted in Bdaily's Members' News section by Tim Stocks .