The Herald’s business writers pick their standout stories from the first quarter of 2017

The Herald:

Scott Wright

Historic merger creates one of world’s biggest fund managers

Historic merger creates one of world’s biggest fund managers

NOW and again a deal comes along that puts all other business stories firmly in the shade.

That was emphatically the case when news broke that Standard Life and Aberdeen Asset Management had entered into one of the biggest mergers in Scottish corporate history.

The story immediately threw up many questions. What motivated the deal? Who made the first move? Had Aberdeen, the emerging market specialist which had reported 15 consecutive net outflows from its funds, been under pressure to find a merger partner? And, most importantly of all, would the merger result in job losses, as so often happens when two businesses come together?

We now know the answers to at least some of these questions. Unveiling the deal, Aberdeen chief executive Martin Gilbert and Standard Life boss Keith Skeoch highlighted the complementary nature of the products offered by the two organisations and the markets they operate in. They also highlighted the benefits brought by the scale of the combined business which, with assets under management of £660 billion, becomes one of the biggest fund managers in the world.

So far there is significantly less clarity over the job implications. There were reports immediately after the news broke that as many as 1,000 jobs would be affected. This was described as a gross exaggeration by Mr Gilbert who, along with Mr Skeoch, declined to give any guidance on redundancy numbers. But with the two signalling that there is some "overlap" between the companies, in areas such as distribution and central functions, and with £200 million of cost savings being targeted in the next three years, job cuts would seem to be inevitable.

This is one story that is set to rumble on for a few months yet.

Rates Revolt raises spirits

IT is a rare privilege to work on a campaign which ultimately has a positive effect on government policy. The commitment by the Scottish Government to cap rises on business rates for the first year following the revaluation of non-domestic properties came after a series of hard-hitting articles in The Herald, with our campaign highlighting the very real fears that the new bills would have a devastating effect on firms and jobs around Scotland.

We launched "Great Rates Revolt" series with a major focus on the Scottish licensed and hospitality trades. We revealed that pubs, hotels and restaurants were among the most exposed from the latest revaluation, which left hundreds of outlets facing with massive hikes in business rates. Cases of rates bills rising by hundreds of per cent were widespread.

The controversy became dubbed the SNP’s "poll tax moment" as fears grew that many outlets simply could not afford to pay the new bills. The pressure grew daily on the administration at Holyrood to take action as the campaign unfolded, with even high-profile supporters of the SNP government calling into question its commitment to supporting jobs and businesses.

In the face of intense media scrutiny, and amid unprecedented co-operation on the lobbying front from groups representing the licensed and hospitality sectors, the government acted.

Finance minister Derek Mackay announced a £45 million package of measures to ease the burden of the new rateable values, including a 12.5 per cent cap on business rates rises for hotels, pubs, clubs, restaurants and cafes for the first year after the revaluation.

There continue to be concerns over the methodology used to calculate rates, and it remains to be seen what the Barclay review of business rates will recommend when its findings are published this summer. But, thanks in part to The Herald’s campaign, there are hopes.

The Herald:

Kevin Scott

Sale of Carloway Mill sets welcome pattern in Hebrides

The sale of The Carloway Mill in a buyout led by operations manager Annie Macdonald was one of those stories that is about so much more than a business transaction.

The deal saves one of just three remaining Harris Tweed mills and its closure would have a tragic loss not just for the Western Isles, but for Scotland.

Ms Macdonald and fellow investor Anthony Loftus have big plans, which is hugely positive news for the 17 staff who now have job security, and for the wider industry.

Over several conversations with Ms Macdonald ahead of The Herald revealing the deal on February 23, one thing became clear: she is brimming with the creativity, passion and determination required to revive the mill’s fortunes. Further investment is being sought and more weavers will be recruited to meet growing demand for the mill’s premium blend of softer fabrics.

The rescue deal comes at a time when Harris Tweed is growing in popularity among fashion designers. In 2015 more than 1.7 million metres of cloth were produced, more than three and a half times 2009’s volume.

And now Carloway, with its artisan production techniques and traditional machinery, can help ensure that number keeps growing.

SEC branding is main event

Operating for more than three decades the SECC has undoubtedly played its part in Glasgow’s rebirth as a contemporary European city, and speaking to chief executive Peter Duthie about its rebranding as the Scottish Events Campus, it struck me just how significant the centre is.

It was back in 1979 that a redundant Clydeside dockyard was identified as a possible site for a conference centre. Six years later the SECC opened its doors, and since then it has helped host many of the defining moments in Glasgow’s recent history – from the Garden Festival in 1988 to the Commonwealth Games in 2014.

It has expanded, with the Armadillo in 1997 and the SSE Hydro in 2013 and in the year to March 2016 the cash spent in Glasgow by people attending the SEC was £411 million, with a further £308m spent elsewhere in Scotland.

The Herald:

Ian McConnell

Manufacturing bucks trend in tough economic climate

THE challenges facing the Scottish economy were writ large in the latest official growth figures.

The Scottish Government data showed the economy north of the Border grew by only 0.2 per cent in the third quarter of last year, well adrift of the below-trend rate of expansion of 0.6 per cent in the UK as a whole. And Scottish gross domestic product in the third quarter was only 0.7 per cent higher than in the same period of 2015.

The UK as a whole has seen a long period of below-trend growth.

However, Scotland is not only having to face up to the dampening effects of cuts in public sector spending and welfare but also having to deal with the oil and gas sector’s woes and their knock-on effect on the broader economy. And Scottish construction output is showing the impact of major infrastructure projects, which had provided an important boost to GDP, coming to an end.

The Scottish economy is now also having to cope with the impact of the Brexit vote, which is already manifesting itself in rising inflation and squeezed household budgets across the UK.

It has not all been bad news, thankfully, with Scottish Chambers of Commerce’s survey signalling a better performance by the manufacturing sector north of the Border in the fourth quarter and a robust showing by tourism as it received a boost from the weak pound.

And a survey from Scottish Engineering this month pointed to a surge in export orders for the sector in the latest quarter. This followed 13 consecutive quarters of decline in the sector’s exports orders, according to Scottish Engineering’s survey.

Rooms for expansion at DRG

MARIO Gizzi and Tony Conetta, joint managing directors and co-owners of the family business behind the Di Maggio’s restaurant operation, have proved very adept at diversification over the years.

The Herald revealed in January that they are now planning to expand their business, which they have renamed The DRG, into the hotel sector.

The Herald:

The DRG plans to open a 64-bedroom aparthotel above its Anchor Line restaurant and Atlantic bar and brasserie at St Vincent Place in Glasgow in an £8 million investment. It owns the venerable building at St Vincent Place, which was formerly home to the Anchor Line shipping company, and the new hotel is scheduled to open in June next year.

The DRG, which has 18 restaurants across Scotland and has diversified over the years to include brands such as Cafe Andaluz and Amarone as well as Di Maggio’s, revealed its turnover had risen by 12.4 per cent to a record £33.7 million in the year to April 30, 2016. Pre-tax profits climbed by 22 per cent to a record £5.76m as the company, which proved very resilient during the last recession, continued to enjoy success in what is still a challenging economic environment.

Employee numbers increased by nearly 14 per cent during the year to April 30, from 690 to 784, with The DRG declaring this cemented "the company’s place as the largest independent restaurant chain in Scotland".

He said: "Guests won’t just benefit from the luxury accommodation and city centre location, but will also be able to take advantage of the Anchor Line’s menu for breakfast, lunch and dinner."

That is money spent plundering Scotland’s alluring larder, to the benefit of countless food, drink and hospitality businesses.

Mr Duthie is currently lobbying Glasgow City Council, which owns 91 per cent of the SEC, and the Scottish Government, to fund a £100m-plus extension to the SEC Centre – which would enable Glasgow to compete on a truly global level. As the city continues to grow more vibrant and successful, having such a facility is as vital to our future as it is to our past.

The Herald:

Margaret Taylor

Lord Smith tasked with turning round Alliance

The board of the £3.4 billion Alliance Trust could breathe a sigh of relief at the end of February after shareholders gave their backing to plans that will see the way the portfolio is managed completely overhauled.

Having suffered several years of underperformance, during which time it became the target of activist investor Elliott Advisors, the trust last year installed Lord Smith of Kelvin, pictured right, as its chairman and tasked him with turning its fortunes around.

Lord Smith’s solution was radical: sell off Alliance Trust Investments, which not only managed the trust but was owned by it too, and pass its assets to eight individual managers to run on a top-picks basis.

Though the proposal meant that Alliance Trust, which has been run out of Dundee since it launched in 1888, would no longer be managed from Scotland, Lord Smith was so confident it would be in investors’ best interests that he staked his chairmanship on it.

Luckily for him the vast majority of shareholders agreed, with 96 per cent of investors who cast a vote giving the plan their backing.

With the move to a multi-manager approach as well as the repurchase of Elliott’s 20 per cent shareholding set to see costs increase for the remaining shareholders, 30,000 of whom are private individuals, the challenge now will be to start delivering performance – and delivering it fast.

The Herald:

Mark Williamson

Chrysaor deal raises some hope in N Sea

After spending two and a half years writing the phrases "crude price plunge" and "North Sea downturn" with alarming regularity it is striking to find the word "recovery" cropping up in my oil and gas stories.

Moves by Opec exporting nations to cut crude production to support the market have helped product a notable change in the mood music in the industry. At around $56 per barrel crude is selling for less than half the $115/bbl it fetched in June 2014.

But the increase from $27/bbl in January last year has made a huge psychological difference, not least because people are increasingly confident the price will stabilise in the mid $50s. Industry figures such as Chrysaor boss Phil Kirk have made clear they believe there is good money to be made in the North Sea at current prices.

The Herald:

London-based Chrysaor turned heads in January by agreeing to buy fields that account for around half Shell’s North Sea production for up to £3 billion, with backing from US private equity.

Some financiers clearly believe now is a good time to go long on the North Sea.

Mr Kirk’s prediction that Chrysaor would drill more wells on the acreage acquired than Shell planned will have been welcomed in the oil services industry following two lean years. But Wood Group boss Robin Watson noted in February that the oil services giant saw no sign of North Sea workloads increasing.

It may be some time before the clouds lift over Aberdeen.

Critics unimpressed with recent performance at RBS

IT has been a tumultuous quarter for RBS chief executive Ross McEwan (right) amid growing frustration that the taxpayer-owned bank appears to be making at best a stuttering recovery from the problems of the last decade.

In February the Edinburgh-based giant said it was shelving plans to spin off 300 branches as Williams & Glyn after spending around £1.8 billion over six years on its attempts to develop the systems required. The bank now faces an additional £750 million bill for another scheme to boost competition.

Days after the scale of the Williams & Glyn setback became apparent RBS posted a £7bn loss for 2016, which reflected £5.9bn historic conduct charges and a £2.1bn restructuring hit.

Mr McEwan stressed the core bank made £4.2bn profit before exceptional charges but his point was met by groans of disappointment about the bank suffering yet another year of losses.

The New Zealander can argue that the latest setbacks reflect the scale of the problems caused after the grandiose expansion strategy followed by Fred Goodwin went disastrously wrong.

The Williams & Glyn sell off was the price demanded by Eurocrats for allowing the UK Government to pump £45bn into RBS to save it from almost certain collapse.

But Mr McEwan has drawn fire for spending so long on a plan to hive off Williams & Glyn that some feel was never going to work.

He can not be blamed for the scale of last year’s losses, which mean the prospect of selling the Government’s 72 per cent stake remains distant.

Critics suggest, however, that he has relied too much on cost cutting to boost profitability at the bank. Claims that RBS is the ‘Royal Bank for Scotland’ ring a bit hollow amid the branch closures and lay- offs that have resulted.