The Wonder of Woolies makes investors gasp

THERE'S not much doubt about it. Institutional shareholders are demanding blood at Kingfisher. They have seen more than £1bn wiped from the value of their shares in the last year. They may wait until the preliminary results in March, but they do s eem towant heads to roll.

One theory is that Sir Geoff Mulcahy, the executive chairman, will move more quickly than that, ousting his chief executive, Alan Smith, at once in order to pre-empt the complaints. It would doubtless be nice to do the rounds of institutional investors with a ready-made scapegoat.

When Woolworths messed up at Christmas 1993 (a mere hiccup compared with the shambles of Christmas 1994), its managing director, Mair Barnes, was out of the door in short order. Sir Geoff is capable of speedy and ruthless action. He is renowned for getting quickly impatient when things go wrong.

How much Mr Smith may be responsible for Kingfisher's current problems is difficult to gauge. Certainly Woolworths has come very much under his wing, and he has installed several former colleagues from Marks & Spencer in key positions.

The variety stores' immediate problems stem from past under-investment, followed by a rush job last year to put scanning equipment into 600 stores in the space of eight months. There were bound to be systems problems.

But its problems go much deeper. It is desperately short of product areas where it offers any kind of price or service or choice advantages over competitors. The real "Wonder of Woolies" is that it exists at all. No one would now invent it. That is hardly Mr Smith's fault, though his decision to move into adult clothing is not encouraging. One of Woolies' best decisions in 1984 was to pull out of that category.

Beyond his responsibility forWoolworths, it is not clear how much say Mr Smith really has in other parts of the business, despite the job title of chief executive. The B&Q and electricals divisions have their own heads, who sit on the main Kingfisher board. And acquisitions and other strategic thinking are handled by the in-house think tank, a group of management consultants created last year under the auspices of Tim Breene, the ex-marketing director at United Distillers.

No one is in very much doubt that it is Sir Geoff who calls the shots as executive chairman. He may not be immune from the changes ahead. Shareholders have short memories. He made them all a lot of money in the 1980s, but five years of stagnating earnings in the 1990s is all they can see now. However, he has strong allies among the non-executive directors, six of whom are either former colleagues, old friends, or connected with adviser firms. Only Lady Howe could strictly be called independent.

Sir Nigel Mobbs, the deputy chairman, is likely to play a key role. He knows a little about forcing through shareholders' wishes in the boardroom. He was a non-executive at Barclays, when Andrew Buxton was made to split his dual role of chairman and chief executive.

The important thing is to recognise that the group's problems are not just bad luck, not just an unfortunate coincidence of two operating businesses going wrong at the same time. There is a more serious malaise, and it is centred on the head office.

On a £1.5bn downtrack

NO ONE seems to have noticed it, but John Swift, the rail regulator, last week wiped around £1.5bn or more from the proceeds the Government can expect if and when it privatises Railtrack.

Initial estimates for the stock market value of Railtrack, the core chunk of British Rail that owns the track, stations and signalling, had been around the £4bn mark. But I gather £2.5bn now looks more realistic after Mr Swift cut sharply the level of charges future franchisees will have to pay Railtrack.

The idea is to make the franchises more attractive to would-be private sector train operators and to reduce the level of subsidy the Treasury will have to fork out to sweeten the loss-making routes.

The annual track access charges of £2.2bn paid to Railtrack will now be slashed by a one-off 8 per cent and then subjected to a formula based on the inflation rate minus 2 per cent.

Put bluntly, Railtrack is faced with collecting £160m less in annual revenues while shouldering precisely the same costs. But there is worse: Mr Swift has also decided it will have to share the profits it makes on its extensive property portfolio - one of the most enticing aspects of Railtrack to prospective investors - with the train operating companies.

Bob Horton, the pugnacious chairman of Railtrack, is putting a brave face on the changes, claiming it will make it easier to privatise the company because the lower subsidy level will mean less uncertainty.

Mr Swift's reforms may well be a good thing for the public finances. The Exchequer will receive smaller proceeds from the privatisation, but it is committing itself to less outlay for years into the future.

The short-term impact, however, is to add £1.5bn to next year's public sector borrowing requirement. That will make the Government's much-heralded pre-election tax cuts a little harder to deliver.