TheChek News Flow

Hopefully executive team shuffling will have galvanising effect on FTSE 100 company

Retailers regularly move cleaning products around on their shelves to stimulate sales. Reckitt Benckiser has also done some shuffling of its executive team. Hopefully, it will have the same galvanising effect.

On Wednesday, the FTSE 100 consumer goods company appointed a new chief financial officer, Shannon Eisenhardt. She and incoming chief executive Kris Licht, formerly of PepsiCo, have work to do to get Reckitt growing again.

Reckitt specialises in cleaning products. Good thing. Dust has settled on the company’s share price. Over one year Reckitt has fallen 12 per cent. MSCI’s consumer staples benchmark has only fallen a little. Even at a decade-low forward price/earnings ratio of some 16 times, investors show little interest.

It cannot help that Reckitt has already rearranged its executive team a couple of times since Rakesh Kapoor retired in 2019. Licht is the third chief executive in that time.

Eisenhardt’s experience at Nike, and before at Proctor and Gamble, includes work on emerging markets. This is 40 per cent of Reckitt sales. She inherits a financially fit company. Reckitt has plenty of free cash flow. Analysts on Visible Alpha anticipate £2.5bn annually through 2025. More than half will go to the dividend. Licht wants to increase this and buy back stock. Net debt is relatively low.

Eisenhardt still needs to squeeze more from revenues, though. Over the past five years, the group’s top line has compounded at 3.6 per cent annually, according to S&P Capital. Operating profit has hardly shifted. True, after some innovative product launches its big disinfectant brand Lysol generates 50 per cent more sales than in 2019.

Yet, clever tinkering with its stock of brands will not suffice. Reckitt should consider spending some cash on acquiring growth brands.

Neither PepsiCo nor Nike are noted for their M&A programmes. Licht and Eisenhardt may therefore need to brush up their skills before striking any big deals. Kapoor’s incumbency at Reckitt was marred by the overpriced $18bn purchase of US baby milk producer Mead Johnson in 2017.

Cybercriminals are exploiting a zero-day vulnerability in WinRAR, the venerable shareware archiving tool for Windows, to target traders and steal funds.

Cybersecurity company Group-IB discovered the vulnerability, which affects the processing of the ZIP file format by WinRAR, in June. The zero-day flaw — meaning the vendor had no time, or zero days, to fix it before it was exploited — allows hackers to hide malicious scripts in archive files masquerading as “.jpg” images or “.txt” files, for example, to compromise target machines.

Group-IB says hackers have been exploiting this vulnerability since April to spread malicious ZIP archives on specialist trading forums. Group-IB tells TechCrunch that malicious ZIP archives were posted on at least eight public forums, which “cover a wide range of trading, investment, and cryptocurrency-related subjects.” Group-IB declined to name the targeted forums.

In the case of one of the targeted forums, administrators became aware that malicious files were shared and subsequently issued a warning to their users. The forum also took steps to block the accounts used by the attackers, but Group-IB saw evidence that the hackers were “able to unlock accounts that were disabled by forum administrators to continue spreading malicious files, whether by posting in threads or private messages.”

Once a targeted forum user opens the malware-laced file, the hackers gain access to their victims’ brokerage accounts, enabling them to perform illicit financial transactions and withdraw funds, according to Group-IB. The cybersecurity firm tells TechCrunch that the devices of at least 130 traders are infected at the time of writing but notes that it has “no insight on financial losses at this stage.”

One victim told Group-IB researchers that the hackers attempted to withdraw their money, but were unsuccessful.

It’s not known who is behind the exploitation of the WinRAR zero-day. However, Group-IB said it observed the hackers using DarkMe, a VisualBasic trojan that has previously been linked to the “Evilnum” threat group.

Evilnum, also known as “TA4563”, is a financially motivated threat group that has been active in the U.K. and Europe since at least 2018. The group is known for targeting mainly financial organizations and online trading platforms. Group-IB said that while identifying the DarkMe trojan, it “cannot conclusively link the identified campaign to this financially motivated group.”

Group-IB says it reported the vulnerability, tracked as CVE-2023-38831, to WinRAR-maker Rarlab. An updated version of WinRAR (version 6.23) to patch the issue was released on August 2.

SEC proposes biggest shake-up of private equity, real estate and hedge funds in more than a decade

US securities regulators are deciding on an ambitious reform package that would reshape the way private equity, real estate and hedge funds deal with their investors.

The Securities and Exchange Commission on Wednesday will vote on new rules for private funds that would require detailed quarterly reporting on performance and regular audits, while prohibiting secret side deals that give better terms to some investors.

If a majority of the five commissioners vote in favour, it would mark the most significant regulatory change in more than a decade for a global industry with $25tn in assets under management, lawyers said.

“This is industrial policy. The SEC wants to be much more involved in the oversight of these institutions,” said Brian Daly, partner at Akin Gump.

Industry groups have been lobbying against the proposals since they were first put forward in February 2022. They argue tight regulation will stifle innovation, raise expenses and force investors and fund managers to tear up tens of thousands of existing contracts.

The final package going up for a vote addresses some but not all of their concerns. Most notably, it drops the idea that fund managers ought to be liable for “negligence” rather than “gross negligence”, adds an element of “grandfathering” that will mean some contracts can stay intact and phases in most requirements over a one- to two-year period.

But the commission stuck to plans requiring quarterly performance reports with standardised metrics and annual audits.

It also plans to ban treatment that gives some investors favourable redemption rights and additional information about fund holdings. The SEC is also proposing to require disclosure or explicit investor consent in cases in which funds want to pass on compliance costs.

In briefing papers pertaining to the proposed rule, the SEC cited the “increasingly important role” played by private funds and said the reforms were designed to protect investors by “increasing visibility . . . and prohibiting or restricting adviser activity that is contrary to the public interest”.

Several industry groups have suggested they are considering legal action to prevent the rules from going into effect. Financial reform groups support the proposals.

“Ensuring disclosure of critical information to investors, which promotes both capital formation and competitive capital markets, lies at the core of the SEC’s mission,” said Andrew Park, senior policy analyst at the Americans for Financial Reform Education Fund.

Commission to vote on final rules aimed at increasing transparency, driving down fees in opaque segment of finance

WASHINGTON—Wall Street’s main regulator is set to approve sweeping new rules aimed at overhauling the way private-equity and hedge funds deal with their investors, potentially the biggest regulatory challenge in years to firms such as Blackstone and Citadel.

The Securities and Exchange Commission plans to vote Wednesday on a rule package that would impose new requirements on so-called private funds, which manage some $25 trillion in gross assets for pension plans, university endowments and wealthy individuals. SEC Chair Gary Gensler and Democrats have a 3-2 majority, so the commission is expected to approve the final rules.

The rules would restrict a practice used by many private-equity and hedge funds to entice large investors by offering them special deals, known as side letters, for better terms than other investors. The SEC also would require private funds to provide their investors quarterly financial statements detailing their performance and expenses, and to undergo annual audits.

Some portions of the final rules have been eased from a proposal last year. Still, they would amount to a regulatory push into an area of finance long accustomed to minimal government oversight. Light-touch regulation and low interest rates have enabled private funds to grow larger over the past decade than the commercial banking sector, raking in hundreds of billions of dollars a year in fees, Gensler has said.

The Managed Funds Association, which represents hedge funds including Citadel, Bridgewater Associates and Millennium Management, and private-equity trade group the American Investment Council have tried to fend off the rules for more than a year. The groups say the SEC overhaul would force changes to the way they do business and, before the final rules were unveiled, signaled they might sue to overturn them.

Pension funds and other institutional investors typically allocate money to private funds in hopes of outperforming public stocks and mutual funds. The SEC has traditionally viewed such investors as sophisticated enough to fend for themselves in the market. So private funds have faced much less regulatory oversight than the mutual funds available to ordinary investors.

Investors in private funds must negotiate for any information they want to receive from the asset manager—including about the fund’s performance, holdings and costs—as well as for redemption rights and other terms. SEC staff say this creates opportunities for fund managers to charge opaque fees and expenses, give bigger investors a better deal than smaller ones, and exploit conflicts of interest.

One of the biggest sticking points for private-fund managers was the SEC’s proposed ban on certain side letters. These can, for example, give some investors greater flexibility to withdraw their money or offer them more information about a fund’s holdings. Industry officials say such agreements are useful for closing deals with marquee investors whose presence can bolster a fund’s credibility.

The final version of the SEC’s rules softens some language around side letters. The original proposal would have required asset managers to disclose a fund’s side letters to all investors before closing a deal; the final rule requires them to disclose only those side letters that involve “material economic terms.”

Giving certain investors special redemption rights or increased information about a fund’s holdings would be prohibited unless the asset manager offered those terms to all other investors in a fund.

SEC officials in the final version of the rules dropped plans to prohibit fund managers from charging fees for unperformed services and from limiting their own liability for malfeasance or negligence. Smaller funds also will get more time to comply with the changes than larger funds, and some of the new restrictions won’t apply to funds that were set up before the rules take effect.

Progressives in Washington have long been skeptical of private equity and hedge funds’ business models, but they have often struggled to turn their views into policy. Last year, Senate Democrats dropped a plan to raise taxes on carried interest, a key source of income for private-fund managers that many lawmakers see as a tax loophole.

Industry officials say they had a harder time dissuading Gensler, who is known for pushing aggressive regulatory changes. In the 18 months since the SEC proposed the rules, representatives of hedge funds, private-equity firms and venture-capital funds have met more than three dozen times with agency officials, SEC records show. They have also lobbied members of Congress to push back against the agency’s plans.

Shares in Swiss pharma group rally after analyst discovers data on immunotherapy medicine on website

Roche has inadvertently disclosed positive results from a closely watched lung cancer drug study, sending shares in the Swiss pharma group up as much as 5 per cent.

An interim analysis that the company published accidentally on its website showed the immunotherapy drug tiragolumab, when taken with the commonly used antibody medicine Tecentriq, increased overall survival time for patients. 

The data, discovered by an equity analyst, gave investors hope for the drug even though Roche warned that it is not yet “mature”.

Previous data from the same trial had shown that researchers missed another goal of showing a statistically significant difference in the growth of tumours.

The late-stage trial involves 534 patients with advanced non-small cell lung cancer, a prevalent type of the disease.

The accidentally published data showed patients who took the new drug in conjunction with Tecentriq survived 22.9 months on average — substantially longer than 16.7 months for those who took only Tecentriq.

Umer Raffat, the Evercore analyst who found the presentation, said the data was “very good”.

Analysts at the life sciences-focused investment bank Leerink said the improvement was “clinically meaningful”. While Roche’s public comments had hinted at positive results, no detailed data had previously been in the public domain, they added.

Immunoncology — harnessing the power of the immune system to tackle cancer — has transformed the prospects of many patients over the past decade.

Patents on some of the biggest immunoncology drugs are set to expire before 2030, however, and drugmakers are searching for a future generation of more effective drugs to generate new sources of revenue.

The Leerink analysts added that the results could also be positive for other companies developing drugs with similar mechanisms, which are known as anti-TIGITs.

The drugs target a receptor that suppresses the immune system’s response to cancer. Researchers believe they will improve the effectiveness of other immunoncology drugs when both medicines are used together. 

Shares in large pharma companies that are also developing anti-TIGITs rose. GSK was up 1.7 per cent in midday trading in London, while Merck and Gilead added 1.2 per cent and 0.9 per cent, respectively, in pre-market trading in New York. 

Smaller biotech companies that are developing similar drugs rallied strongly. Arcus Biosciences soared 25 per cent and iTeos Therapeutics jumped 28 per cent in pre-market trading.

The Roche data showed tiragolumab was “well tolerated” by patients and the side effects were no worse than existing treatments. 

The ongoing study is “blinded” to patients and the researchers, which is a way of reducing bias in such trials.

Shares in Roche increased 5.1 per cent to SFr265.95.

UK environment regulator warned government that companies were nearing ‘potential immediate supply risks’

Water companies risked running out of supplies in some parts of England during the heatwave last summer, according to official documents that will add to concerns about their investment in infrastructure.

The Environment Agency warned of “potential immediate supply risks” in Yorkshire and the South West in September 2022, according to internal memos shared between the UK government and the regulator, and obtained by campaign group Greenpeace.

The briefing papers, released under freedom of information requests, showed water levels in some reservoirs across the country hit record lows and were close to “dead storage”, where there is so little water it may not be treatable.

Almost half of England’s reservoirs had levels classed as “exceptionally low”. Greenpeace said the shortages meant companies were forced to abstract from rivers and lakes at unsustainable levels.

The documents will fuel concerns that a failure by the UK’s privatised water companies to invest adequately in infrastructure will leave the country dangerously exposed to supply shortages during future heatwaves.

About one-fifth of treated water supplies is lost in leaks, according to water regulator Ofwat, while no new reservoirs have been built in more than three decades. 

The concerns about water shortages come alongside mounting public pressure over the sewage outflows that have closed beaches this and last summer.

Megan Corton Scott, political campaigner at Greenpeace UK, said the government and water companies were taking a “dangerous gamble” over the risk of drought.

“With leaky infrastructure wasting up to 1tn litres of water a year and no new reservoirs built for decades, climate change could bring severe water shortages to the UK — and once again this government and water companies are playing fast and loose with the future of the country,” she said. 

Water companies were expected to submit 26 drought permits to help secure supplies, according to a letter sent by the Environment Agency to a senior government official on September 14 2022.

Drought permits are an emergency measure that allow companies to increase abstraction levels but they put pressure on the environment by draining the aquifer, rivers and lakes.

Not all the permits were submitted or activated, but the Environment Agency granted South West Water a drought permit to abstract more water from the Lower Tamar lake, a nature reserve on the border of Devon and Cornwall.

In the documents, the Environment Agency warned that, without the permit, the reservoir linked to the reserve would have emptied and “become unusable”. South West Water, which supplies water to 1.7mn customers in Devon and Cornwall, might have had to start using tanker trucks and bottled water to maintain supplies to customers, it added.

Pennon, which owns South West Water, said “no customer went without supply or impact to the quality of supply due to the drought.

“We reacted well and we continue to review all plans regularly to prepare for any future climate change impacts to water resilience. South West Water strongly disagree with any suggestion that it had not adequately prepared for the risk of a drought.”

In July 2022, Southern Water applied for a drought permit so that it could continue taking water from the River Test, a rare chalk stream that was receding amid record temperatures last year.

The Environment Agency could not approve it under the habitats directive — which protects fish and other species — because Southern Water had not accounted for the impact on salmon in the river.

The agency said it was concerned that Southern Water — which serves about 5mn people in Kent, Sussex, Hampshire and the Isle of Wight — “may illegally abstract to maintain customer supplies”, a situation that could pose “serious environmental risks”. 

Southern Water said that it “applied for a drought permit and did everything we could to reduce demand and protect the rivers”. “In the event, levels on the river never dropped below the hands off flow, no drought permit was needed and we withdrew our application,” it said.

The company added that it was “carrying out the largest ever UK water resources scheme involving building the first reservoir in 25 years, widespread adoption of water recycling, increased grid resilience”.

Yorkshire Water said that “despite experiencing one of the most extreme drought events and highest temperatures ever recorded, there were no interruptions to customers’ supplies and our reservoirs were able to refill over the autumn and winter”.

The government and Environment Agency were contacted for comment.