THE revolution goes on at STV, though the management is no longer taking to the barricades. A slump in profits for the half year looks pretty grim, and is a reminder that it has fallen a long way from those heady days when Lord Thomson described it a
s a "licence to print money".
But the picture is brightening amid signs that the company is tackling external pressures head-on.
Operating profits in the key television business were down 25 per cent – £1.3 million – due to the recession in the advertising market, but cutbacks and other efficiencies have enabled the company to wipe £20m from operating costs since the new management team, led by chief executive Rob Woodward, took over in 2007 and the group is meeting ten of its 12 key performance indicators.
It has won independent status for its television production division and its first commission for the BBC and claims to have a strong schedule of programming lined up for the second half of this year and into 2010. There are indications of a reduction in the rate of advertising decline – a case of the trend being "less bad" – and the company has identified further cost savings, which may mean more tightening of the screw.
None of this should be taken as an indication that the good times are just around the corner – far from it. The company has clearly suffered a big top-line hit and is still not in a position to pay a dividend, though Woodward promises to review the situation as the market improves.
At least STV is being managed through the crisis in advertising spend so that it has reached a point of stability. It was always a risk to dismantle what had been a mini-conglomerate and concentrate purely on television and Woodward is now gambling that a re-focusing of programme output towards local content will retain and grow audience share.
Some in the industry are not so sure and it will be an interesting test of STV's audience loyalty and the potential rejuvenation of ITV – which is facing its own financial and creative challenges and is due to appoint a new chief executive.
In the short term Woodward has to resolve two issues. The first is a dispute with ITV over claims that STV has not paid fees for programmes it has not shown; the second concerns the future of its biggest and highest profile programme: Taggart. ITV has yet to commit to another series of the detective series. While Woodward says he can live without it, his programme maker-in-chief, Alan Clements, will come under greater pressure to find the next big ratings winner if the long-running show finally gets killed off.
C&C Group
JOHN Dunsmore won his spurs at Scottish & Newcastle, where he fought a ferocious takeover tussle with Carlsberg and Heineken. He lost the battle for ownership, but was widely credited with securing a good price for S&N shareholders.
His star was rising when the Danish-Dutch duo teamed up to deny him the chance to fulfil his ambitions at the Edinburgh-based brewer and it was no surprise when he got a top job at a rival drinks company. Last November he became chief executive of C&C Group, producer of Magners cider, and set about building a strategy to create a portfolio of brands and internationalise the business.
It is a bold move, but Dunsmore has a keen following – some analysts wonder if the job is big enough for him.
Yesterday, he unveiled his biggest deal to date: the £185m acquisition of Tennent's, the lager brand, together with the Wellpark brewery in Glasgow. Now analysts are asking whether he has overpaid.
The challenge is turning back the tide of declining UK beer sales, down 6 per cent over the year. It's a big ask and Dunsmore, while talking about growth, is short on specifics – though he does have a tie-up with Anheuser-Busch InBev, the mega-brewer formed from last year's merger of the US and Belgian giants. This will enable him to distribute Stella Artoies and Beck's in Scotland, Northern Ireland and Ireland.
However, the big challenge is getting Tennent's to a wider drinking public. Despite having such a dominant position in Scotland, and enjoying popular notoriety through its sponsorship of rock festival T in the Park, it does appear to be the proverbial sleeping giant.
It may not appeal to beer aficionados but a constituency of consumers clearly exists in England and Wales that have yet to be tapped and Dunsmore is setting his sights on growth in this potential growth market. InBev didn't really give it the attention it required.
If Dunsmore should get this right he may be on to something. He's promising to build a new S&N, but setting targets in a declining market is a tough task.
Edward Legget of SLI
ONE TO WATCH
Galiform
60.85p -0.4p
Scotsman says BUYBUYING stocks exposed to large-ticket consumer spending in the teeth of a recession may feel foolhardy; however, those firms that survive are likely to prosper as competitors fall by the wayside and economic conditions improve.
Galiform, the UK's largest supplier of fitted kitchens, is one such company. Its kitchens are supplied through its joinery firm, Howdens – the highly profitable half of MFI that was left intact when the retail chain was sold off to private equity two years ago.
Following this sale, demand for new kitchens has plummeted. As the housing market has ground to a halt and credit has become increasingly difficult to obtain, investment in a new kitchen has fallen way down homeowners' list of priorities. As a result, there have been a number of casualties in the sector, the highest profile of which was MFI going into administration.
The demise of MFI was a mixed blessing for Galiform. It removed its largest competitor but also left it with liability for the leases on 46 MFI stores.
Fears over trading and the overhang of these lease liabilities pushed the shares down to 14p at the start of the year. Since then, a resilient performance from the company at its interim results has led to a strong rally in the shares to 66p.
We feel that, despite this strong run, the shares still have considerably further to go. As recently as 2007, the company made 8p of earnings on a share price of £1. Reduced competition, a growing number of depots and a slowly improving housing market mean we expect rapid growth in profits. Galiform has scope to exceed its previous peak earnings within three years and move the shares over £1.
• Edward Legget is a fund manager at Standard Life Investments. This article is for information and discussion purposes and does not form a recommendation by the manager to invest or otherwise.
Ocean Terminal a drag on Forth Ports' first-half figures
SCOTS STOCKSFORTH Ports' shares closed down yesterday after reporting a fall in first-half profits and warned against a recovery in the property sector.
Edinburgh-based Forth reported a robust performance from its port business, but further wrote down the value of Ocean Terminal, its Leith shopping and leisure complex. The shares, which have been rising strongly in recent weeks, closed down 2.1 per cent at 1,280p.
Venture Production closed at 845p, the price Centrica is paying per share to take over the Aberdeen oil and gas company, with its offer declared wholly unconditional after trading closed last night.
Alliance, the FTSE 100-quoted Dundee-based investment trust, rose slightly on news that it had poached a team of fixed-income experts from Scottish Widows. Shares closed up 0.7p at 297.3p.
Glasgow television group STV dropped 3p to 59p after reporting a fall in revenues and profits. Macfarlane, the Glasgow packaging group, also reported a fall in first-half profits, but shares rose 4 per cent to 17.75p as the impact of cost-cutting measures were outlined.
Aim-listed Faroe Petroleum, the North Sea oil explorer, initially rose on news that it had completed the sale of its stake in the Breagh gasfield to RWE, gaining the group cash of £25.5 million. But Faroe finally closed down 0.75p at 79.5p.
Health ministry's decision is just what doctor ordered
SMALL BUT BEAUTIFULFOURTEEN of the medicines made by Aim-listed Hutchison China MediTech (Chi-Med) have been included in the new national list of essential medicines issued by the ministry of health in Beijing.
Some 102 of the 307 drugs on the ministry's list are classified as traditional Chinese medicines, a key specialism for Chi-Med, which has a market cap of about £60 million.
Chief executive Christian Hogg, originally from Peebles but now based in Hong Kong, said: "Overall, we believe this is good news for Chi-Med.
"Since our 2006 flotation, our China healthcare division has recorded compound annual organic growth of 28 per cent, as well as improving operating profit margins from zero in 2005 to 18 per cent in the first half of 2009."
He went on: "Inclusion of our main drugs on the essential medicines list positions us well to continue this growth."
The 14 essential drugs made by Chi-Med represent more than 80 per cent of that division's sales of prescription and over-the-counter drugs.
The division recorded sales of $53.1m (£32.8m) and net profit after tax and minority interests of $6.6m in the first half of the year. Thirteen of the 14 drugs are generic medicines that are made by multiple manufacturers in China.
