When will the pain turn to gain for ITV shareholders?

By Rupert Steiner

The Business, June 2006

The Tradition among firms going through tough times is for board members to hide themselves away and tough out the storm. It would have been easy for Charles Allen to have followed Vodafone’s Arun Sarin in pulling on the outside World, but the chief executive of ITV has always played a ballsy game and despite continued poor trading at the broadcaster,

Allen went on the attack last week. He increased ITV’s proposed cash return from £330m (€435m, $548m) to £500m, announced cost savings of £100m by the end of 2008 and an incremental £20m investment in multi-channel programming from 2007.

Allen also delivered bullish strategy presentations to the City and media and can’t be faulted for putting himself out there, almost inviting a grilling on the challenges that face him. He has always been skilled in talking the talk and having a Teflon touch in turbulent times. The World Cup should have bolstered ITV’s advertising revenues for the summer but based on the most recent buyers’ estimates for June and August, Merrill Lynch downgraded its advertising growth forecast for 2006 to -9% from 6%.

Guidance will eventually have to be adjusted and despite assurances to the contrary from John Creswell, the new finance director, there is bound to be a profits warning.
It does appear that Allen has now addressed the fundamentals in turning around the core business, but the “30 months” he says that have flown by since the newly amassed ITV was formed, have been rather slower for investors. In anyone else’s language that translates to almost three years, much of it in pain. The question is why it has taken so long to put in pace a new dream team to sort out content and whether Allen will be given enough time before shareholders reach for the off button.

In the next few months we will see some non-core disposals, with Carlton Screen Advertising on the block for about £100m with bidders in the wings, and ITV’s stake in Ireland’s TV3 being renegotiated. The future of ITN as ITV’s news provider is even less clear than before. Allen had said it made sense for news to be brought in house with or without ITN, of which he is a shareholder. Despite it receiving further investment last week, Allen said the pension fund is still an issue preventing any deal being done at ITN.

Cresswell went a step further saying he was not sure whether a deal needed to be done a tall as long as the business continued to add value. Allen would not be drawn on whether he has been approached recently by any of the multitude of private equity houses said to be looking at ITV and is not about to snap up the last two outstanding ITV regions that remain outwith the group. He says running ITV is like being the England manager – everyone has an opinion and thinks they can do a better job. He will be hoping investors give him some extra time and the only kicking comes from Rooney’s metatarsal.

Crossed lines at Nokia

The Nokia and Siemens tie-up, merging the networks business of Nokia with the carrier-related operations of Siemens to exploit fixed and mobile network infrastructure, might have been broadly welcomed last week but it is a complex deal. Siemens has numerous divisions and joint venture relationships and extracting its infrastructure won’t be like cutting a cake and taking a piece out. Crumbs will be left behind and the best people to do this have to be identified and retained. It’s surprising how many businesses fail to do this and end up impacting their customer base and reducing shareholder value in the process. There is the potential for a culture clash with two different management styles from two different countries.

Paul MacGregor, from project management consultancy PIPC, says, “This is all about infrastructure, trying to gain a foothold in a rapidly converging fixed/wireless market to own the network on which future communications and media services will travel.”

But it will be an expensive and risky merger and tough for management to get real value out of the business in what is an increasingly competitive space. Ultimately though, if Nokia and Siemens can form a robust plan and execute it quickly, it should placate shareholders in the short term and pile pressure on newly merged rivals Alcatel and Lucent. With both fixed and wireless vendors jostling for position in the rapidly converging space, size of operation and speed of delivery are essential. There is bound to be blood over the coming months and if it can move quickly enough, it won’t be Nokia’s.

Turbulent times for BA

I didn’t expect to see such an early result after writing two weeks ago about how BA sales manager Ellen Taylor had appeared to “invent” the price of my recent ticket and cared less about her poor customer service. Two days later and the Office of fair trading raids BA’s heard headquarters near Heathrow investigating allegations of price-fixing on flights involving a number of airlines. While the two events are not connected, and we must not pre-judge what looks to be a lengthy investigation, it was obvious the airline had some fundamental issues, and that the best most basic indicator is nothing more sophisticated that just looking and listening to the experience of its customers.