Brit-flicks galore but no real hits

Civilian Content ran into trouble when it got out of meat and into movies

It might seem glamorous to run a film financing and distribution company that has funded Hideous Kinky, starring Kate Winslet; 51st State, an action comedy with Samuel L Jackson and Robert Carlyle; and the critically acclaimed Gangster No 1 about ... er ... gangsters.

Responsible for all the above is Civilian Content, a small AIM-listed firm with humble beginnings and a controversial history, which has benefited from the lottery-funded bonanza for British films.

Civilian Content began life far from its Soho headquarters. Until 1999 it was known as Whitchurch and was a small meat processing and pet foods company. It was transformed from an unfashionable grub into a fragile butterfly by its then chairman, Richard Thompson.

The son of a multimillionaire who made his fortune in the food business, Mr Thompson had previously chaired one football club, Queen's Park Rangers, and helped buy out another, Leeds United.

But sadly for shareholders, ever since the Civilian Content butterfly emerged from its chrysalis, it has lost money. Its broker, KBC Peel Hunt, predicted last year that the company would turn a profit in 2001. But following a profits warning in December, it is now expected to announce a loss of £1.6m, with exceptional charges of £3.3m, when it reports its full-year results on Thursday. For 2002, the broker is predicting a profit of £1m.

It's an unfortunate tale, especially when you consider that Civilian has enjoyed privileged access to £33m of lottery cash to fund its films, which have not generally been blockbusters. Luckily, it can forget about the really embarrassing flops, such as Dead Babies, based on the novel by Martin Amis and starring Olivia Williams, who made her name in Kevin Costner's The Postman.

Dead Babies was said to be "as painful to watch as having teeth pulled" by the film critic Alexander Walker, who was certainly not biased – he also admitted to being a shareholder in Civilian Content. The film made just £4,000 at the UK box office, according to figures from trade magazine Screen International.

Civilian Content's biggest success so far has been 51st State. Unusually for a lottery-funded film, it managed to gross £3.8m at the UK box office, according to Screen International. Although Civilian Content's financial results have been dire so far, it takes a long time for all the revenues from a film to come through. They are sorely needed to refund a total of around £20m of lottery cash that has been invested through Civilian. Some went into projects that have now been shelved, and some into projects still in production. But the films released so far have only grossed a total of around £11m at the UK box office. Even the much-admired Ms Winslet could not boost Hideous Kinky's gross takings above £790,152.

When he was chairman of Civilian Content, Mr Thompson attracted criticism from shareholders after selling three of his own companies to Civilian for more than £3m. Two of them appeared to have been set up just a couple of weeks before, and the other was loss-making. Mr Thompson defends his actions, saying the deals were "conceptual" and while other directors had voted for them, he excluded himself from the decision.

While these deals were being set up, Mr Thompson bought the original meat businesses for more than £6m, but paid only part of the money up front. He was allowed until the middle of 2004 to repay £1.9m, which is still outstanding. This debt was reason for his resignation in December 2001, says the company's new chairman David Elstein, former head of Channel 5 and a well-known media figure. "Richard resigned on the advice of his own legal team, because of a potential conflict of interest in terms of a transaction that was taking place," says Mr Elstein.

Mr Thompson says the negotiations referred to by Mr Elstein were over the early repayment of the £1.9m, but he says they were not the reason for his exit, and it had always been the intention to put in place an experienced media chairman.

Shareholders have also questioned Mr Thompson's faith in the company. He sold 1.2 million shares in July 2000, mainly to other directors, just weeks after one of its most important films, Gangster No 1, starring Malcolm McDowell, flopped at the box office.

But he will be banking on a sparkling future for Civilian Content. He still owns around a quarter of the company, which is today valued at just under £2m. In the days when it was a meat business, it would have been worth more than double that. Mr Elstein says: "The company is capable of delivering a reliable profit."

Mr Thompson wants to put the gloss back on the company as much as any of the other shareholders.