Comment: BTR navel-gazing leaves questions unanswered

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The Independent Online
Seven out of ten, Mr Strachan. Yesterday's package of measures from BTR are a reasonable stab at creating some semblance of order out of the sprawling mess Ian Strachan inherited at BTR, but while he's tied up a few loose threads, there are still too many unanswered questions for comfort.

The final curtain is being drawn on the stock market's long love affair with conglomerates. In the 1970s and 1980s, both Hanson and BTR shareholders got rich on the theory that any old rubbish could be bought up, sorted out and run for cash. The party was a long and spectacular one but it ended ages ago and so far no one's managed to recover from it. The first to grasp the nettle was Hanson with its break-up proposal. BTR's approach is different but essentially it is a response to the same set of problems. Paring businesses down to their cash-generative, high-margin core may give earnings a short-term fillip, but it is no way to create long-term growth, as both Hanson and BTR have found to their cost.

Growth requires investment, which is near impossible if, like BTR, you hand two-thirds of your free cash flow back to shareholders. So cutting the dividend was an obvious starting point. The second leg of the strategy is to reinvest that money in a handful of global businesses in which BTR has a genuine leadership position. Selling the rubbish accumulated over years of compulsive acquisition-making also makes sense given the dismal returns on both sales and capital employed they were generating. It is quite an indictment of the group that a quarter of its sales can be disposed of without much effect on profit.

The creation of seven new business divisions into which 32 existing areas of operation are to be divvied up also appears on the surface to be a step forward. But it would be wrong to expect such a cosmetic change to provide any sort of panacea. The hazy distinction drawn between BTR's four core divisions and the three others which don't appear quite to have made the cut, suggest executives have not got to grips with sensibly categorising the group's thousand or so subsidiaries. There is a size beyond which any company must become unmanageable and BTR appears to have reached it.

The other nagging doubt is over the extent to which the centre can genuinely hope to add any value to businesses as fundamentally different as automotive systems and packaging. The battle to persuade shareholders that BTR in its current form should exist at all has only just begun. BTR may yet have to follow Hanson down the path of full demerger.

Treg's proposal just doesn't measure up

Which is better for the Kepit's 77,000 investors - their own company's plans for liquidating itself or the rival takeover proposal from TR European Growth (Treg)? On the face of it, Treg seems to have quite a case. Performance at the Kleinwort Benson European Privatisation Investment Trust (Kepit), has been lamentable. By contrast Treg's investment performance has been reasonably good, though the trust is actually a rather different kettle of fish, specialising in smaller European companies rather than the privatisation and larger company stocks which are Kepit's hallmarks.

When you look at it closely, however, better performance seems to be Treg's only card. In all other respects its offer is inferior, the bottom line being that it has pounds 10m less on the table. There are a number of reasons for this. The first concerns fees. With the Kepit proposal, Kleinwort Benson and M & G, both offering the opportunity of conversion into their own unit trust products, largely pick up the tab. With Treg, it is Kepit which pays the costs. Furthermore Treg will have to pay Kleinwort a pounds 4m management termination fee should it win; again the money will come from the trust. With the Kepit proposal, Kleinwort has agreed to waive the fee.

Finally, Treg cannot bid for Kepit unless there is something in it for its own shareholders. It is therefore having to bid at a small discount to formular asset value.

Whatever Treg says, the truth of the matter is that on anything you can measure, its proposal is not as good. There is, however, a rogue element in all this. The Kepit solution is essentially one of unitisation; it is an unfortunate irony that it should have chosen this route at the very moment that the unit trust industry's failings and weaknesses should have been so cruelly exposed by the Morgan Grenfell debacle. Say what you like about the fuddy duddy old investment trust, but there's a new spring in its step after this dreadful case of hubris in the upstart unit trusts sector.

It has been all too easy to condemn the investment trust board as just jobs for the boys, little more than an excuse for long lunches. Now it seems that these independent directors may provide a rather better form of investor protection than all the unit trust industry's highly paid trustees, auditors and compliance officers put together. The job of an investment trust board is to vet every single investment made by the managers - and they do, for their reputations are on the line. The good old-fashioned investment trust may be about to enjoy a renaissance.

Who will solve the millennium problem?

So much hype has surrounded the looming millennium computer software crisis that it is impossible to gauge what the true cost of this extraordinary lack of foresight is going to be. As Taskforce 2000, the independent body set up to raise awareness, admitted yesterday, nightmare estimates of pounds 15bn for British industry are pretty meaningless, given that most companies will pay for the necessary adjustments by deferring other IT projects.

All the same, the Department of Industry is plainly right to highlight the problem, and to insist that it is one for the boardroom, not just the humble IT director. A straw poll of three very senior British Gas executives yesterday (we'll spare them the embarrassment of naming them) showed an astonishing level ignorance. Two were aware of the problem in theory but knew nothing of the situation at British Gas itself. The third, the most senior of all, said: ''I didn't know about it until you mentioned it.'' No doubt BG has plenty of other things on its plate, but failing to address the ''Millennium problem'', with consequent billing chaos for 19 million customers, would hardly do much for the company's shattered image.

As luck would have it, British Gas's computer department seems to be more in touch with reality than its board of directors. British Gas Energy, the supply business, has just installed a massive new billing database, but will still need to spend many millions of pounds in order to cope with the date change. Despite this substantial financial commitment, top executives seem almost completely unaware of it. Doubtless the situation at British Gas is no worse than other UK utilities. Just what are these people paid their fat cat salaries for?

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