Granada profits overturn fears

Investment: Defensive strategy in leisure and media wards off economic downturn
GRANADA, THE leisure and media giant, yesterday shrugged off fears that an economic downturn would undermine its growth and predicted double- digit profit increases for each of the next three years.

"We have strong, defensive businesses that will enable us to outperform the slowing economy," Gerry Robinson, the chairman, said as Granada reported an 18 per cent increase in operating profits to pounds 970m before exceptional items. Turnover from continuing businesses rose 10 per cent to pounds 3.98bn.

The media, hotel and restaurant divisions all managed profit increases of 15 per cent or more. The only disappointment was the television rental division, where changes to insurance tax reduced profits by 15 per cent.

At the same time, Granada for the first time lifted the veil on the detailed three-year plans that the company maintains for each of its four divisions.

Charles Allen, Granada's chief executive, said: "We are confident in achieving double-digit profit growth over the life of the plan."

The confident statement was welcomed in the City, which had been worried that a slowing economy would hit advertising revenues on the television side and dent demand for hotels. Profit forecasts of pounds 835m for the current year suggest that analysts now believe Mr Allen can hit his target.

The statement was also seen as a signal by Granada that it does not need to make a major acquisition in order to keep growing. Ever since the group's high-profile hostile bid for the Forte hotel chain in 1995, investors have assumed that it was only a matter of time before Mr Robinson turned his mind to another deal. Yesterday, he hinted his main interest was in taking Sutcliffe, the contract catering division, into overseas markets. But sizeable acquisitions are hard to come by in that arena.

City analysts are not concerned by Granada's lack of corporate activity. "They still have a lot of mileage in their current range," Mr Robinson said.

Meanwhile, Mr Robinson also ruled out the possibility of a demerger of the media and hotels businesses - a move that has been mooted several times.

"The idea that splitting a company up is a universal recipe for success has been proved false," Mr Robinson said, adding it was "very unlikely" that Granada would break up in the foreseeable future.

The three-year plan shows that Granada has ambitious ideas for its main businesses. On the media side, Granada hopes to expand ITV ratings and boost advertising revenues. Meanwhile, Mr Allen said ONdigital, the group's joint venture with Carlton Communications, would create a "major force in pay television" by adding new channels, pay-per-view and interactive services.

In hospitality, the group will build new motorway service stations while developing its Little Chef and Travelodge businesses. It wants Posthouse to become the leading brand in the mid-market hotel range, while its Heritage range will be repositioned as affordable hotels while also catering for conferences and executive meetings.

Mr Allen pointed out that the company's relatively fixed cost base meant any growth in turnover would have a disproportionate effect on profits. "With businesses like ours, you can grow the turnover line by 4 per cent and most of that will drop straight through to the bottom line," he said.