Restructuring: No room for nostalgia as Granada breaks with past: A new chief executive bites the bullet

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The Independent Online
ON 22 JUNE, Granada Group shares rejoined the FT-SE 100 list of the UK's largest public companies, after an absence of 18 months.

It seemed a fitting symbol of its return to grace after a lengthy wander in the wilderness. The following week, the group announced profits of pounds 57.2m for the first half of 1992, more than for the whole of the previous year. Under the leadership of Gerry Robinson, who arrived as group chief executive last November, businesses have been restructured, overheads cut, jobs shed and financial controls set up. From the City's point of view, it is the classic management story.

Granada had bitten the bullet in May 1991 with a pounds 163m rights issue and the sale of its profitable bingo business to Bass for pounds 147m. High balance sheet gearing plus heavy off balance sheet funding commitments to BSkyB, in which Granada holds a 12 per cent stake, made these actions necessary; the price was the resignation of the chief executive, Derek Lewis. The remaining board members took further steps to improve the group's financial position and profitability last October, selling the loss-making Canadian rental business and restructuring the loss-making computer maintenance division at the cost of 550 jobs.

For Mr Robinson it was familiar territory. As chief executive of the contract caterer Compass, he had gained a reputation as a turnaround expert, adept at cutting and controlling costs. He came to Granada determined to achieve acceptable levels of profitability.

Mr Robinson has few illusions about how much a chief executive can accomplish, believing his main job is to choose and motivate the first layer of management. He has been quick to assemble his team. Charles Allen, a former Compass colleague, was brought in to head the leisure division after the departure of the long-serving Bill Andrewes. As part of the restructuring of the leisure division, Roger Mavity, an advertising executive who had worked for Compass, was appointed managing director of leisure development, and John Williams head of theme parks and hotels.

So far, so smooth. The quiet life ended in February. David Plowright, chairman of Granada Television, was forced to resign after 31 years with the company, and all hell broke loose. Hundreds of newspaper column inches were devoted to the theme of the creative and caring programme-maker rudely ousted by a mere bean-counter. Mr Robinson was condemned by the cast of Coronation Street, a letter of protest was signed by senior Granada executives and at the AGM he was attacked vociferously by shareholders.

But television is a comparatively small part of Granada's business - accounting for about a quarter of turnover. The mainstay of the group's business is TV rental, which contributed almost 75 per cent of profit before interest last year. This is a mature market in gradual decline. Granada and Thorn EMI, the only big players, have managed to protect price levels. As in all its businesses, Granada is concentrating on improving margins, and costs fell by 3 per cent (despite pounds 3m of restructuring expenses) in the first half.

The leisure division has been reshaped after the sale of the bingo business, and may no longer be seen as a core business. The nightclubs and theme parks are suffering in recession and a prospective 'holiday village' has been written off at a cost of pounds 13m at the development stage.

Given Mr Robinson's areas of expertise, the key to future growth in this division is likely to be in catering. This is the common link between motorway services, the Granada Lodges and the hotels. The management structure has been streamlined and greater financial controls introduced, which should produce benefits in purchasing. Hotels may be a growth area, though not at this point in the economic cycle.

The group's two investments that have caused it the most grief, computer maintenance and BSkyB, are looking much rosier. Computer maintenance was bolted together from several disparate companies, taking five years and two restructurings to start to come right. Staff have been cut by 23 per cent on average over the last year, unprofitable contracts have been dropped and the business has moved into the black.

Meanwhile, BSkyB, whose funding caused much of Granada's high gearing problem, now looks a much better prospect. Costs have been rigorously cut and dish sales and subscriptions are encouraging and should be boosted in the autumn by the Premier League soccer deal.

For all this, the future of the television side attracts more interest than the other businesses. Mr Robinson has been accused of seeking unrealistic cost cuts that would damage programme quality. And he has said on numerous occasions that quality and cost are not synonymous. 'Quality is about being in control of costs, about control of the detail,' he said. 'Nor does high spending necessarily produce high quality.'

The sweeping job losses predicted after Mr Plowright's exit have not happened, but staff still feel at risk. One member of staff described the atmosphere as 'appalling' and said people were 'living in mortal day-to- day fear of losing their jobs'.

'Of course I don't want to make people redundant,' Mr Robinson said. 'But when it comes down to it, running companies is about running efficiently and profitably.'

Programme-makers inevitably look back to a golden age of Brideshead Revisited and Jewel in the Crown. But it is not for managers to be nostalgic. 'The scene has changed,' Mr Robinson said. 'Personally, I would prefer that it was still the way it was before, but the fact is that it isn't. It's no good behaving like the Flat Earth Society.'

(Photographs omitted)

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