Comment: Grade brings some sparkle to First Leisure

`The mooted takeover of Rank's film distribution arm was doused in cold water yesterday, but here is a man obviously itching to get First Leisure's well-endowed cheque book out'

Michael Grade is a flamboyant cigar-chomper, an old-style impresario and possessor of some of the most unbusinesslike socks in British industry. No surprise then that he looked so implausible yesterday telling the world not to expect any change at the stock market's dullest leisure company. There is more to his elevation at First Leisure than meets the eye, but whatever he has up his sleeve remained there yesterday.

There are several possible interpretations of his unlikely move from one of the most high-profile jobs in British television to the executive chair of a company whose showbiz credentials extend no further than the Blackpool Tower, some 10-pin bowling alleys and a chain of pubs playing live 1970s music (yes, really). There is perhaps a grain of truth in all the explanations.

Some might want to believe what Mr Grade himself says about it. Just before Christmas he discovered that First Leisure's chief executive, John Conlan, wanted to improve his golf. This set him thinking about his own future and, gosh, he realised he too might get stale and bored at Channel 4. Nothing more natural, then, than to step fully into the hot seat at his uncle's old company. Hmm.

More plausible is the cynics' explanation. Having given up a pounds 500,000 job in Hollywood in the early 1980s to join the BBC on pounds 38,000 and then Channel 4 (almost as parsimonious we are led to believe), he simply fancied some "serious" money again. Owner of a yacht he is the first to admit is too long to get into some of First Leisure's south coast marinas, Mr Grade plainly has a lifestyle to match his colourful socks. Working for the public sector may be good for the soul, but there comes a time in a chap's life...

Most likely, however, is the prospect that First Leisure will be the launchpad for a new Grade media empire. The mooted takeover of Rank's film distribution arm was doused in cold water yesterday, but here is a man obviously itching to get First Leisure's well-endowed cheque book out.

Despite the famous remark of Sir Jeremy Isaacs, his predecessor at Channel 4, that he would be happy for the job to go to anyone but Michael Grade, he has left the company in rude health with a strong share of the market despite a proliferation in competition. It is hard to imagine he is ready to switch off the set just yet.

Bus service is going downhill

It is anybody's guess how often John Gummer, the Environment Secretary, travels by bus. If he is like the rest of us, it is less and less. In the 10 years since deregulation of the bus industry, the number of bus passenger journeys has fallen by 22 per cent. Outside London, the fall has been an even steeper 29 per cent.

At the same time the privatised bus companies have cut operating costs by 45 per cent while still managing to put up fares by 15 per cent in real terms.

These are just a few of the fascinating facts to be drawn from a report published yesterday by the UK Round Table on Sustainable Development, of which Mr Gummer also happens to be co-chairman. At first glance they appear to confirm what everyone has suspected all along. The privatisation and deregulation of the bus industry has been one gigantic rip-off. Far from benefiting passengers, it has led to reduced services and higher fares. Even the simplest short city hop involving more than one bus has become a long-winded and uncertain safari.

Buses, like policemen, always used to come along in twos. But since deregulation they come along five at a time, each one, naturally, owned by a different operator and only, of course, on selected routes. That might do wonders for on-street competition. What it does for a coordinated public transport system is less obvious and what it does for road safety hardly bears thinking about.

Actually, the picture is not quite as black as this and what's happened is not all the fault of the privatised bus companies. Bus passenger numbers had been in freefall for 35 years before deregulation came along. In the past two years the decline has slowed to a trickle. What the Round Table is right to highlight, however, is the idiocy of a policy which gives bus operators the financial incentive to compete when this is very often at the expense of the passenger's desire for co-ordination of services.

With rail privatisation a decade later, the Government has avoided most of these pitfalls by appointing a proper regulator, prescribing minimum service levels and guaranteeing through ticketing. The next government may have to do the same with the buses, turning back the clock on competition and allowing operators to collude in the name of a better service to the public.

Premier looks even more expensive

We told you so, some of those who opposed Farnell's controversial takeover of Premier this time last year will be saying after yesterday's profits warning. Farnell was for years a stock market wonder stock. Making its money from the unglamorous but apparently lucrative business of distributing small electronic components, it could apparently do no wrong. Then came what some leading institutional backers (Legal & General, and Standard Life among them) regarded as the deal too far - the acquisition of Premier in the US. It's too expensive and too big, a folie de grandeur, rebel shareholders complained. The deal went through anyway and the rebels sold out.

Does yesterday's bungled profits warning - analysts guessed something was up when the company failed to show up for pre-arranged presentations - vindicate their stance? Yes and no, seems to be the answer.

The problem is not so much the acquisition, whose integration is apparently proceeding as smoothly as could be expected, but the strength of sterling and poor sales at Farnell Electronic Services, the volume distribution business which was sold last month. Farnell gave a veiled warning about the performance of this business last October.

All the same, the obvious question for executives is why problems in volume distribution and the effect they were having on profits were not more adequately flagged at the time the business was sold. That they were not, and that it took BZW, the company's brokers, to convince management a warning needed to be issued at all, is a worrying sign. Perhaps the rebels were right in believing the Premier merger would take management's eye off the ball and overstretch the company.

The other aspect of the profits warning - the adverse effect of sterling's strength - can more directly be pinned on the acquisition. Buying such a large US company gave Farnell an exposure to currency risk that it would otherwise not have had, both in terms of the cost of the acquisition and its earnings. Premier now looks even more expensive than it was a year ago and the dilution being caused in earnings is that much greater. The management task of bringing Premier's earnings into line with those of Farnell is made correspondingly more challenging.