TELEWEST ACTION GROUP

Mentions TWT but not exclusively about it.


Tough for those at the top

Published: December 28 2002 4:00 | Last Updated: December 28 2002 4:00

A bear market pays little heed to venerable names. So it can be scant surprise that the likes of Cable and Wireless, EMI and British Airways were unceremoniously ejected from the FTSE index of 100 leading shares this year.


Reuters, BAE Systems and Royal & Sun Alliance won the gold, silver and bronze for the worst three performances among the remaining constituents of the index.

Overall, the FTSE 100 and All-Share are down by more than a quarter since January.

Insurance companies, whose equity holdings turned investment profits into losses, were among the worst performers.

Royal & Sun Alliance brought up the rear, losing two-thirds of its value after missing performance targets, slipping deep into loss and finding itself with insufficient capital to keep up its underwriting commitments.

But the real tale of the year has been the collapse in telecommunications and technology companies, only two years after they were the hippest characters in town.

C&W, following its disastrous foray into internet and data traffic, looks the scruffiest of the lot. In September, the telecoms operator issued its fourth profits warning in 18 months.

The biggest shock for shareholders came when the company sprang the news that under a three-year-old agreement with Deutsche Telekom it needed to keep £1.5bn of its £2.2bn cash in escrow to cover a possible tax liability.

Marconi, another big-name casualty, has now finalised its drastic rescue deal with creditors after booking record multi-billion pound losses last year.

Previous management had run up £4bn of debt buying a presence in the telecoms equipment sector, just as it collapsed. Miserable shareholders have been left to pick over ownership of just 0.5 per cent of the company.

Then there are the cable operators, hit by sinking interest in their services and painful debt burdens. Telewest is still trying to finalise a £5.5bn restructuring.

NTL took its crisis to the edge, going into Chapter 11 bankruptcy protection, before negotiating a debt-for-equity restructuring with its creditors.

Reuters - half technology group, half information provider - was the biggest faller on the FTSE 100 this year (discounting those that were ejected).

It had a phenomenal decade in the 1990s culminating in a heyday in the millennium-year technology boom. But the shares have fallen nearly 90 per cent since then and have touched 12-year lows in recent months.

Results have collapsed under the twin pressures of competition from bitter rival Bloomberg and the loss of custom from financial institutions that are taking an ever sharper scythe to staff and overheads.

You might think defence groups would thrive with so much of the world on the brink of war. But BAE Systems has been a big disappointment. It compounded City bad feeling a fortnight ago, admitting it could lose a £3bn aircraft carrier contract after mounting conflict with the Ministry of Defence. The news came in a reluctant trading update that sent the shares plunging by a third to a nine-year low.

The steel industry is corroding, too. The November collapse of plans to merge Corus with its Brazilian opposite number CSN was compounded by a profits warning issued on the same day. Since its formation in late 1999 from the merger of British Steel and Hoogovens of the Netherlands, Corus has recorded cumulative operating losses of about £2bn.

The overall booby prize for stock market performance this year goes to Amey, the support services group, which has lost more than 90 per cent of its value since January.

Last year's profit evaporated into loss as it toned down aggressive accounting policies. Two finance directors left in two months.

The company axed its interim dividend after overstretching its balance sheet. It wrote off £85m of assets and had to be bailed out by partners in its formative contract to run part of London Underground. And you thought the Tube couldn't get any worse.

Brambles, another support services group, lost investor support after mislaying a few million logistics pallets and warnings from analysts that profits would stagnate this year.

Generous boardroom bonuses - justified by the hackneyed "need to retain top talent" - did nothing to improve sentiment.

Hays, the logistics group, drifted without a chief executive and there is speculation it may be broken up.

And WS Atkins, the engineering consultancy, botched the upgrade of its billing systems, leading to an autumn profit warning and a fall of more than 80 per cent in its share price this year.

There have been snippets of good news. Some relatively solid performances from the likes of Whitbread, Johnson Matthey and Tomkins secured their admission to the FTSE 100. Even BA got back in after a three-month absence.

But overall, barely a dozen of the members of the index notched up share price growth this year. Anti-smoking campaigners will be distressed to learn that all three of the big UK-listed tobacco companies - Imperial Tobacco, Gallaher and British American Tobacco - are members of this coterie.

Analysts say Amvescap, the Anglo-US fund manager, epitomises the market's overreaction to bad news. The group's funds under management have proved fairly resilient, outperforming average stock markets by some margin. Yet the bear market has been merciless on the group's own shares, sending them down nearly 60 per cent over the year. Bob McCullough, chief financial officer, could have been talking about the market as a whole when he said: "To say we've been through a difficult period would be an understatement."

In the Death March that was this year's corporate performance, cost-saving has been a leitmotiv, with jobs, pot plants, and coffee and biscuits slashed across the board.

The cuts at the City institutions have been among the deepest. The investment banks, which have collectively fired more than 90,000 bankers on both sides of the Atlantic over the past 18 months, have also dramatically cut back on their entertainment allowances.

Fair enough, admit insiders. "People were spending up to $200,000 (£128,000) on a client dinner when they didn't even know who the client was," says one CSFB banker.

JP Morgan Chase and Deutsche Bank have chopped their budgets for buying modern art. And Citigroup has even asked staff to stop claiming for the cost of laundering shirts while away on business.

Around the corner, the retail banks are finding it tough, too. By the summer, Abbey National felt executive stress was mounting so fast that it took on two masseuses to help relieve it - charging £21 a time for a half-hour back rub.

Outside the financial sector, the media and communications industries boasts the biggest roll call of job cuts, with 30,000 at Consignia (now known again as Royal Mail), 5,000 at Marconi, 1,500 at Telewest, and 860 at Reuters.

But Reuters' bean-counters have been more inventive than just wielding the axe among staff. The group is saving an estimated £180,000 a year by withdrawing employees' daily fruit baskets.

There has been similar belt-tightening at Vodafone, with the traditional May company bash one of the most obvious casualties. The 2001 event made the Guinness Book of Records, when 11,500 guests were ferried at company expense to Earls Court for the world's largest ever silver-service dinner. This year, a mere 10,000 had to make do with a self-service buffet around the corner from company HQ.

Telecoms' problems pale in comparison with air transport, as passenger numbers have plummeted in the aftermath of September 11. British Airways said in February that 13,000 staff - nearly a quarter of its workforce - would lose their jobs by March 2004 and it would seek savings worth £650m.

Critics of no-frills airline Ryanair might carp that a cost-cutting exercise there would find nothing left to cut. Michael O'Leary, chief executive, had a good go, reneging on a promise of free flights for life for one passenger. A judge saw things differently. Jane O'Keefe, nominated Ryanair's millionth passenger in 1988, left with €67,000 (£43,000) in lieu of the probable value of the prize.