Thursday 19 July 2018

Takeover of UTV may follow the sale of its TV business

UTV Media is facing a huge problem with the losses at its Dublin-based UTV Ireland
UTV Media is facing a huge problem with the losses at its Dublin-based UTV Ireland
Michael Fingleton might argue that INBS was not insolvent on the night of the guaranteethat
Richard Curran

Richard Curran

Management at UTV Media have made a spectacular miscalculation with their UTV Ireland investment. It has backfired - and the board may well be right in heading for the hills by flogging off its entire television operation.

Half-year figures published on Friday show that - as has been long expected - UTV Ireland has been a significant financial drain on the overall performance of the group, which also includes UTV in Northern Ireland plus radio stations in Ireland and in Britain.

UTV Media is facing a huge problem with the losses at its Dublin-based UTV Ireland. The operation lost £7.5m or £288,000 per week in its first six months on air. Revenues were a disappointing £4.9m as the station cost £12.4m to run.

The poor showing dragged UTV Media's overall group position into an after-tax loss of £480,000, compared to a profit of £7.9m for the same period last year.

The UTV Ireland losses also meant UTV had to re-negotiate its banking covenants from 3.5 times Ebitda to 4.5 times, just until next June.

So what is UTV Media to do?

It has to make sure its debts do not rise and its earnings go up by June of next year in order to avoid seeking another covenant extension.

UTV Ireland is expected to lose £11.5m this year. Even if it can halve that next year, it would lose another £2.8m in the first half of 2016. There are no guarantees even that figure can be achieved.

Meanwhile, turnover at UTV's Northern television business fell this year as did its operating profit.

Revenues at the Irish radio stations fell 8.8pc and operating profit fell 16pc. Revenues at the British radio station division were down 9pc.

Cost cuts and a pick-up in some of these markets should see earnings rise next year - but can UTV Media take that chance?

If earnings don't grow, the group would be back seeking a further extension of the banking covenants next summer.

Therefore, why not sell something?

It could sell some of its valuable smaller radio interests, but that would shrink the group and lower revenues which fund losses at its new Dublin albatross.

The cleanest thing to do is sell the entire television division and leave the group as a pure radio play with good assets and very little debt. ITV is a willing buyer with deep pockets. That is why the ITV deal seems likely to happen.

It leaves two big questions.

Firstly, will ITV keep the Dublin channel going, and how vulnerable will the shrunken UTV Media be to a takeover approach?

ITV has the wallet to fund UTV Ireland losses for a considerable period of time. But it may not see a station losing nearly £300,000 per week as an asset worth keeping. It could go either way.

Without its TV division UTV Media is not a very big business to retain a stock market listing.

Goodbody Stockbrokers believes UTV Ireland can make it over time and sees the stock as a buy with a sum of the parts valuation of 205p per share. It's trading at 175p. A break-up and then takeover of the UTV group looks like a very real possibility.

Fingleton to face the banking inquiry

Expect plenty of fireworks when former Irish Nationwide chief executive Michael Fingleton gives evidence at the banking inquiry this Wednesday.

There will most likely be lots of heat, little light, and probably no apologies from the fiery former banker.

It remains to be seen whether Fingleton will attempt to argue that, on the night of the guarantee, the society was not insolvent - and any talk of nationalising it was just competitors seeking to take him out of the game.

It would be utter fantasy to suggest that INBS was not already doomed that night. The definition of insolvency is the inability to pay debts as they fall due.

On September 22, 2008, just days before the State bank guarantee, INBS chairman Michael Walsh - a highly respected expert in banking - met David Doyle, the secretary- general of the Department of Finance.

Fingleton didn't know about the meeting. Details of the meeting are contained in the book Fingers: The Man Who Brought Down Irish Nationwide - And Cost Us €5.4bn by Tom Lyons and Richard Curran.

Walsh had written a six-page paper on the crisis which was blunt, honest and accurate. He said if the department did nothing, capital markets were entirely closed to the society - and it was impossible to refinance its debts with other institutions.

Assuming current market conditions prevail, the do-nothing option "will inevitably result in the collapse of Irish Nationwide". He said the society was facing a run on three fronts and predicted it would lose €2.3bn held by overseas depositors.

"In the absence of support, in the current market conditions, it is unlikely that INBS will have sufficient funding to get the time to have an orderly run-off."

INBS needed to repay €1bn of borrowing in May 2009. Before that it had another €634m to pay back in December 2008.

Fingleton could argue that the debts were not actually due on the night of the guarantee and therefore it was not technically insolvent.

On a technicality, he could be right.

But that logic is a bit like watching a building begin to collapse on top of you. At the moment it starts to fall, you are fine because it hasn't technically hit you yet.

However, as an assessment of reality, it is utterly meaningless.

Oireachtas inquiry members would do better not to dwell too much on the inevitability of the society's collapse but focus on its lack of corporate governance, its attitude to the regulator and on specific deals Fingleton did with borrowers.

Here's to having a go in the run up to a budget

The Pernod Ricard-owned Irish Distillers joined the long queue of vested interests looking for some kind of boost from Michael Noonan's October budget.

The Irish whiskey industry is booming with new investment, new jobs and growing sales.

In fact Irish Distillers' Jameson brand is going gangbusters around the world. But the company's chief executive, Anna Malmhake is worried.

The global spirits giant is worried that high excise duties on spirits at home puts pressure on sales in the domestic market, making spirits more expensive for tourists in Ireland.

Malmhake asked: "How sustainable is the current international growth of Irish whiskey without a solid local market in which to support home-grown brands as well as new market entrants?"

I have a question myself: "Where would our public finances be if global drinks giants like Pernod Ricard got a lift to their bottom line by cutting tax in an industry that is thriving? Sales in Ireland might be down - but the employment and global sales outlook for the whiskey industry is extremely positive."

A cut in excise on spirits would boost the profitability of whiskey makers, whom investors are already tripping over each other to acquire for tens of millions of euro.

It would also boost profits for Irish Distillers brands like Absolut and Huzzar Vodka, Cork Dry Gin, Olmeca Tequila and Malibu.

I don't think Finance Minister Michael Noonan will have too much sympathy for visiting tourists who find they have to pay more for a bottle of Jameson than where they are from, given that they are already enjoying a subsidised Vat rate of 9pc on hotels and restaurants.

Still, it's pre-budget season, and you have to give it a go.

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