Royal Dutch Shell Group .com

The Times: Powerhouses of business are our joint winners



By Jon Ashworth, Sarah Butler and Christine Buckley

April 05, 2004  


TWO years is a long time in the life of a FTSE 100 company. Since our second Corporate Profile series started in February 2002, the rankings of Britain’s biggest companies have seen some big changes.


With takeovers and relegations, we had to analyse 110 firms to end up with a current FTSE 100 index, frustrated by late arrivals such as Antofagasta, the Chilean miner, and Enterprise Inns. Foreign & Colonial crept in just in time to be relegated, while Granada, profiled in 2002, mutated into ITV. British Airways fell out of the FTSE, then flew back in.


Companies were awarded up to ten points in each of ten categories, giving a score out of 100. Two of the most controversial rankings — fat-cat pay and corporate social responsibility — were calculated by the Centre for Business and Economics Research, the City forecaster, and Pirc, the corporate governance consultancy.


The other categories, rated by The Times, covered financial record, share performance, attitude to employees, brand strength, innovation, annual report, City star rating and future prospects.


This time there are joint winners: Centrica, parent of the AA and British Gas, and Tesco, the UK’s biggest supermarket group. Both score 80 points, with Centrica scoring a maximum ten for City star rating — the number of analysts’ “buy” recommendations — and nine each for innovation and future prospects.


Centrica has continued a strong performance since we last looked. Its companies range from British Gas to the AA roadside service and OneTel telecoms.


However, earlier this year Centrica left investors disappointed with a 35 per cent dividend rise, and annoyed customers with a 5.9 per cent increase in gas and electricity prices. The company, where Sir Roy Gardner is chief executive, promised investors more benefits, possibly through a share buyback or a special dividend, and blamed the price rise on last year’s increase in wholesale power prices.


Centrica’s £1 billion profit last year was the result of a very mixed picture from its component parts. Domestic energy, for which Centrica has 18.8 million customers, saw profits fall 36 per cent to £136 million, while the AA raced ahead with a profit of £93 million. This compares with a profit of just £6 million when Centrica bought it in 1999. After we profiled Centrica it sold Goldfish, its financial services business, to Lloyds TSB after it failed to meet expectations. The City remains largely a fan of the company that is now as much a consumer service organisation as a utility.


Analysts await the fruits of a new £400 million computer system designed to help cross-selling between services. The system is also intended to help British Gas achieve margins of 8 per cent. The system, which has suffered delays, is due to begin operating later this year.


Such is the pace of change in the corporate world that Shell, profiled in October, would fare quite differently in a fresh analysis. The company scored eight across most categories, with a ten for strength of brand — now dented by the disclosures over its oil and gas reserves and Sir Philip Watts’s resignation as chairman.


Tesco scored ten for brand strength and nine for share performance and prospects. When we looked at Tesco in November, supermarkets were awaiting the outcome of the battle for Safeway. Sir Terry Leahy, Tesco’s canny chief executive, made the most of the ensuing disruption, as J Sainsbury, Asda and Wm Morrison fought over the Safeway prize.


Success for Morrison is expected to bring pressure to bear on Tesco and its rivals as lower prices bed in across the Safeway chain. That aside, Tesco had a brilliant year in 2003, cementing its position as the largest supermarket group. At year-end, the group commanded 27 per cent of the market, 10.2 points ahead of Asda, its closest competitor. The firm looks well placed to benefit from more consolidation of the convenience store market, buying more than 400 small shops with T&S Stores in 2002 and some important central London stores from Adminstore, the owner of Cullens and Harts, this year.


Tesco continues to increase market share at home and abroad, with stores in 11 countries including Japan and Poland. Hungary and Thailand are likely to provide most of Tesco’s overseas growth in the next few years. Tesco is thought to be close to securing a partner to help it enter China. It scored highly across most categories, let down only by corporate social responsibility, with five. Targets for future CSR performance were not provided and there was little evidence of accreditation to external management standards.


Joint second place goes to AstraZeneca and BAA, scoring 78, while joint third place goes to Barclays, Diageo and Shell, scoring 76.


The lowest scores went to Royal & SunAlliance, with 44 points, and Cable & Wireless, with 46. Corus, the Anglo-Dutch steelmaker, was awarded an abysmal 36 points, and has dropped out of the FTSE.


Much has changed since our inaugural Corporate Profile series, which ran from October 1997 to November 1999. ScottishPower, the top scorer with 81½, scored just 60 points in the second series. Sage, the accounting software group scored 81, boosted by dot-com euphoria. It scored 67 this time.


This series saw greater focus on corporate governance, with increased shareholder activism over pay and perks, and on corporate social responsibility — ignored by companies at their peril. Analysis by Pirc suggests companies still have a long way to go towards meeting best practice.



Click here to return to Royal Dutch Shell Group .com