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The Guardian (UK): You Just Haven't Earned It Yet, Baby: “Shell, for example, after its annus horribilis, has been transformed by the high oil price: the moment when shareholders demand their pound of flesh may be fast approaching.”: Wednesday August 24, 2005


Morrissey could analyse Sanctuary


Here's a little game for Sanctuary's suffering shareholders: which lyric by Morrissey, the company's most famous client, best describes the group's current plight?


Heaven Knows I'm Miserable Now and Still Ill are far too obvious. I Don't Owe You Anything gets marks for irony, given Sanctuary's pile of debt; indeed, let's hope Cemetery Gates is premature. There is a Light that Never Goes Out is optimistic, but frankly Stretch Out and Wait chimes with the inevitability of Sanctuary's announcement that, for all the chatter, no bid has materialised.


Now Warner Music has walked, life looks very grim indeed for little Sanctuary. Yes, yes, all those song titles were by The Smiths, rather than by Morrissey, the solo artist on Sanctuary's books, but that's rather the point here. Building a business on the music industry's retreads is a model that has never been shown to work.


The failure of any of the major labels to bid for Sanctuary when it was on the way up tells the story: none of the big boys were convinced that the upstart's jumble of assets added up to anything resembling a remote threat. It seems there was a reason why the majors allowed all those old acts to slip away.


That fact should have been a warning light for City investors. So should Sanctuary's failure to convert its increasing revenues into cash, a clear hint at any growth company that it may be growing in the wrong directions - that is, adding too many overheads.


The City has been inexplicably lax in pressing chairman Andy Taylor on the point. It took until June - when debts, as now, were around £120m - for Taylor to admit there was a problem on the cash front. As late as January this year he was saying he was still looking for acquisitions.


We said in this column then that Sanctuary was haemorrhaging cash, and repeated the point in an uncharacteristic share tip in June. (The actual words were: "If you own shares in Sanctuary, sell them. Now.")


Even after yesterday's 42% fall to 10p, it's hard to raise much enthusiasm. Sanctuary - who knows? - may just attract a lowball bid, or it may face the purgatory of working off all that debt with asset disposals and cost cuts. What Difference Does It Make?


Cash surplus


One of the mysteries arising from the current oil price is what the oil companies intend to do with all their cash.


In an industry where an asset can have an economic life of 40 years or more, it is perhaps unreasonable to expect quick answers. But a piece of research yesterday by Citigroup demonstrated the scale of the issue.


The bank's analysts think the group of nine European integrated oil majors could generate $54bn (£30bn) of surplus capital over the next two years. That would be after paying $91bn in dividends to investors and spending $63bn buying back their own shares.


These are colossal figures, even for large multinational businesses. Citigroup calculates that the $54bn of surplus capital is equivalent to 16% of the book value of the group of nine's equity. That's a hell of a sum to have knocking around looking for a home.


The point here is that, despite some chunky share buybacks, oil companies seem more enthusiastic about paying down their borrowings. Companies and the City rarely agree about the definition of an efficient balance sheet, but Citigroup's view is clear: "Debt capital providers are being rewarded for the high commodity price environment ... but equity providers appear to be of secondary importance."


This argument will run and run, but it is indeed odd that only BP has an explicit commitment to pay out surplus capital. Shell, for example, after its annus horribilis, has been transformed by the high oil price: the moment when shareholders demand their pound of flesh may be fast approaching.


Standard issue


Trying to assess Standard Life's progress towards demutualisation is tricky. The interim figures published by the Edinburgh-based mutual insurer provided few clues yesterday.


In keeping with its 175 years of history, there was no way of assessing the profitability of the 4% growth in worldwide sales.


While chief executive Sandy Crombie argued that the group was chasing profitable business rather than pursuing market share, as in the past, there is no way of knowing from the numbers to what extent this is so. Those businesses that do report profits, banking and healthcare, are only just breaking even.


Even so, analysts at Keefe Bruyette & Woods made an upbeat assessment of the figures, seeing signs that Standard Life was now back in business after a difficult 2004 when concerns about its financial strength were uppermost in customers' minds.


But it is only when the first group profits are published next year - essential if the stock market flotation is to go ahead - that a true assessment of the business will be possible.


Standard Life could do us, and itself, a favour by volunteering a proper profits figure before then. If it is really confident of floating there should be no reason to duck the issue.,,1555050,00.html


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