City Talk: Cultures clash at Vickers

THE ANNUAL general meeting of Vickers last week presented an extraordinary example of when cultures collide. On the one hand the directors of the company: urbane, calm, collected. On the other, a dissatisfied rabble of private investors, outraged that the jewel in the crown of Vickers as they see it, the luxury car-maker Rolls-Royce, was being sold off, and what's worse, to BMW, a German company.

All this argy bargy makes for colourful copy, but it also encapsulates a more serious phenomenon. Just as ICI is desperate to play down the "Imperial" in its name, redolent as it is of empire and captive overseas markets, Vickers too is anxious to escape its past.

That is a worthy aspiration. But while sentimental affection for brands such as Rolls-Royce endures, it is clear that to many, Britain has failed to find suitable replacements. Now that EMI looks to be on the block, it may be that the music industry, long hailed as an example of more up- to-date innovation, is also about to find an overseas owner. British industry, it seems, is still struggling to find a role where it can be profitable and successful and capture the public imagination.

The cellular phone market in Europe continues to boom, up an astonishing 50 per cent in 1997, despite fears that penetration would be peaking in some countries. Yet within this positive framework, problems may be looming for Vodafone, once the UK's stalwart. For the first quarter of this year, Vodafone maintained its leadership in the UK with a 38 per cent market share and 3.8 million subscribers. Yet One-2-One and Orange are making further inroads, and it looks likely that this figure will fall to 37 per cent in 1999.

To take up the slack, Vodafone could continue its overseas expansion, but its somewhat odd portfolio, mainly through equity stakes, is not best suited to exploit such opportunities. One opportunity could be Japan, where there is talk that it could capture the troubled DDI group, which is valued at about pounds 3.6bn by the Tokyo stock market.

Inflation and growth figures from the US last week painted a remarkably benign outlook for the short term. Gross domestic product raced ahead by 4.2 per cent in the first quarter while inflation dipped to just 0.9 per cent, the lowest increase in 34 years. Astonishing indeed, giving Wall Street yet another boost. While policy makers may be equally amazed at these developments, there are dangers around the corner, not least the crazy asset valuations it leads to, a precursor to diminishing returns on investment.

While eyes have been focused on the large hotel groups, some of the smaller players are also now worthy of attention. Hanover International is one such, expanding rapidly in upmarket hotels. It now owns seven, including The Imperial in Cork, Ireland. Although the company is seeking a replacement for its finance director David Greene, who recently resigned, first quarter reservations have shown a strong improvement on the same period last year. Compound growth in earnings per share could notch up 17 per cent over the next few years, estimates stockbroker Charles Stanley. That will require sales to rise from pounds 19.9m last year to pounds 24.2m, to boost pre-tax profit to pounds 3.4m from pounds 2m.