Another headache at Tarmac

THE INVESTMENT COLUMN

Neville Simms is a perennial optimist, which is just as well given the endless headaches he has had to deal with as chief executive of Tarmac, one of the stockmarket's most appalling investments over the past 18 months.

Since March 1994 the shares have fallen from 196p to just 88p yesterday, a 55 per cent drop, representing a similar underperformance of the rest of the market. Since the peak of the last building boom they have lost three quarters of their value.

Results yesterday confirmed that the recovery which began three years ago is running out of steam.

While a 23 per cent rise in underlying operating profits looks impressive at first sight, it is from a very low base and at 4 per cent the basic trading return on sales is still uninspiring. For the full year, the company warns, pre-tax profits will struggle to exceed last year's.

A reported loss of pounds 15.9m, compared with pounds 23.1m in the first six months of 1994, is a harsh measure of Tarmac's performance because it includes a pounds 45m goodwill write-off from the disposal of Tarmac's brick-making operation to Ibstock.

But goodwill write-offs represent real money that shareholders used to own and which the company has frittered away - the reported figures are quite as meaningful as the underlying numbers.

At the divisional level it is a mixed bag. Quarry products recovered nicely during the half, with profits jumping from pounds 14.2m to pounds 25.8m on only marginally increased turnover as price rises held. Other building materials also did well to squeeze 50 per cent more profit out of flat sales and Tarmac America is at last generating a respectable return.

But a plunge in profits at housing from pounds 18.9m to pounds 8.7m confirmed the real reason for the `For Sale' sign currently sitting over the division.

Even stripping out the effect of geographical and product mix changes, underlying house prices slipped 2 per cent compared to a year previously. Coupled with an 8 per cent decline in unit sales the blow to profits was inevitable and it would frankly be surprising if Tarmac were able to achieve a great deal more than net assets for the business when it finally finds a buyer.

A pounds 2.9m profit from sales of pounds 451m in the contracting business is a totally inadequate return while professional services, however much Mr Simms sees the design and facilities management arm as the way forward, is simply too small at the moment to matter very much.

All in all a bleak picture that confirms the increasingly widely held view that Britain's integrated contracting, housebuilding and aggregates businesses spread themselves too widely and fail to do any of their constituent businesses properly.

There is, however, a price for everything and Tarmac must be pretty close to it. At 88p, and taking yesterday's promise of a maintained 5.5p full year dividend at face value, the shares yield 7.8 per cent. Not a bad return while you wait for recovery or a bid, whichever comes sooner.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee