The numbers have not always added up at glass maker Pilkington but at least its chief executive, Stuart Chambers, can count to three with some degree of accuracy. Having cut costs heavily during stage one of the turnaround programme - the payroll is down from 39,000 in the mid-1990s to 25,000 now - he refuses to be distracted from the main purpose of stage two, reducing debt.
He is right, for gearing is still an uncomfortable 110 per cent, even after the burden was reduced by £85m to £775m in the six months to September. Lenders are admittedly not pressing. There is enough cash in the kitty to cover the £260m worth of bonds maturing next year and the next batch expires in five years' time.Mr Chambers is, however, keen to keep capital spending down and avoid any substantial acquisitions until stage three of the grand strategy starts, probably early in 2005. This stage will see the resumption of investment to grow the business.
Unfortunately the one new project that is going ahead is in Russia. Earth movers rolled in last week just as the Yukos débâcle began. Mr Chambers recognises the risk but reckons the plant is a good investment. Pilkington is putting up only £32m of the £100m cost, spread over more than two years.
Meanwhile, most of Pilkington's markets in construction and vehicles remain tough, with only the UK and Australia offering real progress. In the United States, 80 per cent of Pilkington's sales are for commercial buildings, where high vacancy rates in office blocks are holding back developments, rather than for the still-buoyant housing market. Germany has only just bottomed out.
On the whole, Pilkington is holding market share in difficult circumstances. Interim profit slipped £1m to £71m. The dividend, which looked at risk six months ago, is unchanged and the full-year's 5p seems secure, giving a yield of nigh on 6 per cent.
At 86.25p, down 0.25p yesterday, the shares trade at 11 times this year's forecast earnings. Buy for recovery.
Electrocomponents needs patience
As a distributor of electrical and electronic supplies, the spot-on-accurately named Electrocomponents is one of the market's purest plays on global economic recovery. It supplies a vast array of products (300,000 to be exact, from hand tools and wiring to chips and power supplies).
Its shares have jumped amid signs of a pick-up in economic confidence, but the company itself brought along buckets of cold water to accompany its interim results.
No sign yet of improved orders, which have simply rebounded from a shocking summer. No sign, either, of a rapid improvement in trading. So the focus again is on self-help. More cost controls (the group is already highly efficient, its cash generation the envy of many). More focus on internet sales, which are more profitable than its paper catalogues. More products for use in healthcare or defence, which are less sensitive to the economy. And, to counter the structural decline of manufacturing in the West, more investment in Japan and China, where sales are growing fast.
With most of its business still in the UK, Electrocomponents really needs an upturn here, but it is a solid company and one for the long-term investor.
Waste group Shanks too toxic to touch
Investors in Shanks have, over the past few years, found that their investment in the waste management company has been, er, a waste of money.
Landfill is facing escalating taxes in order to push the UK into using more eco-friendly waste-disposal strategies, such as recycling. Together with increasingly stringent rules on what can and cannot be buried, this means Shanks and its peers have found themselves just where the Government and Brussels want them: in an uncompetitive position.
Pre-tax profit in the six months to 30 September fell 44 per cent to £8.2m as these difficulties were compounded by the economic slowdown: companies produce less of everything in a downturn, and that includes waste. Refuse collection has also proved competitive, and Shanks has to extri- cate itself from loss-making contracts in recycling, too.
Shanks is staggering under £309m of debt, which is hampering the much needed moves to diversify away from landfill into areas such as recycling. It ruled out a rights issue, but is likely to make disposals to try to rescue the balance sheet.
It all looks bleak for the time being, since planned rises in the UK landfill tax are just beginning. Until there is evidence rises can be passed on to customers, Shanks shares (up 5p to 119p) look too toxic to touch.
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