Since last June's replacement of chief executive Noel Jervis with Colin Dyer, the group has made fast progress in harsh markets. As well as weak demand and falling textile margins across the industry, Courtaulds' own headaches have been its lace and stretch fabric division, a third of total sales, and Wells, a French hosiery business.
Happily the group's restructuring plan, which should save some pounds 10m a year by the end of 1998, is paying off. There was a pounds 31.7m provision in the 1996 figures for closing eight businesses, including UK lace production, cutting 350 jobs and shifting production overseas. The impact is clear in yesterday's interim numbers. On sales to June down a touch at pounds 421m, profits recovered to pounds 10.4m from a loss, including restructuring costs, of pounds 8.5m last time. Half time margins more than doubled to 3.2 per cent. With demand for lace weak, Courtaulds is scaling back its US business and focusing on the stronger French and Spanish markets.
Meanwhile stretch fabrics, used for everything from underwear to car seat covers, is going great guns. Business with M&S, around 35 per cent of the total, is sprightly and set to grow, while lingerie and hosiery is benefiting from more overseas sourcing and a more global focus.
A combination of improving demand and further restructuring benefits should ensure continuing improvement. BZW forecasts pounds 37.3m for the full year, including pounds 3m of further exceptionals. That puts the shares, up 4p at 335p, on a forward p/e ratio of 14, which looks about right against the sector. Hold.