United Biscuits announced losses of pounds 100m yesterday as the McVities biscuits and KP crisps group tried to draw a line under recent traumas with massive re-structuring charges of pounds 150m. The company hopes it can now make a "fresh start".
As long-standing takeover talk resurfaced, United Biscuits' chairman Colin Short admitted that the company had considered "hoisting the white flag" over the group last year and putting the company up for sale but had decided to battle on. He also pledged support for the chief executive, Eric Nicoli, who has been the subject of fierce criticism in the City following the company's consistent under-performance.
He said: "The board gives unequivocal support for Eric. He has our complete confidence." Mr Nicoli said he recognised that as chief executive he had ultimate responsiblity for the company's problems, but reassured investors that the company's prospects were now much better.
However, one institutional shareholder indicated that this was the management's last chance before investors sought boardroom change. "It looks pretty awful," one said. "Colin Short is very capable and if he feels that this [supporting Mr Nicoli] is the right decision at this stage, then we are prepared to go along with it. But it is a dire story and it must all be laid at Eric's door."
Analysts voiced similar concerns. One said: "United Biscuits has been a bit of a basket case for some time. It is trying to regroup but with the same management. Delivering its ambitions is going to be very difficult."
United Biscuits has been hit by a combination of rising raw material prices, particulary packaging and the inability to pass price increases on to the increasingly powerful supermarkets. The hot summer also dented sales of biscuits and snacks. Its market share has been squeezed by the superstore's own label products. At the same time larger branded groups such as PepsiCo, which owns Walkers crisps and Nabisco, have used their muscle to put pressure on United Biscuits.
The record pounds 100m losses in the year to December were due to pounds 150m of restructuring charges. Almost pounds 100m of these related to goodwill write- offs relating to last year's sale of the troubled Keebler business in the US and the withdrawal from the Spanish market. Factory closures and redundancy costs added to the woes.
Mr Short said the company had "heaved a collective sigh of relief" after the sale of Keebler which meant the abandonment of a 20-year effort to crack America. He added that the company was now in a stronger position to grow the business, reorganise management and "fix" the parts of the business that remain in difficulty, such as KP crisps and Derwent Valley Foods. Businesses that could not be rectified will be sold.
In the year to December, group operating profits were down 27 per cent to pounds 127m on sales up 4 per cent to pounds 2.3bn. Profits in most parts of the business fell. In the UK profits at McVitie's fell 17 per cent to pounds 57m while KP's profits fell 35 per cent to pounds 19m. After the sale of Keebler, two-thirds of United Biscuits' sales and three-quarters of its profits will come from the UK.
Following the interim reduction, the full-year dividend was cut to 9.8p per share, compared with 15.3p the previous year. The shares rose 2.5p to 232.5p.
Comment, page 19
1991 Eric Nicoli (below left) takes over as chief executive from Sir Hector Laing, the company's guiding light for almost 20 years. At this stage, UB is a powerful player in branded foods with McVities and KP crisps with a disparate range of other interests including engineering and Wimpy bars. Operating profits are more than pounds 200m. Nicoli makes some disposals, concentrating the company on food brands.
1993 The biscuit starts to break. From 1993 United Biscuits struggles against supermarket own brands and more powerful competitors such as Pepsico in crisps and Nabisco in biscuits. Share price slides. The Keebler business in the US is subjected to an expensive restructure. Takeover talk swirls again.
Biting the bullet
1995 The arrival of former ICI hard man Colin Short as chairman in 1995 forces tough decisions. Pulls out of the US with the sale of Keebler, abandoning a 20-year struggle to crack America. Also pulls out of Spain. Shares fall out of FT-SE. Posts first-ever losses and cuts dividend, the first big food company to do so in 15 years. Eric Nicoli criticised in the City. Board pledges support.
1996 A new beginning, or a bid? UB "kitchen sinks" its accounts with huge write offs leading to record pounds 100m loss. Nicoli again under pressure. Long standing talk of possible takeover bid resurfaces. Cadbury Schweppes, Nestle and Unilever, the possible predators.