Harrisons is slow to bear fruit; The Investment Column

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The Independent Online
Harrisons & Crosfield just cannot seem to fire on all cylinders at once. Bill Turcan, who moved over into the chief executive's slot in May 1994, has done his best to shake the tree, but the former plantations group has resolutely failed to deliver.

The first half to June was no exception, with pre-tax profits down from pounds 66.4m to pounds 64m, hit by a collapse in the results of the builder's merchanting operations on both sides of the Atlantic. Underlying profits from Harcros, which has been overtaken by Travis Perkins as the UK's leading chain, slumped from pounds 9.6m to pounds 5.1m, while Moore's in the US turned pounds 1.1m profits into a pounds 2.4m loss.

But most of the UK industry has suffered in the past 18 months and Harcros's northern bias has left it particularly exposed. In the US, Moore's has faced aggressive competition from a new entrant in the DIY market and floods in Pennsylvania. The restructuring initiated in both businesses has clearly hit the figures in the short term, but the results are starting to come through. Moore's is back in profit and new management at Harcros has already exceeded its original cost savings target of pounds 8.5m.

Harrisons recognises that operating margins at Harcros, 3.1 per cent in the latest figures, need to catch up with the industry's best. Despite more difficult conditions, Travis Perkins is still notching up 7.2 per cent, some 2 percentage points better than Harcros in its peak year of 1994. The omens are good, however, especially since Harcros has won back half the market share lost since April last year.

Elsewhere, chemicals continue to shine, with profits rising from pounds 28.6m to pounds 29.3m in the latest period. Harrisons has an enviable position in chrome chemicals, used in a range of applications from wood treatment to aerospace alloys, and is strong in pigments for paints and the like. Most of the pounds 250m to pounds 300m firepower provided by the group's ungeared balance sheet will initially be concentrated here. Discussions about acquisitions are under way, but nothing is imminent, the company says.

With the impending disposal of the remaining plantation interests next month, Harrisons' only other division will be the BOCM Pauls animal feeds to malt operations. These kept profits moving despite what was effectively a pounds 1.5m hit from the mad cow scare.

Profits of pounds 119m this year would put the shares, up 1.5p at 143p, on a forward multiple of 13. Questions remain about the continuing absence of a finance director and management's ability to spend wisely, but the shares are worth holding now.