Higher debt and lower earnings figures send Booker into dip: Food distributor digs into reserves to maintain dividend payment

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The Independent Online
SHARES in Booker, the food distributor, slumped nearly 7 per cent as the City digested poor profits figures and higher-than-expected debt.

Pre-tax profits were pounds 91m for the year to 26 December, 12 per cent down on the 1991 result of pounds 104m. The ratio of debt to net assets rose to 95 per cent from 71 per cent.

Observers were also disappointed by a downbeat statement on current trading. Jonathan Taylor, chief executive, said: 'As yet we see no clear trend in 1993 and we are not assuming any improvement in the economy. The sales in the distribution business remain sluggish.' The shares fell 29p to 410p.

There was some relief, at least among income-conscious institutional investors, that the dividend was maintained at 21.75p. Tim Potter, food analyst at the securities house Smith New Court, is predicting that the payout will be held again this year, putting Booker shares on a historic and prospective gross yield, assuming a 20 per tax rate, of 6.6 per cent.

However, the company had to dig into reserves to make the payment. The retained loss for the year was pounds 5.5m. Last year Booker transferred pounds 2.5m from reserves.

Booker encountered most of its problems in the supply of hotels, restaurants and fast-food emporia. 'In recession people stopped going out to eat,' Mr Taylor said.

It paid pounds 302m in July 1990 for Fitch Lovell, another supplier of food to the catering trade. Yesterday Mr Taylor admitted that with the benefit of hindsight the acquisition was mistimed. The purchase came just before the recession began to bite. Organisational changes also took longer than expected to implement.

Booker also runs cash-and-carry outlets where sales remained static. Taken together, trading profits from catering supplies and cash-and-carry slumped 17 per cent to pounds 53.6m.

Turnover in food distribution, by far the most important of Booker's interests, advanced to pounds 2.8bn, up from pounds 2.6bn. Trading profit margins in the segment, however, slid to 1.9 per cent compared with 2.5 per cent in the previous year.

Booker has renegotiated contracts with clients, both increasing prices and implementing efficiencies in the distribution network.

The jump in gearing to 95 per cent from 71 per cent was partly due to working capital requirements lifting borrowings from pounds 138m to pounds 155m. However, net assets were reduced - partly to fund the dividend - from pounds 182m to pounds 158m.

Booker has two smaller divisions. It genetically engineers chickens - and is currently attempting to produce a bird with more white breast and less darker meat. The agribusiness is mostly in the US, where white meat fetches dollars 1.50 a pound. Dark meat sells at nearer 40 a pound.

Trading profit from the division held at pounds 23.4m compared with pounds 23m. Booker's third leg, cutting sandwiches and preparing fish and bacon for sale, lifted operating profit 11 per cent from pounds 20.3m to pounds 23m.

Earnings per share were 19.3p, down from 21.1p. Mr Potter at Smith New Court expects overall pre-tax profits to rise to pounds 98m this year and pounds 110m in 1994.

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