Jam tomorrow from Hillsdown

The Investment Column

Much has been achieved at Hillsdown Holdings since Sir John Nott and David Newton joined the chickens to jam and biscuits group as chairman and chief executive two years ago. Their good work was well-hidden, however, in yesterday's gloomy half-year results.

The figures for the six months to June were marred by a pounds 100m write-down on the sale in March of Hillsdown's 56 per cent stake in Maple Leaf Foods of Canada and pounds 25m of other exceptional items. This turned a pre-tax profit of pounds 65m last year into a pounds 68m loss this time.

Further bad news came in the form of this year's recurring themes of rising raw material costs and the effects of a long hot summer. Like most food companies, Hillsdown has been hit by rising packaging costs, but also by four rises in sugar prices this year which have squeezed margins on biscuits and its Hartley's jams. Passing on these rises to customers as powerful as the supermarket giants is tough going.

Margins are also being squeezed in Christie Tyler and Walker & Homer, the furniture divisions, where prices of imported materials such as foam have risen sharply. Completions at the housebuilding division Fairview, another oddball in the portfolio, are also down by 10 per cent since last year.

The hot summer has hit sales of hot beverages such as drinking chocolate, where sales are down by 24 per cent, and chocolate-covered biscuits down 9 per cent.

The better news is that Hillsdown's new management has done much to streamline the motley collection of businesses they inherited. Low-margin operations such as abattoirs have been sold to concentrate on higher added-value products such as salads and sandwiches.

The balance sheet is also stronger, with gearing down to 15 per cent following the Maple sale. But questions remain over the future of the non-food businesses where profits fell by 20 per cent in the half-year.

The company says it will not sell these businesses as they provide a degree of cyclical balance, though longer term they appear non-core. Acquisitions are also expected with smaller deals likely to be supplemented by a larger move in the food sector before too long.

Hillsdown shares have been anything but thrilling as an investment over the past few years and the immediate outlook is likely to be more of the same. Henderson Crosthwaite has downgraded its full-year forecast from pounds 145m to pounds 140m. With the shares down 7p to 185p yesterday, that puts them on a forward rating of almost 13. About right.

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