NFC admits to failures as group profits collapse

NFC ate humble pie in the City yesterday, admitting that the group's potential had failed to be realised in all its divisions and acknowledging that one of the main challenges facing the new chief executive, Gerry Murphy, was a complete change of culture. The City fretted about the pace of reform, downgrading profits forecasts by pounds 10m to pounds 95m and knocking 10p, or 7 per cent, off the company's shares.

At 139p, the shares have more than halved since the beginning of last year, further tarnishing the employee co-operative dream that began with a workers' buyout from the government in 1982 and brought the company to the stock market three years later. After a honeymoon period in the early 1980s, falling profits and bitter boardroom rows have proven that NFC is just another company operating in cut-throat markets.

Figures for the 12 months to September, already struggling under tighter operating margins, were scarred by a pounds 35m exceptional provision to cover overhead reductions, loss-making businesses and the write-off of "non- performing assets". Mr Murphy, who took over at the top after the company had spent a fruitless six months looking for a new chief, said 1,000 jobs had gone since the restructuring began although these had been offset by recruitment in other areas of the business.

Mr Murphy replaced Peter Sherlock, who was similarly brought in by the company to restore its previous fortunes but fell foul of an old guard unwilling to carry through his radical recommendations. Yesterday's figures were presented as the result of the previous regime's mismanagement but attention is focused on how quickly Mr Murphy can transform the company.

He now runs a business that has in effect severed all links with the old ideal of a share-owning co-operative. In October, employee shareholders lost the double voting rights they had enjoyed since the flotation of the former National Freight Corporation.

The extra voting powers, designed to protect employees, were lost after their shareholding dipped below 10 per cent. At privatisation NFC workers and their families owned more than 80 per cent of the company.

Despite a 7 per cent rise in sales to pounds 2.2bn, operating profits tumbled from pounds 118m to pounds 88.8m. After the pounds 35m exceptional provision, most of which was actually used during the year, pre-tax profits collapsed from pounds 105.6m to pounds 38.6m. Earnings per share slid from 11.2p to 2p, failing to cover the maintained dividend of 7.1p.

Exel Logistics, the core UK third-party distribution arm, which accounts for almost half group sales, saw a 9 per cent slide in profits as new business wins from Milk Marque, British Steel and Thorn EMI failed to make up for tighter margins and the impact of a considerable management upheaval. The division had been broken up into 12 separately accountable and more manageable units responsible for supplying different industries.

Overseas, NFC's loss-making European operations fell deeper into the red, losing pounds 10.1m compared with 1994's pounds 4.8m deficit. In North America, profits halved to pounds 14.7m as renewed business was struck at less attractive margins and the weak US housing market held back the moving services operation. The small rest-of-the-world business was flat year-on-year.