Outlook: Tomkins

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The Independent Online
GREG HUTCHINGS, chairman of Tomkins, was in resigned mood yesterday as he prepared for his company's exit from the FTSE 100 share index. According to analysts, Tomkins will make pre-tax profits this year of around pounds 500m. None of the four newcomers joining the index make anything like that amount, and one of them, Energis, makes no money at all. Mr Hutchings knows as well as anyone that the stock market values companies by reference to their perceived future prospects, not their past, but even so, this must seem a trifle perverse.

For many years, Mr Hutchings, a Lord Hanson protege, did terribly well for his shareholders. Following in the maestro's footsteps, he built a many-faceted conglomerate out of businesses in mature, cash-generative industries. Even after conglomerates turned unfashionable, he stuck to his guns, insisting that, fundamentally, all businesses were the same - the only thing that separates one from another, in his view, is good and bad management.

The turning point for his share price was the acquisition of Ranks Hovis McDougall. The age of the conglomerate was not quite over, but even then hardly anyone, apart from Mr Hutchings, believed it made any sense to combine food manufacturing with automotive and construction components, Smith & Wesson guns, bicycles and lawnmowers. As it happens, the "buns to guns" combine, as Tomkins rudely became known in the press, has been as good as its word, and in a difficult market, it has managed to increase margins and profits at Ranks quite markedly.

Not that this has done Mr Hutchings any good. It is not just conglomerates that are unfashionable; Tomkins is also in some deeply unfashionable businesses too, cash-generative though they might be. Mr Hutchings has struggled to find a way forward, but the big acquisition he needed to fuel earnings and growth has failed to come his way.

Now he's being forced to fall back on a course of action he always vowed to resist - share buy-ins. Even for him, it's a no-brainer with the share price as low as this; few acquisitions could ever promise to be as earnings- enhancing.

Since the last figures, Tomkins has bought back more than 5 per cent of its shares; a tender offer for a further 15 per cent is now planned. However, the offer has been pitched at such a miserable level that unless the share price continues to shrink, few shareholders are going to want to avail themselves of it.

Mr Hutchings has had a good innings. It may be unfair and unjust to say it, but Tomkins is a company that looks to have had its time. A more radical break-up than the one proposed is called for. Everything else has been tried; separating the company for disposal or merger into its three core constituent parts looks to be about the only option left that might be worth pursuing.