Smaller Companies: Ransomes' new broom no guarantee of revival

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The Independent Online
COULD the appointment last week of Peter Wilson as chief executive of Ransomes, the lawnmower manufacturer, mark the turning point for the shares?

It would not be the first time an injection of fresh management has reversed shareholder fortunes.

It happened at the supermarket group Asda when Archie Norman joined as chief executive, and similarly shares in the oil giant BP staged a volte face when David Simon replaced Bob Horton in the top job last year.

But a change in management does not guarantee success. Consider the textiles group Dunkeld, where a new team armed with a strategy for recovery took control last spring but was only in place about six months before the banks lost patience and appointed administrative receivers.

Ransomes could go either way. After an ill-timed US acquisition in 1989 it has been struggling under debts three times as great as its net assets.

Perhaps more worrying, profits from the business are only just large enough to cover interest payments on the debt. In the half-year to 30 June interest charges were pounds 4.2m and operating profits were pounds 5.4m.

Underlining its financial difficulties, Ransomes has suspended dividend payments on preference shares.

The performance of the ordinary shares has reflected its financial position. The price has dropped steadily since peaking at 232p in early 1989 to just 16p last Friday. During the same period the shares have underperformed the market by 95 per cent.

Mr Wilson takes up the position at the end of this month. He replaces Bob Dodsworth, who has been chief executive since 1977.

The non-executive chairmanship has also recently changed. In October John Kerridge - best known for his time as chairman and chief executive of Fisons, the pharmaceuticals company - stepped down in favour of John Clement, formerly chairman and chief executive of Unigate, the dairy group.

Ransomes plainly needs relief from its debt burden. This may be by selling assets - perhaps the US businesses that landed it with the debt in the first place.

A more likely candidate for disposal is a significant parcel of industrial land in Ipswich which, because of its proximity to Harwich, is being promoted as a base for European-minded enterprises.

Both possible disposals are helped by economic recovery here and in North America.

The other obvious way for Ransomes for reorganise its finances is to persuade its bankers to swap debt for equity. But because of the dilution it would bring a debt-equity swap would be almost as unwelcome to shareholders as receivership.

Some comfort, however, can be drawn from the fact that Mr Wilson's renumeration package includes share options.

Mr Wilson brings management skills learnt with the conglomerate BTR and more recently Northumbrian Water.

He said his first task would be to make sure the manufacturing processes here and in the US learnt from each other and that the most was made of cross-marketing opportunities. If the company shows it can improve its trading performance, negotiations with its backers will become easier.

If Ransomes does survive, and that is not a foregone conclusion, buyers at 16p should earn the full benefit of recovery. The risk is high, but so is the potential reward.

(Graph omitted)