Superb management skills push Siebe profits higher

The Investment Column

Siebe, Britain's biggest engineering group, has proved its management skills in spades over the past few years and has also shown it is no slouch at acquisitions. This year's pounds 520m deal to buy electronic controls group Unitech is already proving well up with expectations.

A substantial chunk of the 32 per cent rise in profits to pounds 190m for the six months to September was the result of a maiden five-month contribution from Unitech. The power supply converter group chipped in pounds 21.3m to group operating profits, which rose from pounds 166m to pounds 216m in the period. Unitech's underlying 12 per cent rise was impressive against the background of a still-depressed semiconductor industry, which, with telecoms, accounts for around a fifth of sales.

Siebe believes the electronics market is at last on the turn, although it may take 18 months to return to the heady days before last year's collapse in prices. Any further damage to sales caused by the weak yen should be more than made up with synergy benefits and cost savings, still on course to deliver pounds 15m in a full year, with close to 1,200 people expected to be taken out of the business this year.

Meanwhile, Foxboro, an earlier purchase, continues to sparkle. Its I/A process control systems for managing large plants such as oil refineries and chemical plants has seen its market share more than double this decade and now stands just one percentage point behind market leader Honeywell.

But the real story at Siebe remains management. Having built world-beating positions in industrial and consumer appliance control equipment, sales have grown ahead of the market, which, combined with relentless cost-cutting, has pushed group margins from 13.8 to 14.7 per cent in the six months.

Bettering that will be tough, but Siebe is rolling out an ambitious and pioneering project, dubbed Six Sigma, to slash manufacturing defects from typical levels of 5,000 per million units of output to little more than zero. This US concept, already being used by Motorola and Texas Instruments, could deliver net benefits of around pounds 50m in two to three years' time.

Apart from Europe, most of Siebe's markets are growing, with the controls business alone quoting for business worth pounds 1bn. The only cloud is the potential translation impact of a strong pound, but on unchanged forecasts of pounds 430m for the full year, the shares, up 10p at 950p, deserve their forward rating of 18. A firm hold.

Wessex shares remain steady

Wessex Water's interim results yesterday seemed strangely low key after its two-way struggle to take over neighbouring South West Water earlier in the year. With Wessex and rival bidder Severn Trent now effectively prevented by the Government from ever buying rivals, the question on shareholders' minds was what the water groups would do with their cash mountains. Severn Trent led the way yesterday, buying back 10 per cent of its shares. However, in typically conservative fashion, Wessex Water, which has net cash in the bank of pounds 75m, said it had still not made up its mind how to hand back money to investors.

Reading between the lines, the likelihood is that there will be some kind of buyback or special dividend, coupled with earnings-enhancing acquisitions in the unregulated waste management businesses before next spring. But shareholders will have to wait for the details.

In the meantime, yesterday's half-yearly results were pretty much what analysts had expected, emphasising the stock's enduring quality as an uninspiring "hold". Pre-tax profits in the six months to the end of September rose by 10.4 per cent to pounds 75.5m, while turnover increased by a strong 7.1 per cent to pounds 128.9m. However earnings from Wessex's 50 per cent owned waste management operation grew by just pounds 0.2m to pounds 6.2m after a collapse in prices of recycled paper. The 14 per cent rise in the interim dividend to 5.7p was at the lower end of the range for recent water company announcements.

Profits for the full year should reach pounds 144m and be accompanied by a 14 per cent rise in total dividends to 17.3p, giving a forward yield of 6.1 per cent, with the shares down 1.5p at 352.5p. There should be organic growth in the waste business, but investors should look elsewhere for real excitement.

Marston faces three problems

Marston, Thompson & Evershed had a reputation as a steady regional brewer until its surprise purchase of the trendy Pitcher & Piano bar chain in the summer. The pounds 20m price tag, which worked out at pounds 2.2m per outlet including development costs, had analysts spluttering in their pints.

Yesterday's results were the first to include a contribution from the purchase, although group profits just edged ahead 5 per cent to pounds 14.7m in the six months to September.

There are eight Pitcher & Piano outlets, with 11 to open next year and 15 more in each of the following two years. Management says the chain is trading ahead of expectations, with like-for-like sales 16 per cent ahead, driven by better margins and tight cost controls.

But making the Pitcher & Piano deal pay its way is just one of Marston's problems. Its core Pedigree cask ale has been hit by the decline in the sector caused by the rise in popularity of the smooth and creamy nitrokeg beers such as Caffrey's and John Smith's Extra Smooth. Pedigree's volumes were down by 8 per cent in the period in a sector off 10 per cent. Pedigree's own nitrokeg version, Bitter Smooth Brewed, has only partly limited the damage. Sales of Pedigree's Draughtflow cans have also suffered.

There also seems to be a problem in the managed part of Marston's pubs estate, where like- for-like profits grew by only 1.9 per cent against the 7 to 8 per cent being enjoyed by the brewing majors.

Marston's shares have fallen sharply since their 352p high in May. Down a further 5.5p at 276.5p yesterday, and with analysts forecasting full- year profits of pounds 28.6m, they trade on a forward rating of 12. A justified discount to the sector.

Start your day with The Independent, sign up for daily news emails
Voices
voices
News
general electionThis quiz matches undecided voters with the best party for them
Life and Style
Men with beards rejoice: Your beard probably doesn't harbour faeces-like bacteria
health
Arts and Entertainment
Keira Knightley and Matthew Macfadyen starred in the big screen adaptation of Austen's novel in 2005
tvStar says studios are forcing actors to get buff for period roles
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before