The Investment Column: Exceptionals take a Liberty

The new management at Liberty, led by the chairman, Denis Cassidy, of Storehouse and Boddington fame, is still enjoying a honeymoon period. The executive directors appointed in the spring have had their feet under the table long enough to announce a massive reshaping of the upmarket stores group, but not long enough to be blamed for a pretty pedestrian first-half trading performance.

Yesterday's half-time figures are made murky by the decision to cut all 20 of the group's regional stores and shake up the remainder of the group. A swathe of exceptional items, including pounds 3.75m of losses and costs relating to the closure of businesses with the loss of 350 jobs, absorbed close to a third of the pounds 18.7m charge taken in last year's figures for the restructuring.

Thus protected, profits soared from pounds 275,000 to pounds 1.09m in the six months to 27 July, and, as forewarned, the interim dividend of 1.85p last time is not being paid.

But stripping the wreckage of the old businesses away reveals that trading profits slipped from pounds 1.35m to pounds 1.25m in the continuing operations. To be fair, the figures would have looked better had there not been a pounds 118,000 hit on translating the profits of Liberty Japan, while new management can hardly be blamed for clothing ranges bought in last year for sale in the spring.

But the restructuring story should have run its course by this time next year, once the business in France has been sold. Discussions with a potential purchaser are already under way. After that, investors will want to know where future growth is to come from.

The hope is that last year's 7.5 per cent margins can be lifted to 10 per cent in the not too distant future. Cost savings should deliver some of the advance, but top-line growth, registering an underlying advance of just 3 per cent in the first half, must take up the slack.

Plans to extend the successful airport shop format to Continental gateways such as Schiphol and Charles de Gaulle and to the Far East should help. More optimistic perhaps are current studies hoping to squeeze a third or more space from the Regent Street store.

Failure to deliver will incur the wrath of Brian Myerson, the South African who speaks for 17 per cent of Liberty. Profits of pounds 4m this year would put the shares, up 15p at 435p, on a stratospheric p/e ratio. With 44 per cent still in the hands of the family, outside investors will find it difficult to cash in on the recovery. Hold.