The Investment Column: Troubled times at Caradon

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The Independent Online
CARADON's chief executive designate, Jurgen Hintz, recently said he was thinking about starting a family. However, long-suffering shareholders know to their cost that he already has an unruly child on his hands in the troubled building materials group.

The group unveiled a fall in underlying 1997 pre-tax profits from pounds 178m to pounds 153m, before restructuring costs of pounds 24m The company lost pounds 8m from exchange rate movements but the real problem was the doors and windows division, which plunged into the red, losing pounds 3.5m compared with a pounds 20m profit in 1996.

Its North American businesses were hammered by a slump in demand for aluminium windows. In the UK losses were blamed on additional overheads from launching a new window range and a shortage of skilled installers. But it is a terrible performance given that Caradon had previously trumpeted this division as an important focus for the group and that the losses were run up at a time when both the US and UK building markets were strong.

Weru, its German doors and windows business, piled on the misery but, at least, Caradon can legitimately blame difficult trading conditions for the pounds 3.9m fall in profits. At least Caradon's plumbing, electrical, structural and engineering divisions performed reasonably well.

Mr Hintz, who speaks the language of shareholder value, has been at Caradon since November but does not formally take over his post till May. No immediate sales are in the offing as the company battles to get profits moving in the right direction again. But he has hinted at a big shake-out and the doors and window division is likely to be cut back.

Caradon shares crashed a further 17p to 188p yesterday. Analysts were unhinged by fears that the group indicated that its ongoing restructuring would eat up a large part of its cash flow.

Caradon's share price performance could have been even worse but for last year's share buy-back. However, the possibility of another return to shareholders looks remote in the short term.

Analysts cut 1988 pre-tax forecasts by about pounds 4m to around pounds 163m which puts Caradon on a forward multiple of 10. That looks low, but Mr Hintz has a lot to prove. Hold.