TI ready for pounds 600m war chest spree

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The Independent Online
TI GROUP, the engineering company, yesterday said it was prepared to spend its pounds 600m war chest on bolt-on buys and was already in talks with three of 12 potential targets.

Sir Christopher Lewinton, TI chairman, said: "There are 12 acquisition opportunities. It takes a lot of time to persuade them to be a willing seller ... at the right price. We are in discussions with three of them."

The move comes at a time when some industry analysts fear TI's core businesses may be running out of steam and in need of a big deal to stoke up profitability.

TI chiefs spelt out their acquisition strategy after reporting underlying pre-tax profits of pounds 220.6m for 1997, at the lower-end of expectations and down from pounds 232.2m in 1996.

Despite the group's expansion plans and reports that 1998 trading had started well - the order book was up 10-15 per cent on 1997 - traders remained unimpressed. TI's share price fell sharply, to close at 511p, down 34p.

Michael Angle, TI finance director, said proceeds from recent disposals would put the group in a good position to fund deals. "We will be cash positive and with debt we could spend up to pounds 600m," he said.

The main focus for acquisitions will be in TI Group's Bundy unit, which makes fluid carrying systems for cars and refrigerators and John Crane, the sealing systems-maker.

Industry analysts recently speculated on a major spending spree to shore up the group's flagging share price performance, which hit a two-year low of 430p in January after falling from a peak of 690.5p last October.

Nick Cunningham, the Salomon Smith Barney analyst, said in a recent analysis that the group could afford to spend up to pounds 700m on a deal. "Invested in acquisitions this could add more than 20 per cent to a full year's earnings ... but finding acquisitions will not be easy," he said.

TI bosses said most of their deals will be bolt-on buys to enhance current operations but added that they would not rule out a deal as big as pounds 400m.

The 1997 results themselves held no surprises for analysts. Sales rose 6 per cent to pounds 1.87bn and the total dividend was up 10 per cent to 15.9 per share.

The group said its exposure to the continued strength of sterling had a "significant effect on the translation of results'' but not on currency transactions because the group has manufacturing operations across the world.

On the fall-out from the economic turbulence in Asia, TI said there was no material effect on results. At present 10 per cent of its sales come from the Asia-Pacific region, but interests are focused in the relatively stable economies of China, India and Japan as well as the more volatile Korea.

Summing up the divisional performance, TI said the John Crane unit had performed well in tough markets. Bundy shone in the automotive market which was buoyant in the United States, but witnessed volatility elsewhere.

The Dowty divisions "continued to benefit from strong growth in aerospace markets", the company said.