Time runs out for Rank management as profits disappoint shareholders

Stock Market Week
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The Independent Online
IT'S A crucial week for Rank, the hard pressed leisure group, and Andrew Teare, the man drafted in from English China Clays to improve the fortunes of the Butlins-to-Odeon empire.

On Friday year's figures are due. They will not be impressive and, unless the accompanying trading statement has a warming glow, the shares will continue to bump along unloved and unwanted.

They have fallen from 545p after Mr Teare's arrival two years ago to 308p on Friday. For a time this year they were stuck at 297p, their lowest for four years.

Not, then, a proud record. And institutional investors are, understandably, getting restive. They realise the root and branch shake-up instigated by Mr Teare will take time to produce results. But they are distinctly unhappy about the failure of the changes to make much impression on the bottom line.

If the chairman, Sir Denys Henderson, the former Imperial Chemical Industries chief, does not produce some evidence that the Teare treatment is starting to bear fruit they will become decidedly irritable.

Time is, therefore, running out for the Rank management. Although the stock market may be resigned to a flat profits performance it will at least want to see signs the reorganisation is beginning to make a favourable impression.

If Sir Denys and Mr Teare are unable to provide the required message institutional pressure for further changes will develop.

NatWest Securities expects normalised profits to emerge little changed at pounds 293m. If the investment house is right it will mean that Rank has been stuck in a profits rut throughout the 1990s.

In a bid to get the leisure group up-and-running Mr Teare has sold peripheral businesses, like amusement arcades and coach holidays, for around pounds 300m. He also unloaded the long standing stake in the Xerox office equipment group, regarded by many as the jewel in the group's crown, for pounds 1bn.

The Teare reshaping has included a move into pubs, probably overpaying for the small Tom Cobleigh chain, and investing heavily in existing brands such as Butlins, the Hard Rock Cafe chain and the Mecca bingo halls.

Unfortunately many Rank brands had been allowed to become a trifle dowdy, even tired. The pounds 1.5bn pumped into a rejuvenation programme may not be sufficient. And in these brand-conscious days some of Rank's capital intensive businesses could fall out of fashion even before the expected recovery takes place.

The recent profit warning from the so-glamorous Planet Hollywood restaurants chain has underlined the fragility of branded concepts and drawn attention to the cash Rank is lavishing on the Hard Rock hamburger joints,which are already deep into middle age.

Dissension in the upper echelons of Rank's management has surfaced. John Garrett, the chief of the leisure division, suddenly departed and there have been rumours of more defections. Tom Cobleigh's management has been reinforced by the arrival of Mark McQuater, former managing director of JD Wetherspoon.

Other heavyweights with profit presentations this week include Glaxo Wellcome and its intended merger partner, SmithKline Beecham.

Glaxo's profits should be around pounds 2.7bn, down from pounds 2.9bn; SB should offer pounds 1.6bn (pounds 1.5bn). It is expected that the two will use the results to underline the advantages of the proposed pounds 100bn-plus merger.

The twosome will endeavour to demonstrate that the creation of the drugs behemoth will help Glaxo plug a gap in its earnings growth and prevent SB from getting too dependent on two key drugs.

Barclays and newcomer Woolwich continue the banking season after Lloyds TSB's outstanding display on Friday.

The financial sector, of course, has led the Footsie charge to new highs. Stories of corporate action have swirled around. There is also an expectation that profits should continue to provide a veritable feast.

But Barclays will not produce a storming display like Lloyds. It will actually suffer a profits fall - say 20 per cent down to pounds 1.85bn. Restructuring charges, including the BZW disposal, will render the figures confusing, not to say meaningless.

On the other hand, Woolwich should be a model of simplicity. Still largely a mortgage provider with its non-traditional activities too small to make much impact, the building society-cum-bank is on course to produce a figure near to pounds 400m against pounds 377m.

Insurance broker Sedgwick is another operating in an area besotted by thoughts of take over action. The market advocates a merger with rival Willis Corroon, but there is also recurring gossip one of the main US insurance houses, Marsh & McLennan or Aon, will pounce.

An American strike is likely to be hostile. It would be surprising if the US groups have not already made friendly overtures to the two Brits, only to be given the cold shoulder.

If it did have to face a hostile strike Sedgwick is unlikely to bolster its defences with its latest profits which will show a modest improvement to pounds 98m.

British Aerospace should demonstrate increasing defence profits and falling commercial aircraft losses when it flies in with profits close to pounds 590m against pounds 456m last time. A 25 per cent dividend increase to 20p a share should accompany the figures.

Still BAe could be a casualty of the Asian setback and sterling's strength. Worries about future Asian Airbus orders are likely to be off-set by a $4bn Latin American deal.