With pounds 79m of exceptional items, including pounds 53m on the disposal of the Spanish business, last year's half-time profit of pounds 76m turned into a pounds 48m loss in the six months to July. Colin Short, the new chairman, must now wonder what he has got himself into.
Short is right to say that United Biscuits is at a watershed. For the past 20 years it has been pursuing an international strategy, which included an ambitious and ultimately unsuccessful dream of cracking the United States foods market. This dream now lies in tatters. Post-Keebler, United Biscuits will achieve two-thirds of its sales from the UK.
It is apparent that under the pragmatic Mr Short, under-performing businesses will not be tolerated for very long. The Verkade chocolate business, based in Holland, may be the next to go.
Keebler's problem is that ithas a small market share against a dominant player, PepsiCo. In the US crisps market, for example, Keebler had 3 per cent of the market. PepsiCo had 50 per cent.
United Biscuits desperately needs the money from the Keebler sale to restore its balance sheet and give stretched management the time and resources to concentrate on the remaining businesses. The problem is that these suffer from some of the problems that have dogged Keebler. In the UK, KP snacks has only 21 per cent of the crisps market. With its Walkers brand, PepsiCo has double that figure. McVitie's has 45 per cent of the UK biscuit market but its margins dipped below 10 per cent for the first time in years.
Both businesses have been hit by a combination of rising raw- material costs and competition from own-label brands in the supermarkets. Even though some price increases have been pushed through, unrecovered costs will amount to pounds 30m in the full year. On top of this, the second half has started poorly.
From 330p at the start of this year, the shares have had a dire run, falling a further 7.5p to a low for the year of 268.5p. The company remains a bid target, but even without Keebler it is still an unsavoury mouthful. Brokers are forecasting pre- exceptional profits of about pounds 100m for the full year, which puts the shares on a heady forward rating of 21. Avoid.
Another 27p was added to British Aerospace's share price yesterday, and the prospect of Lord Weinstock creating British Defence plc with a GEC bid for BAe receded a little further.
It has been a remarkable three-year recovery and investors who called the turn in September 1992 have seen their shares soar from a low of 113p to yesterday's close of 677p.
The market's warm reaction yesterday reflected better-than-expected interim figures, with pre-tax profits (before the distraction of last year's exceptional Rover profit) leaping from pounds 75m to pounds 160m.
For the first time in British Aerospace's 18-year history, having sold Rover and all but pulled out of property, it is becoming possible to say what the company is - a defence contractor with an equity interest in commercial aircraft.
It has been a fascinating year for BAe since it first tilted at VSEL last October.
At that time, there was a widespread view in the City that this was the move of a desperate management. BAe was struggling in a shrinking defence market and its regional aircraft business was haemorrhaging cash. The bid for VSEL, which had pounds 300m in the bank, was seen as little more than a disguised rights issue.
Nobody would pretend that BAe's markets are easy now, but a year on, circumstances have changed enormously in the company's favour. Yesterday's figures confirmed it is financially more secure than for a long time and profits are heading in the right direction. Management showed its confidence, lifting the interim dividend from 4p to 5p.
Cost reductions and a shift from development work towards revenue-generating production helped margins in the defence division rise from pounds 221m to pounds 240m. At the end of June, the order book stood at an impressive pounds 8.3bn.
Airbus profits continued to grow, which helped to reduce regional aircraft losses to pounds 59m from pounds 79m. Property, having shed a portfolio of retail and leisure properties and pulled out of the Burwood joint venture with Asda, now focuses on Arlington, the business park developer.
Having out-performed the market by 25 per cent over the past year, the question now is how much of the impressive recovery story is already in the price.
NatWest increased its forecasts for this year, and next, to pounds 305m and pounds 370m, putting the shares on a prospective price-earnings ratio of 13, about average.
With the risk for those forecasts very much on the upside, that is not a demanding rating and the shares could have even further to go.
A fine line for Coats
Five years of reshaping under chief executive Neville Bain have not enabled Coats Viyella, the world's biggest maker of thread, to escape the volatility of its underlying markets. While Brazil and Turkey have continued to recover, this year will be remembered for India, where a combination of high material costs and the imposition of duties have dragged profits down.
Combined with soft demand in Coats's two main markets in the UK and North America, that might have conspired to depress yesterday's half-way result. In fact, the continued rebound in South America and continental Europe, along with a first-time contribution from the acquisition of Bace saved the day. This left operating profits from continuing businesses 12 per cent ahead at pounds 82.4m. But at the pre-tax level, the almost complete absence of the yarns, fabrics and carpets businesses sold this year, plus a pounds 2.2m rise in the interest bill, left profits only just ahead at pounds 70.8m in the period to June.
Qualified optimism about the rest of the year was underlined by the announcement of a 6 per cent rise in the interim (foreign income) dividend to the equivalent of 3.7p. But at home there is little relief in sight, with the housing market doldrums hitting Coats's furnishings, and hot weather reducing sales of clothing. How things turn out will depend on the pre-Christmas, quarter.
News that Jeff Phillips, finance director for just six months, has left the company has done little for sentiment. Down 3p at 194p yesterday, the shares stand on a forward multiple of 12. Hold for the 5.6 per cent yield.
Turnover pounds P/Tax pounds EPS Dividend p
Albright & Wilson (I) 360m (314m) 26.9m (23.4m) 6.6p (6.3p) 3.7 (3.5)
Alumasc Group (F) 65.1m (54.5m) 11.2m (8.9m) 23.4p (19p) 5.2 (4.45)
APV (I) 401m (381m) 7.1m (5.8m) 1.6p (1.0p) 1 (1)
Bentalls (I) 37.1m (36.2m) -0.67m (-0.34m) -1.07p (-0.55p) 0.6 (0.6)
Bodycote Intnl (I) 41m (41.4m) 8.68m (7.21m) 10.2p (8.3p) 2.4 (2.15)
British Biotech (Q1) 0.34m (0.77m) -6.95m (-5.64m) -14.4p (-11.9p) nil (nil)
Emess (I) 77.0m (64.5m) 2.1m (1.6m) -0.52p (-0.79p) - (-)
Kwik-Fit Holdings (I) 181.9m (150.4m) 18.1m (15.2m) 7.35p (6.2p) 1.9 (1.7)
London Forfaiting (I) 667m (479m) 11.1m (7.34m) 7.87p (5.33p) 3.4 (3.2)
My Kinda Town (F) 27.8m (-) 3.3m (-) 1.01p (-) 0.3 (-)
Sirdar (F) 60.5m (54.3m) 3.2m (5.6m) 3.71p (6.9p) 5.49 (5.42)
Spirax-Sarco (I) 121.6m (103.8m) 19.1m (14.1m) 14.6p (10.7) 4 (3.5)
(Q) - Quarterly (F) - Final (I) - InterimReuse content