The chairman of the McVities biscuits to KP snacks group, Sir Robert Clarke, told shareholders at the annual meeting that first-half pre-tax profits would be "significantly" below the 1994 level. He blamed rising raw material costs for much of the damage.
UB was steadily raising prices to compensate, but the delay in passing on costs was expected to lead to some under-recovery of costs in the first half, he warned, while profits would also be hit by a higher interest charge and increased marketing investment.
Sir Robert said there should be a significant year-on-year improvement in the second half, but that did not prevent analysts' worries that full- year profit predictions may be too high. The consensus forecast is for UB to make full-year profits of just over £180m in the year to December, but one analyst said yesterday he was considering shaving his figure by £10m.
Despite the fall in the share price, the latest news will heighten speculation about a bid for the group by Hanson, which has barely disguised its interest in buying a non-cyclical, UK-based business. Valued at about £1.7bn, UB would be easily digestible by Hanson, which is about to be relieved of $1.4bn of debts through the impending demerger of US Industries.
UB warned at the time of its 1994 annual results in March this year that trading conditions were likely to remain tough in all markets and that results would be affected by high input cost inflation, particularly in packaging, and rising worldwide interest rates.
It also said then that a substantially higher level of new product introductions, increased marketing investments and an aggressive attack on costs in all divisions was planned.
The group has also been hit by pricing pressure on brands such as KP crisps from supermarket own-label products.
The outgoing chairman, Sir Robert Clarke, told the annual meeting yesterday the group was gradually achieving price increases to reflect higher input costs in most markets, but this was taking time.
"Additionally, our increased borrowings, resulting from the most recent acquisitions and a number of restructuring programmes, coupled with higher worldwide interest rates, will produce a significantly higher interest charge than in 1994." Sir Robert said said. But he added that the first half outlook should not be seen as indicative of prospects for the full year.
The group expects a "significant" year-on-year improvement in the second half, as the benefits of the higher levels of investment in marketing and new product development begins showing through in stronger market share performance.
The full benefit of the price increases implemented or in the pipeline would also be seen.