United Biscuits narrows its focus
The Investment Column
Friday 12 September 1997
The effect on UB has been a share price that has underperformed the market by 60 per cent over the past five years. Yesterday's 5.5p fall took the stock to a five-year low of 198p.
To its credit, the company has taken tough decisions. It pulled out of the United States when the Keebler operation was sold two years ago. Since then it has also sold nine other businesses, mainly in continental European snacks, and rationalised its manufacturing base through eight factory closures. Other disposals are expected in low-margin areas such as UK snacks and continental businesses, though there are no immediate plans and buyers may prove thin on the ground.
The strategy going forward is to concentrate firepower on fewer key brands, such as Hoola Hoops, Skips and Penguin, while driving forward more recent launches such as the McVities Go Ahead range of low-fat snacks.
The portfolio has certainly been strengthened. Two years ago, 40 per cent of UB's sales delivered a return on capital employed of 5 per cent or under. But after disposing of businesses with pounds 1bn of sales, just 5 per cent of turnover is now in that category. By contrast, more than three- quarters of the group's business returns more than 20 per cent on capital employed.
While it is difficult to fault the strategy, the criticism is that it is taking a long time to feed through to results. Profits before exceptionals in the six months to 12 July were flat at pounds 45m and the company is struggling to drive growth. Sales fell by 3 per cent at constant currency rates and the company admits there is unlikely to be any top line growth in the second half. All this means UB is relying on efficiency improvements to improve the bottom line. So while the City had been hoping that UB was moving into the recovery phase, the best it can look forward to is another year of consolidation.
The geographic picture is also still very mixed. UK snacks and biscuits profits were flat, but crisps sales fell, with own-label business particularly weak. In Asia Pacific, profits were wiped out by a price war in Australia, where PepsiCo's Frito Lay is attacking UB's dominant share in the grocery sector.
With the bid premium evaporating and analysts downgrading full-year forecasts to pounds 110m, UB shares have now fallen to a forward rating of around 13. This is hardly expensive, but for a company with this record, not cheap either.
- 1 President of Argentina adopts Jewish godson to 'stop him turning into a werewolf'
- 2 The 'Black Museum': After 150 years, public set to see exhibits from police’s grisly crime museum
- 4 Sir Winston Churchill’s family begged him not to convert to Islam, letter reveals
- 5 UK weather: 'Coldest night of the year' tonight as freezing temperatures plummet to -10C
President of Argentina adopts Jewish godson to 'stop him turning into a werewolf'
Exclusive: Abusers using spyware apps to monitor partners reaches 'epidemic proportions'
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations
Sir Winston Churchill’s family begged him not to convert to Islam, letter reveals
AirAsia flight QZ8501 missing: Search for plane carrying 162 passengers from Indonesia to Singapore suspended overnight
Millions of Britons struggling to feed themselves and facing malnourishment
British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
Ukip member gets into Christmas spirit with Union Flag plea to Santa 'for our country back'
Germany anti-Islam protests: 17,000 march on Dresden against 'Islamification of the West'
Nigel Farage: Ukip leader named 'Briton of the year' by The Times
Immigrants make UK racist, says Ukip councillor Trevor Shonk
iJobs Money & Business
Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...
Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...
Not specified: Selby Jennings: SVP Model Validation This top tiered investment...
Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...