United Biscuits narrows its focus

The Investment Column

United Biscuits has become so used to making headlines for the wrong reasons that it was proud to boast a set of results that were "deliberately boring" yesterday. The company and its chief executive, Eric Nicoli, have certainly been through the mill in the past few years - the McVities and KP crisps group has been relentlessly pursued by powerful competitors such as PepsiCo, the makers of Walkers Crisps.

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.

Start your day with The Independent, sign up for daily news emails
ebooksA celebration of British elections
Tottenham legend Jimmy Greaves has defended fans use of the word 'Yid'
Life and Style
Arts and Entertainment
Kanye West, performing in New York last week, has been the subject of controversy as rock's traditional headline slot at Glastonbury is lost once again
Arts and Entertainment
The Ridiculous Six has been produced by Adam Sandler, who also stars in it
filmNew controversy after nine Native American actors walked off set
Life and Style
Google celebrates Bartolomeo Cristofori's 360th birthday
techGoogle Doodle to the rescue
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living