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Watson & Philip puts problems behind it

Watson & Philip, the Dundee-based convenience store operator, put October's profits warning behind it yesterday to report a 20 per cent jump in operating profits in the first six months of the year.

James Watson, chairman, said the multi-temperature "Distribution Plus" business which caused the problems was now developing well, with sales increasing by a half.

He said they were turning away lower margin business for the likes of schools and hospitals in favour of areas where "we can add value for our customers and make acceptable returns."

Major contract wins included a deal to supply the Rain Forest Cafes themed restaurant chain in the UK and Europe and La Belle Epoque, the London restaurant billed as Europe's biggest.

"The enhancement of our ability to supply chilled and frozen food leaves us well positioned for expected new business opportunities as they arise. We will continue to focus on managing maximum efficiency gains", he said.

The news prompted a 4p rise in Watson's shares to 436.5p yesterday, but they remain well short of the 466p they were at before October's warning.

The group unveiled pre-tax profits raised from pounds 6.78m to pounds 7.15m in the 26 weeks to April, a 24 per cent rise when exceptional items are stripped out. The interim dividend goes up 7.5 per cent to 5.7p.

The figures included a pounds 4.32m exceptional credit to cover expected income over the remaining three-year life of a now discontinued wholesaling contract to supply the Spar/VG retailing group. The move came after it became clear that there was no chance of the group resuming the work again. The credit was partially offset by a pounds 3.83m charge following a decision to exit vacant properties, mainly comprising surplus depots.

Food service operating profits rose 18 per cent to pounds 1.3m, but the main driver remained the Alldays convenience store division. That saw a 28 per cent increase to pounds 6.8m, including a 90 per cent jump in results for franchised operations to pounds 2.34m.

These are run through Alldays' unique regional development company network, which involves head franchisees being given the right to operate up to 40 stores in a given region, with financial backing from the group, in exchange for putting up pounds 100,000 of their own capital.