NFC's new brooms sweep clean

It was inevitable that the new brooms behind the wheel at NFC would throw everything into this year's figures, so the market took the distribution company's dismal interim profits on the chin.

That said, the sharp fall in operating profits from pounds 56.5m to pounds 37.6m, even before the chunky reorganisation provision that wiped out pre-tax profits completely, confirmed that Gerry Murphy, the former Greencore boss, and Sir Christopher Bland have an uphill struggle ahead to turn NFC round.

As Sir Christopher said, following 18 months of former chief executive Peter Sherlock's business school speak, and nine months with nobody on the bridge at all, the time has come to stop talking strategy and get on with running the company.

Figures for the six months to April underlined the extent to which costs have been allowed to spin out of control at the same time as NFC's increasingly sophisticated customers have put the squeeze on prices. It is encouraging therefore that the pounds 35m restructuring provision covers real measures - redundancies, the closure of loss-making operations and a slimming down of the bloated property portfolio.

Sad as the demise of the worker co-operative dream may be, it does seem as if NFC finally has a senior managment team who can do something with a strong brand name in a growing market, but recovery will take time.

The only bright spot in the latest figures was a continuing rise in sales - and the company has a long way to go before it gets a decent return from that turnover of more than pounds 2bn a year. Until it does, the dividend, barely covered by earnings, will remain pegged at the current level.

Worrying features of the numbers included a retreat in America, a move into the red in the house and commercial moving business and widening of losses in Europe, a market into which NFC freely admits it jumped too quickly.

The problem with the Continent is that NFC had little choice but to move when it did - with retail customers turning the screw, growth lies in the industrial sector and that means creating a pan-European presence fast to service large multinational clients.

Given the upheaval in the company this year, it is not surprising that analysts' forecasts range far and wide. Profits will probably reach about pounds 90m for earnings per share of 9.5p.

A better investment guide is probably the company's belief that dividend cover of two times will be achieved within two or three years.

That means earnings per share of 14p and a prospective price-earnings ratio of 12 at 164p, down 5p. That is reasonable in two years but pricey if it takes a further 12 months. A yield of 5.4 per cent will prop the shares, but they are high enough.

FKI ready to hit acquisition trail

side head

Jeff Whalley and Bob Beeston have done a decent job over the past four years, tidying up the mess at FKI created by the ill-starred reverse takeover of fellow engineer Babcock. Now chairman and chief executive respectively of the door knobs-to-conveyors group, they have overseen a rise in operating profits from pounds 35.2m in 1992 to pounds 78m in the year to March, taking margins close to the target of 10 per cent.

Plans to adopt a more aggressive approach to expanding the group were delayed by the state of the stock market last year, but they are now sufficiently confident to hit the acquisition trail.

Earlier this year, FKI picked up Amdura, a US lifting equipment company, for pounds 64m and yesterday the group

confirmed expectations by moving to replenish its coffers with a one-for-four rights issue at 125p to raise pounds 137m.

With gearing cut to around 5 per cent, FKI will have firepower approaching pounds 200m after the cash call. Three or four companies in the pounds 50m to pounds 120m range are already in management's sights, suggesting there could be two additions to the group's portfolio in 12 months' time.

And with pounds 3m in unrelieved advance corporation tax available to sweeten a UK takeover, the most likely targets are expected to be at home.

Yesterday's news, alongside interim results showing underlying profits rose 29 per cent to pounds 67.6m in the year, ruffled few feathers in the market. The shares slipped just 5p to 148p.

The figures reflected the last scars of the Whalley-Beeston clean-up operation. A pounds 12.2m exceptional loss on the disposal of three businesses cut the growth in reported profits to 6 per cent, leaving them at pounds 55.4m, while further surgery in the engineering division halved operating profits to pounds 8m. In all, reorganisation charges came to pounds 4.2m last year, with provisions of a further pounds 2m for future costs.

The main markets in the US, which account for more than half of turnover, were buoyant, with materials handling and automotive both strong. But it was the performance of the hardware division, where profits soared from pounds 20.3m to pounds 39.3m after a record performance from Truth, the US company bought in 1993, that showed what FKI can do with acquisitions.

Full-year profits of pounds 92m would put the shares onto a prospective multiple of around 13, taking account of the rights dilution. Reasonable value, given the record.

Treatt provides

a tasty morsel

Blending and distilling essential oils may not sound the most glamorous business and Treatt, one of the industry's biggest players, is a minnow by stock market standards. But anyone on the share register since 1989's flotation has been handsomely rewarded.

It is not hard to see why. The oils and aromatic chemicals Treatt manufactures find their way into an enormous range of consumer goods around the world - flavouring or adding a fragrance to drinks, food, confectionery, pharmaceuticals, soap and detergents.

More than two-thirds of sales find their way overseas to about 70 foreign markets, which is where the real excitement lies.

If every Chinese or Indonesian drinks just one can of Coke a year extra, or buys a little more toothpaste or takes a spoonful more medicine, the demand growth for essential oils will be exponential.

The first signs of that are starting to become evident in Treatt's results, which since 1990 have grown smartly, culminating in yesterday's 154 per cent rise in interim pre-tax profits from pounds 756,000 to pounds 1.92m.

Earnings per share jumped from 5.35p to 13.43p and the half-time payout jumped 50 per cent to 1.8p.

As analysts took rubbers to their previous forecasts, the shares jumped 38p to 309p, at which level they have grown six-fold since the end of 1990. Because Treatt has only a small following in the City its shares tend to move suddenly on good news and then drift until the next pleasant surprise.

The success of Treatt in recent years is matched only by its conservatism - it has had only six managing directors since 1886 - and growth, fuelled by a doubling of manufacturing capacity in Bury St Edmunds, is likely to remain under control. Management considers gearing, currently 30 per cent, to be high enough.

Even after the shares' good run, they stand on a prospective p/e of only 11, on the basis of Smith New Court's upgraded forecast of pounds 3.9m pre-tax profits this year. Still good value.