James Crean has, as feared, incurred a loss before tax of £2.26 million in 1997, contrasting with the profit of £14.4 million in 1996. The company had warned of the reversal, part of which is due to exceptional restructuring costs amounting to £7.5 million, a smaller contribution from discontinued operations and higher goodwill amortisation. If these are excluded, the operating profit fell by 21.7 per cent. This portrays its underlying performance.
Crean is relatively optimistic about the out-turn this year. Action taken to reverse the profit decline in the food and electrical divisions should lead to a "steady and continuing correction process during 1998", the preliminary statement said. The proceeds from the disposals will lead to a compensating interest effect but this will only be a partial compensation and the larger part will have to come through profit enhancements, Crean said. This, however, is unlikely to come through in the first half.
Nevertheless, the first-quarter results are said to be "good", with a 27 per cent rise in operating profit. If this trend were to be maintained, Crean reckons that it would compensate for the disposal-related losses and would lead to an earnings improvement on 1997.
After a period of disinvestment, Crean is now considering acquisitions. Asked if this would be possible given its gearing of 80 per cent, executive chairman Mr Ray McLoughlin told The Irish Times that a number of initiatives were in place which would give it the capacity to do so. He would not specify the initiatives for commercial reasons, but stressed they were part of an overall plan.
Asked about his continued dual chairman/chief executive role, he stressed that this was temporary and that the group fully supported the investor managers' guidelines. The expectation is for a new chairman to be appointed when the initiatives are completed, possibly by the end of the year.
Despite the sharp contraction in profitability, Crean has declared a final dividend of 1.975p per share, making a total of 8.5113p, or 46 per cent less than a year earlier. This had already been flagged and is partly due to the adoption of a more conservative dividend policy. There was a loss per share of 14.79p, compared with earnings of 28.6p.
Sales on continuing operations rose from £228.4 million to £242.5 million. The three main divisions showed growth. However, only printing and packaging showed growth in operating profits and this was marginal, from £9.1 million to £9.2 million. The other two showed declines: food from £11.0 million to £9.5 million, and electrical from £2.8 million to £1.4 million. Print and packaging benefited from more favourable foreign currency transaction rates. Excluding this benefit, this division would have indicated a decline. Labels were up, printing and packaging were down.
Crean explained that the profit weaknesses were caused by temporary or correctable factors. Initiatives taken were expected to lead to a reversal.
Operating profits from the food division were down by 39 per cent in local currency terms. Crean said considerable corrective action had been taken to resolve the problems at its poultry business, including the closure of the Kentucky-based plant, and that the "bird supply position is improving rapidly". This is expected to make a "considerable impact" on the profit out-turn this year.
The electrical division was hit by an over-supply situation. The profit decline was attributed to an under-recovery of costs arising from the weak volume sales. Asked if Crean had paid too much for the OLC business acquired in 1996, Mr McLoughlin said "I don't think so", noting the recovery that was taking place.
