James Crean has issued a further profit warning to shareholders and told them that more of the group's business may be sold and that strategic investors were being sought. In a letter to shareholders, chairman and chief executive Mr Ray McLoughlin warned the group would report "a significant fall" in profits for 1997. The results, likely to be announced at the end of March, are expected to be at the lower end of analysts' earnings forecasts of 19p to 21p per share. But Mr McLoughlin said corrective steps already taken are expected to result in an improvement in profits this year.
Referring to the sharp fall in the group share price in recent months - down from a high of 240p in 1997 to 160p last night in a rising market - Mr McLoughlin said the priority for Crean directors now was to take "whatever steps are necessary" to restore shareholder value. This included the "possibility of a further narrowing of the business base of the group through disposals or otherwise and the possibility of introducing strategic investors who can assist the company with its development and shareholder value".
Mr McLoughlin told The Irish Times yesterday that he was determined "to radically change the character of the group and sentiment towards it this year, and sooner rather than later. We expect to make a lot of progress in the current half". Some discussions had taken place and further discussions are planned "with a number of possible strategic investors", he said. He declined, for commercial reasons, to say yesterday which businesses or divisions may be sold or who the potential strategic investors were and in what they might be interested.
Crean operates in three divisions - the British-based electrical division, print and packaging and the US-based food division.
"We may finish up with a smaller number of core businesses. There may be disposals or part disposals of some parts of divisions. We are not involved in any discussions but we do accept that focus and concentration is all-important and that might mean fewer divisions," Mr McLoughlin said. The electrical division is seen as a possible candidate for sale. It is unlikely the group would sell its print and packaging division and it may consider bringing in strategic investors as joint venture partners in the US.
The latest announcement follows a number of disposals in 1997. It restructured its print and packaging division through the sales of Kartoncraft, Douthwaites and Staples. The sale of its 28 per cent stake in United Beverages (UBL) to Guinness Ireland is being examined by the Competition Authority.
Mr McLoughlin revealed yesterday that Crean could announce exceptional losses of £7.2 million for 1997 associated with the disposals and restructuring. The sales are expected to lead to an exceptional capital loss of £4.7 million.
In addition, non-recurring costs associated with the restructuring will lead to an exceptional loss of about £2.5 million. If the sale of UBL is completed before the 1997 accounts are finalised, the exceptional capital loss will be reduced to £700,000, bringing the overall exceptional loss down to £3.2 million.
The fall in 1997 profits was attributed to "trading setbacks" in its British electrical division and in its US poultry business as well as the loss of profits from companies sold off during the year.
In September 1997, Crean reported a 25 per cent drop in pre-tax profits for the six months to the end of June. Following the interim results, analysts downgraded full-year forecasts.
After pre-tax profits of £14.6 million for 1996, forecasts for the current year range from £5.3 million by Davy, £6.4 million by Goodbody and £7.4 million by Riada. Mr McLoughlin told shareholders that profits would be "well down" at the electrical division because of increased competition and reduced margins. Profits from the US poultry division for 1997 would be "well down" because of a "temporary" ban on the export of dark fowl meat to Europe and a shortage of fowl supplies, which pushed up prices and reduced factory throughput.
Mr McLoughlin said it was "quite uncertain" when the EU ban would be lifted. But he said the supply situation would improve this year because of the purchase of supply operations last year.
Profits last year from the retained operations in the print and packaging division were in line with the 1996 outcome and the frozen-meal business in the US was "well ahead".
On his current dual role as group chairman and chief executive, Mr McLoughlin insisted that the arrangement was "temporary". Asked when the roles would be separated, Mr McLoughlin said "there is no particular timescale. Our immediate priority is to addresses the issue of shareholder value. But it will not be a very long time".
Asked which role he would retain, he said: "I have no intention of stepping down as chief executive, so we will be seeking a new chairman in due course." Mr McLoughlin took on the role of chairman when Mr Domhnall McCullough resigned on December 22nd.
