Allied Domecq, the drinks company, said its profits will be lower than expected this year because of a weak dollar (a lot of its sales are in the USA), difficulties in the Spanish market and the need to top up its company pension fund.
It’s not the only one; brewer Scottish & Newcastle said profits at its beer division would barely rise because of a botched restructuring which left it running more distribution centres than it planned. This just goes to show how company boasts about ‘cost savings’ and ‘synergies’, so often made at the time of ambitious acquisitions, should be taken with a pinch of salt.
Abbey National took a step towards restoring its financial health with the £848m sale of its consumer credit business, First National, to the American conglomerate GE. The price was better than many had expected. However, Abbey still faces problems. Its wholesale bank has run into big problems by investing heavily in ‘junk’ bonds, and a cut in the dividend is almost certain when it reports results on 26 February.
British Energy, the company that owns the UK’s nuclear power stations, has found a new chief executive. He’s Mike Alexander, currently chief operating officer at Centrica, the owners of the AA. His appointment suggests that British Energy will avoid administration.
BAE Systems is busy crowing about its ‘lead contractor’ role in the Ministry of Defence’s new aircraft carrier programme. But analysts think the company’s profit on the contract, in today’s money, will be around £108m. Given the company’s habit of incurring huge cost overruns on complex projects like this, there doesn’t seem much room for error. Add in steeply rising debt and the possibility of a dividend cut, and it’s clear why the shares languish at such low levels.
Ryanair followed its acquisition of rival Buzz with very strong third-quarter results. Chief executive Michael O’Leary defended the deal, which has unsettled the City, by saying that if there was any trouble from Buzz’s unionised pilots, he would simply close the unit down and keep its ‘slots’ at Stansted. Ryanair is highly profitable, which means its shares are highly rated. If Buzz, which currently loses money, dilutes that growth, then Ryanair will be savagely punished by the stock market.
AWG, the company once known as Anglian Water, is taking the unusual step of legal action against the former managers of a company it bought in 2000. It alleges bosses at Morrison, a construction company, misrepresented its profitability and induced AWG to over-pay. More likely is that, at a time when markets were still fairly buoyant and ‘boring’ utilities were under pressure to become higher-growth businesses, AWG rushed in without doing its homework properly.