If you think Eircom shareholders who have witnessed a 27 per cent drop in their share price have a problem, spare a thought for the shareholders in Northern Ireland textiles company, Lamont Holdings. Five years ago their shares were bubbling along at 360p sterling. Today they are hobbling at a mere 16.5p, having being at a low of 12p last February. The whole company is now valued at just £5 million compared with £108 million and that represents a whooping 95 per cent erosion!
But Lamont has a plan and an announcement of the first phase of that plan is imminent. This is understood to involve the sale of land; one site consists of 16 acres just nine miles outside Belfast. The sale follows the announcement last week that it expects to complete a transaction which is associated with the withdrawal from its carpet and carpet yarns division. As it is re-inventing itself as an investment holding company, it would be a logical move to retain a significant minority shareholding in the site so that it could share in any benefits that accrue from planning permission and the subsequent development. The exiting from carpets and carpet yarns may lead to a book loss although provisions have already been made for the redundancies. However, it will boost the group's cash flow and reduce debt. That will place a better gloss on the company which last week produced pretty grim figures. While these are historic, it is worth noting that intense competition, over-capacity, and the strength of sterling led to the operating loss before exceptional items of £5.9 million which contrasted with the loss of £1 million in 1998. After exceptional charges the net loss amounted to £15.7 million and shareholders' funds were reduced from £45.8 million to £27.6 million.
All the trends were going the wrong way. The two main divisions - fabrics and fabric printing, and carpet and carpet yarns (discontinued) - had lower sales and incurred substantial operating losses. The gearing was 113 per cent. And despite increasing the creditors and decreasing the debtors, the continuing operations had a cash outflow of £2.5 million.
The chairman, Mr Frank Cushnahan did not mince his words. "Lack of turnover continues to be the main difficulty for the group and this position is likely to remain throughout this financial year. We anticipate that the market place will continue to be difficult" but the achievement of its strategy to reinvent itself as an investment holding company, will "reduce the group's exposure to the UK textile market".
A note with the accounts said continued banking facilities are dependent on refinancing as a part of a restructuring and the attainment of targets. While the directors consider these targets are reasonable, the company noted the uncertainties ahead. And it made the point if it "were unable to continue in operational existence for the foreseeable future, adjustments would have to be made to reduce the balance sheet values of assets to their recoverable amounts".
But once it has completed phase one of its plan, it will be left with the fabrics and fabric print division which last year had an operating loss of £5.9 million. Losses are likely to continue though with a depreciation charge of £5.3 million in 1999, the impact in cash flow terms is not daunting. Indeed, if the companies operated somewhat better, it could have a small surplus pre-depreciation.
The second phase is likely to involve joint ventures with companies in similar industries. That would make a lot of sense in an industry suffering from over-capacity. When, and if, it reaches that stage, Lamont would be debt free and would be a truly investment company, holding large minority stakes in different companies. The announcement of the first phase, this week, will prove it has a strategic plan. But implementation of the second, and more difficult phase - it has the potential to return real value to the shareholders - will be the real tester.
