Poor results for 1999 from James Crean mean that its shareholders will get no dividends for the year because the company has "insufficient distributable reserves available". The situation for shareholders appears unlikely to improve in the foreseeable future since the company has indicated that "it is likely that a greater proportion of its cash flow will be retained" for reinvestment in its US businesses. In 1999 Crean's net cash inflow from operations dropped to €1.6 million, down from €8.3 million. The shares, which have fallen from a high this year of 45 cents, closed at 32 cents yesterday.
With the fall in earnings per share before goodwill and exceptional charges down to 16.1 cents from 22.2 cents, the Crean share price is now just two times earnings. When exceptional charges and goodwill are included the company reported a loss per share for 1999 of 15.6 cents.
In its statement, the company said that a number of options to deal with the dividend issue and the wider issue of shareholder value are under "active review". These options are expected to include the sale of its remaining businesses and the distribution of the proceeds to shareholders.
Stating that the company believed its shares were undervalued it said "some of the directors are contemplating the purchase of some Crean shares following the release of this statement". Underlying results for the group, whose sole remaining businesses are its canned poultry business under the Valley Fresh brand name and its frozen meals Freezer Queen brand, show a 22.5 per cent drop in profits before tax, exceptional charges and goodwill to €11.7 million. Sales were 25.6 per cent down at €245.9 million.
When the exceptional charges (net €7.8 million) and goodwill are deducted, Crean reported a loss for the year of €1.9 million, down from the 1998 corresponding loss of €30.9 million.
While the results are not directly comparable because the group sold out or demerged a number of businesses during 1999 which were included for a full year in 1998, a breakdown of the figures shows a deterioration in performance over the year of the continuing operations. A breakdown of the headline figures shows that sales of the continuing operations rose by 6.8 per cent to €160.4 million while operating profits were 7.6 per cent ahead at €10.8 million from €10.1 million. Operating margins on the continuing businesses improved to 6.73 per cent from 6.7 per cent. But these figures were boosted by the conversion of a strong US dollar into Irish pounds.
All of the earnings from continuing businesses are now in dollars. The dollar figures show a two per cent rise in sales to $171.5 million but a five per cent drop in operating profits to $15.3 million. At 8.9 per cent operating margins were down from 9.6 per cent.
The profits decline was caused by a further sharp deterioration in the performance of the frozen foods operations while the poultry business produced good profits growth. Frozen food sales dropped by 13 per cent to $61.2 million while profits collapsed to $0.7 million from $4.7 million. Operating margins in the business dropped to 1.14 per cent from 6.7 per cent.
Crean attributed the fall in sales to "the migration of consumers from the value for money end of the market at a more rapid rate than the rate of entry into that market". In response, Crean has increased promotional expenditure to defend its existing base and has invested in new product lines. But the company warned "it is difficult at this stage to make a prediction as to how successful these initiatives will be".
The net exceptional charges of €7.8 million include a gain of €5 million on the sale of its 28 per cent stake in United Beverages and its subordinated loan notes in EJA. The charges were €5.8 million to accelerate the write-off of goodwill on the frozen meals business - reducing the carrying value of the operation - and €7 million from restating its 20 per cent stake in Oakhill from cost to directors valuation reflecting the drop in the Oakhill share price. Crean invested €11.5 million for its 20 per cent stake, or €1.02 per share - the charge reflects the fall in the share price to 40 cents by December 31st 1999.
Crean net debt was down to €43.7 million from €100.7 million helped by a net inflow of €19.8 million from disposals and the transfer of €40.4 million on the demerger of its print and packaging division. But a stronger dollar and sterling resulted in a negative currency adjustment of €11.5 million when US and UK borrowings were translated into euros, though the value of the groups US and UK assets was €17 million higher on translation into euros.
Crean's chairman and chief executive, Mr Ray McLoughlin, was not available to discuss the results.
