Unidare half year profit drops £1.1m

UNIDARE, the Dublin engineering group, has reported a sharp fall in profits in a worse than expected set of half year results.

The group has returned interim pre tax profits of £3 million, down from £4.11 million a year ago. In March the group issued a profit warning but yesterday Mr Paul Duggan, chief executive, admitted that the extent of the profit fall was unexpected.

Unidare is in the middle of structural change and is prepared to spend up to £20 million on acquisitions in an attempt to enhance shareholder value. However, it would be at least 1997 before the benefits of any new purchases come through.

The £1.1 million decline in profits mostly stemmed from lower operating profits in the group's distribution businesses.

In addition, Unidare sold properties and a storage heating business last year, which realised around £12 million. However, this money has yet to be invested in another business. With low deposit interest rates this produced a £500,000 shortfall over the first half of the previous year.

Mr Duggan insisted the decision to sell the business had been a good one. "We are focusing on core businesses. When you are offered a good price you take it," he said.

Earnings per share fell from 15.97p to 10.47p but interim dividend will be maintained at 4.6p.

Sales are said to be running ahead of last year's level both in the US and in Britain. However, with the level of increase smaller than planned, profit margins are under greater pressure than anticipated.

The company insists it has refocused its sales activities and has sanctioned major new investment in its computer systems for the US and European welding distribution.

It has also installed automated materials handling equipment in its largest US warehouse and plans to follow with the rest of the network.

In acquisitions, Unidare is actively looking at a number of opportunities. "We have the capacity to spend £20 million this year or next," said Mr Duggan. "Our preference is for larger acquisitions with at least £1 million of operating profit. But we won't turn our back on smaller boltons.

However, he insisted that there will be no acquisitions in plastics and the company would consider any serious approach to buy its non core plastics division. Unidare plans to spend around £5 million on investment in this division this year.

Mr Duggan also dismissed market rumours about a merger between Unidare and Barlo. "That would just be creating a larger conglomerate of industrial business. We couldn't identify any obvious synergies."

The company's US business Nasco, which is its largest contributor to both profits and turnover, has been hit by tough competition. "Our major competitor cut prices and it took us a while to react," said Mr Duggan. "But we are reacting now." As a result margins on the US business are down.