James Crean, the electrical, food and packaging group, has again recorded grim results with a £34 million (€43.17 million) reduction in shareholders' funds, representing a 35 per cent cut. And the market reacted negatively by pushing the shares down five cents to 110 cents. The underlying profit before interest and tax grew by 14 per cent to £17.4 million (€22.09 million) in 1998, partly due to favourable currency translations. However, exceptional charges of £31.8 million (€40.38 million) have been responsible for a slump in shareholders' funds from £98.1 million (€124.56 million) to £64.2 million (€81.52 million). And with debt of £79.3 million (€100.69 million), the gearing is at a high 124 per cent.

Despite this unsatisfactory financial position, the group is to go ahead with its planned demerging of the print and packaging companies into a separately listed company. This strategy was questioned at the time because of the adverse sentiment towards small publicly-quoted groups. Chairman, Mr Ray McLoughlin, admitted that, since the announcement, "there has been a surge in negative sentiment towards smaller companies".

He noted "this is a much less ideal environment in which to carry out the demerger than previously but, having considered the alternatives, your directors continue to hold the view that the demerger offers the best prospect for optimising value for shareholders". And, as an expression of confidence, he said, a number of directors intended to acquire shares in Crean over the next few weeks. If the demerger is approved by shareholders, Crean will be left with just the US food division. Mr McLoughlin said the board was considering the options for this business including the seeking of a strategic investor or selling the remaining assets and returning the cash to shareholders. A breakdown of the exceptional costs show a write off of £17 million against the electrical division, a provision of £8.9 million against EJA's subordinated loans, a restructuring provision of £2.8 million and a write off of £3.1 million in goodwill against the print ad packaging division. No final dividend is being paid.

These charges have led to insufficient distributable reserves available and this has implications for the planed demerging. Mr McLoughlin said this could be corrected through a capital reduction. However, he said this would be "inappropriate" in advance of a demerger. This would have to be sanctioned by the High Court and by the shareholders.

The latest result show a 12 per cent rise in underlying sales to £195.4 million. Basic headline earnings per share fell by 11 per cent to 17.5p.

Reviewing the group's operations, Mr McLoughlin said the operating profit from the food side rose by 12 per cent to $16.1 million (€14.9 million). This reflected a 38 per cent increase from the poultry business and a 24 per cent fall in frozen meals. A favourable dollar translation boosted the operating profit by 19 per cent to £11.27 million.

Poultry benefitted from lower raw material prices, lower production costs and a more profitable sales mix. Canned retail sales rose but Clubstore sales declined.

Sales volumes of frozen meals were 3 per cent down in the family-entree sector, which represented 63 per cent of Freezer Queen volumes. The fall was mainly attributed to the single-serve sector where sales declined by 22 per cent. Operating profit in the print and packaging division rose by 10 per cent to £10.1 million. This division benefitted from acquisitions and favourable translation rates. At constant exchange rates, and excluding the benefit of acquisitions, operating profits were down 7 per cent with the printing division down 1 per cent, the packaging division up 10 per cent and labels down 76 per cent. The printing division benefitted from acquisitions and the packaging division experienced strong organic growth, while the labels division was hit by competitive pressures. EJA, the Dutch office products company in which it has over £9 million in subordinated loan stock had a 10 per cent increase in sales but sales were down 17 per cent in the eight months to February 1999. Trading is not expected to improve for some time and Crean said it is unlikely to be able to repay the loan. This has led to the £8.9 million write off.