James Crean is facing a further slump in profits following the 25 per cent cut in pre-tax profit to £7.1 million in the six months to June 30th 1997. The decline had been widely signalled.

Two of its three divisions, food and electrical, are expected to continue with poor results in the second half. As part of a restructuring, disposals will "lead to a loss of profit contribution and adversely affect 1997 profitability" until the proceeds are reinvested, is how Crean views its immediate future. This prospect, together with the "temporary fall" in poultry profits and lower profits from the electrical division, will affect group profits in 1997.

In the food division, recent gains in the frozen meal business are being maintained and the setback in poultry is being overcome, according to Crean. The recent acquisition of Kralis, including possible further acquisitions, "will result in Valley Fresh being the major player in the processing of fowl in the US by the end of 1998".

The poor performance of poultry was responsible for the 14 per cent fall in operating profit from £5.94 million to £5.09 million in the first half in the food division. This also led to the 2 per cent drop in sales from £54.7 million to £53.5 million. The poultry business was affected by a shortage of fowl, the subsequent higher unit costs, and a temporary import ban of dark fowl meat into Europe.

The acquisition of Kralis, which purchases around 15 million light fowl a year, was designed to overcome the supply problem. And the EU ban is expected to be lifted in the fourth quarter.

The frozen meals business performed well, with a 67 per cent rise in operating profits, reflecting a continuation of better margins. Margins are benefiting from lower marketing costs, lower raw material costs and better plant efficiencies.

The worst performing division was electrical, which saw a 43 per cent drop in operating profit from £1.39 million to £790,000 in the first half while sales grew by 16 per cent from £29.7 million to £34.4 million. The growth in sales is attributed to the inclusion of OLC which was acquired. If this contribution is excluded, sales show a 6 per cent decline.

These very poor results are due to "very competitive conditions" which led to pricing pressures and lower margins. Volumes are not expected to increase in the second half and, as a result, operating profits are expected to be significantly down". Nevertheless, a cost reduction programme is expected to feed into 1998 leading to a higher contribution from the electrical division. Also an anticipated recovery in the market should "lead to a significant improvement".

The only bright spot in Crean's latest results is the print and packaging division. It increased operating profits by 10 per cent from £3.79 million to £4.17 million on a 6 per cent sales rise to £34.4 million. These results, said Crean, reflect a steady performance in the individual businesses together with significantly reduced operating and overhead costs.

EJA, the Dutch office products company in which Crean has over £9 million in subordinated loan stock, had a 10 per cent rise in sales. It continues to meet its principal interest obligation to its bankers, and Crean said it is confident that EJA will be in a position to meet its repayment obligations to the subordinated loan holders, including Crean.

Crean's group sales contracted by 10 per cent to £139.5 million in the first half. Earnings per share fell by 24 per cent to 11.7p. The interim dividend is being maintained but the final dividend will be cut in line with group policy to have a dividend cover of four.