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The Market
Leading shares ended the last session of the old millennium at new closing highs, although below fresh all-time peaks, with exceptionally high thin volumes over the half-day providing most of the fuel. The FTSE 100 index breached the 6900 level for the first time ever. At close, the blue chip index was 94.3 points higher at 6950.6 at 12.09pm. Volumes were, as expected very thin, as London prepared for its millennium celebrations, and for the possible impact of the Y2K bug.
South African Breweries
South African Breweries claimed that trading in the six months to September 30 met expectations, as the South African market has experienced high real interest rates with depressed consumer expenditure, but a more stable currency. Against this challenging background, Beer South Africa's volumes were virtually unchanged, recovering from being down four per cent in the first quarter. South African Breweries International's results were mixed, reflecting the underlying economic conditions of each territory. Aggregate volume growth was good but margins were down in some areas.
In Hungary, the group is suffering from over-capacity in a declining beer market, leaving volumes and profits down. South African Breweries' associate in China achieved good results, with market share up, and higher turnover and profits. Other Beverage interests had a reasonable first half with improved margins in ABI, the Coca-Cola bottler.
South African Breweries' division, Beer South Africa, achieved an increase in operating profit and gains in total liquor market share, due to cumulative effects of proactive management, despite the tough economic background. A relentless focus on the market - which has been a key part of the strategy - allows the group to optimise its brand portfolio, both in terms of positioning and consumer interest.
The new Amstel "quart" (750 ml bottle) has been well received, the relaunch of its alcoholic fruit beverage (AFB), Redd's, and the introduction of Solanti's Spice have increased South African Breweries market share in the AFB segment. Construction has just commenced on the group's new Port Elizabeth brewery, scheduled to begin production by September 2000, with a capacity of 2.3 million hectolitres - twice the capacity of the existing facility.
Meanwhile, the operating conditions in some of the African markets were difficult. Disposable income was reduced due to the combined effects of crop failure in East Africa, a decline in certain agricultural commodity prices and a longer rainy season in Tanzania than usual. However, organic growth in sales volume of eight per cent in Europe (11 per cent including Russia) was largely due to the increased demand in Poland, where the group continued to gain market share.
In Russia, sales volumes from the newly commissioned brewery, which began operating in May, were ahead of expectations but initial financial results were restrained to budget levels, due to unanticipated higher packaging costs. Capacity is to be expanded to 1.5 million hectolitres to meet increased demand and to ensure that it achieves and maintain critical mass.
Phytopharm
Phythopharm, the drug developer, announced that in its botanicals business it has clarified the regulatory requirements for a number of extracts. In addition its has established long term partnerships to manage controlled horticulture and manufacture extracts in their countries of origin. Phythopharm is now in the third phase of this process, whereby key insights generated by these development programmes are leading to an understanding of both the active constituents and modes of action of its products.
With the emergence of veterinary and unlicensed market opportunities, the group has conducted a portfolio review over the past year and has identified two product areas where it can use its know-how and intellectual property to potentially achieve good returns, while developing products over a far shorter development cycle. If launched, it remains hopeful that sales from these products could generate sufficient cash to fund its research and development expenditure.
Phythopharm increased its clinical portfolio to nine projects with the initiation of a trial in colon cancer and a programme of veterinary research in eczema and arthritis. Development of its appetite suppressant, P57, has progressed well this year, and the group has announced the completion of the milestone-triggering repeat dose Phase I study in man. A good overall safety profile is emerging from this fourth Phase I trial and it is now preparing for further dosing studies with the material. In addition, it has carried out a further series of pre-clinical evaluations on its diabetes product, P30. Furthermore, it continued to see activity in the material but it has been unable to isolate a stable fraction to date.
In anti-inflammatory treatments, Phythopharm has carried out a programme of re-formulation of the product, and has produced a new formulation with a substantial increase in the bioavailabilty of the active materials. P54 also has substantial attractions in the veterinary anti-inflammatory market where early product launches are possible, and the group has initiated a study in canine arthritis designated as P54v to confirm the evidence of efficacy of the material in this important indication. To support these clinical activities, it has established plantations in both Indonesia and India to supply raw materials and expects fully compliant manufacturing facilities to become operational during the course of next year
Helical Bar
Helical Bar, the property investor and developer, reported positive results for the six months to September 30. The group chairman said that building work continues on the sites in the City, the 260,000 sq. ft. development at 25-32 Chiswell Street, pre-let to Slaughter and May, due for completion in Autumn 2000 and the 152,000 sq. ft. development at 100 Wood Street which will be ready for letting in Spring 2000. Both these schemes have been forward funded and pre-sold to Despa.
Looking forward, Helical Bar still has a portfolio of interesting schemes over the next two years including the 76,000 sq. ft. office development at 200 Hammersmith Road, London W6, the 180,000 sq. ft. office scheme at the Meadows, Camberley forward funded with Scottish Widows, the 100,000 sq. ft. development in Bunhill Row adjoining the Chiswell Street development and the 70,000 sq. ft. office refurbishment scheme at Rex House, 4-12 Regent Street, London SW1.
Meanwhile, the town centre development at Captain Cook Square, Middlesbrough for Norwich Union has been further extended. In Bolton the group is finishing a new unit as an extension to the existing retail park and has exchanged a conditional agreement for lease with B&Q for a 121,000 sq. ft. retail warehouse on an adjoining site. This programme and the office development schemes under way should enable Helical to reinforce its position as a specialist developer, offering institutional investors attractive investments providing high quality space for office and retail occupiers.
British Land
British Land had bought more properties and that has meant a 21 per cent increase in rental income. Pre-tax profits for the six months to September 30 increased 94 per cent to £97.4 million. The group's chairman argued that British Land's portfolio's intrinsic reversionary prospects, well evidenced by the rise in rents, are enhanced by the long-term financing and leases which it has put in place. Furthermore, he added that the group's role is to add value through selective purchases, through working its own portfolio and its geared joint ventures, and through a development programme currently standing at over £1 billion. He concluded by saying that British land aims to get a full share of what's going from the present strong direct property market.
Granada
Granada, the hotel, catering and television group, reported impressive results for the year to September 25. Pre-tax profits rose 37 per cent to £1.056 billion and turnover increased 2 per cent to £4.1 billion. Early indications are that the group's performance has continued into the new year and are on track to deliver the commitments Granada made in the three year plan.
In Granada's media business, powerful scheduling has pushed ITV's share of broadcast up again to 39 per cent. Granada Media Sales has capitalised on ITV's strength. Advertising revenue was up 6.2 per cent on last year outperforming ITV as a whole and up by 13 per cent in the final quarter. In Pay TV, ONdigital grew from a standing start to over 400,000 subscribers in ten months. Granada's pay TV channels continue to grow their presence in multi- channel homes. Granada's international pay channel UKTV has tripled its subscriber base.
Catering sales at Granada's roadside operations were up by 13 per cent reflecting the benefits of the continued move towards branded offerings and the growing impact of retail catering. Following the acquisition of Harry Ramsden's, Granada plans to roll out this popular brand across the estate. Sites will include Little Chef combinations, Food Service sites, and motorway service areas. Travelodge is on target to become the leading provider of budget accommodation to both business and leisure customers.
In its Food Services, Granada's strong organic growth was fuelled by significant increases in the Defence, Education and Healthcare sectors. A large proportion of this market is not yet contracted out and it is clear that the way it has structured the business to take advantage of this opportunity is working.
Meanwhile in the hotel business, the potential for sustained growth for the Le Meridien brand remains enormous and in line with the group's three year plan for network development, 13 new hotels were opened this year taking the total under the Meridien flag to 109. Granada is also targeting another 60 locations worldwide. For Granada the majority of its growth will come via management contract or property lease.
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