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The Market
On Friday, leading shares in London ended higher for the first time in 2000, aided by robust performances from US markets and powerful showings from Vodafone Airtouch, Shell and Glaxo - three of the UK's larger stocks. At the close the FTSE 100 was 57.6 points higher at 6504.8, 27.6 points off its intraday, with Vodafone, Shell and Glaxo Wellcome accounting for 50.01 points of that gain. Nevertheless, the FTSE 100 was down 425.4 points on the week and still has to contend with the prospect of a hike in UK interest rates. Elsewhere the FTSE 250 ended the week up 77.7 at 6484.4 as did the Small Cap index, 39.8 better at 3,095.0. Volume was strong, reaching 1.6 billion by 4.40 p.m., thanks to heavy trading in Vodafone AirTouch (134.16 million) and oil majors BP Amoco (40.70 million) and Shell (33.64 million). Rentokil Initial, up 25 at 265-1/4, topped the FTSE 100 leaderboard as the market warmed to the first signs that the fallen support services giant is starting to focus on higher growth business areas.
NFC
NFC, the distribution and logistics services group, reported a one per cent decline in pre-tax profits to £108.9 million for the year to 30 September. Net cash inflow from operating activities was £144.9 million, including an increase in working capital as a result of the earlier payment of creditors in the last month of the year.
NFC's gain on the sale of Allied Pickfords, after accounting for goodwill, tax and the costs arising from the disposal, including consequential restructuring costs, is estimated at £90 million and will be accounted for in NFC's profit and loss account in the financial year 1999/2000.
NFC's Exel intends to play a leading role in the evolution of e-commerce in the supply chain. Exel's web-enabled solutions for manufacturing support and managed transportation offer great potential in the growing market for "business-to-business" services where most of its current activity is directed. The cash raised from the sale of Allied Pickfords will be used to accelerate the development of Exel in these key areas, as well as continuing to grow Exel's core logistics operations. This focus on growth is expected to involve the acquisition of new capabilities, alliances with new partners and increased direct investment in Exel's current business, particularly in information technology. The board believes that it is appropriate to reflect the company's sharper focus on supply chain services by changing its name to Exel.
Exel Asia Pacific's development team has been active, pursuing prospects in Hong Kong, Malaysia, Philippines, Sri Lanka, Taiwan and Singapore as well as establishing a joint venture with Chengtong Group in China. Such new business has significant lead times but NFC's successful startups with Ahold, Johnson & Johnson and Nestle in the year are encouraging for future prospects in the region.
NFC's board expects that the near-term outlook for Exel will reflect general economic conditions in its major markets, with growth in the UK somewhat subdued by the strength of sterling and intense retail competition, steady progress in Continental Europe and continuing strength in the Americas and Asia. Overall, further progress is expected during the current year as the newly configured Exel gathers pace in the global supply chain services market.
Sage
Sage, the accountancy software group, reported an impressive 60 per cent increase n turnover and a 56 per cent increase in pre-tax profits to £74.3 million for the year to September 30. Sage's performance in the second half of the year was strong and was boosted by a full six months of contribution from both Peachtree and Tetra.
Sage had 648,000 support contracts at the end of the year which generated over £100.5 million of revenue. Cash generation continues to be strong across the group with £110.9 million of operating cash flow generated in the year. After interest, tax and dividends this gave free cash flow of £83.2 million.
Sage's business in the UK has shown robust growth this year. Turnover at Sage Software Limited was up by 33 per cent, with 90,000 more registered users of its products. This subsidiary now has 187,000 support contracts in the UK, up 22 per cent on last year. This, together with a strong performance from upgrades, has helped sustain operating profit margins. Sage's French businesses have delivered an outstanding performance this year. Turnover has increased 38 per cent to £73.5 million. There has been significant all round growth including a substantial increase in support contracts which now total 199,000.
In Germany, with the demise of the old "free licence" business model, Sage is now able to apply the same principles of operation that are used in the rest of the group. The channel is more focused and customer service levels are improving and Sage is well placed to capitalise on opportunities in this market. With the acquisition of Peachtree, Sage has gained a strategic position in the US retail market. Peachtree now has 136,000 support contracts including 96,000 under its tax update programme. Sage has seen improvements in the level of customer service since the acquisition and has a coordinated marketing approach with Sage Software Inc.
On the E-Commerce front Sage has created at www.sage.com, a web site specifically designed to meet the needs of small and medium-sized businesses. At www.sage.com the group has on offer a broad range of relevant on-line products, services and content. In addition Sage has developed a simple web site creation tool so that its customers can build their own web sites for free and in less than 30 minutes. Advanced, and chargeable versions of Sage's web site creation tool which enables users to build their own web shops will be made available in January 2000.
Investment continues to be made in other ASP (Application Services Provider) services including ASP versions of its payroll and accounting software products. The first of these will be brought to market by Peachtree in the Spring of 2000. Unlike many others in the Internet world, Sage sees the Value Added Reseller community as being central to its success. Small businesses need a great deal of support and expert advice to make the most of the web and, very importantly, need this resource to be close at hand.
Sage's reseller community, which now numbers more than 15,000 around the world, is perfectly placed to provide this local service and to give its two million customers the help they need to achieve their own Internet ambitions. In November 1999 Sage launched an accreditation scheme in the UK for its resellers to become E-Business Centres and within one month more than 500 had signed up. This programme is now being rolled out world-wide.
Securicor
Securicor, the security, distribution and communications group, announced that its results include a net exceptional profit of £54.4 million, principally comprising the profit on the sale of 50 per cent of the Distribution division to Deutsche Post, as reduced by the write-off of goodwill arising on the acquisition of the minority interests of Securicor Wireless (formerly Intek) and by provisions relating to the reorganisation of Securicor Wireless.
Difficult trading conditions in Hong Kong constrained what was otherwise a solid performance by the Asia Pacific joint venture. Results from the Americas were generally good, although adversely affected by an economic downturn in Venezuela. Meanwhile, in Africa, results were tempered by less favourable economic conditions in Kenya and Zambia.
Profit before tax derived from the Securicor's 40 per cent shareholding in BT Cellnet fell from £64.5 million to £14.6 million, largely due to the high marketing costs associated with the huge growth in the number of subscribers during the year.
Securicor expects to maintain its excellent progress in security, both through strong organic growth and through acquisitions as it looks at opportunities to purchase cash-in-transit and guarding businesses mainly in Continental Europe, the United States and the United Kingdom.
In conjunction with its joint venture partner, Deutsche Post, Securicor intends to expand the distribution business into the growing market for the home delivery of goods and into other opportunities presented by e-commerce. In the meantime, distribution's results will continue to be tempered by the relatively low level of activity in the United Kingdom retail sector.
Racal Electronics
Racal Electronics highlighted the opportunities presented by the consolidation in the European defence industry and delivered an upbeat assessment of its prospects as it unveiled interim results in line with expectations. Pre-tax profits from the electronics and telecommunications group were £39.1 million on turnover of £542.4million. Operating profits from continuing operations including joint ventures fell from £49.9 million to £46.9 million.
Sir Ernest Harrison, Racal Electronics' chairman, stated that operating profit had been held back by lower than expected revenues in the telecoms division and by a delay in overseas orders for the defence division. There had been speculation that companies such as GEC or British Aerospace could be interested in acquiring the defence division. Sir Ernest said that such approaches would be considered, but the division, which has a strong position in niche areas of defence electronics, could also have an independent future. The group announced a digital military communications joint venture with Thomson CSF of France, and £50 million contracts for naval electronic warfare systems.
Meanwhile, Racal has appointed Richard Moon as chief executive of defence electronics activities with the priority of integrating Racal's defence radar and radio communications into a single business. Operating profits in the former fell to £12.5million, the operating loss in the latter widened to £5.1 million. Operating profits in the telecommunications services division fell to £11.4 million because of lower than expected sales to corporate customers.
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