Warning by Laporte shocks City
Hatchet job: 'New boy' Leng's plan to close 10 manufacturing sites hits shares for si
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Jim Leng's honeymoon at Laporte came to an abrupt end yesterday as the City wiped pounds 333m off the value of Britain's second-biggest chemicals group.
The company's shares tumbled 173p to 610p after Mr Leng, chief executive only since 1 October, warned that profits would be 10 per cent down on last year and said he planned to shut 10 of Laporte's 100 manufacturing sites.
That shocked analysts who had expected a continuation of the past three years of growth in profits at the speciality chemicals group, whose brands include Evode. Forecasts of pounds 140m were hacked back by pounds 30m to match the company's estimate. An pounds 85m restructuring provision will knock a further hole in the figures.
Mr Leng said: "Following the operational review, which has just been completed, I believe the core of the group is in good shape. We have a number of businesses which continue to trade strongly, although these have been unable to offset disapointing performances elsewhere in the group."
The main problem areas are the production of chemicals for the construction market, which remains depressed, and bulk polymer chemicals. Laporte's Australian and South American operarations were also below expectations.
Yesterday's announcement was doubly shocking because only three months ago, just before Mr Leng joined Laporte, the company produced a sparkling set of interim figures, showing a 14 per cent rise in interim profits to pounds 67m.
It also came as a rude shock to investors who had warmly welcomed the appointment of Mr Leng. His move from Dundee-based packaging group Low & Bonar, sent that company's shares tumbling and Laporte's sharply higher.
The 49-year old Geordie is held in such high esteem by the City thanks to the transformation of Low & Bonar in the three years since he took over as chief executive there. Between 1992 and 1994 pre-tax profits doubled from pounds 22m to pounds 44m. Laporte was so impressed by Mr Leng's record that they doubled his salary from pounds 175,000 a year at Low & Bonar to a basic pounds 350,000. If he does as well at Laporte he will also be entitled to a performance- related bonus of 30 per cent of that.
The restructuring announced yesterday was arrived at a hectic nine weeks after Mr Leng joined. The main element of the programme will be a pounds 50m sequence of site closures, the benefits of which are expected to show through in group profits during 1996 and should be "significant" in 1997 and beyond.
Other measures include a pounds 30m write-down of non-performing assets and a pounds 5m write-off of goodwill. Despite the provision and profit warning, Mr Leng promised to maintain the full-year dividend at last year's level of 22.4p, implying a 4.6 per cent yield at yesterday's closing share price.
Mr Leng joined Laporte to replace Ken Minton, the company's previous chief executive, who moved into the non-executive chair and took on the job of sorting out Mowlem, the struggling construction company that until recently owned London City Airport.
Although he had no previous experience of the chemicals industry he was attracted by the prospect of navigating the company into the FT-SE 100 index. Before yesterday's announcement the company was on the brink of Footsie membership.
Investment Column, page 25
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