Fool's Eye View

[ March 7, 2000 ]

Williams Chucks in the Towel

By Stuart Watson (TMFTiger)

Great Titchfield Street, London -- I have always thought of Williams (LSE: WLMS), the fire and security products company, as a well-run business and one that does not pay too much heed to passing fashions but 'sticks to the knitting'. It has built a good collection of brand names and produced steady, although not spectacular growth down the years. But its latest plan to split itself into two separate listed companies merely looks a generous offering to help boost City bonuses.

The company also produced a less than inspiring set of results this morning. Amidst the jumble of exceptional items and one-off adjustments it is somewhat difficult to get a view of the true underlying picture of the business. Sales, before the effect of acquisitions, are up 9% but underlying operating profits appear to have fallen by some 7%. Curiously, the company says that out of all the group's regions, demand has been strongest in North America. This seems a little odd as it is this region which has caused the majority of the fall in profits.

Amongst all the one-off adjustments we find so-called exceptional costs such as a £10m charge for product recalls. Quite why this charge should be considered exceptional is open to question. Surely it is merely one of the normal operating risks of running a business? A few years ago the bodies that govern accounting in the UK made a big play of getting rid of these exceptional items in profit and loss accounts as they gave companies too much leeway when presenting their numbers. However, today they seem to be more prevalent than ever. Pearson's (LSE: PSON) results yesterday are another example.

But back to the plans to break up the business. Williams plans to send details to shareholders this Autumn and expects the process to be complete by the end of the year. It is essentially splitting its operations into products and services. I find this an odd tactic when many industries are increasingly seeing the two merge together as one offering to the customer.

The first company will be Chubb, with sales of £1.2b. This will be the current security services side of the business. Williams also announced plans for this business to move into information security services to complement its existing operations. The second business will be Kidde Yale, and will cover the fire and security products companies. This business is the same size as Chubb in terms of turnover but £0.5b of sales are to be disposed of immediately as the Yale business is being sold to Assa Abloy, the Swedish lock company, for £825m.

The market certainly seems pleased with the plans, as the shares have risen by almost 20% this morning. However, this only puts the shares back where they started the year and where they sat five years ago as well. It looks like Williams has given up the battle to convince investors of the merits of its company and is looking a short-term fix for its share price instead.

Related Links
• Fool's Eye View discussion board
• All the latest Fool News