FINANCIAL MARKET
Page 43
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by George Malcolm
II change
E IMPORTANCE of currency thange rates for any company it exports in a big way is own into sharp relief by the 31 results from Cummins gine Company, the UK engine npany whose parent is mmins Engine Inc of lumbus, Indiana.
furnover there jumped to a :ord £190,165,000 compared :h £134,586,000 in 1980, nerating a £30,278,000 net )fit against a net loss of 2,430,000 the previous year. ihe significant thing about :se extraordinary results is at caused them. The
rnpany explains that the 41 r cent revenue increase ;Lilted partly from a higher lume of export sales but linly from the change in the change rate of the pound ainst the US dollar. This )ved from 2.40 dollars to the und at the beginning of nuary 1981 to 1.92 dollars at a end of December. The mpany comments that: "As 3 majority of the company's les are denominated in US liars, a strengthening dollar ies rise to increased sterling renues."
The figures produced illustrate emetically how production d sales levels take on a totally lerent complexion in such a lancial climate. Of course, lere the big multi-nationals e concerned, currency change differences can lance themselves out on the Isis of what is gained on one rrency is lost on another. The situation of the Cummins Impany in the UK differs from is in that it exports a very high 'rcentage of its production to 3 dollar areas.
Turning to a rather different :uation on the domestic arket, the current cut-throat :uation in the motor trade is ought to the fore in the interim Imments of the Kenning Motor -oup.
Reporting the six-month suits to March 31, last, the 'airman, D. B. Kenning, fers to the "vicious price cutting" which characterised the trade in the first three months of this year.
While, he says, no part of the business is free from difficulties, it is in new car and commercial sales that the brunt has been borne, especially in the company's British Leyland franchise, both car and commercials. "We are, however, more confident for the future given the improved quality and 'value for money' of the products we have to sell and our determination to sell them."
Whereas, road transport companies like the NFC have been diversifying out of road haulage, motor groups like Kennings have been diversifying out of the trade — to haulage, among other things. It is worth noting, therefore, that Mr Kenning reports: "Kenning car and van hire is now poised to make a contribution and retail petrol sales are showing improved profits. Contract hire is turning in commendable profits."
Diversification, so that all a company's eggs are not in the basket of one industry, is not only a policy being adopted by operators and dealers, it is one that some vehicle manufacturers are also actively pursuing. Nowhere is this more so than at Volvo, which in the last 12 months has been digesting the acquisition of Beijerinvest, a company with very diversified interests ranging from food processing and supermarkets to engineering and finance.
Volvo's top man, Pehr Gyllenhammar, is unequivocally dedicated to this policy. "My objectives," he says, "as chief executive officer of Volvo, have been to reduce the group's vulnerability in an exposed industry, to avoid losses during perdiods of poor economic conditions, to assure our growth and employment and to achieve a good return on capital so that a share of Volvo stock become a long-term investment with an attractive yield." He seems to have achieved these aims. Volvo has not done too badly as a result of them; the 1981 results revealing more than double the 1980 level of sales, to approximately £4,800m.
While the diversification has diminished the relative importance overall of the commercial vehicle division, the sales turnover there of some £1,150m continues to make it a formidable area in its own right, especially when — as in 1981 — it managed in the current world recession to come up with these figures which compared with some £960m in 1980. CV sales represent 21 per cent of the total Volvo turnover.
At the other end of the spectrum the heavy dependence of a company on a particular line of products — and what happens when the market slumps — was well illustrated by the York Trailer results.
Although York is diversified to some degree, trailers are its bread and butter. The situation in the trailer industry and how it had affected York's results is given prominence by Fred Davies, York's chairman, in his 1981 report. He points out that total trailer sales in Britain shrank from a normal 18,000 units to a mere 5,500 in 1981. Even more seriously, parts and service sales withered away with the increasing numbers of vehicles laid up as a result of the depressed state of British industry.
York's sales fell from £31.0m in 1980 to £18.9m. However, things could have been worse for the net loss was only £0.8m compared with £3.9m in the previous year. The future is looking brighter there this year, for unaudited profits for the first quarter were £230,000 and most of the company's traditional share of the home market has been regained, says Mr Davies.
York's recovery slowed in the second quarter, when the three months' profits before tax were £28,000, bringing the total figure for six months to £375,000.
The results at least indicated what in a company dependent on a line of products can do in a poor economic climate as an alternative to diversification — go hard after exports. This is what York has done with some success.
"Exports are thriving. In the Middle East, York's position as a dominant supplier of trailers and hydraulics has been consolidated in Saudi Arabia by a local assembly agreement with one of the two largest truck manufacturers. The work force at Northallerton has been increased and night shift working restarted," says the formidable Mr Davies, who does not seem to have lost his touch!