Bottom Line: UB is looking stale

MORE THAN 20 years after buying Keebler in the US, United Biscuits has realised that it is selling customers stale biscuits. The pounds 72.2m restructuring of its distribution, coupled with retrenchment in snacks and biscuits, is designed to freshen them up. Pepping up UB's profits will be a rather more demanding task.

Pushing up prices and cutting back on relaunches cost Keebler 10 per cent of sales volumes last year, despite the new policy not being introduced until the second half. The group claims it is happy to lose unprofitable business - a claim borne out by profits in the second half coming in almost 45 per cent higher than in the first - but giving up share to powerful rivals such as Frito-Lay and Nabisco is a high-risk strategy.

In snacks, concentrating on the regions where it is strong sounds sensible, but UB admits that its share in many of them will be about 5 per cent, just 1 percentage point higher than the national share which it says makes it too small to compete.

A strong recovery in the US will be needed to compensate for what is likely to be a pedestrian performance in the UK. Eric Nicoli, chief executive, admits that the 15 per cent-plus margins enjoyed by McVitie's in the past are no longer appropriate in the tougher retailing climate; investors should translate that as a warning that the 13.6 per cent achieved last year may not be the bottom.

That would be acceptable if volumes were increasing to compensate, but UB has been losing market share and even a spring relaunch is unlikely to persuade consumers to eat many more biscuits.

Mr Nicoli is clearly aware that food manufacturers have become yield stocks and has pushed the aim of a twice-covered dividend further down the list. But the payout has been pegged at 15.3p for three years, and forecasts of 24.2p of earnings mean a significant rise this year is unlikely. That means even the 5.5 per cent yield is not enough to justify a purchase.