Price rises underpin FKI profits increase: Engineer succeeds with cost-cutting programme

A CONCERTED effort to increase prices underpinned a substantial profits increase at FKI, the engineer.

FKI's board was bolstered when Bob Beeston, a former divisional chief executive at the conglomerate BTR, joined as managing director 18 months ago. Jeff Whalley, chairman, said as soon as Mr Beeston arrived he started an initiative to improve profit margins.

The strategy assumes zero growth in volume, but expects strong profits advances.

Part of the process means cost cutting. FKI is about half-way through a programme that is reducing employee numbers from 12,000 to 10,000. More importantly, it is forcing price rises on customers, sometimes substantially ahead of inflation.

The company said it had been possible to make the price rises stick because customers had come to rely on FKI products. Price rises were only possible because the quality of the product was good and the service and delivery network satisfied customers' needs.

Mr Beeston said the group was reassessing its market position in all its areas of operation in an attempt to achieve market domination.

FKI has spent much of the last three years refocusing itself after the acquisition of Babcock, which was demerged shortly afterwards.

Mr Whalley said the group still had some disposals and acquisitions to make to complete the refocusing. Small deals would be financed out of cash but he was wary of taking on too much borrowing.

He said it was possible that FKI would make a big purchase in the UK, partly to offset a potential problem with advance corporation tax. About 70 per cent of FKI's sales are overseas.

Mr Whalley said the company would use paper to fund a sizeable acquisition.

Stated pre-tax profits nearly doubled from pounds 20.7m to pounds 38m but the picture was flattered by adoption of the new FRS3 accounting standard. FRS3 depressed figures for the year to 31 March 1991 by nearly pounds 10m, as one- off losses were fed into pre-tax profits.

Operating profits, which give a better comparison, were pounds 45m against pounds 35m last time.

Earnings per share, calculated under FRS3, rose to 6.2p from 2.65p. Earnings for 1991 pre-FRS3 were 4.9p.

Underlining FKI's confidence in its future prospects, the company raised the total dividend by 30 per cent to 3p.

Despite the good underlying performance FKI's shares dropped yesterday from 141.5p to 138p. They were trading at a four-year high before the results, but fell back after a strong run in recent weeks. The shares have been on the rise since early 1991, when they touched 36p.