Sell-off will allow BTR to refocus

The sale of three `non-engineering’ divisions is expected to raise £3.5bn, allowing BTR to concentrate on its core business

BTR, one of the last remaining vast industrial conglomerates, is to feel the second wind of change. A year after selling off a quarter of its business, another third is to go, a move which will transform the company beyond recognition.

After 18 months in the chief executive’s chair, Ian Strachan plans to dispose of BTR’s `non-engineering’ businesses, the non-metal-bashing divisions of packaging, building products and polymeric products.

All three divisions have offered high margins in the past year but suffered lower returns on capital. Packaging and materials, for instance, delivered £124m profits on £684m turnover in the last half year – a margin of 18% – but only minimal return.

Analysts expect the sale to raise up to £3.5bn – the business pulls in sales of £2.8bn – and prospective buyers are expected to queue round the block.

In strategic terms the decision would appear to make sense. BTR is one of the UK’s last industrial conglomerates. High-tech power drives and automotive anti-vibration systems for cars have long sat uncomfortably alongside Dunlopillo mattresses, plastic packaging and building materials.

The £3bn of disposals will allow BTR to invest in more focused acquisitions, expand its market position, spend more in companies that remain and give the ever-watchful shareholders more cash.

Profits warning

To the outsider, it appeared a deliberate policy. `We are now moving to the next phase [of restructuring],’ said Strachan, `to accelerate the transformation of BTR to an engineering group from a diversified industrial group. I believe this focus will ensure that growth is re-established and value is delivered more quickly to shareholders.’

But many believe the strategy announced last week, with the interim results, has taken shape only in recent months.

A dramatic profits warning in May sent BTR’s shares into free fall when analysts heard £35m would be wiped off the expected £1.5bn surplus.

The problem, said Strachan, was the pound was too strong and business in Australia and Germany, accounting for a third of sales, was depressed.

BTR’s shares fell 36.5p – 13% of their 267.5p value – and the City demanded action.

At the time, BTR was already proceeding with a well considered £2.3bn disposal programme, a quarter of its business, and the results of nine months’ deliberation by the new chief executive. But City opinion was that results were not being delivered soon enough.

The sale of businesses had been moving quickly, as diesel engine manufacturers Lister Petter and Mirrlees Blackstone, which have been sold in the past year, will testify, but it did not show in the bottom line.

`The City was worried about the value of its shares,’ said one analyst. BTR’s devaluation was too much for investors to ignore.

Unfortunately for Strachan, at the time of the original restructuring he said he wanted to keep packaging and materials, building materials and polymer products.

Now he appears to some to have done an about face and wants to sell them.

`Obviously there was a fair amount of inconsistency in what they said last year,’ said one analyst. `But Strachan was a new man from another business. It’s obviously difficult to get to grips with a company of that size.’

More sympathetic

Others have been more sympathetic: `It’s the right direction to take,’ said Andrew Mitchell at Merrill Lynch. `Last year’s restructuring was quite a major cultural change. This restructuring would have been too disruptive, even if it was the right path.’

Whatever happened in the BTR boardroom, the company now considers itself an engineering firm.

It is clearly trying to become a leading player in the automotive field. Providing the largest chunk of sales – but the smallest part of profits – BTR’s automotive division, which manufactures sealing and anti-vibration systems, is there for the long term.

A 10% fall is predicted in Australian car production – one of BTR’s main markets – but BTR expects more than $100m (£63m) of new business from the US and China to lift the bottom line next year. It has also tried to increase its market position with acquisitions.

The soon-to-go businesses do not show the same promise. Its Australian glass business showed good profits, but growth is weak, and the collapse in the price of resin in the US has seen business move away from plastic packaging.

The building businesses still show a decline because of a depressed building sector, and polymeric products have suffered from industrial angst in Europe.

BTR – following another trend – wants to become a global player. To this end all the businesses it intends to keep are global, and the ones it is spinning off are regional.

For a business of this size, it will be the only way to survive.