Stobart makes good ground but warns of slowing profits

TRANSPORT group Stobart announced a 39% increase in pre-tax profits for the six months to August 31 of £15.4m (2009: £11.1m) as its sales climbed by 12% to £243.7m.

The Warrington-based group said that the business’s growth was largely due to a greater number of contract wins from its core Eddie Stobart business.

During the period, the firm signed a £25m deal with Tesco to distribute chilled products, an €18m contract with Tesco in Ireland and a £7m distribution agreement with Scottish soft drinks company AG Barr.

Chief executive Andrew Tinkler said that the new wins “have added volume and margin and there is further growth to come from these contracts”.

Despite this, the firm said that it was reducing its full-year profit forecasts as Stobart Rail would suffer from a drop in spending by Network Rail and as a result of an increase in its financing costs.

The company has made a number of investments including a £30m spend in a 50% interest in Stobart Biomass Products in May, upgrades to its London Southend Airport including a new tower and railway station and a £24.8m spend on fleet upgrades.

This has pushed up the group’s net debt to £162m, from £96.8m a year ago, although it refinanced £100m worth of bank loans and loan notes in June after agreeing a new 10-year facility agreed with M&G UK Companies Financing Fund.

Tinkler added that the firm is having to contend with more challenging customer demands which have led to shorter lead times for delivery and greater volatility in volumes, but he also said that it is better placed to deal with such trends than many competitors. Its fleet utilisation rate of 82.9% remains “considerably higher” than the industry average.

“We are also cautious that 2011 may see volumes affected by the increase in VAT rate and the Government spending review,” said Tinkler.

“However, in the long term we see this as positive for the economy and our business.

“Overall, we look forward to further growth in the second half as new contracts fully contribute. Our efficient green fleets and innovative transport solutions continue to impress customers and our improved assets give excellent opportunities for adding value.”

The company announced that it would pay an interim dividend of 2p per share, which is the same figure as last year.