We are delighted with the vote of confidence in American Express that the Berkshire Hathaway share purchases represent,” American Express enthused yesterday.
Mr Buffett’s spokesperson in Omaha, Nebraska, was unwilling to supply any further information about the purchase or Berkshire Hathaway or Mr Buffett’s intentionsYesterday’s statement by American Express confirmed that Berkshire Hathaway had built its stake by converting $300m worth of preferred stock acquired in 1991 into 14 million American Express shares in August last year.By the end of the year the stake had risen to 27.7 million shares, and further purchases this year had increased the holding to 48.5 million by Monday evening.American Express is in a growth phase, and the company recently reported record earnings and revenue growth in calendar 1994.Mr Buffett is not thought to have asked for a seat on the board but it seems likely he will be asked to join shortly.Berkshire Hathaway’s investments include stakes in Coca-Cola, Gillette, the Washington Post and other media groups, and Salomon Inc the New York investment house.Mr Buffett is the author of a recent book on investment policy which is highly critical of short-term investment policy and contemporary investment theories. “Mr Buffett is one of the market’s most respected and successful long- term investors. American Express, the travel and financial group, welcomed the news that Berkshire Hathaway, the Omaha-based holding company controlled by the US billionaire financier Warren Buffett has built a 9.8 per cent holding in American Express, worth $1.5bn, and intends to seek regulatory approval to lift its stake past 10 per cent. Three to four years ago, the company made annual profits of $700m (£466m),” added Mr Collins.. Quantum is expected to continue to recover strongly, and will mostly account for the change in the ratio.There appears to be plenty of scope to raise further polyethylene prices, which hit a 20-year low in the first quarter of 1993/94 “Quantum’s recovery is at an early stage. This is mainly because, Mr Collins said, “we are comparing a recovery quarter with a recessionary one, and next time it will be recovery versus recovery”.The slowdown will also probably be accompanied by a widening of the US to UK profits ratio, which was 55:45 in the whole of the last financial year.
More brick kilns have been brought back out of mothballs.Despite the bullish tone of the first quarter trading statement, however, the pace of the advance will slow as the year progresses. “Imperial Tobacco had a good first quarter with retailers stocking up twice with the two Budgets,” said Mr Collins.The continuing, albeit slow, recovery in UK construction activity also lifted the performance at ARC, the aggregates business, and at Hanson Brick. “Acquisitions are driven where the opportunity is, as opposed to the tax consideration,” said Christopher Collins, director of corporate development.What is becoming clear is that Hanson’s balance sheet is set to strengthen significantly with virtually all of its businesses now moving forward.Group pre-tax profits in the three months to 31 December powered ahead by £100m to £272m, which was towards the top of a wide spectrum of forecasts by analysts.Group sales were £3.155bn, against £2.87bn in the comparable period.Hanson shares bucked the general depressed tone of the stock market, and finished the day 1p higher at 243.5p.The result, in particular, reflected a sharp recovery at Quantum on the back of a 50 per cent rise in polyethylene prices and the return to normal working in the previously strike-bound coal operations in the US.Profits also received an unexpected fillip from the overthrowing of the proposed increase on value added tax on fuel which led Kenneth Clarke, Chancellor, to raise duty twice on cigarettes. Most speculators have been expecting Hanson to strike in the UK on either a regional electricity company, Costain, and United Biscuits as a way of tidying up its tax position because most of its earnings are made outside the UK.
However, a move in the US by Hanson cannot be ruled out. A strong recovery in first quarter profits announced yesterday by Hanson added more fuel to speculation that it would not be too long before the arch corporate predator clinched another big deal.
The fall came despite a large increase in the company’s land bank.Mr Clarke said he expected 1995 to be another good year, underlining his confidence with a 60 per cent increase in the full-year dividend from 1p to 1.6p The shares fell 2p to 43p.. As a result of pushing for rent increases, investment income exceeded the total costs of running the business, including interest payments, by £3.8m during the year, up from a surplus of £2m in 1993.As a result of the disposal, borrowings fell to 48 per cent of shareholders’ funds. He said a 3 per cent increase in the valuation of St Modwen’s portfolio was “consistent with the more cautious market sentiment that has been evident in recent months.”
The profits jump from £3.5m to £13.2m included a one-off £3.8m profit from the sale of the Octagon Shopping Centre in Burton on Trent.Rents from the £84.6m investment portfolio were £9.5m, providing a running yield of 11.2 per cent. St Modwen, the property developer named after the patron saint of beer, raised a glass to a four-fold increase in profits in the year to November.
Stan Clarke, chairman, said net assets had risen by 25 per cent during the year from 39p a share to 49p. The company has also expanded overseas and is planning a Flying Flowers service to France.Walter Goldsmith, chairman, said: “We see continuing growth in the British database and we are making further investment to cope with increasing demand: 1995 should be a very successful year for Flying Flowers.”The company’s broker, Townsley & Co, expects 1995 profits to grow by a further 38 per cent to £2.5m.Earnings per share grew strongly to 7.69p from 5.19p. The company has been able to fund its acquisitions to date mostly out of cash, preventing the need to dilute investors’ existing shareholdings.The company, the only Jersey-based business with a full listing on the London stock market, benefits from the island’s lower tax rates.Flying Flowers has nearly £2m in the bank.The dividend is to rise from 1.35p to 2p for the full year.Despite the good results the company’s shares slipped 4p to 97p on probable profit-taking.According to Townsley & Co, there has been considerable trading in Flying Flowers following press comment in the past fortnight.. The company, which was floated on the stock market 18 months ago, saw turnover more than double to £14.5m from £7m on the back of its acquisition of DPA Direct, which sells garden and household products through newspaper and magazine advertising.
DPA added £6.6m to turnover and £300,000 to pre-tax profit.The company says it saw the benefit of its investment in the hardware and software that allow it to utilise a database of existing customers.Four mail shots a year have an average response rate of 20 per cent. Flying Flowers, the direct mail florist based in Jersey, saw profits shoot up by 65 per cent to £1.8m in the year to the end of December.
Profits at the division slipped to Ir£44.2m from Ir£56.9 million in 1993.The bank is looking to eastern Europe for future projects, and already has a 16.5 per cent stake in a Polish bank.Hugh Feeley, group general manager, said the bank had looked at buying HMC, the centralised mortgage lender, but had not been prepared to pay the money that Abbey National eventually came up with.”We looked at a few other UK mortgage books, but we didn’t like the asset quality,” said Mr Feeley.He added that the bank was not concerned by the prospect of a :”.third force” being created in Ireland to rival the two dominant banks, AIB and Bank of Ireland.. However, AIB said the low-interest rate environment in Ireland had a negative impact on deposit margins and was largely responsible for the decline in the group’s overall net interest margin, which slipped to 4.04 per cent from 4.33 per cent in 1993.In the US, AIB’s operations saw a 25 per cent increase in pre-tax profit to Ir£109.5m in 1994 from Ir£87.7m in 1993.”This good performance was mainly underpinned by a substantial improvement in credit quality in First Maryland Bancorp and AIB New York.”Profits at AIB’s capital markets divisions slipped 22 per cent due to difficult bond markets in the first half of the year, although profitability improved in the second. Profits in its AIB Bank division rose 27 per cent to Ir£187.5mThe British operations increased profits150 per cent to Ir£39.0m from Ir£15.2m in 1993.AIB said lending growth was strong in both the Republic of Ireland and in Northern Ireland, particularly in home loans, in contrast to Britain.Total loans and advances to customers in the Republic of Ireland increased by 10 per cent, while deposits grew by 10 per cent. The group said this reflected on-going improvement in credit quality and an improved economic environment in both Ireland and Britain.Total operating expenses were down for the first time by 0.4 per cent to Ir£783.8m, with staff costs declining 2.5 per cent. It reported a 16.6 per cent rise in profit before tax and exceptionals to Ir£341.2m (£336m) last year. Tom Mulchahy, chief executive, said other key features of the strong profit growth were the significant reductions in the provisions for bad debts in all divisions and lower total costs.
Provision for bad and doubtful debt halved to Ir£62.9m in 1994 from Ir£127.6m in 1993.
