Youghal Carpets takes a beating

IN THE COURSE of 1977, Youghal Carpets (Holdings) has seen its stock market rating shot to ribbons. From a high of 80 1/2p early in the year, the share price fell to a low of 41p during the autumn - thus cutting market capitalisation by a massive £6.3 million. The one-time market favourite was discredited. By Sean Mitchell

The group's interim report, prooduced amid a welter of rumour in September, underlined the reasons for the disenchantment. Pre-tax profits dropped by nearly 60 per cent in the half, and margins were slashed at a time when two important subsidiaries in carpet manufacturing both here and in Britain were making losses. Borrowings had clearly rocketted, and not the least of its problems was the fact that the carpet industry in general was in disarray.

So how bad is the position for the Cork group which had earned a Blue Chip rating by virtue of its remarkkable growth in the early 'seventies? Can management galvanise a second half recovery and can it recapture some of the lost prestige without a fresh management input? When he reeleased his interim report, the market was not too sure that long-time chairrman Brian O'Brien had the answers to these questions.

The troublesome Irish unit was Youghal Carpets Ltd., the biggest of the group's carpet operations in Ireland. The remedy was understood to be one of improving marketing efforts.

The problem in Britain arose from the difficulty of amalgamating two prooduction units - Morris in Kidderrminster and Gloucester Carpets - into a rationalised frame-work. The linkkup did not gel as easily as was hoped and production difficulties resulted. Less easily rectified was the sheer dullness of the carpet industry. Neverrtheless, Brian O'Brien believed that before the end of the year he would have both of the problems sorted out.

Complicated by the volatility of wool prices, the industry has been quite threadbare on and off since the peak profit year in 1973. Perhaps to understand Youghal adequately, one would need to look at the industry in Britain. Youghal is the second biggest seller of carpets in these islands next to Carpets International - the UK giant.

The basic problem across the Irish Sea has primarily to do with housing. Housing output dropped after 1973 and, quite obviously, fewer houses meant fewer places to put carpets. However, in the short term, the posiition is not entirely bleak. The second half of 1977 will not provide a UK bonus for Youghal, but the prospects for 1978 are more optimistic. Sources are already predicting a strong recovery in housing output.

And importan tly , carpet prices are reckoned to have cheapened in that market relative to the retail price index, But this particularly applies to tufted carpets which in volume terms, now accounts for about 70 per cent of production in Britain. Remember that Youghal's tufted output met only 23 per cent of the value of last year's total sales of £54 million. Also, the forecasts for the industry note that little growth is expected in the woven end of the carpet market. Neverthless, it would be unduly pessimistic to rate too lowly the chances that simulate some improvement in demand for Youghal products here, in Britain and perhaps more importantly J in Europe.

The factor which may militate most against the company is its tightliiquidity position. In the first half of the year, interest charges drained just short of £1 million off the top. The chairman pledged that there were plans in hand to 'drastically cut borrowwings in the second half . . . which will be accomplished by stock reductions and tighter stock controls at all plants' - a sound idea, but is it the sort of thinking that gets the group poised for 'lift-off' in 1978?

Having done a remarkable job in making Y oughal one of the most important entities in the Irish textile scene since the early sixties, it would be interesting to see Brian O'Brien and his colleagues defend themselves against the accusation of staleness. This will be their major task in 1978.