The Guardian from London, Greater London, England • 13

FINANCIAL NEWS 13 The crafty Hanson has City happy The importance of having cash and what flows from it Gold Fields Mining Corporation ARC Gold Fields of South Africa (38 per cent) Business: mining gold, lead, platinum, copper, zinc Likely tale: will be sold to Rembrandt ol South Africa. Price: about 400 million. Business: quarrying aggregates (or construction Likely late: retained by Hanson. Operating earnings last year were 158 million just the sort ol cash generating business Hanson likes. Business: gold mining in North America Likely tale: will be auctioned.

Several possible bidders could include Minorco. Expected to letch around 675 million. THE GUARDIAN Thursday July 6 1989 Ben Laurance L. I Roger Cowe rant said to be worth 60p plus a dividend of 40p. Hence the headline figure of 15.30 a share, or 3.5 billion in all.

The value of the Hanson warrant is uncertain: it.gives investors the right to buy Hanson shares for 300p any time between now and the end of September 1997. The notional 60p valuation is simply a stockbrokers' guesstimate. And although the 40p dividend will be cash in hand, it is only fractionally higher than a dividend which ConsGold proposed anyway. Hanson insists it has yet to decide what to do with the the ConsGold empire. But Lord Hanson has no history of involvement in gold mining: he dislikes businesses whose output is priced on world markets.

AH ConsGold's mining interests in the US, South Africa, Australia and Papua New-Guinea are likely to go. There is a second incentive to sell the mining stakes. Hanson rarely holds on to minority interests in companies: the conglomerate likes to have control or nothing at all. And ConsGold's shares in Newmont, Renison Gold-fields Consolidated, and Gold Fields of South Africa are all under 50 per cent. The Renison stake, in particular.

Renison Goldfieids Consolidated (48 per cent) Newmont Mining (49 per cent) Business: gold mining in North America and Australia Likely fate: Hanson says it will respect a 1987 'standstill agreement' pegging the holding to 49 per cent. Hanson could flush out possible bids from Placer Dome orNoranda of Canada. Value of Stake: 960million. sised by this week's cash bids of 800 million by Boots for Ward White and Hanson's 3.5 billion offer for ConsGold. But they are getting fewer, and further between the pound notes.

This will increase the attraction of cash-rich companies and the importance of cash Hows. For one thing, the less cash a company lias, the more chance it will need a rights issue. And rights issues are always bad news for the City except for the institutions making money out of managing them. Sadly some of this new emphasis on cash has had rather unfortunate consequences. The leveraged buyout boom is one example.

When profit was supreme and gearing meant something to bankers it would not have been possible. But now cash is king, bankers are happy to lend billions of dollars (since this is primarily a US phenomenon) for financial whizz-kids like KKR to buy some giant company like RJR Nabisco. The "logic" is that cash flow of the core operations is sufficiently strong to service and repay all that debt, once the growth businesses (such as Walkers and Smiths Crisps which were this week passed on to Pepsico) have in time been flogged off to the highest bidder. Then the people behind the buyout make a fortune, by exactly the same arithmetic which leaves householders with a huge "profit" after paying off a mortgage. Targets of such deal-makers are those companies with good cash flows which are not reflected in their share prices.

In other words they are the companies in Hoare Govett's matrix which have low cash flow ratios compared with their pe rating. The most obvious of those are Unilever and BP. Now that would be a challenge for the KKRs of this world. and of non-cash profits from associate companies). This analysis revealed several interesting discrepancies.

For example. Amstrad, currently valued on a very low price compared with earnings, has a high cash flow ratio compared to the market average. BP, on the other hand, has a very low cash flow ratio while being valued above average on a traditional earnings basis. The chart shows another way of looking at the same contrast, expressing share prices as a multiple of both cash flow and of earnings, this time for the UK stock market as a whole. The two lines track each other fairly closely for most of last year but have clearly been diverging in the last three months as the market pe ratio has slipped back.

This is particularly interesting at a time when there is some doubt about what is happening to UK corporate coffers. It could indicate, for example, that cash flows have declined rapidly even though earnings have been growing. Which would support the view that British companies' balance sheets have swung heavily into debt. This is the message from the latest quarterly national accounts (although national accounts are even more suspect than company accounts). They show the largest financial deficit ever recorded in the last quarter of last year, followed by the second largest in the first quarter of 1989, thanks to a doubling of interest payments.

This picture does not fit too easily with a continuing rise in earnings, but could be explained by the equally sustained level of capital investment companies are currently undertaking. There are certainly still plenty of companies around with plenty of cash, as empha ARC is the jewel in the ConsGold crown, and it is just the sort of business Hanson loves. It is stable, politically uncontroversial, and it chief of SA bank 1 OOm venture Elders extension on holding ONEY MAKES the business world go round, of course. But curiously this simple fact often gets forgotten in the obsession with profits and earnings per share. The reason is that profits (and hence earnings, which are Dased on protits) have relatively little to do with cash, especially in the short term which mainly interests the business world.

There has been increasing recognition of the importance of cash and cash flows in the last couple of years. But accounting profits are still the main measure of company performance, largely by default since companies are not required to publish meaningful statements of cash flows. This becomes more important as inflation continues to rise, since rising prices have the effect of boosting profits while eating into cash. The trouble is that companies which are not investing enough might show excellent cash flows while others which are expanding fast are eating up cash at a prodigious rate. Prof its ot the first group should be falling, while those of the second should soar.

Full cash flow analyses would sort out such anomalies but in the absence of such information cash flow figures can only be approximated by adding back depreciation to reported profits, and perhaps making one or two other adjustments. hven so these figures can sometimes tell an interesting story. ror example, stockbroker Hoare Govett recently pub lished an analysis of leading companies comparing their market value on a cash and an earnings basis (with cash in this case taking account of tax Business: mining gold and mineral sands yielding precious metals like zirconium and titaniurii Likely fate: to be auctioned. Possible bidders include Western Mining and CRA of Australia. Price: about 250 million.

generates cash by the truck-load. And the stock market is persuaded his lordship will, as usual, make the whole foray well worthwhile. equivalent of 2.6 billion. In theory, this could mean Elders disappearing from the Australian stock market. Harlin is not expected to pick up many shares.

Bond Corporation shares fell yesterday amid reports its US brewing subsidiary. Heileman, faced default on a $200 million loan unless a refinancing deal was completed. Heileman's president. Mr Murray Cutbush, reportedly wrote to a group of lenders warning that without a refinancing, "a default under the bank loan agreement will Bond Corp's finance director, Mr Tony Oates, was quoted as saying the US borrowings were secured only over Heileman assets and banks had no recourse to assets of Bond Corp. LORD HANSON, Britain's consummate dcalmaker, yesterday saw the London stock market greet his 3.5 billion takeover of Consolidated Gold Fields by adding 100 million to the value of his transatlantic conglomerate.

While other share prices slipped, Hanson's edged higher. Although Hanson announced on Tuesday night that the new bid, accepted by the ConsGold board, is a full 1 higher that the 11.30 cash offer tabled two weeks ago. the City sees the 67-ycar-old Lord Hanson at his craftiest in the way he has revised his bid to win the backing of the ConsGold board. Said analyst Dermot Coleman of BZW: "The new bid gives the appearance of being much more generous, but really Lord Hanson has done little more than allow Rudolph Agnew (the ConsGold chairman) to save face." The original, rejected offer was a simple cash affair: ConsGold investors were invited to sell each of their shares for 14.30. The new-offer still includes 14.30 cash.

But the extra 1 is in the form of a Hanson war Former to head Peter Rodgers City Editor THE FORMER head of South Africa's largest bank, who quit because of his leading role in talking to the banned African National Congress, is heading a 100 million banking venture in London. Mr Chris Ball, former managing director of First National Bank of South Africa, is to be chief executive of Private Bank Trust Company, which opened for business yesterday. First National was called Barclays National Bank until the British group decided to sell its stake and pull out of South Africa. Mr Ball, a South African, was a senior executive at Barclays in London in the early 1980s. He was a key figure among the gvoup of South African businessmen which opened lines of communication with the ANC in Lusaka over the last couple of years, and is credited with influencing Barclays head office to do the same.

This brought the strong disapproval of the government down on Mr Ball's head, and he eventually resigned as managing director of First National because of the business difficulties his activities caused. He has come back to London after being headhunted to run the new private bank, which is being financed by a Swiss based Greek family which owns Ban-que des Depots in Geneva and Luxembourg. The family is putting up the 8.0 I 1. Priceearnings Pncecash flow 7 0 b.ii 'fVa'mVjVs'o'nVj'fVa'm'j1 Other investments Small individual share holdings in companies in UK and South Africa including Kiool, Driefontein and Deelkraal Likely fate: will be sold. Possible price: roughly 100 million.

drew several possible takers when Minorco was bidding for ConsGold and said it would break up the group if it won control. communication with the ANC Harrowby. So far, 30 staff have been recruited out of 50. The bank will seek wealthy customers and particularly entrepreneurs who want a service that covers both their business and private needs. It offers private banking and trust services, loans, foreign exchange and trade finance and has already set up a dealing room.

owned US subsidiary whose principal source of supply is Tolteca. This will raise an extra 50 million, if exercised. Tolteca is Mexico's second largest cement company and contributed a 15.7 million pretax profit to Blue Circle last year. The American company Thatcher is deputy chairman, has done a deal which increases the stake held by Laidlaw Transportation, the third biggest waste management company in the US, from 28 per cent to 34.2 per cent. Laidlaw said when it took the 28 per cent stake, previously held by Michael Ashcroft's ADT, that it would not bid for Attwoods for two years.

It said yesterday it would remain in a minority position until at least January 1991. The deal is that Attwoods. already the second biggest waste manager in Florida, is to buy Laidlaw's business in Florida in return for preference shares. The Laidlaw companies made an operating profit of $3.8 million on turnover of S24 million. Hollas back in fashion The Hollas clothing and textiles group says it has "overridden the considerable disruption of unseasonal weather, which disturbs the traditional patterns of supply to the high street, and the general nervousness in the retail sector over consumer Profits for the year to March 31 are up from 2.5 million to 3 million.

This year, trading conditions promise to be no less difficult. I 3 Blue Circle's American and Mexican sale to raise 250m HOLDINGS pic Ben Laurance THE deadline by which Mr John Elliott's Elders IXL must sell most of its holding in brewing group Newcastle has been extended by three months. At the end of March, the Trade Secretary, Lord Young, published the Monopolies Commission report forbidding Elders' 1.6 billion takeover of and said the Australians' 23 per cent stake in the Edinburgh brewer must be cut to under 10 per cent within a year. But yesterday, after months of haggling with Sir Gordon Borrie at the Office of Fair Trading, Elders was told that it need sell no shares before next July. Until then.

Elders, which already owns Courage, will limit its voting rights to 10 per cent. The news came as Elders unveiled details of a plan to defuse criticism of a complex man-ouevre which could have put over 40 per cent of the company in its directors' hands through their private company. Harlin had offered to underwrite the sale of Elders shares held by Petitio. backed by foods group Goodman Fielder, who bid unsuccessfully for Ranks Hovis McDougall, Gestetner and AFP. Now, Harlin is offering to buy any Elders shares, whoever owns them, at AS3 each: in effect, it is a half-hearted takeover bid valuing Mr Elliott's brewing, agriculture and natural, resources empire at the contributed only 100.000.

Although Blue Circle had only 49 per cent of Tolteca, it also held convertible debentures which would have increased the stake to 58 per cent. Blue Circle had the Mexican investment in its books at 102.6 million. but the board expects all its companies to operate creditably. For the third Wednesday in a row, the stock market prices system shut an hour early, with the share volume through SEAQ at 4pm a meagre 347 million, almost 100 million down on the previous Wednesday. ICI was additionally unsettled by a warning from one of its senior executives that the West European chemical industry requires restructuring if the rising profits is to be continued.

The shares slipped 14p to 1246p. Plessey came in for late support at news it had pulled out of talks with GEC over the possible sale of its interest in GPT for 855 million. Revived hopes for an outright bid lifted Plessy shares 12p to 253p. GEC was unchanged at 252p. Tokyo: Stocks ended firmer in healthy trade.

Nikkei index: 33,309.71 Hong Kong: Shares rallied moderately. Hang Seng index: 2350.67 (2316.74). Frankfurt: Prices closed lower in moderate trading. FAZ index 620.20 (626.70). Paris: Stocks closed lower.

CAC index: 482.6 (480.0). 22 growth in pre-tax profits to 30.0m Twentieth successive annual dividend increase Record contributions from all trading divisions Chris Ball opened lines of whole of the 100 million capital and loan stock, and two members, Mrs Anne Marie Lat-sis and Dr Spiro Latsis, are on the London board. The new bank has also recruited Mr Len Kingshott, former director of international banking at Lloyds Bank, as executive director, while the chairman is former NatWest deputy chairman the Earl of de Mexico has been sold to a Mexican consortium led by Mr Bernardo Quintana and the ICA group, who are Blue Circle's long standing partners in Mexico. The price is 200 million, but it comes with an option to buy Blue Circle West, the wholly 30 million, matching City forecasts. It would have been higher but for the loss of market share caused by the share scheme of rival drug supplier UniChem, ruled anti-competitive by the Monopolies and Mergers Commission and now subject of an action for damages by AAH.

"It is wholly unsatisfactory that UniChem was able to distort competition and operate against the public interest for 16 months before being forced to abandon its scheme by the regulatory authorities," says AAH. AAH's pharmaceutical sales rose 5 per cent last year to 765 million but this was well below the growth in the UK market for drugs. The discontinued UniChem scheme offered cut-price shares in the company to chemists who took deliveries above a certain value. AAH's pharmaceutical sales account for 75 per cent of turnover and. at 18.4 million, 59 per cent of trading profit.

The group's shares rose 5p to 414p. Laidlaw deal with Attwoods The Attwoods waste disposal group, of which Dennis PRELIMINARY RESULTS 198788 24.5m 28.3p 6.624p 198889 30.0m 30.1p 7.95p BNTERNATIONAL cement group Blue Circle will raise up to 250 million through the sale of its Mexican. Arizona and California interests, writes Peter Rodgers. After lengthy negotiations, the company confirmed that its half share in Empresas Tolteca Company briefing Foot in door for Newman Newman Tonks, the doorcloser and architectural products manufacturer, has expanded so quickly that the latest interim results are already historic, but wider margins testify to progress in the US. As there is almost no dependence on new housebuilding activity, and exports, particularly to the Far East, are of growing importance, directors are confident sales to the construction and repair sectors will continue to expand.

Turnover was 11 million ahead at 81.3 million in the hairto April 30. Pre-tax profit rose to 9 million, from 7.2 million, and there was an exceptional property gain of 1 million. Excluding this, earnings added nearly Ip to 7.9p a share and the interim dividend is raised to 3.8p, from The results were in line with expectations. AAH hits the City forecast AAH Holdings, the pharmaceutical wholesaler and fuel distributor, raised pre-tax profit by 22 per cent last year to Turnover Profit before taxation Earnings per Ordinary Share Recommended final dividend per share "Exceptional performance by Healthcare Services division" "Builders Supplies 26 ahead of the previous year" "Expanded profit potential of Environmental Services division" "Further growth in profits and earnings recorded in the current year" Bill Pybus, Chairman To obtain a copy of our preliminary announcement please write to the Secretary, AAH Holdings pic, 76 South Park, Lincoln LN5 8ES..