Bottom Line: New broom starts APV clean-up

CLIVE STROWGER, eight months into his job as chief executive at APV, has gone to the heart of the process engineer's problems. But market conditions are getting no better and may get worse, which could leave the company vulnerable in mid- restructuring to the attentions of other surgeons.

Just how tough conditions are was underlined by APV's observation yesterday that its order books at the start of 1993 were 9.3 per cent lower than a year before.

Order books have since levelled out but continuing competitive pressure on prices prompted APV to warn that first-half profits will be hit, and its share price fell in response by 11p to 101p.

Last year, before exceptional charges and gains and losses on disposals, APV's operating profits fell by 5 per cent, as margins slipped from 4.4 to 3.9 per cent.

Charitably adding back a net pounds 6m for exceptionals less capital profits, allowed the 5.4p dividend to be just covered.

It could be much the same story in 1993 which leaves APV shares, on a yield of 6.7 per cent, stranded in the category of longer term recovery stock with some question mark over the dividend. Restructuring is the key to an improved image.

Rapid expansion in the mid-eighties under Fred Smith, the former chief executive whom Mr Strowger eventually replaced last July, left APV with almost 40 companies and 130 different operations. In the UK alone it has 26 manufacturing sites.

These far-flung operations were not only left to paddle their own canoes with predictably unsatisfactory results, but neither was any attempt made to establish a global process engineering presence. It was big in brewing equipment in the US and dairy machinery in Denmark, but nowhere else.

Mr Strowger has sensibly sold off Vent- Axia and Rose Forgrove packaging machinery to realise cash, helping to lower gearing from 42 to 12 per cent, while closing doomed enterprises such as keg-racking.

Armed with financial information provided by past spadework on the part of Sir Peter Cazalet, chairman, and Neil French, finance director, he is now embarking on a pounds 20m restructuring.

Perhaps half of this will be staff reductions of about 1,000 and there will be write- downs of site and other asset values. The biggest impact will be in North America followed by France, where retail baking lost pounds 3.5m in 1992, and then the UK.

The pay-off here will be much more rapid than a proposed reorganisation of APV into manufacturing, dedicated dry and liquid food sectors and a sales organisation serving both areas.

It is arguable whether this will prove to be less chaotic than current arrangements but Mr Strowger deserves some credit for trying to make sense of the company. Potential predators may have different ideas.