Hazlewood to focus on own-brand foods

Hazlewood Foods is moving onto the growth tack with plans to beef up investment in expanding markets from sandwiches to year-round strawberries following the pounds 45m sale of its potato processing activities announced yesterday.

The Fri d'Or businesses in Holland and the Czech Republic are being sold to Danisco, a Danish food company, after Hazlewood decided they did not fit with plans to develop "value-added" sectors of the business. The shares added 5.5p to 116.5p.

John Simons, Hazlewood's chief executive, said the sale "largely completes what has been a five-year refocusing programme. Over that period, we have got out of a lot of businesses where we didn't have critical mass, like orange juice, confectionery and shellfish." He said Hazlewood would "concentrate very much on growth markets, where the retailer's brand is a very strong player".

These markets he defined as convenience foods, delicatessen products such as quality meats and snack foods, and glasshouse horticulture. Hazlewood, which has no brands of its own, is already the biggest supplier of own- brand foods from sandwiches and recipe sauces to growing herbs for retailers such as Asda, Safeway, J Sainsbury, Tesco and Somerfield, which together account for half the group's turnover.

The sandwich market alone is growing at 12 per cent a year, while the group has just started supplying strawberries and raspberries grown all year round under glass to compete with fruit air-freighted in from abroad. Hazlewood is also developing a chilled food operation on the Continent based on the recent acquisition of a small Dutch manufacturer.

Some of the proceeds from yesterday's sale will be used for "quick ratchet payback" investments, such as increased automation to add features to products. In the short run, the money will slash gearing, which was around 130 per cent five years ago, by nearly half, from 51 per cent at the year end in March to a pro forma figure of 27 per cent. The deal would lead to around a pounds 3.5m dilution in operating profits, but that should be offset in the current year by the absence of the pounds 4m hit last time from the BSE scare, Hazlewood said.

The news accompanied the announcement of pre-tax profits cut from pounds 34m to pounds 32.3m in the year to March, a rise of 8.8 per cent once a pounds 4.7m charge for the sale of a recycled paper business was excluded. A final dividend of 4.5p raises the annual total by 3 per cent to 6.9p, payable from underlying earnings per share up 4.9 per cent to 11.9p.

Mr Simons said the group had bounced back from the BSE crisis in the second half, recording underlying volume growth of 7.4 per cent, to give 5.2 per cent for the year. Margins had grown for the third successive year.

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