Salvesen abandons plan to sell food division

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CHRISTIAN SALVESEN, the food-processing and distribution business, has abandoned plans to sell its food service operation after failing to attract suitable offers.

Instead, the company plans to restructure the business, which processes and packs vegetables such as sprouts, peas and beans. The move is part of a plan to re-define the company as a more focused logistics group.

A strategic review of the food service division will lead to a reduction in the number of vegetable processing sites in the UK from nine to a possible six. Job losses are inevitable although the company has not yet confirmed details.

A frozen food plant in Paris, which has lost an average of pounds 1m a year over the past five years, is being earmarked for closure at a potential cost of pounds 2.5m. The company blamed poor productivity for the decision.

The comments came as Christian Salvesen, which de-merged its Aggreko hire business last year after an aborted bid from Hays, reported first- half profits of pounds 19.6m, a rise of just 1.5 per cent on the previous year.

The key food and logistics business in the UK performed well with profits up by 20 per cent. But in mainland Europe profits fell by a quarter due to the loss of contracts and to start-up costs of joint ventures .

The industrial logistics business, which counts companies such as Jewson, Dunlop tyres and Unipart among its customers, has struggled due to a combination of a shortage of drivers, which pushed labour costs higher, and weakening volumes as the manufacturing slowdown bites.

Analysts said that Salvesen needs to expand its logistics business in Europe if it is to achieve critical mass. With net debt down to pounds 48m from pounds 114m, the company can afford acquisitions of up to pounds 100m without issuing paper.

Edward Roderick, who joined as chief executive last September, says industrial logistics deals in Spain, Italy and Belgium are a possibility with in- fill deals in the food division also on the agenda.

With Salvesen shares 1p higher at 80p, Charles Pick of WestLB Panmure says the stock is looking cheap compared to its 12-month peak of 129.5p in the spring.

"On our full-year forecasts of pounds 37.8m, the shares yield 7.5 per cent. But much depends on what businesses they buy," Mr Pick said.