THE INVESTMENT COLUMN

Hard road ahead for Salvesen

They may have been relatively minor problems that forced Christian Salvesen into making a profits warning 18 months ago, but the distribution- to-generator hire group is yet to regain its poise. Figures yesterday showing underlying profits up a disappointing 5 per cent to pounds 77.7m in the year to March - before exceptional disposal gains of pounds 28.9m - suggest it may be a little while yet before the group enjoys the confidence of the stock market again.

The shares, which were close to 400p in early 1994, fell 7p to 253p. There was some disappointment with the level of profits, but the mix also failed to impress. Salvesen got a one-off boost of around pounds 2.5m from swaps last year and profits from the main distribution business, which now handles the supply chains of a range of groups from the big supermarkets to Ford, only appears to have been kept moving by acquisitions.

Divisional profits rose from pounds 39.8m to pounds 45m, including pounds 2m from Gel Service, a French distributor acquired in April last year.

Just over half the European distribution business is now in the cut-throat food and grocery area and, although Chris Masters, chief executive, said he had not seen any drastic margin erosion, Salvesen has been unable to squeeze a higher fee from Safeway for managing the biggest distribution depot in Europe at Bellshill, near Glasgow.

Meanwhile, bad vegetable harvests are becoming a familiar reprise at food services, which processes and freezes up to 40 per cent of the UK crop. Operating profits crashed 20 per cent to pounds 8.1m. The bounce-back from the lowest stocks for at least 10 years and higher plantings should improve the figures this year.

To be fair, Dr Masters has successfully tackled some of the ailments that afflicted Salvesen last year. Light & Sound Design, a struggling pop concert lighting group, went in April, along with Vikoma, an oil pollution equipment company.

The US operations of Aggreko, the generator hire business, have been turned round, recording their best-ever profits with a 20 per cent rise in dollar terms last year. But those efforts were more than offset by difficulties in Germany and the Benelux countries, cutting Aggreko's overall profits from pounds 26.3m to pounds 25.7m.

Selling Salvesen Brick in March helped cut gearing to 24 per cent, but its earnings will be difficult to replace and, in the meantime, a rising tax charge will be another drag on Salvesen's bottom line. Profits of pounds 80m this year would only hold earnings static, putting the shares at 13 at around a market rating. With a yield of 4.2 per cent, they are high enough.

Unigate has to get away from milk

It will come as little comfort to the 1,500 Unigate workers who will lose their jobs over the next three years, but the process of which they are innocent victims is the inevitable result of the growing power of the supermarkets. Despite the company's twice-yearly protest, the expensive restructuring of the dairy business is only partly the result of last year's creation of Milk Marque.

With up to 15,000 lines over which to share the cost, it hardly matters to Sainsbury and Tesco that they make no money from selling milk as long as the 15p differential between their pintas and the doorstep variety is enough to get shoppers through the door.

For Unigate, Northern Foods and the independents, however, the challenge is devastating, with doorstep deliveries now falling at an annual rate of 17 per cent.

Add to that the higher cost of milk thanks to the Government's questionable decision to replace a state monopoly with an equally powerful private one and it is no wonder that Unigate's profits stagnated even before yesterday's pounds 58.3m exceptional item. Coincidentally, the charge left pre-tax profits also of pounds 58.3m, down 43 per cent. The dividend rose 5 per cent to 18.2p.

The squeeze on Unigate's dairy business is actually bad luck for a company that was just beginning to sort out what had been a curious rag-bag of operations. But even having sold off car auctions and come clean about the intention to get out of US restaurants, the rest of the company is running very hard just to stand still, with Fresh Foods the only bright spot.

Wincanton, the distribution arm, is operating in a highly competitive industry where margins, down almost a point to 6.6 per cent, are likely to remain under pressure.

Black-eyed Pea, the implausibly named Texan restaurant chain, is closing more stores than it is opening, sales fell 6 per cent during the year and Unigate says it plans to exit that cut-throat market within a year.

The trick for Unigate now is to use its relatively strong balance sheet (assuming a realisation of the underlying value of its stake in the Dutch food group Nutritia) to diversify away from milk. In the meantime, a prospective yield of about 6 per cent, and an undemanding price-earnings ratio of 11, assuming profits of pounds 117m this year, mean the shares, if unexciting, are reasonably supported.

Berisford finds heat in kitchens

Alan Bowkett, the man credited with the revival of Berisford, was well advised to cash in his options earlier this year. His potential profit of pounds 6.4m in January, when the shares soared after returning from suspension at 228p, would have looked a little less spectacular after yesterday's 39p fall to 219p.

The immediate problem was a warning from the company that its Magnet fitted kitchens-to-joinery subsidiary, acquired for pounds 56m in January 1994, is involved in a head-to-head battle on the price of doord with the rival kitchen group Spring Ram. That tended to overshadow news of a sharp bounce- back in interim results from Berisford, which turned in pre-tax profits of pounds 11.1m in the six months to March after a loss of pounds 5.8m in the same period the previous year. Shareholders also see their first real dividend for many years with an interim payment of 1p, following last year's nominal final of 0.5p.

Magnet chipped in pounds 6.5m to operating profits of pounds 11.7m, after just pounds 1.4m for the short period it was included in 1994. That was a reasonable result, given the moribund state of the housing and repair and maintenance markets.

But attention focused on the door price war yesterday. Although Berisford believes it can stand the pain, the news has punctured the high expectations that surrounded Mr Bowkett's transformation of the group from a nearly bankrupt commodities business to a high-growth conglomerate.

It also took the shine off first results from Welbilt, the US maker of kitchens for fast food outlets and the like, for which Berisford paid pounds 295m last December. Its contribution of pounds 6.2m to operating profits was a 26 per cent improvement over the previous year and Mr Bowkett believes he is still on course to raise sales - pounds 46.5m in the half year - to $1bn by the end of the century.

Profits of pounds 28.5m this year would put the shares on a prospective multiple of 15 - high enough until the strategy unfolds further.

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