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Universal Salvage shares savaged after warning

Universal Salvage saw its shares tumble by a third after the recently floated car auctioneer warned profits for the year to April would be well below expectations.

Richard Bird, managing director, has left the group with immediate effect following a collapse in the share price to below the 1995 flotation price.

Universal's founder and chairman Cliff Bassett has taken over the reins once more and will act as managing director until a replacement is found.

He said that he was confident a recent deal with Norwich Union would lift profitability this financial year, but his optimism did not prevent the shares, which reached a high of 286p last year, closing 67.5p lower at 135p.

"The company is in a good state. But I'm the first to admit that I'm disappointed by low profitability," he said. "I feel that the following six months will be a decent period. I do not feel uncomfortable about the company at all."Universal has contracts with several insurance companies to collect and store cars that have been written off.

It then sells them off once claims have been fully processed. It holds 15 per cent of the UK's annual write-offs.

Universal acquired more cars this year than last. However, the number auctioned in the final quarter was significantly lower than expected, following delays by insurance companies in clearing cars for auction.

"We could be criticised for slowness in alerting the insurance companies to the problem," said Mr Bassett, adding that there was a backlog in processing an exceptional number of motor claims this winter.

Profit on vehicles sold was also significantly lower than expected in the fourth quarter, though it was higher now than three months ago, he said. The high start-up cost of a tie-up with Norwich Union, also contributed to the slump.

"Norwich Union gave us a very thorough going over, which is a good thing. But it took longer than expected. The infrastructure changes in terms of more staffing to handle the increased and varied salvage did not cost a huge amount, but it was significant," Mr Bassett said.

Universal will have sole rights to handle all vehicles written off each year by the insurer, estimated at around 15,000. The deal is not expected to lift profits until April 1998.

Mr Bassett also said voluntary safety regulations developed in conjunction with the Association of British Insurers and Lloyd's Motor Underwriters Association had dampened profits.

Universal closely vets firms which buy wrecked cars to make sure dangerous cars are not spruced up and re-sold.

As a result, more cars are classified as scrap, fetching less than cars capable of being driven away.