Christian Salvesen issues new profit warning
Christian Salvesen has issued a trading update on its financial year to the end of March 2004 prior to the release of its full year results. The company, which has issued a number of profit warnings over the last few years, surprised investors with a further downgrade of profit expectations.
This time the problems relate to the company’s standalone food processing division. Management has downgraded its valuation of stock by using what it calls a more prudent method. It has also made another charge due to a proportion of its stock becoming unfit for human consumption. As a result profits will be £3m (€4.5m) lower than expected.
On the logistics side, Salvesen is presently in the process of integrating its UK Food & Consumer and Industrial Divisions which management states has resulted in a significant reduction in cost base. However a need for greater investment in Sales & Marketing has been identified which will impact on profitability in the short term.
There was better news in mainland Europe, where its Spanish and French divisions were said to be progressing well in terms of revenues and profitability. However within its Food & Consumer division the company is experiencing downward pressure on margins for both new and existing contracts. It also remains cautious on the level of new business in its sales pipeline which it will be able to convert into actual contracts.
Despite the downbeat nature of the company’s announcement, Christian Salvesen should stand to benefit from an upturn in the economies of western Europe. Its business model differs from many of its competitors in that it operates a number of shared user networks. These have been badly affected by the fall in volumes caused by weak economic activity. However as volumes increase, the company has the opportunity to achieve much higher profit margins than competitors which have focused on open book contract logistics.
