Newswatch: Servomex rationalisation

Servomex, the industrial instruments group, will outline a major cost-cutting programme in its results next week, including an exceptional charge of #750,000 to pay for redundancies.

It is not yet clear where the cuts will bite and whether they will hit the company headquarters’ finance function. But analysts expect finance director Martin Johnston to announce a dramatic fall in pre-tax profit from almost #3m in 1997 to #1m for the year ended December 1998 as a result of severe problems within subsidiary Buhler Montec Group, the water-monitoring business, and falling demand in the Far East.

Analysts warn that Servomex – whose products serve the water, gas and cabling industries – paid far too much for Buhler and the company has admitted it has yet to overcome the combination of management, technical and competitive problems.

One investment banker said: ‘Buhler was a major loss-maker when they acquired it in the first quarter of 1997, but the turnaround has taken much longer than originally expected.’

The exceptional charge was made public last year, with the expectation that it would yield full-year savings of about #500,000, but further cuts could follow if current market conditions persist.

Forecasts for 2000 and 2001, however, predict an uplift in pre-tax profit to #2.3m to reflect hopes that the company can reverse the slide.

One City source warned that the damage had already been done to the group’s profitability and management credibility which could affect future strategy in relation to acquisitions.