Banana supplier splits operations

Geest needs all the help it can get in its relations with the City. Shares have been on the slide since a high of 475p in March 1993 as a series of disasters have overwhelmed the group. It could, however, take a crumb of comfort as it unveiled a shake-up yesterday. Shares held steady at 154p against a stock market in free-fall.

Geest is reorganising activities into three groups. The fast-expanding ready-made meals business remains unchanged, while the core bananas operation is split from fresh produce and becomes a free-standing entity. But the main change sees the old fresh prepared foods and whole produce arms merged to form one fresh produce division.

According to David Sugden, chief executive, this move was made possible after the pounds 4.4m sale of the wholesale produce businesses in April. With a turnover of around pounds 200m and a staff list of 1,000 workers, its inclusion would have made any new fresh produce division "unwieldy", he claimed. Without it, the new division will be a whole lot smaller and a whole lot simpler.

But his other explanations for the change carry more conviction. As supermarket buyers tend to cover both prepared and whole areas of the produce market, it makes sense to put them together, a move that will also give Geest more clout in terms of procurement.

Savings of pounds 700,000 in a full year are expected to result from the moves, along with related cuts in head office overheads, for a one-off cost of less than pounds 500,000 in the 1995 results.

There should also be spin-off management benefits, with the main board being strengthened by younger talent from below. Geest has also signalled its determination to look to expansion in Europe.

Despite these worthy motives, the latest developments appear more designed to highlight Geest's non-banana operations. Sales in prepared foods grew 32 per cent last year, raising profits 44 per cent to pounds 7.5m, and Mr Sugden has set his sights on a target of pounds 10m, at which point the returns from other product areas would exceed those from bananas. Splitting out fresh produce from bananas will further emphasise Geest's position as an all- round food producer, rather than just a banana business.

That is understandable, given the succession of problems bananas have encountered over the past two years, ranging from disease to Hurricane Debbie. The hangover from the depredations of Debbie could even push bananas into loss in the first half of this year.

Geest's shares stand on a prospective multiple of 10, assuming profits rise from pounds 12.8m to more than pounds 15m this year, and yesterday's moves can only make the group more attractive to a bidder for all or parts of the group. Hold.