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Turnover up 17% at John G Russell but margins tight

John G Russell, the Lanarkshire logistics group and one of Scotland's leading family- owned businesses, continues to battle squeezed margins and sees little prospect of any upturn this year.

Russell's latest accounts show it piled on new business in the year to March 31 2012, with a 17% rise in turnover in its core logistics operations, and took on 66 new staff, including 45 drivers.

But that drove staff costs up by £2.8 million to £19.5m, and despite efficiencies, the group could not combat fiercely competitive pricing in the market which saw operating profit shrink by 5% to £2.19m.

Caithness-based Icetech, the former Norfrost freezer maker saved from collapse by Russell in 2005, saw losses more than double to £100,000, partly thanks to another £700,000 loan write-off from the parent company adding to £300,000 the previous year.

The setback follows a strong recovery engineered by Russell after the business lost £2.4m in the two years to 2009.

That helped push group pre-tax profits down from £1.95m to £1.64m.

Writing in the annual report, the directors say the depressed UK retail market is the main factor weighing on Icetech, the UK's last maker of refrigerated appliances employing 100 near Wick, and sales fell from £11.6m to £10.1m last year.

"Icetech maintained a focus on development of redesigned models to meet the new EU energy standards... this affords the Norfrost/Eurocold brands a significant competitive edge and signals that another milestone has been reached."

But they continue: "Icetech continues to face major challenges within the UK retail environment the outcomes of which remain difficult to predict."

Alan Poulton, managing director of logistics, said the demise of electrical retailer Comet had not helped. He said: "The retail market is not in great shape, we have launched our own e-commerce venture and done as much as we could do."

On Icetech's current trading, Mr Poulton said: "January isn't the best time to ask that question, we have got a business we are working very hard on and have done for several years and will continue to do so."

Turning the focus on the logistics pressures, Mr Poulton said: "We have made good progress but margins have remained tight, and it is very difficult to get a price that reflects the quality and service we offer – people are willing to work for very low prices at the moment and our fixed costs have increased over the past 12 months.

On the outlook, Mr Poulton said: "Our intention is still to grow the business over the next 12 months."

But he added: "It is very hard to see any light at the end of the tunnel, over this calendar year it is difficult to see circumstances significantly changing for the better."

The directors say margins were further impacted by the expected reduction in government grants for rail freight facilities.

But non-transport services benefited from good warehouse utilisation and added value activities, contributing to overall sales growth but with sustained margins.

Russell upped its capital expenditure by 71% to £4.39m, it maintained a £161,200 dividend to family shareholders, and debt rose by £1m to £11.5m.

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