Amstrad reveals sharp plunge in saturated

Alan Sugar, chairman of the Amstrad electronics group, yesterday reported a plunge in half-time profits and said the imminent closure of the Rumbelows electrical retailing chain vindicated his comments that the market was over-saturated.

Revealing a slump in taxable profits from £1.7m to £25,000, Mr Sugar said: "There are too many people chasing the same rainbow."

Mr Sugar, traditionally one of Britain's more outspoken businessmen, said that if there had been any light at the end of the tunnel for loss-making Rumbelows then its parent, Thorn EMI, would have persisted with it for a few years more.

Thorn had "clearly seen the writing on the wall", Mr Sugar said, adding that Kingfisher's Comet electrical retailing chain was also "bleeding".

Despite Amstrad's profits setback the City was pleased by the company's revelation that it would break even at the full year for the first time in four years.

The shares added 8p to 141p as brokers upgraded full-year forecasts amid hopes that the troubled personal computers to hi-fi group synonymous with the free-spending 1980s had turned the corner. Last year Amstrad made losses of £20m, and has racked up losses of £111.2m since 1992.

James Heal, electronics analyst at Hoare Govett, said he expected the company to be in the black at the year-end compared with his previous forecast of a £4m loss. He has more than doubled his forecast for 1996

to £22m.

Traditionally, the most profitable period for Amstrad has been the first half, which includes Christmas sales. But Mr Sugar said the business had undergone change and was much less seasonal.

Sales in the period rose from £139.9m to £142.9m, and the interim dividend was held at 1p.

David Rogers, chief executive, who came on board last year, said Amstrad's core consumer electronics business had continued to trade at a loss. European markets remained difficult, particularly for older products. The main sales difficulties were with computers and satellite dishes in the UK and Germany.

Mr Rogers said that Viglen, the personal computer business bought by Amstrad last year and which sells directly to the customer, traded profitably, as did Dancall, the mobile phone business, and Betacom, which makes cordless telephones. Specific figures were not given.

Overheads costs in the consumer electronic business were reduced from £13m to £9m. This included a 16 per cent cut in the division's workforce, although Amstrad's total payroll, after acquisitions, rose from 842

to 1,102.

Mr Sugar said the group continued to reduce inventories and to build up the net cash position, with the cash pile now standing at £136.4m. "Over four years, if there has been no business around we have not chased it. That means a reduction in the inventory and that means inventory turns into cash,"

he said.

Mr Sugar, one of the leading entrepreneurial lights of the Thatcher era, said he knew the cash balances meant the company was not vulnerable.

He appreciated some shareholders might be impatient with Amstrad apparently "all dressed up with nowhere to go". But his strategy would be seen as shrewd.in future years. "If you have got no business, and don't know what to do, it is better to consolidate, liquidate [the inventory] and sit tight."

Amstrad's future growth, according to Mr Rogers, would be generated primarily by high-margin, new-concept products, although he reiterated there was no blockbuster item in the pipeline.

Some of the products are due to be unveiled at the information technology exhibition in Hanover next month. It is thought they will cover areas such as fax machines, personal computers, printers and word processors. The company is also about to launch a new range of home entertainment and satellite products.

Amstrad Direct, which sells fax machines and computersdirectly to consumers and which Amstrad launched last November had made a promising start, Mr Sugar said.

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