Bad news for GEI as shares plummet 47%

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SHARES IN GEI International, the processing and packaging machinery group, slumped 47 per cent yesterday as the company revealed accounting irregularities which left it in breach of its banking covenants.

The irregularities were discovered in the company's Norwich-based GEI Autowrappers subsidiary, which produces wrapping machinery for fast-moving consumer goods such as confectionery, and accounts for 25 per cent of turnover. The trouble was highlighted by a group cost-cutting review - following February's profit warning - which discovered management lies in the monthly accounts, crediting the subsidiary with getting through substantially more orders than it had done.

The investigation revealed a profit shortfall in the region of pounds 3m. Brokers Collins Stewart tipped GEI to make a headline loss of pounds 2.5m, and shares closed at 20p, against a year high of 116p. Sources confirmed that Autowrappers managing director Michael Whitaker had been sacked, alongside three directors.

Non-executive chairman John Fletcher said: "It's very distressing ... It reflects badly on everyone, including myself."

The group confirmed that Midland Bank is leading negotiations with GEI's other UK and overseas banks. A source said that it seemed unlikely that GEI would go under but that it may well be a takeover target.

An analyst said the news was shocking but "not that much of a surprise". He added that the group had been the subject of takeover speculation since the profit warning, when entrepreneur Luke Johnson bought a 4.5 per cent stake after identifying the stock as undervalued. Mr Johnson declined to comment.