Gestetner hit by swaps loss

GESTETNER shares fell 23p to 123p after the office equipment distributor admitted it had lost pounds 6.1m on a misjudged foray into the complex world of interest-rate swaps.

Inchcape, the trading company that has held a 15 per cent stake in Gestetner since May 1993, said it could not comment on the loss but would be 'keeping the matter under close scrutiny'.

Stephen King, finance director, said the loss represented the cost of closing out two geared swaps contracts taken out last October and November to take advantage of low fixed rates of interest in Britain and the US.

He said that they were the first of these contracts for Gestetner and would also be the last. Price Waterhouse, the company's auditor, is investigating the circumstances that led to the loss.

Mr King said that one of the contracts, covering borrowings of pounds 20m, tied Gestetner to a fixed 4 per cent rate of interest as long as two-year borrowing rates did not rise above 7 per cent.

If rates rose above that level, however, Gestetner became liable to much higher rates. Two-year rates of 8 per cent, for example, would increase its interest charge from 4 per cent to 13 per cent.

Mr King said that the geared nature of the contracts meant that Gestetner's liability was potentially open-ended.

For that reason the decision was taken to pay the price of closing out the contracts.

The effect of the loss will be to reduce Gestetner's profits for the 14 months to December from a forecast pounds 21.5m to pounds 15.4m.

The group said that it was trading in line with expectations but warned that the full-year result would depend on the peak months of September and October.