Sugar's Amstrad sees sales and profits slump

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The Independent Online

To the nearly 6 million viewers who tuned in for the last episode of The Apprentice, Sir Alan Sugar is the epitome of the successful businessman. But any sense of achievement was dulled by the release of interim figures yesterday from Amstrad, which showed that a hiatus in new products had hit both sales and profits.

Worse still, the company still best known for a device it has not made for the past decade disclosed the launch date for its much-hyped new personal video recorder (PVR) box would slip into the next financial year.

Analysts worry that Amstrad, which stopped making its unpopular e-mailer superphone last year, is not spending enough on research and development - the lifeblood of technology companies. Indeed, in September, the company announced it was handing back £30m of its unspent cash pile to shareholders. As Sir Alan, who founded the business in 1968, owns a 28 per cent stake the move swelled his bank account by nearly £10m.

"Investors have to question the use of a cash pile that exceeds the company's working capital needs against the paucity of its R&D spend," said Lee Simpson at Evolution Securities, Amstrad's house broker.

The company's interim figures showed that after the handout it had cash of £28.3m on its balance sheet against £48.9m a year ago.

"The company hasn't managed to refresh its product base so it is left with just legacy products that are suffering from price declines in the middle of the product cycle," he added.

In the six months to 31 December, Amstrad's pre-tax profits fell 16 per cent to £10.5m on sales down 18 per cent at £40.6m. This was because set-top box volumes, which are normally weighted towards the first half of its financial year, declined, Sir Alan said.

Amstrad's second half sales are expected to be even softer given the delays to its new PVR box and the slow take-up of the high-definition television boxes. Sir Alan said when the new PVR box did go on sale, it would leave the group well placed for the future.

There was some better news regarding Amstrad's profit margins, Sir Alan said. "We have continued to focus on driving down the overall cost of manufacturing set-top boxes and this has helped mitigate the impact of the downward pressure on prices for more mature products," he added. This meant the group's profits came in slightly above City forecasts and prompted Evolution Securities to lift its earnings-per-share estimate for the full year by 10 per cent. This lifted its shares by 3p to 158.75p.

"Amstrad are doing their best at squeezing the suppliers in a period of dropping sales: margin improvement is one thing, but we need shipments of new product to show the business can stave off aggressive competitors," Mr Simpson said.

As well as its lack of new products, Amstrad suffers from its reliance on just one customer, BskyB, analysts believe. The company is not even allowed to talk about its new PVR box because Sky wants the features to be kept secret.

Amstrad is the main supplier to Sky Italia, but in the UK is only number two to Thomson, the Canadian media group.