Pentos shares plunge after profits blow

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The Independent Online
SHARES in Pentos, the fast- growing bookseller, plunged to a seven-year low after it announced it would not achieve profits targets for 1992 and made warning noises about the final dividend.

The group has been hit by a slump in demand for office furniture, weak sales in its Athena Galleries poster shops, and difficulties in letting surplus warehouses and stores.

Pre-tax profits for 1992, due to be announced in March, are expected to be about pounds 5m. Analysts had been forecasting pounds 13.5m- pounds 15m. The shares were marked down 14p to 56p.

Borrowings have ballooned because of the group's aggressive expansion plans. Clive Gregory, finance director, said they reached pounds 75m in October and would end the year at pounds 48m, compared with pounds 20m a year ago.

'They are too high for comfort, but they'll be reduced next year as we become cash-positive,' he said. Banks, led by Midland and Barclays, were quite happy, he added, ruling out a rights issue. Gearing is about 60 per cent.

Orders for office furniture collapsed in the wake of sterling's fall from the exchange rate mechanism in September. Demand had now stabilised, Mr Gregory said. Trading profits from furniture, which were pounds 3.7m last time, would be pounds 3m worse than expected.

Like-for-like sales in Athena were 3 per cent down in 1992. Demand for framed posters, which is linked to the housing market, was weak, and the run-up to Christmas was disappointing. The division was responsible for about pounds 3m of the profits shortfall.

Pentos is also taking pounds 3.5m of reorganisation costs and write- downs above the profits line as exceptional items. These include extra provisions against the acquisition of Hatchards, which lumbered Pentos with unwanted property.

Dillons, the core bookshop chain, and Ryman, the stationer, performed satisfactorily, achieving 1992 like-for-like sales increases of 4 per cent and 1 per cent respectively.

Pentos plans to put the brakes on its fast expansion in all divisions except Dillons. Capital expenditure will be reined back from pounds 15m in 1992 to pounds 12m in 1993.

Mr Gregory declined to amplify on the formal dividend statement that the final payout would be 'considered in the light of trading at the time of the preliminary announcement in March'. To maintain the dividend at last year's level would cost pounds 4m gross.

The profits warning is a fresh blow for Pentos, under its outspoken chairman Terry Maher, who has seen the shares fall from 170p in the past year.