Reverse premiums keep Pentos in black: Group sells 53 of its loss-making Ryman Computer stores to Peoples Phone for pounds 100,000

INCENTIVES paid by landlords to take up space in their developments earned Pentos, the ailing books and stationery retailer, pounds 6.3m in 1992 - about double the amount analysts had estimated.

The group made just pounds 4m pre-tax profits in that year so, without the reverse premiums, it would have lost pounds 2.3m. Pentos said that reverse premiums for 1993 would be about pounds 3m but would not be material this year or in 'the foreseeable future'.

The disclosure came as the group announced it had sold most of its Ryman Computer Stores chain to Peoples Phone for pounds 100,000. The business lost pounds 700,000 in 1993 and suffered a cash outflow of pounds 700,000.

Peoples Phone will take on 53 of the 63 stores and all but 10 of the 200 employees.

The computer stores came into the group with the acquisition of Wilding Computer Stores in December 1991. Pentos paid pounds 3.7m for them but also repaid a pounds 5.8m loan, bringing the total cost to pounds 9.5m.

That cost has, however, been largely written off, although costs associated with the sale will produce an exceptional charge of pounds 3.9m.

The remaining 10 computer stores will continue to trade as Rymans, although a number of vacant non-retail units are up for sale. The group also hopes to dispose of 20 of its Athena sites which have 'little prospect of providing an acceptable return'.

Pentos has been labouring under the burden of debts taken on to finance its rapid expansion during the 1980s, while its trading has been hit by the recession. Its accounting policies - including that for reverse premiums - have been under fire. Terry Maher, who built up the Dillons chain, resigned as chairman and chief executive last year.

Sir Kit McMahon, who replaced him as chairman, and Bill McGrath, chief executve, have conducted a detailed reveiw of the accounting policies. As well as better disclosure of the reverse premiums there are likely to be changes in depreciation rates.

Last month the group warned of a substantial loss in 1993. Analysts estimate that will be at least pounds 10m at the operating level, while exceptional write-offs could be pounds 30m.

Sean Eddie, retail analyst with NatWest Securities, said he was surprised at the level of reverse premiums. The group had been trading less profitably than he had thought.

'Every time you look at the company the base level of profit from which it can recover moves further down,' he added.

The group is widely expected to launch a rights issue to cut its debts, which peaked at pounds 86m last year. The shares rose 2p to 34p.

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