Southern pegs payout as margins fall off

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Profit margins in Britain's photocopier industry have been severely dented over the past year and will never rescale their peaks of 30 per cent, Southern Business Group said yesterday.

David McErlain,chief executive, said recession rather than controversial publicity bedevilling the industry had done the damage since the margin high water mark three years ago.

Unveiling a slump in yearly taxable profits to £7.2m (£12.2m), Mr McErlain said the company's return on sales was 15 per cent compared with 21 per cent a year ago. "Margins are not going to come back to peak levels and that's probably no bad thing," he said.

The photocopier leasing, the subject of an Office of Fair Trading investigation completed last year, was a mature and still fragmented industry.

Southern's future growth would therefore be acquisition-driven, Mr McErlain added. The company has a £6m acquisition warchest, and the chief executive said it had just paid £100,000 for Atlantic, IBS, a London photocopier supplier. Southern has not been involved in acquisitions for three years and said it would be targeting the South-east of England, where over half the British photocopier industry is based.

However, Mr McErlain would not rule out an eventual merger with another big player in a trading environment that still remained difficult to second-guess. The company has been linked previously with possible bids by Danka and Alco-Standard, two big American photocopier companies.

William Shaw, Southern's chairman, said 1993/94 had been the most traumatic the industry had ever faced. It included a report from the OFT last March criticising frequently complex leasing agreements in the photocopier industry and punitive cancellation fees.

Mr McErlain said Southern had adopted most of the regulatory authority's recommendations prior to its findings, and had since reduced its maximum leasing period from nine to five years, in line with the OFT's recommendation.

Southern is also launching a new three-month revolving contract where customers will be able to cancel without charge after giving 30 days' notice. The chief executive said the contracts would be available at a "competitive" 20-25 per cent premium to theprice of a five-year leasing deal. The group also hopes to benefit from the burgeoning colour photocopier market where it has already leased 500 machines.

Southern, which has held the full-year dividend at 3.72p for the year to September 1994, also cut its headcount in the past year from 524 to 434 - 17 per cent.

The group, which has 11,000 customers, said its aim was to add at least another 4,000-5,000 in the next 12 months. Mr Shaw said: "The economic recovery is still pedestrian. We are going to make sure we can grab what we can in future.''

This follows 1,000 photocopier installations being lost by Southern during the recession. Brokers are pencilling a slight increase in profits for the company this year to about £7.5m.