Strong pound takes pounds 11m off Thorn profits

Shares in Thorn, the beleaguered rentals group, took another battering yesterday and the logic of last year's split from EMI was again questioned after the company's outgoing chairman, Sir Colin Southgate, said the strength of the pound would reduce profits this year by around pounds 11m.

Immediately after a sometimes stormy annual general meeting, at which Sir Colin warned shareholders that first-quarter turnover had dropped by 8.5 per cent, Thorn's shares plunged 12 per cent to 156p, only 40 per cent of their 408p value after the group's demerger from EMI last August. The shares closed at 158.5p.

Some shareholders attacked the dismal performance of Thorn's share price over the past year. One said: "One gets the feeling that these things [demergers] are not done for the benefit of shareholders, but for the benefit of merchant banks."

Another echoed hints from City analysts that new management may be needed to remedy the situation. "Perhaps [it would be better] if you had a few scientists on the board, who are used to forward thinking, as opposed to one [a board] full of economists who are used to woolly thinking," he said.

Nick Bubb, analyst at Societe Generale, said rumours about the future of Mike Metcalf, chief executive, had been circulating for some months. Management had come under fire for the decision to rent out furniture from Radio Rentals shops, a strategy which has now been abandoned.

However, a spokesman for Thorn hotly disputed speculation about Mr Metcalf. He admitted furniture rental had not been successful through Radio Rentals, but said management could hardly be blamed for other problems which had affected the share price, such as litigation in the US. Legal action in Minnesota over allegations of unfair interest charges on rentals forced the group to reveal a pounds 17.1m provision in May.

Analysts downgraded their profit estimates for the year in the light of Sir Colin's comments. Mr Bubb said his forecasts for pre-tax profits would "drift downwards" from pounds 140m to between pounds 130m and pounds 135m. However, he said he anticipated a significant improvement in profits in the following year, perhaps up to pounds 150m.

Mr Bubb was also confident that Thorn's dividend to shareholders would be maintained. He was cheered by plans announced in May and approved at yesterday's special extraordinary general meeting to return pounds 87m, some 14 per cent of the company's capitalisation, to investors over the next two months.

Other City watchers were not so sanguine, though, with one City analyst saying: "Thorn is almost beyond salvage as the company is operating in markets that are structurally in decline."

The analyst called for the closure of up to 200 Radio Rentals outlets. Thorn operates 500 Radio Rentals-branded shops, after closing 90 in April. The company's spokesman said there was an ongoing "very critical review" of the Radio Rentals division.

As planned, Sir Colin stepped down yesterday, to be replaced by Hugh Jenkins, deputy chairman.