Thorn share price rocked by profit warning

Demerger fails to boost shareholder value as third-quarter figures cause dismay in the City

The slump in the stock market value of Thorn since it demerged from the EMI music business last summer threatened to turn into a rout yesterday after the Radio Rentals to Crazy George's group warned that poor trading and the strong pound would hit profits in the year to March.

Thorn's shares, which started trading at 408p last August, slumped 42.5p to 209p in heavy trading after the company issued a nine-month trading statement in which it warned investors it would make no more than last year's pro forma pounds 170.7m pre-tax profit.

The slump caused dismay among shareholders who had expected the split from EMI to enhance shareholder value in the same way that similar splits by companies such as ICI and Zeneca and Courtaulds had unlocked previously hidden potential. Thorn's stock market value has slumped from pounds 1.77bn to pounds 905m.

The warning, which accompanied nine-month results, shocked analysts who had pencilled in profits for the year of about pounds 180m. Nick Bubb of MeesPierson said: "The third-quarter figures aren't too disastrous but what they are implying about the fourth quarter takes our forecast down another pounds 10m or so."

A spokesman for Thorn said the problems had been concentrated in December. He added that because turnover in the rental business comes in the form of future monthly payments rather than one-off payments, the full impact of a poor pre-Christmas sales period would only be fully felt in subsequent months.

Third-quarter figures for the nine months to December showed an 8 per cent increase in profits before tax and exceptional items to pounds 123m struck from sales 5 per cent higher. But the fourth quarter is expected to be further hit by the strength of the pound, which is forecast to wipe out 10 per cent of US profits on translation.

Thorn is the latest UK company to complain about the impact on profits of the recent surge in the value of the pound. Guinness said last week that 1997 profits would suffer to the tune of pounds 60m and ICI and British Steel have seen analysts downgrade profit forecasts to reflect sterling's rise.

In the US, where Thorn generates about 60 per cent of its turnover, sales were hit by a price war in the consumer electronics retail market between two of the largest players, Circuit City and Best Buy. With prices of items such as video recorders falling to less than pounds 100 in some cases, the market for renting to low-income households had dried up.

In the UK, Radio Rentals, which together with Granada controls about 85 per cent of the rental market for consumer electronics, sales had been particularly poor. Thorn admitted it had priced its personal computer rental contracts too high and failed to respond to extreme competition in small screen televisions from Granada.

Poor trading and foreign exchange worries are the latest cloud to darken Thorn's prospects since demerger. They add to the concerns already surrounding the company regarding a spate of court cases in which Thorn is being sued for millions of dollars over the pricing of its rental contracts.

Litigation has focused on whether Thorn's contracts should be covered by consumer credit law which in many states caps the annual percentage rate at which interest can be charged.

Although Thorn claims its contracts are for rental agreements, not credit sales, but sentiment has been hit badly by the loss of two cases in the past four months.

Other concerns include the perception that the market for renting consumer electronics goods is fast disappearing as the products become cheaper. Thorn says it is responding by moving into new rural geographic areas, where there is less competition, and new product areas, such as car rental where it currently has no exposure.

The latest fall in Thorn's share price completes an uncomfortable first five months on the stock market which began with a 17p first-day slide to 391p. EMI, by contrast, jumped to a 37.5p premium on the first day of dealings to pounds 14.60, buoyed by bid speculation. In the absence of any activity, however, EMI has also underperformed in subsequent trading, closing yesterday 13.5p lower at pounds 12.30.

Comment, page 15

Start your day with The Independent, sign up for daily news emails
News
Nick Clegg on the campaign trail in Glasgow on Wednesday; he says education is his top priority
peopleNick Clegg remains optimistic despite dismal Lib Dem poll ratings
Arts and Entertainment
Déjà vu: David Tennant returns to familiar territory with Anna Gunn (‘Breaking Bad’)
tvReview: Something is missing in Gracepoint, and it's not just the familiar names
Arts and Entertainment
Buttoned up: Ryan Reynolds with Helen Mirren in ‘Woman in Gold’
filmFor every box-office smash in his Hollywood career, there's always been a misconceived let-down. Now he says it's time for a reboot
News
people
News
Actress Julianne Moore wins the Best Actress in a Leading Role Award for 'Still Alice' during the 87th Annual Academy Awards in Hollywood, California
people
Sport
Ross Barkley
footballPaul Scholes says it's time for the Everton playmaker to step up and seize the England No 10 shirt
News
'We will fix it': mice in the 1970s children’s programme Bagpuss
science
Life and Style
2 Karl Lagerfeld and Choupette
fashion
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Graduate Recruitment Resourcer

£20000 per annum + commission: SThree: Sthree have an exciting opportunity for...

Recruitment Genius: Telesales Executive - OTE £32,000+

£18000 - £32000 per annum: Recruitment Genius: A Telesales Executive is requir...

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Day In a Page

War with Isis: Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria's capital

War with Isis

Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria
Scientists develop mechanical spring-loaded leg brace to improve walking

A spring in your step?

Scientists develop mechanical leg brace to help take a load off
Peter Ackroyd on Alfred Hitchcock: How London shaped the director's art and obsessions

Peter Ackroyd on Alfred Hitchcock

Ackroyd has devoted his literary career to chronicling the capital and its characters. He tells John Walsh why he chose the master of suspense as his latest subject
Ryan Reynolds interview: The actor is branching out with Nazi art-theft drama Woman in Gold

Ryan Reynolds branches out in Woman in Gold

For every box-office smash in Ryan Reynolds' Hollywood career, there's always been a misconceived let-down. It's time for a rethink and a reboot, the actor tells James Mottram
Why Robin Williams safeguarded himself against a morbid trend in advertising

Stars safeguard against morbid advertising

As film-makers and advertisers make increasing posthumous use of celebrities' images, some stars are finding new ways of ensuring that they rest in peace
The UK horticulture industry is facing a skills crisis - but Great Dixter aims to change all that

UK horticulture industry facing skills crisis

Great Dixter manor house in East Sussex is encouraging people to work in the industry by offering three scholarships a year to students, as well as generous placements
Hack Circus aims to turn the rule-abiding approach of TED talks on its head

Hack Circus: Technology, art and learning

Hack Circus aims to turn the rule-abiding approach of TED talks on its head. Rhodri Marsden meets mistress of ceremonies Leila Johnston
Sevenoaks is split over much-delayed decision on controversial grammar school annexe

Sevenoaks split over grammar school annexe

If Weald of Kent Grammar School is given the go-ahead for an annexe in leafy Sevenoaks, it will be the first selective state school to open in 50 years
10 best compact cameras

A look through the lens: 10 best compact cameras

If your smartphone won’t quite cut it, it’s time to invest in a new portable gadget
Paul Scholes column: Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now

Paul Scholes column

Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now
Why Michael Carrick is still proving an enigma for England

Why Carrick is still proving an enigma for England

Manchester United's talented midfielder has played international football for almost 14 years yet, frustratingly, has won only 32 caps, says Sam Wallace
Tracey Neville: The netball coach who is just as busy as her brothers, Gary and Phil

Tracey Neville is just as busy as her brothers, Gary and Phil

The former player on how she is finding time to coach both Manchester Thunder in the Superleague and England in this year's World Cup
General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?