Tight margins slash ICL annual profits: 'Character-forming year for computer industry' keeps flotation date uncertain

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FIERCE competition in the worldwide computer industry led to a sharp squeeze on profit margins at ICL, the computers group that is 80 per cent owned by Fujitsu of Japan. Pre-tax profits slumped from pounds 62.4m to pounds 38.6m in 1992, despite a 32 per cent increase in turnover to pounds 2.5bn.

The company, which is scheduled to be floated on the stock market by 1995 at the latest, saw average margins fall by 6 per cent to 35 per cent. The squeeze, which cost pounds 109m, is believed to have been particularly tight in mainframe computers, traditionally one of the most profitable market sectors.

Peter Bonfield, ICL's chairman and chief executive, said that the timing of ICL's flotation would depend on a resolution to the current uncertainty in the information technology industry. 'Our shareholders are committed to a re-listing of ICL's shares during the mid-1990s, although the timing will depend on our performance,' he said. ICL's other shareholder is Northern Telecom of Canada, which acquired its 20 per cent stake when it bought STC.

Mr Bonfield said: 'I do not need to remind people that 1992 was a character-forming year for the computer industry worldwide,' adding that 1993 would also prove difficult.

However, analysts remain positive about ICL's performance. The company is the only big European-based computer manufacturer to have remained in profit during the current downturn in the industry.

Mr Bonfield said that ICL would continue to use earnings to build market share, enter new areas and to restructure the cost base. He admitted that the strategy would affect short- term profitability, but said that it had Fujitsu's full support.

Revenues from Continental Europe were pounds 1bn, boosted by a full-year contribution from Nokia Data, which ICL bought in late 1991 for pounds 230m. The acquisition of Nokia has helped ICL to increase market share in personal computers and smaller systems. These products are considered increasingly important as recession-hit customers defer purchases of large and expensive computer systems.

ICL has been focusing tightly on particular market segments, including financial services, retail and government. The downturn in local government spending is thought to have lost ICL around pounds 40m in sales last year.

The share of revenues from hardware manufacture has been declining, reflecting a trend in the industry as a whole. Software and services now account for over half of ICL's total revenue.

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