Drop in Amstrad profit knocks 10% off shares: Group blames poor results on dismal high street trading

THE FOURTH profits warning in two years and disappointing interim results took nearly 10 per cent off shares in Amstrad, the consumer electronics group headed by Alan Sugar.

An operating loss of pounds 1.9m in the six months to 31 December was more than offset by interest earnings from the company's pounds 143m cash pile. Even so, the pre-tax profit of pounds 1.7m, down from pounds 5.6m, was below analysts' expectations.

Amstrad blamed dismal high street trading conditions, and warned that prospects in consumer electronics remained bleak. Turnover was down by 34 per cent, at pounds 133m, mostly due to lower sales in Britain.

The chairman's statement held out little hope of improvement during the rest of the year: 'Our best expectations for the full year result would be to try and maintain a break-even position.'

Margins were squeezed, too, by appreciation of the dollar and yen, since Amstrad sources many of its products in the Far East.

The company has pulled out of products where margins were particularly low, such as cheap personal computers. Cutting prices to eliminate stocks of such goods is one explanation for the drop in turnover.

Tony Dean, finance director, said this move had left Amstrad with 'clean' stocks, and the company had now changed its approach to supplying PCs. Rather than selling high volume, low margin lines sourced from the Far East with long lead times, it was now assembling machines in Essex to detailed specifications from customers.

Amstrad has also begun to diversify with the acquisition of Dancall, a Danish mobile telephone manufacturer, in September. It hopes to have models based on the latest PCN and GSM technology ready for the British market by the end of the year.

The company is in discussions with mobile telecoms operators about providing their users with cheap handsets in return for a share of airtime revenues, and said the response had been 'quite positive'.

Amstrad is still looking for a chief executive, having decided a few months ago to split the top role. Mr Dean said the search had now been extended beyond the electronics industry, to find someone with a broader background: 'It would be useful if Amstrad moves out of electronics. I'm not saying we definitely are diversifying, but we question whether we should confine ourselves to consumer electronics.'

The interim dividend was held at 0.2p, while net cash stood at 25p per share on 31 December. The shares closed down 4 1/4 p at 40 3/4 p.

(Photograph omitted)