SBG sets aside pounds 3m for cost of contracts

SOUTHERN Business Group, the photocopier leaser, provided pounds 3m in the year to September to cover the cost of rewriting contracts with disgruntled customers. It also warned that a squeeze on margins would affect profits this year.

David McErlain, chairman, said about 2,000 contracts had been changed, out of a customer base of 20,000. He added that further provisions would not exceed pounds 200,000.

About half the provision had been used to offer customers credits for copies that they had not used but had been charged for under their existing agreements. The rest covered the cost of renegotiating the contracts.

Southern is still in dispute with seven customers, who had started legal actions on the advice of former employees. Mr McErlain said the potential liability amounted to pounds 100,000, while it had lodged counter-claims worth pounds 500,000.

After the provision, pre-tax profits emerged at pounds 12.2m ( pounds 15.3m). Earnings per share were 8.44p (10.62p) and a final dividend of 2.45p contributed to a 10 per cent increase in the full-year total to 3.72p.

Mr McErlain said margins, which had been as high as 30 per cent during the 1980s, were unlikely to be more than 24 per cent as a result of changes in the way the company's contracts were negotiated. Profits of about pounds 13m are expected this year.

Southern's shares closed 2p lower yesterday at 82p, 30p higher than the low they reached last summer following an admission by the company that some of its salesmen had acted fraudulently and that changes to its contracts would limit profits.

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