Tight margins push Gestetner into red: 'Industry-wide squeeze' cancels out sales increase

GESTETNER Holdings, the office equipment distributor, announced a pre-tax loss of pounds 33.2m for the year to October, compared with a profit of pounds 27.1m the year before. The dividend for the year was cut to 3p, down from 8.2p.

The poor results were expected following a profits warning earlier last year and losses at the half-year stage. Operating profits were 38 per cent down from 1992. There was also an exceptional restructuring charge of pounds 43.5m.

Sales topped pounds 1bn, a rise of 11 per cent, but according to Stephen King, finance director, Gestetner's margins have come under pressure across the board. The company is moving towards higher-value office machines such as colour copiers and plain paper faxes. Even so, Mr King said: 'We are not really budgeting for any increase in margins. There is an industry-wide squeeze.'

The photographic products divisions saw no increase in sales. A planned deal to sell the US-based Vivitar camera business fell through. Gestetner has decided to keep it, and has installed new management.

Ricoh, the Japanese photocopier giant, owns nearly 30 per cent of Gestetner. Inchcape, the distribution and services company, took a 15 per cent stake last May. Inchcape has an option to buy Gestetner's loan stock by next July, and will be able to convert this into a further 10 per cent equity stake.

Inchcape's interest prompted Gestetner's restructuring and the arrival of a new management team. There has been a reorganisation that will result in about 600 redundancies in total. Brokers estimate the reduction in the cost base at about pounds 30m.

Sandy Morris, an analyst at NatWest Markets, said: 'If margins do improve in the medium term, it is a very cheap stock. But I'm afraid to say I regard it as a low-quality business.'

However, others see Inchcape's presence - with speculation that this could lead to a full bid - as a prop underneath Gestetner's share price. The shares closed 2p down at 159p.