Office equipment supplier Erskine House Group Plc is depending more on US sales as those in the UK and Germany – particularly for new photocopiers and facsimile machines – dry up. Overall UK sales fell 11.4% to UKP24.9m, while operating profits plunged 60.6% to UKP1.2m. A new managing director and marketing director have been appointed, and the former managing director is now looking after the London and the South East where sales are suffering particularly badly. But despite a serious drop in profits in the UK, the services business, which now generates half of the group’s revenues, held up well everywhere. Pre-tax company profits in the first six months dropped 29.1% to UKP4.7m, turnover was flat at UKP87.3m. Nonetheless, the proposed interim dividend remained the same as last year at 2.3 pence. The results suffered because of the relative weakness of the dollar until mid-September, which diluted a good US performance. Sales of new photocopiers, facsimile machines and related products in the UK declined 24% on the comparable period last year. Margins were squeezed by a competitive market that worsened in August and September. Chairman Brian McGillivray said this was the main cause of decline in group profitability. In the past month, Erskine cut sales costs, but savings will take time to come through. It is relying on service revenues meantime: these make up 54% of UK turnover. Profits from services remained virtually unchanged. Towards the end of the last financial year, the Sevenoaks, Kent group began investing in its marketing and sales support as well as in a new computer system, expecting an improvement in the economy this year. Although it hasn’t, Erskine has decided to continue the projects, which cost approximately UKP260,000 during the half-year.
East Germany
Benefits from this investment are not expected to show until fiscal 1993 and 1994. The situation in Germany wasn’t much better, where a weak market, rising interest rates and slowing growth made customers reluctant to replace old kit. Sales of new equipment were down 25%, although, as elsewhere, the service side grew. Revenues here increased 14%, while contribution to profits was up 34%. The newly-established operations in former East Germany (CI No 1,944) continued to be profitable, and the rebuilding of sales teams in Hamburg and Hanover is now complete following attempts to rectify dwindling sales levels. Overall, German revenues fell 8% to UKP5.4m, while operating profits plunged a ‘disappointing’ 71.6% to UKP214,000. This was down to higher central expenses because of increased recruitment and training costs. The US was the only operation to see recovery in demand for new equipment. Sales to end-users increased 15%, although volume has not yet returned to 1990 levels. Contribution to profit here almost doubled. Service and supplies make up 47% of total business volume, and contribute most to profits. Revenues grew 5%, margins also rose slightly. The growing wholesale business, selling low-volume copiers, facsimile machines and related products to small office equipment dealers, grew 35% on last year. This now represents 16% of total US turnover, although contribution to profit is much smaller. The two main suppliers for the wholesale operation are Sharp and Ricoh. Additions to senior management in the US have reportedly led to an improvement in sales productivity, service quality and information systems, but have resulted in higher overheads. Progress on reducing working capital was ‘disappointing’, resulting in attempts to improve inventory management. Overall, the US saw operating profits rise 9% in dollar terms, although only 0.5% in sterling, while turnover, when translated into pounds, grew 3.4% to UKP5.1m. Chairman McGillvray felt this showed ‘an encouraging continuation of last year’s progress’, following the division’s period in the doldrums.
