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September 13, 1990

PROFITS DOWN 27%: ANOTHER HARD YEAR, MORE RESTRUCTURING IN PROSPECT FOR AB ELECTRONIC

By CBR Staff Writer

Abercynon, Mid Glamorgan-based AB Electronic Products Group Plc has reported a year-end pre-tax profit of UKP11.1m, down UKP4.1m from the same time last year, on a turnover of $261m. While the sales figures presented some cause for celebration being at an all-time high – up 25% on 1989 – and the shares put on 13 pence at 217p with relief that the figures weren’t worse,, AB’s chairman, Sir Peter Phillips, expressed deep disappointment at the further decline in profits which have fallen by a third over the last two years. AB attributes lower profit margins to competitive market pressures and higher interest charges which have risen from UKP683,000 to UKP3.8m in just a year. Although the company would not elaborate on the split in profits between its six product groups, components, automotive, assembly, resale and distribution, aerospace and defence, and telecommunications, the board admitted that resale and distribution had turned in a loss from the sale of micro products. A downturn in defence spending, reculting in weak demand for AB connectors, and a depressed market for thick film products both contributed to a difficult year for the components section of the business with losses from the thick film business at Edmondstown. Despite the military cuts, the aerospace and defence product group returned satisfactory profits. Rapid sales growth was reported in the satellite television and cable markets, but heavy competition and the cost of introducing new products resulted in a disappointing performance for the telecommunications group as a whole. The assemblies group recovered from the operational problems of the first half, but market conditions remain difficult due to the effects of the economic downturn on computer investment. AB’s restructuring process to reduce costs and improve efficiency will continue well into the current financial year. This has so far involved the consolidation of the group’s multipin circular connector activities on to one site in Wales – even with the Gulf crisis, AB says, we don’t expect any real improvement in the demand for defence products in the short-term. Also among the restructuring actions have been the consolidation of the group’s resale and distribution activities, the closure of Tandata – following British Telecommunications Plc’s failure to follow through with its proposed plans to develop a viewdata service equivalent to Minitel in France (CI No 1,400), and a cut in corporate staff now that many of AB’s subsidiaries are virtually self-sufficient – but the restructuring will only prevent deterioration: no positive benefit to the bottom line is expected and more restructuring will be needed to compensate for the current state of the market, although no details were given – the board merely said it was likely that AB would specialise in its most skilled areas, assemblies, components and automotives, and that the other businesses might be reorganised.

Equity swaps

It hastened to add, however, that it would not be withdrawing its commitment from the defence market – the connectors group, which is in this market remains heavily committed to new products in this area. AB’s strategy for the future includes a worldwide expansion – the group has recently acquired a small company in France and has signed one or two new contracts with international companies such as Ford. When asked whether any future joint ventures or possible partnerships might involve equity swaps the board were suddenly evasive, but commented that the Japanese and Americans are looking for partnerships in Europe. In mainland Europe, Sir Peter reported, AB’s position remains strong and market conditions are more favourable than in the UK – overseas business now accounts for 27% of turnover, with exports having risen by 30% over the past year. The automative product group, which made steady progress during the year, is reported to be performing particularly well in Germany. AB says it’s future outlook should not be prejudiced by its restructuring programme – although the focus this year will be on cash manage

ment, AB is determined to remain competitive. Sir Peter sees a tough year ahead. But, in spite of the shadow of gloom cast by the group’s overall profit decline AB is signalling a longer term optimism by holding the final dividend at 17.5 pence per share.

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