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July 8, 1993

RECESSION TAKES ITS TOLL ON MICROGEN’s MICROFILM AS THE FIRM DIVERSIFIES

By CBR Staff Writer

Pressure on margins together with reduced revenues at Microgen Holdings Plc’s traditional computer output microfilm business have taken their toll on interim profits. Pre-tax profits fell 14% to UKP3.8m, although overall turnover did rise 4.7% to UKP26.1%. This was due to a rapid increase in revenues generated from the Radlett, Hertfordshire-based new packaged – or value-added service offerings, which accounted for the majority of sales growth at the electronic printing division. Turnover here increased 21.8% to UKP8.7m. But as chairman Douglas Lee expected, the start-up costs of Demand Publishing and significantly increased marketing and training expenditure, mainly in packaged services, absorbed a high percentage of the profits. Demand Publishing is a new service that went live in December 1992. Customers send their training or software manuals to the firm, which both prints and stores the information on a computer in electronic form. The customer hooks his computer up to Demand Publishing’s, so he can update the document and electronically request that copies are printed and dispatched to a certain site at a certain time. Although a small amount of revenues were generated from this service during the six months, Lee does not expect it to reach break-even point until next year. The computer output microfilm business, however, as mentioned above, suffered from competitive pricing pressure, predominantly in the UK, but also in Scandinavia somewhat too. Lee said that, although the market was relatively stable in volume terms, the main problem lay in the high fixed costs of the business. Migrogen has 33 bureau operations in seven countries, employing 300 staff in total. And whether each of these bureaux generates one microfiche or 10,000 microfiches per month, the fixed costs remain the same. As a result, if either volumes or margins fall even slightly, the cost in profit terms is disproportionately high. Still, he reckons there are signs that things are stabilising, and says that although present conditions will continue into the second half, they shouldn’t worsen. Moreover, in May and June of this year, Capella AB, the group’s Scandinavian holding company, bought two more computer output service firms for UKP1.8m – A/S EDB, which is marginally profitable, and Teamco, which it doesn’t officially take over until August 1 (CI No 2,205). The two will be merged to take advantage of economies of scale and redundancies will follow. But because of the high costs of shedding staff in the country, Lee expects neither to contribute to profits until next fiscal year. As for the six months ahead, he doesn’t expect any massive bounce-back in profits, but does believe Microgen will make steady progress at a modest rate. The group proposes a maintained interim dividend of 2.2 pence.

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