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December 10, 1987

RECOVERY AT THORN EMI STILL LEAVES ALL BUT RENTAL+RETAIL WITH DISMAL PROFITS

By CBR Staff Writer

With its rental and retail sector – Radio Rentals, the new Rent-A-Center in the US, HMV and Rumbelows shops – accounting for 36.5% of Thorn EMI Plc’s UKP1,421.1m first half turnover (full figures below) but a full 88% of the UKP65m operating profit, it is easy to see why the company has been shedding businesses left, right and centre and spending the money on further rental operations abroad. With blue chip names like Thorn-Ericsson, Software Sciences and Datasolve, the Technology division has been saddled with the tag of white hope for the future – but it can’t only be the losses sustained by Inmos International Ltd that leave the division with a dismal UKP7.3m operating profit, just 11.2% of the total, on turnover of UKP351.9m, 22.2% of the total. Even more dismal is the EMI music business – a mere UKP1.5m operating profit on turnover a little less than that of the Technology division at UKP326.6m: the market gossip that Richard Branson has his eye on the records and music publishing business for his Virgin Group could have some substance to it. The other division, Consumer & Commercial did a little better, showing UKP7.6m operating profit on sales of UKP188.5m. All three low profit divisions actually showed big profit gains in percentage terms, which underlines how far they still have to go before they can be said to be trading satisfactory. Thorn regularly reaffirms its commitment to the Technology business, but yesterday’s figures can only increase the pressure on the division to perform, which underlines why Thorn is so anxious to be shot of at least a substantial part of the Inmos burden. Yesterday’s announcement that the static RAM business was to be brought back home to save $20m a year (see front) had leasure analysts who follow the company in the depths of despair, because it seemed to signify that sale of the chip business is not, after all, imminent. Chairman Sir Graham Wilkins was thoroughly chirpy in his message to shareholders, saying that all our mainstream businesses have performed well. He concludes by saying that We are confident that we shall make further progress in the second half compared with last year, although the rate of profit growth of just over 46% achieved in the first half may not be sustained throughout the year. The market was much less sanguine, slicing 18 pence off Thorn’s share price at 534 pence on the figures prior to announcement of the devastating US trade deficit at lunchtime, which sent the shares into a tailspin. Pressure for break-up of Thorn is likely to grow.

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