Smaller Companies: Ending the pain in Spain

EXPECT some pretty gruesome figures on Friday from Ashley Group, which until recently enjoyed the unlikely combination of a British window blinds business and a chain of Spanish supermarkets.

Two weeks ago the loss-making Iberian grocers were finally sold to a consortium of investors including Sir Ralph Halpern, the colourful former head of the Burton menswear group.

With a changed year-end, reported losses will be for the 16-month period to December. Kleinwort Benson expects a pounds 6.5m deficit even before property losses, which amounted to pounds 2.8m at the 12-month mark last August.

If Ashley chooses to throw in losses from Spain between December and disposal, the final figure is likely to top pounds 10m. Losses from Spain in the year to August were nearly pounds 3m and trading in the final four months of the year, and since, has deteriorated markedly, according to the company.

Those figures will bring to a close a sorry tale of ill-conceived expansion. Digsa, the supermarket chain, was injected into Ashley, then a plywood business, in July 1988. Disaster struck two years later when it acquired Dismo, a rival chain.

The integration of Dismo and Digsa never worked. The acquisition was, contrary to expectations, not making any profits, and management was said to be weak. When the Spanish economy started crumbling, it became evident that 1993 would be another difficult year of price competition, and the strain of servicing pounds 33m of debt started to tell.

Selling the business for pounds 20m to Sir Ralph and friends from Hong Kong is rather a coup. The cash will come in over two years, but is not dependent on earnings warranties so should arrive, and will more than wipe out remaining borrowings of about pounds 12.5m.

What's left is the original plywood business, which made a profit in the year to last August of pounds 123,000, and Eclipse, a window blind company. That is making about pounds 5m at the operating level so, after pricy London head office costs of maybe pounds 1m, and interest payments, profits this year could reach pounds 1.5m.

Resulting earnings per share of about 0.8p mean the shares, at 15.5p, are by no means cheap, and no one should consider buying them until the report and accounts, with a pro- forma balance sheet, arrive. Existing shareholders should hold on for recovery and breathe a sigh of relief that the Spanish nightmare is finally over.