View from City Road: Past mistakes catch up with LIG

It takes rare talent for a condom- maker to lose money in the middle of an Aids crisis, but London International Group made a basic error. In the 1980s the company expanded from condoms and surgical gloves, a business it knew well, into photo-processing, a business it knew little about.

There was little synergy. The group never developed a satisfying rationale for its diversification into such a highly cyclical area. While the good times rolled, the then management was apparently content to let its acquisition generate half its turnover and profits without really understanding what made the business tick.

As a result, the recession took LIG unawares. It meant less money around, fewer holidays, and fewer holiday snaps. In an industry with few entry barriers, it also meant overcapacity and a vicious price war.

LIG has taken more than three years to come to terms with its mistake and to realise that the companies most likely to make money out of processing are those, such as Kodak, which can exploit the advantages of vertical integration.

So the (mostly) new management team is going back to the non-cyclical area in which it can at least claim a technological edge, putting photo-processing up for sale. Job cuts and asset sales will pay for past hubris. Whether a buyer can be found (the balance- sheet value of the photo business is pounds 35m) is another question: outright closure could cost the group up to pounds 50m. A rights issue is the likeliest outcome and a powerful reason for avoiding the shares.