company's recent results, reports David Fox . An efficiency drive is already under way and diversification could follow.

Office and medical supplier Staples Holdings Ltd. must address key competitive issues in an effort to improve profitability, its chief executive said yesterday.

For the publicly-held company, improving profitability is right now its single, biggest challenge.

After releasing delayed annual results for a company that increased sales, yet reduced profitability, president and CEO Michael A. Johnson said yesterday, "Increased competition in office equipment and office supplies at Staples Ltd. is the major cause of the margin decline.'' The firm's other subsidiary, Atlantic Medical International Ltd. (AMI), grew by $2 million from $179,000 in sales in the prior year. And it appears poised for further near term growth.

But in the year to March 31, the overall firm's gross profit decreased by two percent, pulling net earnings down 31 percent to $435,000 (see yesterday's The Royal Gazette ).

The company's annual results were delayed until this week because of staffing changes. The first half year results to September 31 are, however, expected to be released before Christmas.

The most significant uses of cash in the year were the payment of the preferred share dividend ($588,000) and capital asset purchases ($511,000) principally for a fully integrated information management system.

In the hot seat just since June, Mr. Johnson concedes there are operational issues the company must resolve.

He said, "We need to re-think and re-look at just about everything we do here. If you keep doing the same things, you keep getting the same results.

"They are clearly not good enough and that's reflected in both last year's annual report and the current six month performance.'' Mr. Johnson said additional one-off costs and adjustments can be expected in the near term, but the company should be strategically positioned for growth into the year 2000.

He said focus has been given to cost management and required improvements in cash flow, together with an investment in programmes that will more clearly differentiate the company in a competitive market.

The firm will seek additional streams of income, through diversification. But Mr. Johnson said that wouldn't happen in the short term.

He said, "We still have a number of operational issues to address and a number of developments underway in our core businesses that need to be completed before we would be looking at diversification or entering new markets.'' But the company will build on the success of its AMI division.

Mr. Johnson noted, "It will be expanding its customer base into alternate sites and finding some new customers within the medical and healthcare community in Bermuda. That is an obvious extension of where we currently are.'' He said of the overall company, "The single biggest challenge is to look at the finance structure of this business, the numbers and the balance sheet, and, improve profitability and cash flow at the same time you implement strategies that will differentiate you from competitors.

"It has been a while since there has been a real hard look at the cost side of this business. We made a lot of investments that will position us quite well in the future.

"The moving into our new premises on Serpentine Road (the old Winter Cookson warehouse) soon will greatly improve our situation, bringing together elements of the business currently spread out over three locations.

"But still, we've had to take a long look at the cost structure and the balance sheet of this company.'' Bringing about efficiencies is seen as a key issue in a limited market place that is, at present, undergoing growth on the heels of increased efforts from industry competitors.

As the principal tenant at Serpentine Road as of January 1, the company not only will create efficiencies by the consolidation of operations, but also move into a location that is better equipped, logistically and distribution-wise, for the staging of those operations.

With fewer than 60 people employed at the company, there were inefficiencies in the way job functions were structured, making labour costs too high.

Mr. Johnson said, "We are still in the process of addressing them, although I don't think you ever finish that exercise.

"But yes, there were inefficient processes, and therefore our labour costs were too high.'' CHALLENGING TIMES -- Staples CEO Michael Johnson, who is determined to make necessary changes to combat increased competition.