Profit warning puts Dorling shares into dive
Peter Kindersley, chairman and chief executive, told shareholders at the company's annual meeting that sterling's 9 per cent appreciation since September would cut sales by pounds 5m and pre-tax profits by pounds 1.6m if sustained throughout the rest of the financial year to next June.
The warning sent the group's highly-rated shares, which peaked at 645p in May, plunging to 420p at one stage yesterday, although they later rallied to end 82.5p down at 436p. Three years ago, Dorling saw its shares dive by around 100p after it said problems with a distributor would hit profits.
Yesterday's warning is just the latest in a series from British companies forecasting that their export business or the translation of overseas earnings would be hit by the pound's rise. Yesterday Siebe, Britain's biggest engineering group, said its half year profits of pounds 190m would have been around pounds 9m lower if translated at current exchange rates.
Around 40 per cent of Dorling's sales are in the US. Although the group is establishing a sales force across the Atlantic, the group's costs are predominantly determined in sterling, so it will be squeezed if the dollar continues to be weak against the pound.
The problem is being compounded in the US by a highly competitive and sluggish book retailing market, where the group has been expanding for the past two years, and difficult trading in CD-Roms.
Rod Hare, managing director said big publishers like Random House and HarperCollins had also been complaining recently of flat markets across the Atlantic, along with increasing levels of book returns. He believed it would be a short-term problem as retailers reviewed their stocks to obtain the highest margins. CD-Roms were no worse than expected, he said, but there continued to be heavy competition for shelf space, while many retailers had gone into Chapter 11 insolvency.
Analysts cut their forecasts from around pounds 20m to between pounds 18m and pounds 18.5m yesterday to take account of the problems. Lorna Tilbian of brokers Panmure Gordon agreed the difficulties were short-term and suggested this was a buying opportunity for the shares.
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