View from City Road: No cheer for Wace investors

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The Independent Online
WACE yesterday wished its shareholders a happy Christmas with a shockingly savage property write-down, a profits warning and a threat to the dividend. Coming on top of the departure of its managing director John Clegg and a Department of Trade and Industry inquiry into questionable share dealings, the pre-press and printing group has had a miserable year.

A Richard Ellis survey of Wace's properties has slashed pounds 32m from the pounds 57m valuation approved by the board in May. Even in the absence of a property market, this looks extreme. Trevor Grice, who took over as Wace's chief executive a month ago, said he was extremely shocked by the Ellis valuation.

Wace's balance sheet is further weakened by pounds 1.3m of surveyor's fees and a pounds 3.3m provision for the cost of surrendering leases. Mr Grice, a Yorkshireman who seems to fancy himself as a master cost-cutter, also plans redundancies and a reorganisation at the cost of another pounds 5m. The whole exercise will halve Wace's net assets to something over pounds 30m, on which it must support pounds 100m of debt. No problem, says Mr Grice.

Second-half profits will be substantially down on last year. Wace lost money in July and barely broke even in August. Shareholders should ask why more was not made of this when Wace announced its interims at the end of August.

Remarkably, Mr Grice sees nothing wrong in the April results statement after Mr Clegg's departure. Wace's chairman, Frans ten Bos, said: 'Wace is a well-managed company with an organisational structure which is not dependent on any one individual.' It has a funny way of showing it.

Mr Grice intends to tackle the company's problems by selling its US business, for which he hopes to get pounds 65m. If successful, Wace might start to offer recovery potential next year - but it's a big 'if'.

Before costs and provisions, Wace might make pounds 9m- pounds 12m. The shares, down 25p to 52p yesterday, are still too high. Sell.

(Photograph omitted)