Second warning sends DK shares crashing

Shares in Dorling Kindersley crashed to a three-year low yesterday after the illustrated book and CD-Rom publisher warned that the strong pound, trading problems in America and an accounting change would hit profits in the year to June. It was the company's second warning in three months and yesterday's 51p fall to 270p means the former go-go stock has more than halved in value over the past year.

Since the shares peaked at 645p last May, more than pounds 260m has been wiped from DK's market capitalisation, reducing the value of the stake held by founder Peter Kindersley's family by almost pounds 100m. He remained defiantly positive yesterday, insisting the problems facing the company were one- off blips.

Analysts reacted less sanguinely to news that, despite a 9 per cent rise in half-year profits to pounds 6.78m, the full-year result would lag last year's pounds 17.4m. One broker slashed his forecast from pounds 18m to pounds 10m.

The company blamed an upheaval in the American bookselling industry for trading problems in a market which now accounts for 41 per cent of group turnover. Large chains such as Barnes & Noble had reined in the rapid growth of recent years, Mr Kindersley said, and reduced stock in a bid to counter mounting losses.

The soaring pound is also causing problems, with 70 per cent of DK's sales made overseas, although it had warned the City of the threat last December. More unexpected was the announcement that software development costs, which were amortised over the life of DK's increasingly important CD-Rom products, would be written off as incurred. That reduced half- year profits by pounds 1.6m.

To counter the problems in its retail sales channels, Mr Kindersley said DK would accelerate the expansion of its direct sales operation, Dorling Kindersley Family Learning, which employs around 20,000 consultants to sell books and CD-Roms straight to homes and schools.

A target of 50 per cent of sales by 2000 has been set, up from 15 per cent currently, and operations in Australia and Russia have been launched.

Mr Kindersley said he was confident of the future of electronic publishing. DK saw multimedia sales rise 31 per cent in the period to account for 15 per cent of group turnover.

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