Statement from Adare totally inadequate

THE brief two sentence statement from Adare Printing Group last week was totally inadequate. Indeed, it was pathetic and should not be tolerated by the shareholders.

Granted the loss of the lucrative computer manual printing contract from Microsoft will not influence Adare's results for the year ended April 30th, 1996, out today. But it will put a hole in the expected profit for this year.

Yet this is all Adare chose to tell its shareholders in a statement dated June 11th but only circulated the following day. Mount Salus Press Ltd (a subsidiary of Adare) advised this afternoon by Microsoft Corporation that they will be phasing out their purchasing of computer manuals from Mount Salus and this process should be complete by September, 1996. The other business of Mount Salus Press consists of printing CD booklets for Microsoft, manuals for other leading software companies and printing school books and periodicals".

If that sort of statement were issued by a struggling company, with questionable systems, it might be understandable, but Adare has been one of the fastest growing companies. Expectations have been high and the stock market had accorded it a high rating.

Yet it choose to let the uninformative statement stand. It took its own brokers, Goodbody Stockbrokers, to provide a bit of light by reducing its expected profits for this year from £9.75 million to £9.15 million, or a cut of £609,000. While this may translate to a cut of just 2p to 3p in earnings per share, the lost contract surely warranted a full explanation.

It is just a year ago that Adare laid out £12 million to acquire Mount Salus. There were no signs then that it might lose the contract. The document giving the Adare shareholders details of the bid, just 13 months ago, admitted that substantially all of Mount Salus's printing turnover was derived from printing computer manuals for a major multinational software company (Microsoft was not named).

It had supplied that company for the previous nine years. And this is how Adare assured shareholders about that relationship. "The trading relationship with this customer has been based on repeated orders and, whilst no contract exists, the directors, and the proposed director, believe that this long and established relationship will not change as a result of the acquisition."

Adare did say that the number of pages in the manuals had been falling and that this trend would continue. Mount Salus has been printing Microsoft's European computer manuals in French, Spanish, Greek and Italian. Some brokers had been predicting a decline in demand by around 10 per cent per annum after 1996. But that contract will now be extinguished in September.

Those optimistic statements by Adare were made in May 1995, yet Microsoft claims that Mount Salus was alerted of potential problems as far back as July 1994. Microsoft said it had advised its suppliers "to broaden their customer base and seek business to substitute for the forecasted reduction in demand from Microsoft". Indeed, industry trends clearly pointed to a move away from printed manuals to electronic documentation.

Adare has not quantified the potential sales loss from Microsoft's decision, nor what write downs, if any, might be involved. The Mount Salus offer document seemed to imply that 70 per cent of the £16 million turnover in 1994 was involved in printing. While this was declining, the lost Microsoft contract could been worth almost £10 million in sales.

Whatever the figure, the investing public was sufficiently apprehensive to mark the share down by 85p to 440p, a drop of 16 per cent, in just two days. That represents a writing off of £8.5 million in the value of the company. Some of the Adare followers see the event as a mere blip, in its short hectic expansion.

Indeed, the substantial growth over the past five years, with a rise in sales from £3.0 million to £43.9 million in pre-tax profit from £0.3 million to £3.3 million and e.p.s. from 7.4p to 30.8p (and further growth for 1995/6 to be announced today) will provide them with a comfortable feeling. However, others might not be so sure.