Unidare warns of sharp profits fall

UINIDARE shares are expected to fall sharply in Dublin after a profits warning from chairman Mr Jim Culliton at the group's annual general meeting yesterday.

After the disclosure of weaker than expected trading in the US and Britain, Unidare shares were offered at 240p to 250p yesterday, well off Wednesday's 294p closing price. There were no dealings in Dublin, but in London the shares fell 50p to close at 250p sterling.

Less than a month after the engineering group released its annual report, Mr Culliton warned share holders that pre tax profits for the year to end September, 1996 "are likely to fall short of those achieved last year". Unidare returned to profit last year with pre tax profits of £8.13 million after a loss of £1.5 million for the previous year.

Last night, brokers Goodbody and Riada cut current year pre tax forecasts for the company to around £7.5 million with earnings per share of 27.8p from previous forecasts of £8.6 million and 32p.

Nasco, the group's US distribution operation which generated about 45 per cent of group profits last year, "will fall short of its planned profit for the year" while the British welding business is not expected to meet its targets, Mr Culliton said. In the annual report, he told shareholders the company had budgeted for a slower start this year, but he expected "a build up of momentum in the second half arising from sales and marketing initiatives across all businesses, especially in the US".

Now, despite winning a large, tender contract in the US sales which were not included in targets, for the current year profits - Nasco are expected to fall.

Sales at the Minneapolis St Paul distributor of welding equipment; were in line with targets in the first quarter (October to December, 1995), according to Mr Culliton. In January and February sales fell below targets and margins came under pressure, he said.

While the new contract would, bring sales "closer to budget" in the second half, profits would fall because the contract sales would be at a lower profit margin, finance director Mr Peter Gray said. Overall gross margins, historically around 20 to 21 per cent, were now about a half a percentage point below normal, he said.

The problems for Nasco, one of the largest national wholesalers of the product type in the US, arose because "the economy is weaken than we expected it to be," he said.

To limit the impact of the current downturn, Nasco is examining ways of reducing costs without damaging the infrastructure of the business and ways to stimulate sales. In Britain, anticipated growth in high margin sales of specialised welding products in the second half is no longer expected. "This sector has been very erratic in the first five months of the year and we are less confident heading into the last seven months," Mr Gray said.

Unidare issued the profits warning because the market was weaker than expected, he said. "There is no good time to announce bad news, but we felt we should send a timely signal to the market."

The group's other businesses are "trading satisfactorily" and Unidare was actively looking for acquisitions in the US and Britain, he said.