DK bullish despite dip in sales

A 4% dip in sales in the first half of its fiscal year failed to dent optimism at the publicly quoted publisher Dorling Kindersley. It said that the first nine weeks of its second half had been its busiest period for two years.

The optimism was partially shared by the City, which, despite the sales decline, marked DK's shares down just 2.5p to 297.5p on the day.

The results for the six months to end-December 1998 show turnover down by 4%, from £91.3m to £87.4m. Trading profit grew by 8.7% to £5.1m, with pretax profit up 16% to £4.7m.

The company blamed the turnover reduction on a decline in international licensing revenues, largely because of economic problems in areas such as South America, Japan and Asia and an anticipated reduction in US licence income, where DK now publishes.

Sales fell in all of DK's main markets except for the UK. Sales in the US fell by 4% to £35.2m; sales in Europe fell 13% to £13m; sales in the rest of the world fell 9% to £9.9m. By contrast the UK saw sales rise 1% to £29.3m, with growth in UK publishing of 2% to £20.3m.

Peter Kindersley, executive chairman, said the trading environment internationally was "less than ideal", but despite this the company had produced an improved financial performance. "In effect, we're back on track," he said.

He was bullish about the second half of the year. "In the first nine weeks of trading in the second half of the year, revenues are ahead of the comparative period in 1998 and, in particular, the publishing businesses in the US, UK and Australia are showing substantial year-on-year growth."

Divisionally there was a fall in turnover in each of DK's publishing businesses. DK Adult saw sales decline by 2.4%, from £43.2m to £42.2m. This was blamed on a reduction in licensing income.

At DK Children's, business turnover fell 3.6% to £35.3m, due to a fall in licensing income and the underperformance of DKFL in the US and the Funfax business in the UK. Mr Kindersley said the Funfax business was "under review".

DK Interactive Learning, its troubled CD-ROM business, which is now concentrating on producing learning products for schools and homes, saw sales fall 16% to £8m.

At DK Vision, its video business, sales increased by 2.5% to £2m. DKFL, its direct selling operation, saw turnover decrease by 8% to £16.5m, largely owing to the devaluation of the rouble and the underperformance of the US operation. DK has now decided to pull out of Russia at an exceptional cost of £1m. DKFL US had already been "repositioned", the company said.

Mr Kindersley said the company was working to develop its direct selling operations, through the continued expansion of DKFL and the relaunch of its Website, dk.com. He called the development of new channels for direct selling "one of the most significant changes in retailing in our lifetime".

Finance director David Houston spoke of DK's plans for "taking greater control of the supply chain". He revealed it was constructing a distribution centre in the US, and hinted that a similar venture might be in store for the UK, but added that no decision had been made yet.