VDC shares slump on profits warning

Shares in VDC, floated on the Alternative Investment Market at 400p in September 1995, crashed 110p to 165p yesterday after the medical products distributor warned that results would be "significantly below current expectations". The group, formerly known as the Veterinary Drug Company, blamed the problems on Procare Health, a dental supplies distribution business, acquired for pounds 6.1m last April from Enviromed, the biotechnology group riven lately by boardroom strife.

Robert Rabone, VDC's finance director, said they had uncovered several deficiencies in the pricing systems for the 27,000 stock lines carried by Procare. He described it as "a systems-based problem rather than a fraud or anything like that". The faulty systems had resulted in margins being overstated, reducing profits by some pounds 240,000 compared with what they had previously thought.

Mr Rabone said Procare had also been running with volumes "at least 20 per cent" below the budgeted level in a competitive market. Since acquisition, it had been recovering from the significant fall-off in turnover it suffered at the hands of Enviromed. From the nadir reached in September 1995, the business had recovered to levels in December and January above those of the comparable periods.

"But under the ownership of Enviromed, the management had put such strictures on the business that it had suffered badly, hence we bought it at a good price. Unfortunately, we are not going to meet the market's expectations of growth in that business now."

Market forecasts for group profits in the current year to May were cut by pounds 1m to around pounds 1.7m yesterday, only slightly ahead of the previous year's figure of pounds 1.65m. Mr Rabone said Procare had made profits of pounds 35,000 in the first half and had been expected to make "several hundred thousand" more in the second. They were now expecting it to turn in a small loss.

Procare's market share of the dental supplies market, put at around 10 per cent when it was acquired, was now somewhere between 6 and 8 per cent, Mr Rabone said. As well as some loss of share to the operation's two or three bigger rivals, he said the accuracy of market information had been improved.

He said they would not be taking any legal or other action against the vendors of Procare, however Ernst & Young, the group's auditors, have been asked to extend their review of the interim financial statements. Management reporting systems have also been tightened up. VDC's interim results are expected to be released on 21 February.