1st Dental directors warn of insolvency threat

Harrogate-based 1st Dental Laboratories, which supplies dentists with bridges and crowns, was granted a suspension of its shares on the Alternative Investment Market (AIM) pending a clarification of its financial position.

In a statement to shareholders, 1st Dental revealed that it had come under "severe pressure" from HM Revenue & Customs and other creditors to meet its financial obligations.

However, the company said that the decision to appoint administrators had given the company a window of opportunity to meet creditor obligations "as far as possible in due course".

1st Dental leads the UK laboratory market with a five per cent share, and has a network of 14 laboratories. It competes with about 3,500 small laboratories across the UK, who serve the nation's 28,000 dentists.

While the results for the half year to May 31 2010 were "satisfactory" overall, the directors said that the group and its key customers had experienced weaker demand in recent months.

Last night, 1st Dental chairman Grahame Sewell said: "We are working hard to bring in capital and take the company out of administration."

The statement added: "As expected, the months of July and August were soft months from a revenue viewpoint. However, there has been no evidence of any significant increase in revenues in September, which traditionally is a stronger month for revenues.

"It is expected that revenues for September will be well short of internal budgets."

During the first half year, the group saw a decline in revenues of 4.1 per cent compared with the previous year, although it achieved a profit before tax of 10,000.

The management accounts in August showed a decline of six per cent on the previous year. Feedback from other laboratories around the country has also indicated that they have experienced a decline in revenues, especially from private work, 1st Dental said.

The costs of laboratory operations and central costs had been reduced compared with the previous year, but the revenue shortfall has resulted in the group making a loss for the first nine months of 123,000, a 63 per cent reduction in losses from the previous year, which means the overall cash position has deteriorated.

The directors recently set up an invoice discounting facility and have taken actions "wherever practicable" to generate cash.

The statement continued: "The directors have taken advice from insolvency experts to look at the options for the group, given the overall worsening of the market situation and the financial position of the group and have considered possible methods of refinancing the group.

"The directors have also taken into account that there appears to be little likelihood of trading conditions improving in the near future.

"Further, the business model limits the immediate impact that any sales actions might have, given the nature of the group's activities, being to meet demand from dentists arising from patient visits. Therefore, the directors have reluctantly come to the view that the group is in danger of trading while insolvent, and cannot raise additional funds within the short term and have consequently decided to appoint an administrator."

1st Dental has 220 staff.

Group eyed expansion

Two months ago, 1st Dental Laboratories said it was ready to seize opportunities in the fragmented dental market after returning to profit.

In July, the company's chief executive Nigel Spring told the Yorkshire Post: "The financial status of the industry in conjunction with a skills shortage will drive the consolidation of the industry. We believe we are well placed to work with that."

At the time, 1st Dental said it hoped to lead a move towards larger laboratories which had been seen in the US and Asia. It aimed to do this mainly by grabbing market share and launching new products.

The company endured a tough two years' trading following the

acquisition of Benchmark, its biggest rival, in 2004.