Blue Circle down 26% but holds interim payout

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THE recession in the UK construction industry has led to a 26 per cent drop in first-half profits at Blue Circle Industries, the cement and bathrooms group.

The taxable result slumped from pounds 57.5m to pounds 42.7m on group turnover up from pounds 531m to pounds 540m. Earnings per share dropped by 44 per cent to 3.5p thanks to a pounds 242m rights issue for the acquisition of Celsius, the French heating group, in June.

Although uncovered, the interim dividend is held at 3.75p, in line with the group's forecast at the time of the cash call.

However, Blue Circle warned that there was no sign of an upturn in the UK and a further reduction in demand for cement was on the cards in the second half.

Sir Peter Walters, chairman, who also heads Midland Bank, criticised the Government for responding slowly to the recession.

'The Government has had an overly complacent attitude to the length and breadth of the recession. It has been obvious for several months that there is no sign of green shoots of recovery,' he said.

Although Blue Circle expects a weak recovery to continue in the US, trading conditions in its home-products markets in Britain and continental Europe are unlikely to improve.

As a result, City analysts have taken the knife to their full-year profit estimates. Panmure Gordon, the broker, has cut its forecast from pounds 115m to pounds 108m before tax. The shares closed unchanged at 134p.

Group interest costs rose from pounds 10.2m to pounds 12.6m although net debt, excluding a pounds 90m capital bond issue, was reduced from pounds 306m to pounds 190m, representing 27 per cent of net assets.

Operating profits from the cement business dropped from pounds 45.4m to pounds 39.2m. Sales volumes in the UK were down 10 per cent and prices came under pressure.

The company is reorganising the business and will incur exceptional costs of pounds 3.6m to implement the efficiency improvements.

Home products, which includes Armitage Shanks bathroom ware and Potterton boilers, brought in virtually unchanged profits of pounds 23m. The result reflected strong demand for replacement heating parts and Italian ceramics products.

But lower demand for bathroom ware meant profits from Armitage Shanks eased from pounds 7.4m to pounds 6.6m.

The property division slumped to a pounds 2.2m loss against a pounds 500,000 profit last year, reflecting a sharp deterioration at the group's house-building arm. Other businesses saw their half-time deficit soar from pounds 1.6m to pounds 4.8m.

The company made an extraordinary profit of pounds 40m thanks to the disposal of a stake in a South African cement business.