BTR warns of pressure on profit margins: Shares tumble as City fears for companies reporting

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The Independent Online
BTR, the industrial conglomerate, sent shares tumbling yesterday when it announced disappointing interim profits and warned that it was finding it difficult to push through price increases.

BTR's own shares dropped 44p to 338p, a new low for the year, while the FT-SE 100 index closed 23.9 points lower at 3,180. At one stage, it was down 37.7 points as the City worried that other companies would also be hit by rising raw material prices.

Norman Ireland, BTR's chairman, said orders were strengthening and the north American and Australian businesses remained buoyant. But he added: 'Overcapacities in many of the group's markets, together with raw material cost increases, are giving rise to pricing pressure which will continue to make the improvement of margins difficult to obtain in 1994.'

His comments came as the group announced a pounds 694m profit before tax for the first six months of the year. Although that was 16.1 per cent higher than the previous year it was at least pounds 50m below what the City had expected and forecasts were sharply downgraded.

Analysts noted the increase was largely due to a pounds 98m profit on the sale of businesses and a pounds 38m contribution from acquisitions. Excluding that, profits were just pounds 10m higher, despite a 6 per cent rise in underlying sales to pounds 4.5bn.

Margins from continuing operations fell from 15.7 per cent to 15.1 per cent, reflecting difficulty in passing on increases in raw material prices to customers.

'We wanted the City to understand things are difficult,' Alan Jackson, chief executive, said. 'Raw material prices are rising. There is still very severe surplus capacity internationally which does not permit selling price movements.'

BTR is the second large company to warn of raw material price increases this week. Bowater said that paper and pulp prices had risen by 20 per cent so far this year, and another 10 per cent was expected. But it said it was managing to pass these on to its customers and warned that could mean pressure on inflation.

Robert Faircloth, chief operating officer, cited the valves business as one area where excess capacity was keeping prices low. 'There are not a lot of pharmaceutical, oil or chemical plants being built at the moment. That business is highly profitable for us.'

BTR also blamed the disappointing figure on 10 'problem businesses', which had reduced profits by about pounds 50m. The largest of these is BAE, the airport engineering business, which was making a conveyor system for Denver airport.

That concluded at the start of the year so the profits included in the first half of 1993 were not repeated and it is still suffering commissioning costs. The contract has been plagued with cost overruns and the company is still negotiating the final payment with the airport authorities.

Analysts downgraded their full- year forecasts. Nigel Utley, of Nomura, has cut 6 per cent from his forecast, leaving it at pounds 1.33bn, before exceptional disposal profits. He believes, however, that the fall in the share price was overdone.

There was also disappointment with the dividend, which was increased by just 5 per cent to 5.2p. Earnings rose by double that percentage to 12.5p. It will be paid as a foreign income dividend, taking advantage of legislation introduced in July to help international companies save advance corporation tax.

Like other companies that have offered FIDs, the payment is being increased by 25 per cent to compensate shareholders who do not get a tax credit on an FID.

Kathleen O'Donovan, finance director, said the company was still considering whether it would repeat the exercise although it has ruled out paying a foreign income dividend at the half-year.

(Photograph omitted)