Courtaulds hit hard by clothing downturn

Investment: Textiles group warns that profits will be 12 per cent down
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The Independent Online
COURTAULDS TEXTILES yesterday warned that profits for 1998 would be down 12 per cent on the previous year following a dismal autumn for UK clothing sales.

Action already taken to reduce costs and bring production into line with substantially lower demand in the second half will result in an exceptional charge of pounds 11m being taken against profits for 1998 when they are announced on 11 March, the company said yesterday in a trading statement.

The latest charge includes pounds 5m for the Claremont business acquired in September for pounds 46.3m, where Courtaulds announced in December that it was cutting 1220 jobs. The remainder is to cover plant closures already announced elsewhere.

Profit before tax and exceptional items is expected to be pounds 36m, down from pounds 41.2m and below market forecasts. The company said operating profits had been hit by the decision to cut output to meet falling demand and excess stocks.

Analysts said that the downbeat statement reflects the continued gloom on the high street, where clothing retailers, including Marks & Spencer which accounts for around 4 per cent of Courtaulds' sales, are struggling.

The disappointment at yesterday's news was compounded by the fact that profits before tax at the half-year stage were 20 per cent up on the first half of 1997 at pounds 12.1m. The group traditionally makes two-thirds of its profits in the second half.

Colin Dyer, Courtaulds' chief executive, said the UK businesses started the autumn with healthy order books but by year-end sales were significantly lower than expected.

Mr Dyer refused to rule out further cutbacks in the UK in the event of demand remaining weak this year.

"We've nothing planned for the moment. But we are watching very carefully to see how consumer confidence settles down."

He added, however: "Over the longer term there is a move from higher cost countries to lower cost countries."

International markets generally remained stronger than the UK. Courtaulds' French lingerie business benefited from improved product ranges and lower costs, but lace suffered from weaker demand and lower exports from Europe to the Asia-Pacific region. Sales in the US were strong.

Duncan Hall, an analyst at the stockbroker Wise Speke, said: "The figures are not substantially below where people were. The picture is more what happens in 1999. Courtaulds are being very cautious."

However, the jury is still out on whether the slump in demand in the second half of 1998 is a temporary phenomenon, reflecting weaker consumer confidence generally, or the result of a more permanent shift in consumer tastes.

Mr Hall said that the impact on the industry was far-reaching, with weavers and dye manufacturers suffering a severe downturn in demand, leading to widespread cuts in production and plant closures.

Courtaulds' shares fell 13p to 160p.