Devaluation hits Allied Colloids

SHARES in Allied Colloids fell 10p to 228p yesterday after the speciality chemicals group reported a 16 per cent fall in taxable profits to pounds 19m for the half-year to 2 October.

The drop, signalled by Allied last August, came despite a 17 per cent improvement in turnover to pounds 136m because of sterling's devaluation.

But the pound's weakness also raised the group's costs as its raw materials are priced in German marks. With the company unable to recover the higher costs from customers, profit margins came under pressure.

In addition, a jump in insurance premiums following a warehouse fire in Britain and the cost of defending patents raised overheads.

Analysts estimate the devaluation accounted for about 7 per cent of the profits decline, although a better second-half performance should help to offset the slide.

But City brokers have downgraded their profit forecasts for the full year. Martin Evans of Hoare Govett trimmed his estimate by pounds 6m to pounds 42m before tax for the year to March, against pounds 44m last time.

'Although the company had warned of the profits fall, trading conditions are still difficult,' Mr Evans said. 'Product price rises are few and costs are not falling.'

Group sales in North America rose from pounds 44.4m to pounds 52m. In Continental Europe they rose from pounds 44.5m to pounds 53.8m, but UK turnover slipped from pounds 22.4m to pounds 21.6m.

Earnings per share eased from 5.47p to 4.99p. The interim dividend goes up from 0.94p to 1p.

The company warned that trading conditions remained tough. 'We keep seeing encouraging signs for a month or two, but it flattens out again,' John Binnie, deputy managing director, said. .