Dunhill gives warning after profits fall: Shares drop on 70m pounds result but final dividend is increased

SHARES in Dunhill Holdings, the luxury goods group, fell 44p to 335p after it produced annual profits at the bottom end of analysts' expectations and a trading warning.

Shares in Rothmans International, owner of 57 per cent of Dunhill, immediately dipped 11p to 608p on news of the 7 per cent fall in pre-tax profits to pounds 70.7m from the owner of the Alfred Dunhill, Montblanc, Chole, Hackett and Karl Lagerfeld brand names.

One consolation for Rothmans is an increase in Dunhill's final dividend from 4.95p to 5.25p, lifting the total payout by 6 per cent to 8.15p.

Lord Douro, chairman of Dunhill, warned: 'Trading in recent months indicates that unless major economies improve in the near future it is unlikely that the group will be able to sustain operating profit in the current year.'

He added: 'A number of countries are not looking as prosperous as before, and events are undoubtedly catching up on us. We have managed to get through two to three difficult years, and only now do we feel it necessary to be cautious.'

Operating profits for the year to 31 March were flat at pounds 55.5m, attained on sales and royalties ahead from pounds 254m to pounds 327m. The pre-tax result was hit by a pounds 5m fall in investment income to pounds 15m.

The Far Eastern markets, particularly Japan, have generated the biggest headaches, with consumer spending on luxury goods showing a substantial downturn.

Prices in Japan have also had to be cut to compensate for the strength of the yen. About 45 per cent of Dunhill's sales are made in the Far East.

Trading conditions in Germany, the home market for the group's Montblanc pens, Italy, and Spain have also deteriorated. Against that, Lord Douro said, there have been only 'very hesitant recoveries in the US and UK'.

Profits were also squeezed by very heavy investment on bolstering distribution operations. Dunhill controls more than 80 per cent of its distribution channels, and will soon top that figure up with a small purchase.

Acquisitions, notably last June's pounds 16m takeover of the Karl Lagerfeld fashion brand, contributed pounds 4m of profits from pounds 35m of sales. They were also responsible for most of the reduction in the group's cash pile from nearly pounds 180m to just under pounds 120m.

Dunhill, however, has no current plans to hit the acquisition trail and denied recent rumours that it was interested in buying Gucci.

'I think we've made the business stronger, and done what has had to be done. We have had no discussions with Gucci, and nor do we intend to have any,' Lord Douro said.

About pounds 17m of the increase in group sales came from exchange movements, although the effect on profits was neutralised by forward currency hedging, which will help this year's figures.