ERM crisis welcomed at Glynwed: Engineering group reports profit boost and warns that European recession is its 'biggest uncertainty'

THE turmoil in the European currency markets should hasten recovery on the Continent, according to Glynwed International, the engineering group, which yesterday reported that increased exports had helped it to lift profits in its first half-year.

Exports in the six months to 26 June were pounds 50m, up 16 per cent on the previous period, and now account for 30 per cent of the group's British turnover. That, together with continued cost-cutting benefits, helped it to report an 18.8 per cent rise in pre-tax profits to pounds 18.3m, on sales up pounds 15.7m at pounds 476.1m.

Gareth Davies, chairman, said that the recession in Europe was now the 'biggest uncertainty' facing the group. He said recovery in Britain and the US - which account for 65 per cent and 15 per cent of its business respectively - had started. 'It is not robust and not in all sectors, but the outlook is clearly better than on the Continent', he said.

The collapse of the exchange rate mechanism was likely to be 'mildly positive' for Glynwed, as it should bring interest rate cuts both in Europe and Britain, helping confidence.

Glynwed is dependent on the housing market for sales of products such as Aga and Rayburn kitchen ranges and Flavel cookers, as well as pipes and other fittings for construction companies. Mr Davies warned that, although housing starts were rising and could show a 12 per cent rise this year, housing transactions were likely to be flat.

Despite the lack of a housing recovery, profits from its consumer products business rose from pounds 2.4m to pounds 3.7m, helped by a gain in its share of the market for cookers. Sales of Agas and Rayburns - which can cost up to pounds 6,000 each - also rose 8 per cent.

The steels and engineering division also performed well, increasing profits from pounds 6.9m to pounds 8m, as exports increased. But the tubes and fittings business continued to lose money, although the loss fell from pounds 2.6m to pounds 300,000 as water and gas companies cut back orders. Mr Davies said the company was looking forward to the publication of the Monopolies and Mergers Commission's report on British Gas, which should get demand back to normal levels.

Capital spending rose pounds 6.6m to pounds 10.7m and is likely to reach about pounds 25m in the full year, two-thirds higher than last year but below the peak of pounds 40m. Borrowings stayed flat at pounds 86m, or 41 per cent of net assets.

Earnings per share were 5.73p, up from 4.57p last time - although the previous year's figure was restated from 4.96p to comply with new accounting regulations. The interim dividend was held at 4.15p a share.

Andy Chambers at Nomura is expecting full-year profits of pounds 45m, up from pounds 30.9m last time, for earnings of 14.3p. He said that, although Glynwed should benefit from recovery, that was already reflected in the share price, which fell 5p to 304p yesterday.