Investment: Blue Circle fights off Asian fever

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The Independent Online
BLUE CIRCLE, the building materials group, is meeting top analysts to warn them that 1998 profits will not meet some expectations, it emerged yesterday. The veiled profits warning caused a sharp slide in the company's share price, which shed 7 per cent in the two days.

The company's finance director, James Loudon, is engaged in a whirlwind tour of the Square Mile to brief 30 brokers ahead of the results announcement on 29 March. Mr Loudon is understood to have explained to analysts that a pounds 600m-plus acquisition spree in Asia in the second half of 1998 would hit Blue Circle's earnings in 1998 and this year.

In August the group bought out its joint venture partner in Associated Pan Malaysian Cement, Malaysia's leading cement producer, for pounds 185m. In October it acquired the second-largest cement maker, Kedah, for pounds 351m, followed by a pounds 135m swoop on a number of companies in the Philippines.

A source said: "We are explaining fully how our recent acquisitions are going to dilute earnings in the next couple years." The warning is believed to have prompted some analysts to consider cutting predictions for 1998 earnings by up to pounds 10m to about pounds 315m.

Rumours of the briefings filtered out on Monday. Blue Circle's shares, which fell out of the FTSE 100 in September, went into a spin: the stock yesterday closed down 10p at 271p, following a 10.5p slide on Monday.

Industry experts said the company was paying the price of increasing its exposure to the crisis-ridden Asian economies. They said that although the turmoil in the Far East had helped Blue Circle buy at bargain prices, some of the companies bought were in dire financial condition. Heavy debt burdens have been compounded by a slump in demand for cement and heavy building materials as Asian economies slowed. At the interim stage, Blue Circle's profits in Malaysia and Singapore more than halved as cement sales slowed sharply.

Analysts predict that the downturn will deepen in the second half, with the fall in demand for cement set to widen from 26 per cent in the second half to around 35 per cent.

Asia's contribution to group finances plummeted in the first half and now accounts for just over 5 per cent of Blue Circle's pounds 1bn-plus interim turnover and 4 per cent of its pounds 142m operating profit. In 1997, the region contributed more than 8 per cent of turnover and 10 per cent of operating profit.