More textile cuts loom
Sunday 05 May 1996
The heart of the problem, which prompted a second profits warning in five months last Wednesday, is destocking of lace by manufacturers and retailers. Another hot summer like last year's would undermine autumn sales and could accelerate the company's rationalisation.
"If, after destocking, the US market reveals it has a long-term structural problem, then we will have to take a fresh look at operations," said Noel Jervis, the company's chief executive.
Courtaulds plans to push more clothing manufacturing offshore to places such as Asia and North Africa, where pay rates are lower, jeopardising some of the 15,500 UK-based jobs. One of the company's four US plants, which employs 1,350, could also close if market conditions do not improve.
Mr Jervis is pinning his hopes on an upswing in sales. "With some growth in the market place we would hope to add jobs overseas without an equivalent loss of jobs here," he said. "UK productivity is increasing, but we will have to respond to reality by moving production capacity to low wage cost areas."
Profits from lace in the UK are expected to be pounds 1m lower than they were at the half-way mark last year, while US sales are running 30 per cent below a year ago.
Courtaulds now expects its US division to incur a small first-half loss. Last year, it generated interim profits of pounds 4.4m.
"Margins from UK operations will be poor," predicted NatWest analyst Joan D'Olier, who has trimmed her 1996 profits forecast from pounds 47m to pounds 38m.
"The fashion market in the US has moved from lace to smoother stretch fabric styles where margins are lower," she said.
"Manufacturers can't pass on cost increases to retailers and are still coping with higher raw material costs."
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