New car launches squeeze first-half profits at Laird

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The Independent Online
LAIRD Group expects to suffer a profits squeeze in the first half because of its substantial investments wrapped up in a slew of new car launches, the components supplier said yesterday.

The company notched a 7 per cent increase in turnover to top the pounds 1bn mark for the first time, but its sluggish automobile sealing system division sent share values plunging 38.5p to 436.5p.

Laird, which supplies technical rubber and plastic components, produced the sealing systems for a number of new car to be introduced this year, including the Volkswagen Golf and Vauxhall Astra. The company will also produces sealing products for Cadillac, Citroen and the Ford Focus, which will replace the popular Escort.

Laird poured more than pounds 90m into capital expenditure and acquisitions in 1997, in what Ian Arnott, the chief executive, called "firepower for the future". Laird's long-term agenda includes expansion in Spain, Italy, France and the US, and an pounds 8m computer product plant planned for Ireland

"The major investment projects do involve additional costs in the short run, and these, together with the higher costs associated with new car model launches have put pressure on profits in the initial months of 1998," the company said.

The company has run into problems with the latest version of the Golf, as the manufacturers changed specifications. "The Golf launch hasn't been easy," Mr Arnott said. The new Golf was unveiled to consumers in December.

"They've been hurt by the launches, but they will be very important to them in the future," Adam Collins, an analyst with Merrill Lynch, said. "It's hard to predict returns. The Astra and Golf were involved in specification changes and additional costs were incurred. The car company can decide to make a last minute change and the cost gets dumped on you."

Mr Collins said that a first-half crunch was to be expected because launches tended to run up investment costs and take longer to deliver returns. "At the moment it is a pretty bad period for car launches from their point of view, but it is a second half story this year."

The strength of the pound wiped a further pounds 6m from Laird's profits, despite 70 per cent of its output being outside of the UK. "If the pound continues to rise, it will hurt us," Mr Arnott said. "It doesn't help your competitive position."

The group reported pre-tax profits for the year to 31 December, 1997, of pounds 67.1m, up from pounds 66.6m previously. Earnings per share increased to 36.2p from 33.4p and total dividend rose to 14.3p from 13.0p. The results were in line with forecasts, analysts said.