Downturn delays BBA demerger

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BBA, the aviation services and industrial materials group, has delayed the planned demerger of its Fiberweb division after a downturn in trading at the unit. The company told the City yesterday that due to challenging trading conditions this year's first half profits at Fiberweb would be substantially lower than those seen in 2005. BBA shares fell 8.5p to 262.5p in response, valuing the whole company at £1.2bn.

Fiberweb, which produces non-woven fabrics such as those used to make nappies and hospital blankets, had been due to be demerged from the rump of BBA in June. This has been put back until the autumn as the business, which has been hit by high energy and raw material costs and weak volumes at its North American hygiene operation, is restructured. The management has closed a site in Toronto and plans to rationalise facilities in South Carolina.

Andy Murphy, an analyst at the stockbroker Panmure Gordon, downgraded his earnings forecasts for Fiberweb. He expects the division to make a profit of £38m compared with £45m previously.

He said: "We remain negative for a number of reasons; the demerger has been delayed yet further, the US dollar is weakening further, and raw material and energy costs continue to rise." Mr Murphy downgraded his 2006 profit forecast for the whole of BBA to £114m from £120m and warned the company might have to cut its dividend.

BBA decided to hive off Fiberweb, which is unconnected to its aviation services business, in November. Originally it sought to sell the unit but after failing to attract a high enough offer opted to seek a separate listing for it on the London Stock Exchange.

There was some good news for BBA shareholders yesterday. The company said that its aviation services operation, which accounts for more than 75 per cent of group profits, is trading ahead of expectations.