Profits at the engineering group Tomkins plunged 80 per cent in the first half of the year, smashed by the $175m (£ 88.4m) writedown it made at its Canadian car parts business following falling sales of SUVs.
The UK group posted only a slight decline in sales, but pre-tax profits plummeted to just $61.6m for the first six months of this year, from $293.6m in the corresponding period of last year. Its forecast for the second half of the year only served to heap more misery on investors.
David Newlands, Tomkins chairman, said the group "continued to face challenging macroeconomic conditions in the first half of 2008". He added that its automotive original equipment and residential housing operations "have weakened further since our last update". Profits were hit by what the group called a "non-cash impairment" of $175.1m, primarily in relation to the value of its Ontario-based Stackpole business, which is fully exposed to the weakening automotive markets in the US.
The surprise announcement of this charge was brought on by North Americans turning against that bugbear of the environmentalists – the sports utility vehicles, or SUVs – and light trucks.
"Production volumes of light trucks and SUVs have fallen faster than we budgeted for," the chief executive Jim Nichol said, adding that production was at its lowest level since the 1980s.
Tomkins bought Stackpole, which makes car parts for customers such as General Motors and Ford, for $331m in 2003.
The group added that its building products division had also suffered in the wake of the credit crunch.
It expects market conditions to continue to be "challenging" for a number of its businesses, including for building products and Gates Powertrain, the residential business of its Air Systems Components division.
The group added that while the industrial and automotive markets in Europe were relatively strong in the first half, they are expected to soften in the second.
The company will also be battered by the rising cost of energy and raw material, especially steel and oil-related materials, and admitted it would be forced to put up its prices as a result.
"We expect the second half headwind from raw materials to be higher than the first, though low-cost country sourcing, material substitution and price increases will mitigate much of the impact," it said.Reuse content