Kesa warns on profits growth despite TV boost

The flat-screen television boom helped Kesa Electricals to increase its interim profits by almost two-thirds, but the owner of Comet took the shine off its achievement yesterday by warning that sales and profit growth would slow next year.

Sales of flat-screen TVs doubled at Comet and at Kesa's French chain Darty in its first half, on the back of strong demand in the run-up to the World Cup. Sales of refrigerators and washing machines rose for the first time in 18 months. This helped interim pre-tax profits, up 62 per cent to £39.3m, to beat City expectations.

The profit rise came despite the higher proportion of sales of low-margin products like flat-screen TVs. Jean-Noel Labroue, chief executive, said margin deflation was "like cholesterol - there are good and bad types". The falling cost of new technologies was driving demand by persuading families to upgrade their old digital equipment, whereas cheaper white goods was "unhealthy" because that market is flat, he added.

Analysts edged this year's pre-tax profit forecasts higher - Merrill Lynch raised its expectations by 4 per cent to £160m - but trimmed their hopes for next year. Kesa shares, which have risen on rumours that Germany's Metro was interested in making a takeover bid, fell 14p to 318.75p. The group rebuffed a £1.72bn bid approach from a private equity group earlier this year, worth 325p a share.

Darty was the star performer, contributing £41.7m of retail profit, up 17 per cent on the previous year, on sales of £765.6m. Comet turned last year's £1.7m loss into a £4.7m profit, on sales up 10 per cent to £683.5m, but this was flattered by a gain from exiting a leased site. The turnaround at its French furniture chain BUT continued although Kesa lost money trying to build up fledgling businesses in Italy, Switzerland and Turkey.

The group raised its investment plans for the current year to about £120m, against £97m last year. It will put more mezzanine floors into its 246-store Comet estate and next month will launch a "triple-play" offer in France combining broadband, TV and fixed-line phone rental.

David Newlands, the chairman, reiterated he had been right to reject the bid approach this year. "Private equity houses have to raise their game," he said. "Making an offer conditional on due diligence and financing is not very attractive for a company or shareholders."