Yule Catto warns on weak dollar and oil price rises

Yule Catto, the chemicals and pharmaceuticals company, yesterday warned that the weak dollar and strong oil price would hurt its profits next year.

The shares dropped nearly 12 per cent during the day on the news, before closing 10.6 per cent down at 228p, making the sale of 1.3 million shares by the company's deputy chairman, Michael Peagram, last month look particularly well timed. He netted £3.6m from two trades at prices between 260-263p in November.

Mr Peagram still owns nearly 4 per cent of the company and the disposal is thought to relate to a divorce settlement.

Yule Catto yesterday said the continued strength of the oil price meant its raw materials costs were difficult to predict for 2004.

The materials used to develop the chemical components that Yule Catto supplies for products such as hair dyes and latex gloves derive from oil. "The raw materials in our polymer division are a downstream product of oil. The price of oil has been at more than $30 a barrel and it is stubbornly refusing to fall. That has a cost for us," Sean Cummins, the finance director at Yule Catto, said.

Analysts at Merrill Lynch yesterday dropped their 2004 forecasts on the company by about 21 per cent and their 2005 forecasts by 10 per cent.

About 20 per cent of Yule Catto's sales are in the US, and the fall in the value of the dollar is damaging earnings.

"We are just reminding our investors that we are losers from a slide in the dollar. A lot of our sales into the Far East are dollar denominated. We have seen a 10 per cent fall in the dollar recently and that will show on our bottom line," Mr Cummins said. Yule Catto is also struggling against the onslaught of competition for its pharmaceuticals in the US.

Rival companies are challenging the position of Yule Catto's pharmaceutical partner, Schwarz Pharma. Yule Catto yesterday said sales of omeprazole, the active ingredient in a copy of AstraZeneca's popular ulcer drug, Prilosec, were "somewhat unclear".

Despite the problems, Yule Catto said trading volumes across all business sectors had been reasonable and that it believes it can meet expectations for this year.