Profit warning knocks shares in Courtaulds

SHARES in Courtaulds Textiles slumped 54p to 489p after the company was forced into a second profit warning this year because of deteriorating trading conditions in Europe, writes Neil Thapar.

The move comes less than a month before Martin Taylor, chairman, leaves to take up a new job as chief executive of Barclays Bank.

In a statement to shareholders, the company said trading conditions across the Channel had worsened in October and November while signs of a recovery in Britain during the early autumn were not maintained.

The company was also hit by teething problems in commissioning a new hosiery factory in the UK, with the result that it could not meet demand for the peak winter trading period.

Courtaulds is therefore unlikely to match last year's profits of pounds 39m before tax. However, it has pledged to improve this year's final dividend to reflect the board's confidence in trading expectations for next year.

The group first warned of difficult conditions at its annual meeting in May when it said first-half profits would be lower than previously.

But in September Mr Taylor reassured investors of a strong second-half recovery. 'I am confident there will not be a fall in profits at the year-end,' he said. 'A year ago we were in the ERM and interest rates were high. The benefits of a lower exchange rate and interest rate cuts are coming through.'

However, yesterday's warning prompted brokers to slash forecasts. Peter Dzedzora, textiles analyst at Henry Cooke Lumsden, downgraded his taxable estimate from pounds 46m to pounds 38m for this year and from pounds 52m to pounds 45m in 1994. 'This confirms that conditions in Europe are very tough. Companies have used the devaluation to boost sales not margins,' he said. Courtauld shares reached a peak of 600p last March.

View from City Road, page 36

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