Shares in the fibre and foams group British Vita tumbled by 9 per cent to 243p yesterday after the company said rising raw material prices were keeping margins under pressure. The company said the "hostile and unprecedented" market conditions had seen chemical prices in the industry rise 50 per cent in six months while price rises had proved difficult to pass on.
However, Rod Sellars, chief executive, said input prices seemed to be reaching a plateau and price rises, including one this month, were being pushed though. "Chemical prices used to be similar to those of six to seven years ago, but the chemicals companies have been making up for lost time with recent increases," he said.
Mr Sellars said the company was looking to rebuild its margins although consumer demand remained flat. "There is always a time lag between input costs rising and us being able to pass costs on. The chemicals boys have been hitting us with a lot of price rises, particularly in the last quarter."
Mr Sellars said that under the circumstances he was pleased to report a 10 per cent increase in pre-tax profits for the six months to June to pounds 26m.
Sales rose from pounds 385m to pounds 450m, boosted by strong performances in the UK and Europe, although European profits fell to pounds 11m.
Recent acquisitions such as the Polish foam plant which came on stream last July were doing well. The Mowbray textiles division, which makes specialist yarns, was also performing strongly following its acquisition three months ago and the expansion of the fibre business in the UK and Europe.
The relatively weak demand for furniture and bedding has affected the cellular polymers division, which was also the worst hit by rising costs. Its operating profits fell from pounds 14m to pounds 11m, compared with the first half last year. The company has spent pounds 29m on acquisitions and capital expenditure.
Rising raw material prices have been a key factor for manufacturing companies over the last year, with some reaching the highest levels seen in a decade. Price rises for bulk chemicals such as ethylene and propylene have been among the largest.
British Vita has warned before about the impact of rising raw material prices. However the shares jumped in March when the company reported better- than-expected results for 1994, with profits up by nearly 50 per cent to pounds 49.5m. Earnings per share for the first half of 1995 rose 10 per cent to 7.7p. The interim dividend is 3.95p.