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Sterling warning hits Reed shares despite profits rise

Reed became the latest victim of the strength of sterling yesterday, warning that the high-flying pound would peg back profits in the first half of this year. Analysts took the red pen to forecasts and the shares slipped 17p to 1,156.5p despite a 12 per cent rise in underlying profits in the year to December and the promise that Reed's consumer books arm will soon be back on the block.

Reed withdrew its consumer books division from the market two years ago after an auction attracted bids of pounds 70m-pounds 80m, much less than the company had hoped to raise. It recently sold a portfolio of some of the business's best-known imprints to Random House for about pounds 20m, but said yesterday it was confident the remaining reference, illustrated and children's books would soon be attractive enough to achieve a sensible price.

Profits last year of pounds 806m were up from 1995's pounds 736m but at the bottom end of analysts' expectations. Forecasts for the current year were reined in to about pounds 865m as analysts predicted underlying growth of around 10 per cent would be held back to about half as much by currency factors.

Nigel Stapleton, deputy chairman, said: "The strength of sterling in recent months will, if sustained, have a marked effect on the Reed Elsevier combined businesses' reported results this year, particularly in the first half."

Earnings per share in the year to December were 9 per cent higher at 56.2p and the dividend was lifted 11 per cent to 27.2p.