Tough markets set to slow Laporte down
Tuesday 16 March 1999
The company, whose chemicals are used in toothpaste, paints and condoms, said the abolition of advance corporation tax, last year's sale of its hygiene division and sterling's continued strength would wipe around 5 per cent, or pounds 5m, from this year's profits.
The chief executive, Jim Leng, said that 1999 would be a "tough year" after a three-year unbroken run of record profits, earnings and margins. He warned that the company's problems could be compounded by difficult conditions in Far Eastern markets. "For the coming year, we expect no assistance from external factors or from the major economies in which we operate," he said.
However, Mr Leng claimed that the radical restructuring of the past three years - which transformed Laporte into a focused speciality chemicals business and caused the loss of almost 2,000 jobs - would see the company through 1999.Profits growth should pick up again in 2000.
Mr Leng's comments came as Laporte beat City expectations with a 1 per cent advance in 1998 pre-tax profits to pounds 134m on turnover up by 2 per cent to pounds 710.4m. The results received an pounds 18.1m boost from Inspec, the UK speciality chemicals company bought last year for pounds 600m.
The four-month contribution from Inspec led to a near-doubling in profits at Laporte's speciality organics business. Strong growth in the division - which makes chemicals for medicines such as Nurofen and the anti-impotence drug Viagra - offset a profit decline in the electronics business, which was hit hard by a slump in the market for semiconductors.
City analysts said the results proved that Mr Leng's three-year strategy of selling underperforming subsidiaries while moving away from cut-throat commodity markets was paying off. The key to Laporte's success is its strong margins, which last year rose to 16.7 per cent from 11.4 per cent in 1997.
While many of its UK peers were wrongfooted by a sharp downturn in global markets, Laporte has weathered the storm, thanks to its exposure to high- margin industries. Producing sophisticated chemicals for pharmaceuticals and life sciences companies pays more than churning out commodity products, and Laporte's margins are among the best in Europe.
Continued growth in the speciality organics division is paramount if Laporte is to achieve its target of 17.5 per cent margins in 2000.
Laporte's good performance triggered rumours of a takeover bid from Clariant, the Swiss giant. Mr Leng yesterday declined to comment, but analysts said bid speculation could prop up the share price.
Martin Evans, head of research at stockbroker Sutherlands, said: "For shareholders, there is a double support: speculative interest but also good growth prospects."
Laporte shares yesterday fell by 31p to 626p on profit-taking after a heady run. They are now on around 12 times 1999 earnings predictions of around pounds 136m. Mr Evans says this is a discount to many UK and European competitors, including ICI and Clariant, and Laporte should be bought despite the expected slowdown in 1999.
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