ECC results lead to downgradings

HALF-YEAR results from English China Clays, showing a fall in pre-tax profits from pounds 53.2m to pounds 40.8m after an unexpected pounds 13.3m charge for land bank writedowns and redundancies, provoked a rash of profit downgradings and a 75p drop in its share price to 371p.

Analysts fear that subdued demand for clay among European paper makers, who are losing sales to US competitors and also buying more clay from US suppliers because of the weak dollar, will put further pressure on ECC's profits.

Geoff Allum, of County NatWest, has cut his pre-tax profits forecast for this year from pounds 127m to pounds 90m and for 1993 from pounds 130m to pounds 95m.

This would indicate earnings of 23p a share, enough to cover a maintained 20p total dividend after an unchanged 6.6p interim payment.

Andrew Teare, chief executive, said yesterday that the volume of clay deliveries fell by 2 per cent in the first half.

But he had continued his policy of 'robust' pricing, and turnover rose slightly from pounds 295.1m to pounds 296.6m.

However, the loss of volume meant that margins were cut from 16.6 per cent to 15.7 per cent and operating profits at ECC International, the clay subsidiary, fell by 5 per cent to pounds 46.5m.

Within this a strong showing by Georgia Kaolin in the US was offset by weakness in Europe and the Pacific.

Mr Teare said that Georgia Kaolin did not yet have the capacity to supply Europe from the US, but by next spring he expected to be exporting 260,000 tonnes of clay.

The main pressure on the company's operating profits, which fell by 13.5 per cent to pounds 58.5m, came from its construction interests.

Road-building programmes in south-west England, where ECC has sizeable operations, helped to keep volume up in construction materials, but prices were weak because of industry overcapacity in quarries.

Despite progress in North America, construction material profits fell sharply from pounds 11.3m to pounds 7.5m.

The need for retrenchment has prompted ECC to reduce its regional sales organisations from three to two and cut administrative expenses.

There will be 400 redundancies and the pounds 4.5m cost has been taken as an exceptional item.

The main part of the pounds 13.3m exceptional item, offset by a pounds 2.4m reduction in pension fund contributions, is an pounds 11.2m writedown of ECC's housing land and properties held for refurbishment.

ECC is withdrawing from housebuilding and hopes to raise pounds 200m in cash from completed houses and unused land.

It has pounds 40m worth of houses on its books at cost but has written down its pounds 60m land bank by 15 per cent to take account of lower prices.