Blue Circle shares dive by 20% as warning dashes hopes of recovery

A STARK profits warning from Blue Circle Industries yesterday triggered a 20 per cent reversal in its share price as the building-materials group said its Asian operations were set to report a full-year loss.

A STARK profits warning from Blue Circle Industries yesterday triggered a 20 per cent reversal in its share price as the building-materials group said its Asian operations were set to report a full-year loss.

Britain's largest cement maker said that it expected an 18 per cent slump in full-year pre-exceptional profits to £260m, torpedoing already faint investor hopes that the company may be primed for a gradual recovery.

Blue Circle pinned the blame for the projected fall on difficult trading conditions across three of its emerging-market operations, including a 25 per cent collapse in demand seen in Chile. The timing of the announcement was partly determined by a forthcoming analysts' visit to the company's troubled Malaysian operations.

Blue Circle shares plunged 66.5p to 269.5p, taking their losses since the start of last month to more than 40 per cent. However, they remain up from their year-low of 257p, touched on 20 January.

Over recent months, the chief executive Rick Haythornthwaite has repositioned the group as a pure building materials play, shedding a series of non-core assets.

"The average [Malaysian] price could well reduce significantly in the future and the timing of the improvement thereafter remains uncertain," Blue Circle said. "In the Philippines ... competition from imports has affected the group's volumes."

At its interim announcement last month, Blue Circles suggested that demand in the Philippines was expected to pick up in the second half. While it also warned of price uncertainties in Malaysia, it was optimistic about future cost savings from a planned integration of facilities.

Andrew Melrose, an analyst at Paribas, said: "I think that the problem that the investment community has comes in part from the upbeat presentation ... from [Mr] Haythornthwaite [at the interims]. That would have aggravated the market's reaction."

Analysts estimated that the Asian operations could post of an operating loss of £5m over the full year compared with profits last year of £8.8m.

Blue Circle also warned that poor weather along the eastern coast of the United States could leave its mark on the full-year figures. Last year, North American operations accounted for more than a third of the group's operating profits of £356m.

The company said that there was an additional risk of an exceptional cost related to restructuring its Philippine businesses, an issue which was not mentioned in last month's statement to shareholders.

"The group is undertaking an integration programme in the Philippines which will add significant value to that business but which is likely to include an exceptional cost this year," Blue Circle said. It did not detail the possible extent of the charge.

"I was going in at the £300m [estimate] level before this," Johnson Imode, analyst at Charles Stanley & Co, said. "It is a question of the extent of the losses that they are going to have out there. Prices have obviously been much weaker than they anticipated.... There had been a feeling that things in Asia were improving."

James Loudon, Blue Circle's group finance director, said that its recent £388m acquisition of Heracles General Cement, Greece's largest producer, and its associate, Halkis, had broadened the group's reach.

A consortium of rival Greek bidders had threatened to force an European Union investigation of the transaction, claiming their higher bid had been ignored. "I think that the dust has settled," Mr Loudon said. "Our share price has taken a bit of a pasting [from the warning]. It's now our job to get the profits back up."