Warning hits Low & Bonar price
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Your support makes all the difference.Low & Bonar, the Dundee-based packaging group, became the latest casualty of the sector's tough trading conditions when it issued a profits warning yesterday.
Shares in the company dropped 13 per cent to 483.5p when it said weaker- than-expected trading at its silage wrap business and North American packaging operations would affect current year's profitability. The company said its silage wrap business had been particularly affected by the weather together with increasingly competitive market conditions.
New chief executive Jim Heilig warned in July that the severe US winter had hit demand for sacks and cement bags but boosted demand for salt and grit bags to deal with America's snowbound roads.
UBS has downgraded its current year profits forecast by pounds 3m to pounds 53.5m but has not changed its "hold" recommendation on the stock.
Some analysts said the share price reaction was too extreme. "The reaction seems harsh. The statement in itself didn't warrant 13 per cent off the market capitalisation," one analyst said. However, the analysts admitted the warning had come as a shock.
In July, Low & Bonar predicted a slight "pick-up" in trading when it reported a 6 per cent rise in pre-tax profits to pounds 26m for the six months to May. The company is now only expecting "some underlying progress for the rest of this financial year".
In July, Mr Heilig boasted that the company's results underlined the company's success in concentrating on profitable niches and its strategy of balancing the group over a number of segments "to minimise cyclicality". But even then Mr Heilig spoke of "challenging market conditions".
The company also announced yesterday the acquisition of two Belgian polypropelene fabrics businesses for pounds 9m. The two purchases, of UCO Technical Fabrics and UCO Ostend Netting, will require a pounds 2m restructuring charge. The two divisions recorded profits of pounds 1.2m on sales of pounds 19.2m last year.
Many companies in the paper and packaging sectors have been hit by volatile raw material prices and de-stocking. This has forced profits warnings from companies such as Rexam, Arjo Wiggins Appleton and De La Rue.
Low & Bonar had previously managed to offset the difficult conditions by bearing down hard on costs. In July it succeeded in reporting higher profits on lower sales. The company then said that the second half would benefit from lower costs and more efficient production.
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