Silvermines, the engineering and technology group, has warned that profits in 1998 "will be significantly below 1997". This will mark its first profit downturn for many years. Despite this reversal, the group has noted that it has a strong balance sheet and intends to maintain the final dividend. The profit warning will come as a surprise to shareholders. Last August, Silvermines announced a 54 per cent increase in first half profits before tax and exceptional items to a record £3 million sterling (#4.3 million) and there were no signs of any problems at that stage.
The market has reacted negatively by marking the shares down 61/2 p sterling to 28p sterling.
The group is now in the process of disposing of a number of noncore activities to generate cash for future investment. Chairman, Mr Bob Morton, said these were small but would result in a write-down. Asked about the intentions of TT Group, a British specialist engineering company which built up a 5.8 per cent stake in the group, he said no talks were taking place but that TT regarded the stake as a strategic investment. He noted that the TT Group was currently involved in a takeover so there was "no prospect" of anything at the moment. While operating profits from continuing operations in 1998 would be in line with, or slightly ahead of, those achieved in 1997, they would be below market expectations, Silvermines warned. Some brokers had forecast 16 per cent profit growth for 1998.
Silvermines, in its shareholder alert, said it would have to contend with exceptional write-offs in the second half, investment writedown and losses from discontinued activities. All this would drag profits down significantly. Not all divisions are suffering. While the broadcast and telecommunications division and the electrical division performed ahead of budget, "overall trading is below expectations as a result of a downturn in orders". This was most noticeable in the last quarter in the aerospace and security divisions. These trends are said to have continued into this year. However, the board has already taken action to mitigate the impact.
The security division had to contend with a downturn in orders from Britain and continental Europe. A programme to reduce costs was undertaken in the second half.
The aerospace division produced similar profits to those generated in 1997, but were still lower than expectations. This poor performance was blamed on an effective moratorium on defence spending and the consolidation of the European defence industry. These activities are now being rationalised.
(# - Euro)
