ARNOTTS could increase its profits to £7 million for the full year, compared to £5.4 million last year, following better than expected interim results published yesterday.

The results showed a 43 per cent rise in pre tax profit from £1.68 million to £2.4 million in the six months ended July 31st, 1996.

Although no forecasts have been made, Arnotts could increase profits from £5.4 million to almost £7 million in the full year. This is well above some brokers' existing predictions of £5.6 million.

Growth in the second half, when most of the profits are generated, is not expected to be as rapid. Managing director, Mr Seamus Duignan, announcing the interim results yesterday, conceded that competition will become more intense in the last quarter, when the £100 million Jervis Street development comes on stream.

New stores such as Debenhams and Boots, which are moving into the centre, will initially draw away some business. The Blanchardstown shopping area will also have a negative impact, the company admits.

Mr Duignan stressed that the group is happy about the Jervis Street development because it "enriches the selection" for shoppers. Arnotts expects continued growth but the developments "will slow us down".

Arnotts is spending £34 million developing an extra 160,000 sq ft off retail and office space at its Liffey Street and Middle Abbey Street, Dublin properties. This is expected "to be finalised over the next 18 months.

The latest interim results were boosted by a £50,000 contribution from Brinks Allied, the security firm in which it has a 50 per cent stake. A £60,000 reduction in interest payments also contributed, as did a decline of £90,000 in operating costs.

Last year, Arnotts invested £100,000 in Neil Jordan's Michael Collins film under the section 35 scheme and this non recurring cost also benefitted the results. However, there was still a £400,000 increase in gross profit, indicating good underlying growth.

The profit growth at the earnings per share level - from 6.1p to 10.9p - was substantial at 79 per cent. This is partly due to the lower tax rate from a designated development (the film investment). Shareholders are to benefit from the profit growth. The interim dividend is being raised from 3.25p to 3.75p.

Group sales grew by 4.6 per cent. Excluding concessions the growth was 4.1 per cent, to £23.3 million.

Mr Duignan noted limitations on space, due to development work, reduced group sales by 2.5 per cent, and the Henry Street store sales by 3 per cent.

Sales and profits from the Henry Street store were up, but importantly, the percentage of staff costs to sales was down. There was a "very satisfactory net profit".

The Grafton Street outlet is largely concessionary but it had a sizeable improvement in profits.

Boyers was a little slower to start but is now very healthy and the improvement has been "quite dramatic".

Brinks Allied is expected to increase profits from £180,000 to £300,000 this year. Arnotts share is half of this. No dividends are envisaged from the security company as it still has a high debt level. As a non core business Arnotts has been trying to sell its shareholding.

Arnotts gearing is expected to be under 40 per cent by the year end and to rise to around 50 per cent at the end of 1997, because of the Liffey Street development - and fall after that. The development will be fully paid for by the year 2001, according to the chairman, Mr Tom Toner.

The department store currently has about 160,000 square feet of retail space, of which about 20 per cent comprises concessions run by well known franchisees including Principles, Viyella, Clarkes and River Island.