Qualceram shares suffer as UK trade forces profit warning

Shares in Qualceram Shires tumbled by 15 per cent yesterday after the firm issued a profit warning for the second year in a row.

The bathroom manufacturer said that results for 2005 were "likely to fall short of current market expectations". In a statement to the stock exchange, it highlighted the slowdown in consumer spending in the UK, falling prices and increased price competition. The company also blamed higher energy and transportation costs and, for the first time, pointed to increased pricing pressures in the Republic.

It said that all of these factors would combine to drive turnover down by 5 per cent on last year.

"This will impact on margins with the result that the outcome for the full year is likely to fall short of current market expectations," the statement read.

In anticipation of its current difficulties, Qualceram has already closed one of its manufacturing plants and reduced the size of another. It has also outsourced some manufacturing to locations in Europe and Asia.

The company's chief executive, John O'Loughlin, acknowledged yesterday, however, that these measures will not benefit results until next year.

"We remain positive about the future and optimistic that 2006 will produce an improved performance for the group," Mr O'Loughlin said.

He expects the maturity of special savings incentive accounts in 2006 and 2007 to offer a particular boost in the Republic, which traditionally accounts for about half of profits.

Shares in Qualceram fell after the statement was released, closing 21 cent weaker at €1.19.

Analysts expressed little surprise at the profit warning, noting that the firm was simply the latest to feel pain as a result of slower UK consumer spending.

Gavin Kelleher of Davy said the main challenge facing Qualceram at this stage was to make sure that it can realise the €2.5 million annual cost savings it has pencilled in from 2006 onward.

He has reduced his forecasts slightly for the group and noted that the shares are now trading on a "demanding" price/earnings ratio.

In the trading update, Qualceram said it continues to look at ways of increasing its competitiveness and would implement "further rationalisation".

Mr O'Loughlin said further cuts would be of a small scale and pointed out that Qualceram's balance sheet remains cash-generative and strong.