Auto supplier is hit by squeeze on margins

Automotive Precision Holdings has seen margins of more than 20% shrink as the first-tier manufacturers it supplies pass on the squeeze on margins by car makers. The steering components maker, which does 80% of its business in the US, has also lost considerable volume; replacements are on far lower margins. One major US first-tier supplier […]

Automotive Precision Holdings has seen margins of more than 20% shrink as the first-tier manufacturers it supplies pass on the squeeze on margins by car makers.

The steering components maker, which does 80% of its business in the US, has also lost considerable volume; replacements are on far lower margins. One major US first-tier supplier which has cut back may also take some work APH still does for it in-house, while a European customer has switched to a East Europe supplier.

The weak dollar is another problem, although the company has hedged for the rest of the year, anticipating an exchange rate of $1.60.

Reporting for 1996, Brian Stairs, chairman, said the weak dollar and lower margins would hit earnings for the foreseeable future.

APH shares fell steadily ahead of the results, which showed profits down 5.7% at £5.8m. Earnings at 9.5p failed to twice cover the previous 5p dividend, as the company requires, it was cut to 4.7p.

House broker Beeson Gregory slashed its earlier pre-tax forecast for the current year by £1.9m to £3.8m, and as the broker expects earnings of only 6.3p, it forecasts a dividend down to 3.1p.

For 1998, it forecasts £4.1m pre-tax, 6.7p of earnings, and a 3.4p dividend. Its recommendation is to hold shares, which earlier this week were at their lowest for the year.