A profits warning from Hall Engineering at its annual meeting shocked the City last week and sent a shiver through the metals sector.
The company, which runs motor pressings factories in the Midlands and extensive steel wire operations, is the UK’s biggest rod and bar buyer, sourcing material from a range of producers including British Steel.
John Sword, chief executive, blamed a sharp fall in market prices for rebar and mesh. The falls are due to oversupply and the strong pound he said. Full-year profits, would be ‘materially below’ what was hoped for at the start of the year.
The warning sent Hall shares plunging: they closed the week at 177p, down from 257p before the company’s statement to shareholders.
Sword commented: ‘At the beginning of the year we, along with a number of other producers, introduced price rises of between five and seven per cent. At the time this appeared justified as demand was firm and holding up well. Since then, however, steel prices have fallen and we have been unable to make our original price rises stick. Our margins have had an horrendous couple of months.’
Sword said he expected other metals companies to be similarly affected and predicted a rash of warnings from competitors soon.
‘It is difficult to see an early improvement in the distinctly adverse market conditions affecting our wire and reinforcement businesses in the UK,’ he said.
Prices for rebar and mesh are about 20% lower than at the end of 1997, he added.
Analysts revised their full-year forecasts sharply downwards. Steve Medlicott of Albert E Sharp had pencilled in profits of £18m for the full year with earnings per share of 27.6p, but the consensus is now for just over £15m of profits for the year.
The warning comes weeks after Hall announced a 40% increase in profits last year. Sword dismissed suggestions of any job cuts.