First profit fall clips Fairey's wings

FAIREY, the electronics group, disappointed yesterday by reporting its first fall in profits in its 10-year history and warning that recovery is not likely until the end of the year.

Shares in Fairey fell 30.5p to 293.5p as it posted underlying pre-tax profits of pounds 30.5m, down 40 per cent on comparable figures for the previous year.

John Poulter, Fairey chief executive, said the drop was largely the result of the slump in the semiconductor market, which was hit by overcapacity. Fairey's semiconductor businesses, accounting for 15 per cent of total revenues, saw sales drop by 35 per cent and profits disappear.

Fairey also suffered from the effects of the Asian economic crisis. Sales to the Asia-Pacific region fell by 24 per cent, while the knock-on effects hit demand in the company's main market, the United States. "US companies saw exports going down and import substitution going up," said Mr Poulter.

Fairey has cut 329 workers, 11 per cent of its workforce, a move likely to yield annual savings of pounds 9m. However, Mr Poulter pointed out that a recovery in profits depended heavily on a recovery in the semiconductor industry.

Fairey is confident that, with the growing use of chips in everything from mobile phones to cars, recovery will take place. "Organic growth in this industry is only a matter of timing," said divisional director Hans Nilsson.

However, analysts were cautious, pointing out that Fairey's relatively short order books made it hard to predict the timing of a recovery. Charterhouse Tilney analyst Michael Blogg has pencilled in full-year profits of pounds 35m. "The last thing they want to do is to make positive noises and find that a recovery is delayed," he said.

However, with shares trading on a multiple of less than 12 times forward earnings, they look cheap. Analysts point to Fairey's strong market positions, as reflected in gross profit margins of around 50 per cent.

This raises the prospect that a larger group could pounce before the shares have a chance to recover. Obvious predators include US giants Emerson Electric and Honeywell, which would be likely to extract cost savings.

Either way, Fairey shares look unlikely to fall much further. "For a company of this quality they are a steal," said Mr Blogg. "But people are going to be wary until they see some evidence of a recovery."