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Emerging markets drive up profits at UK industrials

By: | at 07:00 PM | International Trade  

Demand for steel and chemicals in resource-hungry emerging markets and a weaker pound helped boost a string of British manufacturing companies, results showed, more than offsetting a tepid domestic market.

Rotork and Cookson Group both cited strong overseas demand as a key driver behind profit rises in 2010 and said they would deliver even better results in 2011.

In a further sign the sector is thriving, British manufacturing growth held at a record level in February, data showed.

British Prime Minister David Cameron has been on a diplomatic drive to drum up trade, counting on private sector growth, and exports in particular, to offset the impact of public sector spending cuts on an already sluggish economy.

But February’s Purchasing Managers’ Index also pointed to mounting price pressures, which may heighten calls for the Bank of England to raise interest rates sooner rather than later and mark an end to the competitive benefits of a weak pound.

Rotork, whose adjusted pretax profit for the year rose 9 percent to 99.6 million pounds ($162.2 million), said the pound’s appreciation could hurt.

“Following several years of favourable movements in foreign exchange, currency may provide a headwind in the current year,” Rotork said in a statement.

Global Trade
But stronger sterling is unlikely to derail the recovery on its own, analysts say.

“Sterling’s competitiveness versus the euro is probably helping export orders, but there does appear to be a Europe-wide strengthening in the manufacturing sector, most likely driven by global trade,” said Philip Shaw at Investec.

Industrial materials firm Cookson’s profit nearly trebled in 2010, on revenue 30 percent higher, of which at least 50 percent came from emerging markets in the Asia Pacific, Brazil, India, and Eastern Europe.

“Those economies have been growing strongly and our end-markets in those economies growing with it,” Cookson Chief Executive Nick Salmon told Reuters in an interview.

The company also reinstated its dividend, two years after suspending payouts due to a slump in steel demand which was a major factor in a 57 percent drop in the company’s 2009 profit.

“Obviously the growth in revenue in part is flattered by the recovery from the economic crisis, but nonetheless these results are well ahead of 2008 as well,” Salmon said.

Chemicals maker Elementis also highlighted its growing exposure to China as its shares also got a lift from a surge in profits.

“Asia Pacific based acquisitions ... have proven instrumental in providing Elementis with a powerful growth platform in Asia Pacific,” Chief Executive Daivd Dutro wrote to shareholders, noting that it is now the biggest sales region at its Specialty Products division with 20 percent growth in 2010.

“Asia Pacific is a key component of our future growth strategy,” Dutro added.

Elsewhere, plane parts makers GKN and Meggitt said civil aerospace orders were likely to grow in the coming year. (Reuters)