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Carrier bag tax threat adds to BPI's concerns

Analysts are quick to cut full-year forecasts


CAMERON McLatchie, execut-ive chairman of British Polythene Industries, claimed a possible UK tax on carrier bags amounted to "environmental insanity", as BPI shares tumbled 5% on a warning that second-half profits would be depressed.

McLatchie, worried the government would introduce perhaps a 10p-a-bag tax when it finishes deliberations, warned of people taking home
supermarket baskets if they were not being given carriers. He talked of one company now having to take four container loads of paper bags to Ireland, instead of four pallets of plastic carrier bags, because of the greater bulk.

Believing a bag tax in Ireland had brought unwelcome environmental consequences, McLatchie said: "The (UK) government still have a view that a carrier bag tax would be a good idea. If they want to sink the planet quicker, they should carry on. It will use more fuel, more energy. There are a lot of people who don't understand what is causing the planet to sink. It is certainly not the weight of carrier bags."

He claimed a carrier bag tax would give rise to "millions of metal wire (supermarket) baskets" on "housing estates".

Nevertheless, he claimed BPI's business would not be affected greatly by such a tax. The company sold its UK plastic carrier bag manufacturing operations last year in separate deals, to Bunzl and management.

About half of the 10,000 tonnes-per-annum output of BPI's Chinese plant is carrier bags, but McLatchie said this production could be replaced easily by pedal bin liners if the taxes were introduced.

The Greenock-based company announced a fall in first-half pre-tax profits from £8.4m to £7.8m, although it focused on underlying interim operating profits of £11.9m being "broadly in line" with £12m in the first six months of last year.

Analysts, who had expected the first-half outcome but were disappointed by the prognosis that second-half profits would be hit by difficulties in passing raw material price increases on to customers, moved swiftly to cut their full-year forecasts.

John Middleton, packaging analyst at ABN Amro, reduced his prediction of BPI's bottom-line profits before tax from £15.9m to £13.9m. The company made £16.0m last year.

BPI, which suffered a fall in first-half turnover from £208m to £183m, was clear that second-half profits would be less than those in the six months to June 30.

It held its interim dividend at 7p and said that, "in the absence of unforeseen circumstances", it intended to maintain the total payout for the year at 21p.

BPI shares finished 18p lower at 349.5p - but still comfortably ahead of the 310p-a-share level of rival Scottish packaging group Macfarlane's unsuccessful £114m hostile bid in late 2000. McLatchie warned "definite" shortages of raw material polymer would arise with any conflict in the Gulf. The US continues to threaten war with Iraq.

He said that, unlike 10 or 15 years ago, Gulf states including Saudi Arabia and Abu Dhabi produced not just oil but also millions of tonnes of raw material polymer each year.

However, he was hopeful any such price rises could be passed on to customers, and pointed out this had been possible during past crises in the Middle East.

BPI said it aimed for year-end borrowings of £60m, down from £66.4m at the end of 2001, and showed little appetite for further big share buy-backs.

McLatchie said BPI had flagged in its annual report that results would now favour the first half, after the disposal of its UK retail carrier bag businesses.

However, the squeeze on profit margins would make the results "more front-loaded than we would expect".

He said suppliers had continued to increase polymer prices for four months in a row.

BPI had been slower in passing on the latest increases because of either a lag in re-pricing contracts, which it could not always do on a monthly basis, or "general belief by the market that the new levels of polymer price will not hold, in light of the resolution of supply difficulties".

Profit margins in July had been squeezed, with the prospect of a similar result for August.

Suppliers were pushing for further price increases.

McLatchie added: "It is inevitable that the average margin will be lower for the second half."

This article was kindly provided by Dr. Richard Dixon for ScoWaste a mailing list run by SRMS for RAGS and FoE Scotland. It was originally published in the Herald on 10/9/02.


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