Tomkins is confident about continuing economic momentum in the US, the engineering group's key market where two-thirds of its businesses are based, but warned that higher material prices would weigh on costs in the second half.
Jim Nicol, chief executive, said: ?Our customers in the US tell us that they have got good order books going into next year. Most of them are pretty buoyant about the economy and feel that it is a good time to be in manufacturing.?
In the first six months to early July, underlying sales increased 7.3 per cent and underlying operating profit 16.8 per cent, helped by strong demand in the US and also in China and India. However, the company said the weak dollar had cost it the equivalent of ?140m in the sterling value of overall sales.
But Mr Nicol added that higher energy and raw materials prices had cost the group an extra ?7m in the first half. It warned that the impact would be even more pronounced in the second half. Mr Nicol, who joined three years ago as successor to Greg Hutchings, a charismatic dealmaker who built Tomkins into a broad-based conglomerate, also stressed the benefits of ?cultural change? in the group.
?This is the year in which the work we have put in over the last three years has started to deliver improved results,? he said. New product development had enabled double-digit operating margins, before operating and exceptional items, in each of the group's businesses.
Tomkins has been refocused on the automotive sector, which accounts for more than three-quarters of sales, as well as on-air systems and construction components.
Interim pre-tax profit increased to ?101.4m, compared with ?94.7m last year, on a moderately reduced turnover of ?1.55bn (?1.6bn). An interim dividend of 4.83p (4.6p) will be paid out of earnings per share of 7.56p (6.03p).
Shares in Tomkins closed 5p higher at 259?p.
? Tomkins' big challenge in the second half of the year will be rising raw material prices. But after Jim Nicol's tough three-year diet of tight cost control and emphasis on product development, the group can be considered well prepared to face the issue. Cazenove, the house broker, slightly raised its forecast for adjusted earnings per share for 2005 to 19p. That puts the shares on a forward p/e of 13 a small, yet undeserved discount to the sector. An additional bonus for investors is the strong dividend yield of 5 per cent.
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