UPDATE 2-Charter Intl hit by weak margins at core unit

Fri Feb 18, 2011 5:43am EST

Related Topics

* FY pretax profit 144.1 mln stg vs est of 145.8 mln stg

* Revenue up 4 pct to 1.72 bln stg

* Welding tool unit ESAB H2 margins 6.7 pct vs 9 pct in H1

* Weakness in Europe, higher steel prices hit ESAB margins

* Stock down 6.3 pct, one of the top losers on the FTSE 250

(Adds executive comments; updates share price)

By Adveith Nair

LONDON, Feb 18 (Reuters) - Charter International CHTR.L said higher steel prices and weakness in Europe weighed on margins at the company's core welding tools unit ESAB, sending shares sharply lower.

The British tool and equipment maker gets more than 60 percent of its revenue from ESAB, which makes welding tools for steel, and the rest from Howden, which makes air and gas handling equipment.

Second-half margins at ESAB dropped to about 6.7 percent from an adjusted operating margin of 9 percent in the first half.

Shares in Dublin-based Charter were down 6.3 percent at 0924 GMT on Friday on the London Stock Exchange, making the company one of the top percentage losers on the FTSE 250 Index .FTMC.

In an interview with Reuters, Chief Executive Michael Foster said many issues -- including higher steel prices and weakness in Europe -- hurt margins.

"There were a number of issues, many of which should work out of the market going forward," Foster said.

"It is going to be quite difficult, with some markets like Germany and Poland stronger, but other markets particularly those around the South still looking pretty weak."

Analysts at Brewin Dolphin put their stance on Charter, previously 'add', under review. "The ESAB margin introduces some caution but overall we expect to maintain a positive recommendation," they said.

Earlier on Friday, Charter said full-year pretax profit rose 55 percent to 144.1 million pounds ($232.5 million), but this was still below estimates of 145.8 million pounds.

Revenue, meanwhile, was up nearly 4 percent at 1.72 billion pounds, slightly above estimates of 1.71 billion pounds. ESAB revenue was up 12 percent, offsetting an 11 percent fall in revenue at Charter's Howden unit.

The company also declared an increased interim dividend of 15.5 pence per share, up 7 percent from 2009, for a total 2010 dividend of 23 pence. ($1=.6198 Pound) (Reporting by Adveith Nair; Editing by Rhys Jones and Jon Loades-Carter)

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