New Molins warning stuns City

INVESTORS in tobacco machine maker Molins were left gasping again today after the company's third profit warning in less than six months.

Molins shares, already worth less than a third of their 422p peak in the past year, were down 10% to 157 1/2p, a drop of 17 1/2p, by early afternoon.

The profits alert came as the company unveiled a wide-ranging restructuring in the light of significant market changes around the world.

Among the key measures unveiled is the closure of the company's joint venture in China, the Kunming Molins business set up in 1996 with the state tobacco monopoly authority.

Molins admitted that China, a country of more than 300m smokers and traditionally seen by many analysts as the tobacco industry's last resort after a wave of anti-smoking measures in much of the Western world, is now subject to significant consolidation. As a result, the demand for rebuild machinery has declined considerably.

But there was more bad news in Europe. Company chairman Peter Byrom admitted that a business acquired in Italy only last August has failed to live up to expectations. The position at Sasib has deteriorated in the second quarter and levels of spare parts orders have also been weak.

Problems in the US continue – in April the company admitted that there had been no significant orders for new machinery from North American customers, the main buyers of the company's equipment over the previous two years. Now Molins plans to provide rebuilding services for cigarette making machines and cigarette packing equipment from its Brazilian operation.

The changes outlined today will result in 250 job losses across the entire Molins tobacco machinery business at an estimated cost of £3.5m. Although the redundancies and other measures will reduce costs by about £5m a year, the company will take an exceptional charge of at least £3m this year.

Even after excluding reorganisation costs, the group now expects to report an underlying loss for the first half of the year with earnings in the second half likely to be lower than previously indicated.