Building materials group Heiton reported a 12.6 per cent drop in interim pre-tax profit as slowing sales growth and strong cost inflation affected margins.

Pre-tax profits for the six months to October 31st, 2001, were €10.3 million (£8.1 million), against €11.8 million for the same period a year earlier. Operating profits were down by 11 per cent to €12.3 million, despite a 17 per cent rise in turnover to €224.8 million.

Earnings per share fell to 18 cents, compared with 21 cents in 2001. An unchanged interim dividend of 5.8 cents per share was declared. The company, which issued a profits warning last November, was also affected by a number of building companies going into receivership.

"We have taken a hit in the six months," said Mr Leo Martin, chief executive of Heiton. Bad debt provisions would be slightly higher than in the previous year, he said, "but, historically, certainly no higher than percentages we would have had earlier".

Heiton's DIY retail business, Atlantic Homecare, bolstered by two new openings, reported turnover growth of 60 per cent. Like-for-like growth was 14 per cent. Turnover at Heiton Buckley builders' merchants rose by 6 per cent, despite tighter margins.

UK turnover rose by 41 per cent to €44.4 million and operating profits were up by 71 per cent. The improvement in UK operations was due in particular to the successful acquisition and integration of Willis, a distributor of drainage products, Mr Martin said.

"In Ireland, turnover growth is continuing, but at more modest levels than in recent years - while key cost areas of labour and insurance have been increasing more rapidly than revenues," he said. A cost reduction and rationalisation programme, for which the company was taking a once-off charge of €4 million, was expected to produce annual savings of €2.8 million, he said.

Mr Martin said he expected construction growth of 3 per cent this year and 4 per cent next year. It forecast new housing growth of 3 per cent in 2002 and 5 per cent in 2003.

Mr Martin said he would not speculate on the intentions of Grafton Group which has built its stake in Heiton to 22.5 per cent. "We're a public company and, as such, our shares are openly traded. We have no control over who buys them. We concentrate on our business," he said.