Ferry operator Irish Continental Group (ICG) has issued an effective profits warning following worse than expected first-half results. Reporting a loss of €4.7 million (£3.7 million) for the six months to end April, down from a previous profit of €2.6 million, the group warned that profits this year would be lower than in the previous year.

ICG said: "In the light of the current trading environment the group is cautious about the out-turn for the year which is highly dependent on the revenues generated in the remainder of the peak season, that is July, August and September. Overall, the outlook for the second half is that it is likely to be below last year's earnings of €23.8 million and consequently the outlook for the year as a whole is for earnings below those of last year."

This suggests the very best outcome shareholders can expect for the year is a pre-tax profit of €19.1 million, a 29 per cent fall on the previous year.

The ICG share price started to slide after the warning, dropping 14 per cent from an overnight level of €8.75 to €7.50 by midday. The share closed down €1 at €7.75 - a new low for the year and well off its 2000 high of €12.50.

Analysts started to pull back their profit forecasts for the year last night. Earlier full-year profit forecasts of €26 to €29 million were cut to around €18 million and projected earnings per share were slashed from an expected 100 cents to 60 cents to 70 cents.

ICG blamed the loss of duty-free sales, higher fuel costs and the cost of new capacity and routes for its poor first-half performance. Extra costs and revenue losses were partly offset by higher charges to customers and volume increases. But the losses came on a turnover that was 30 per cent higher at €122.9 million.

The first half, covering the months of November to April, is traditionally a weaker period for the group but the latest results were well below expectations. After a 40 per cent rise in costs to €123.6 million, the operating loss was €0.7 million, down from a previous profit of €6.5 million. After net interest costs of €4 million (up from €3.9 million) the group loss was €4.7 million.

But the group warned yesterday that the poor performance had continued into the current half. Profits for May and June were down on the previous year with an increase in business volumes more than offset by the elimination of profits on duty free sales and the operating cost of the new Jonathan Swift ferry. Disclosing business volume rises in the year to July 21st, ICG said car traffic was up 15 per cent, passenger numbers were 7 per cent higher and freight traffic was up 3 per cent. But this volume increase will not result in profit growth.

ICG's chief executive, Mr Eamonn Rothwell, said the group would not be able to recover its higher costs by raising charges to customers in the current half because of wider industry problems. It implemented price increases of 10-15 per cent in the first half. On the outlook he said the industry needed to see the removal of some capacity, probably through the exit of marginal operators as well as price increases. While ICG was unable to dictate the timetable for rationalisation in the sector, as a profitable operation it would have a role to play in any shake-out, he said.

ICG's first-half loss per share of 17.9 cents compares with earnings per share of 9.7 cents for the previous first half. But shareholders are to get a 20 per cent increase in their interim dividend with a payment of 4.75 cents per share.

The first-half results for the ferries division show a 9.2 per cent rise in turnover to €54.8 million. But operating profits fell sharply to €0.4 million from €4.6 million, slashing margins to 0.73 per cent from 9.2 per cent. Passenger numbers on the Irish and French routes and ro-ro freight traffic was higher. But on-board sales revenue was down to €6.4 million from €9.7 million and fuel costs were about €2 million higher while the net cost of operating the new Jonathan Swift ferry was about €5 million.

In the container/terminal division turnover was 24 per cent up at €55.7 million while operating profits dropped to €0.2 million from €2.8 million.