A SLUMP in UK sales, coupled with competition from low-cost imports, led to a drop in profits at Kidderminster-based Victoria Carpets.

Pre-tax profits of the Victoria group for the year ending April 2, 2005 were down to £3.07 million from £4.19 million the year before.

Victoria also made a £1.84 million loss, before tax, on its Axminster division, which closed in the town in March, with the loss of 85 jobs. Turnover was down, to £53.2 million, from £54.6 million.

In a cautious forecast, group chairman, Bob Gilbert, said: "With an economic outlook for the UK, Australia and Ireland that is, at best, flat, we do not foresee the return of more favourable economic conditions during this financial year."

In his statement accompanying the annual results, Mr Gilbert explained: "In the UK, we saw a slowdown in consumer demand, particularly in the second half of the year, as consumers started to rein back their expenditure in the face of falling house prices, higher fuel costs and the prospect of increasing taxes."

He added: "In the UK and Ireland, we also saw an acceleration in the market penetration of the low-cost foreign producers of Axminster carpet.

"As a result of this, we recognised that we were unlikely to again make acceptable returns from our UK manufacturing base and took the difficult decision to discontinue Axminster weaving, which had been part of our business for over 50 years."

Mr Gilbert said the Victoria board remained confident enough about the company's underlying business to recommend a year-end dividend of 11.5p per share, due to be paid on Monday, August 1, subject to approval at the annual meeting tomorrow.

Group managing director, Alan Bullock, in his operating review, said: "Following on from the previous year's record results, the group has had to face difficult market conditions in all areas in which it operates.

"Indeed, market conditions have, perhaps, been worse than we have experienced over the past decade."

He added that the demise of other carpet manufacturers and distributors had resulted in an over-supply of carpet at reduced prices into an already depressed market.

Internationally, Victoria's sales in Australia held steady while the firm's associate company in Canada had enjoyed a good year with growth in sales and profits.