PINEWOOD SHEPPERTON, the film studio operator, lost more than 20 per cent of its value yesterday after a profits warning raised fears that the company may breach its banking covenants.

Shares in Pinewood, whose studios have worked on film franchises such as Harry Potter and James Bond, fell 33p to 120p after the company said that it was unlikely to achieve market forecasts for either its interim or full-year results.

The company, which is chaired by Michael Grade, who is also chairman of the BBC, attributed the poor trading to uncertainty over the future of tax incentives for investing in film. The uncertainty stems from a review of the previous regime, which was acknowledged to have been abused by some investors through “double-dipping”.

The Treasury plans to establish a new set of incentives but Ivan Dunleavy, Pinewood Shepperton’s chief executive, said that a three-month industry consultation that had been due to start at the beginning of this month would not begin before the end of July.

“There will be some time needed at the end of the consultation for discussion, which means that the issue is with us for the remainder of this year,” Mr Dunleavy said.

He added that film companies were holding off from converting provisional bookings because of the uncertainty. “Film studios require certainty of what fiscal policy will be at the end of their production,” he said.

Paramount Pictures, the Hollywood studio owned by Viacom, recently cancelled plans to shoot the $120 million (£65.8 million) blockbuster The Watchmen at the studios and it is rumoured that the forthcoming Harry Potter and James Bond films may also move production to studios in Central Europe.

Pinewood, which last year attracted blockbuster productions such as Harry Potter And The Goblet Of Fire, Bridget Jones: Edge Of Reason and Batman Begins, said it expected to report interim operating profits of about £2 million, slightly below market estimates.

It also said it was unlikely to achieve full-year operating profit estimates of about £8.7 million.

Alex Hugh, an analyst at JP Morgan Cazenove, Pinewood’s house broker, cut his forecast for full-year profits by 67 per cent to £1.8 million in 2005 and by 54 per cent to £5.5 million in 2006. “On our current forecasts, (Pinewood) may be under pressure in respect of its banking covenants for full-year 2005,” he said.

The company, whose banking covenants are tied to interest cover and the ratio of net debt to underlying earnings, said that it did not expect to breach its covenants.

Pinewood said that it would not pay an interim dividend and may not pay a final dividend if results are below expectations. It added that the board of directors “is considering actions which could be taken to improve profitability and will be reviewing the timing and incidence of capital expenditure”.

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