Profit warning leads to collapse of wound care specialist’s shares

Shares in Manchester wound care specialist Scapa Group tumbled by more than 30% in early trading this morning (February 12) after it issued a profit warning.

In an update ahead of its financial year end on March 31, the group said it expects its trading profit to be approximately £28m which is “significantly below consensus”.

Shares slid from last night’s closing price of 272p per share to 174.36p per share after markets opened, but recovered later in the day to 194.83p by early afternoon.

The group, headed by chief executive Heejae Chae, has been affected by the decision by its former US client Convatec to cancel a major contract last June.

In July Scapa launched a £66m lawsuit against Convatec in the US courts citing breach of contract.

Today’s statement said its healthcare revenue is estimated to be around £139m, slightly ahead of market expectations and greater than last year, despite the loss of the Convatec contract.

But it said healthcare trading profit is expected to be lower than consensus, “reflecting slower progress in reducing costs than expected at the time of the interim results”.

It added: “The group continues to focus on our pipeline of new programs as we leverage our technologies and capabilities to drive our organic growth and reduce the cost of operations.”

Its industrial revenue is expected to be approximately £168m, which is slightly below market expectations but has a material impact on group trading profit.

It said this is primarily the result of adverse macro-economic conditions, particularly in the automotive and specialty products markets.

Scapa expects total 2020 financial year revenues to be approximately £306m, broadly in line with market expectations.

It said the group is focused on rigorous execution of its strategy as it continues to increase efficiency and convert its pipeline of opportunities to improve sales and margin performance.

However, it expects the macro environment to remain challenging in some of the industrial markets in which it operates.

“We believe that we have the right vision and strategy to capitalize on the outlook and opportunities for healthcare and industrial.

“Our healthcare franchise is well positioned to benefit from the changes in the medical device market and whilst we expect the macro-environment to remain challenging, we will focus on cost reductions to drive the margin in industrial to historical levels.”

Scapa expects to report its full year results on May 19.