Home safety firm’s shares crash after losses forecast

HOME safety products supplier Sprue Aegis has warned shareholders to expect losses after it revealed conditions in France and Germany had been worse than first thought.

The loss could be almost £2m – although it is looking to claw this back by reducing overheads. It has not said how many redundancies could be likely although it says the situation is regrettable.

The announcement had a dramatic effect on the company’s shares, with their value falling more than 52% in trading today.

In a statement to the London Stock Exchange, the Coventry-based firm said: “Challenging trading conditions in France, principally due to overstocking, and weaker sales in Germany, due to product certification delays, are likely to significantly adversely impact the group’s expected results for this year.   

“Consequently, the board has revised its guidance for the full year 2016.  Subject to no major changes in exchange rates, the board now expects a first half operating loss of approximately £1.9m (which includes a restructuring charge of £0.2m as a result of reducing certain fixed overheads).”

It is pinning its hopes on a second half pick up, with an operating profit in H2 of approximately £3.8m with sales and operating profit in the full year targeted at £55.0m and £1.9m respectively.  The estimated saving in 2017 from the fixed cost reduction is approximately £0.8m.
 
Graham Whitworth, Executive Chairman of Sprue, said:   “Unfortunately, overstocking in France and weaker sales into Germany, have resulted in us issuing revised guidance for this year.  We expect to rebuild trading momentum in the second half of 2016 with certified new products and enter 2017 with normal levels of trading.  
 
“Whilst regrettable, the overhead reductions will put the group onto a lower cost base saving an estimated £0.8m in 2017 and keep the group on the right course to deliver our longer term strategic objectives.”
 
Despite the situation, the company said that subject to final approval by the board, it still planned a final dividend for the year ended December 31, 2015.

Elsewhere, the company said it had also identified a problem with certain batteries supplied by a third party supplier that may cause a premature low battery warning chirp in certain of its smoke alarm models sold in the UK and in Continental Europe.
 
The board said it was keen to stress that this is not a safety critical issue.
 
As a result, to support the company’s customer service obligations, the board has proposed to increase the group’s warranty provision as at December 31, 2015 by £5.5m to £6.8m (2014: £0.9m).  

Consequently, the company said it now expected its operating profit for the year ended December 31, 2015 to be approximately £7.3m compared to the previously announced £12.1m.  
The cash cost of dealing with this issue is expected to be incurred over the next six years.
“I am deeply disappointed about the impact this third party component issue is having and I wish to reassure customers and all stakeholders that the company takes the quality of all of its products very seriously,” said Mr Whitworth.  

“The failure mode in the battery in affected smoke alarms has only recently become apparent and typically occurs after around three years from the date of battery manufacture.   To prevent the issue happening in the future and to ensure all the group’s smoke products perform to the highest standards, the group has introduced additional screening processes on the production line prior to the battery being fitted into finished smoke alarms and we are reviewing, and, if necessary, will enhance our internal operational controls and processes.”