Entertainment business set to rationalise costs as it issues profit warning

An entertainment design, production and fit-out business is to rationalise costs as it announced in a trading update today that it expects EBITDA to be “significantly lower than previous expectations” at around £700,000.

York-based Paragon Entertainment still expects to complete the 2017 financial year with sales broadly in line with the Board’s expectations at £15m.

However, second half performance has notably impacted EBITDA, with the full year to 31 December expected to be significantly lower than previous expectations at around £0.7m.

Mark Taylor, chairman, said: “Our enormous growth in recent years necessitates that we take a breath and consolidate.  While we are disappointed with the way 2017 has unfolded  we remain satisfied that the longer term plan for Paragon is sound and our aspirational objective of achieving revenues of £20 million in 2020 remains an appropriate medium term goal for the business with a focus on high quality earnings rather than growth for growth’s sake.”

The firm said that the main reasons for the change in expectations were:

·     Two major projects with high margins which were forecast for 2017 have been deferred to 2018;

·     Delays and cost overruns on certain projects resulted in less gross margin than was previously expected;

·     Group overheads had been increased in expectation of improved revenue growth in H2 (and into 2018). In the absence of this growth and incremental margin, the Board is now taking steps to rationalise costs and manage spare capacity while ensuring that the Group is resourced for the future.

The trading update said that Paragon would continue to work hard to improve operational delivery. Both the contracting and finance teams are now under new leadership and have improved processes. 

It added: “However there has been management distraction, in terms of prolonged contract discussions and staffing issues during the second half which has certainly diverted attention away from several key projects which we had intended to execute on this year. 

“These projects are intended to streamline and improve further our design methodology, procurement operations and management reporting, as well as improve operational flexibility and ultimately margins.  The impact of these programmes will now likely only become apparent in 2018.”

 The day to day operation of the finance function is now under the control of a full time interim group head of finance, David McCabe.  The Board intends to make a full time appointment of a Group CFO and a suitable candidate is being actively sought.

The firm is continuing to pursue the re-location of Paragon to a single site so as to improve efficiencies and reduce property costs.