Shares in bonding solutions and adhesives group Scapa (SCPA:AIM) came unstuck today, down 35% to 180p after announcing a profit warning for the year ended 31 March 2020.
The shares have halved since June last year.
The company said it expects full-year revenues to be around £306m, ‘broadly in line with market expectations’ which is code for a slight miss.
Refinitiv data shows market expectations were pegged 4% higher at £319.2m. In other words, this means revenues will be down 2% year-on-year instead.
NOT CUTTING COSTS FAST ENOUGH
In an operationally geared business where high fixed costs are hard to reduce quickly, revenue shortfalls are magnified at the profit line, which is what has happened to Scapa. The group made slower progress on cost efficiencies than expected at the interim results stage in September.
Back then chief executive Heejae Chae commented, ‘we anticipate that the second half of the year will benefit from new products and technology transfers from new and existing customers.
‘In the medium-term, we expect our operating leverage to unwind as we realise the value from our strongest-ever pipeline.’
However a combination of poor execution and difficult macro conditions in the industrial division has hampered management's ambitions.
The net result is that operating profit will be around £28m, significantly below consensus forecasts of £33.6m (-17%) and 15% below 2019 levels.
On a more positive note, the Healthcare division performed slightly better than expectations producing revenues of £139m, despite the loss of the ConvaTec contract. Full-year results are expected on 19 May 2020.
A quick scan of the shareholder register shows the major holders to be Octopus Investments with 10% of the shares, Sanford DeLand Asset Management also with 10%, and Investec with 5% of the shares.
