Servelec shares stung by profits warning

The Sheffield-based firm’s shares plunged 35 per cent in the first hour of trading before ending the day down 30 per cent at 237p after it said operating profits in 2016 will be significantly lower than market expectations.

The firm’s CEO Alan Stubbs said: “I am disappointed to have to report the difficult trading conditions that have impacted our outlook for 2016.

“We don’t believe that this reflects upon the quality or scale of the opportunities across our target end markets. However, some end markets are currently challenging and timing of order entry has become a short term issue.

“As such the management has adjusted our outlook and have taken swift and prudent action to reallocate the resources of the group and reduce costs.

“The board remains confident in the success of the business, and the shareholder value this will generate.”

The measures will include less than 20 redundancies out of a workforce of 700.

Servelec said it had anticipated a heavier weighting towards the second half of the financial year than has historically been the case. It said it is now clear, following further slippage in contracts, that there is likely to be a shortfall in its expectations for 2016 as a whole.

It said that whilst its social care and nuclear & power businesses are trading within expectations, market headwinds for its healthcare, technologies and oil & gas businesses are such that the board now expects group operating profits for 2016 to be “significantly lower than market expectations” and lower than the result for 2015.

The firm said it has taken swift remedial action, reallocating company resources and reducing costs.

In its health & social care division, it said that its ‘North New’ operation has recently won two new contracts and and an additional win for a mental health system for St Patricks in Ireland.

Servelec said the social care operation, which includes the acquisitions of Synergy and Abacus, is performing well and has a positive outlook for 2016. However, the progress being made with ‘North Refresh’ is slower than originally anticipated. This is because the deadline by which trusts have to update their software and associated technology has again been extended by the Government due to pressure on healthcare funding.

Elsewhere, the group said that despite tough market conditions, the nuclear & power side of Servelec Controls has been awarded the contract for a data & alarm monitoring system by Sellafield. The business has also won a contract for SSE Generation to overhaul electrical and control equipment at Storr Lochs Power Station on the Isle of Skye.

Mr Stubbs said: “However, our oil & gas business has been impacted by further delays in the award of projects for both the refurbishment of Combined Heat and Power plants that are to be exported and the platform refurbishment projects which are currently part of our tender process.

“We have confidence in our technology and the cost savings it can deliver our potential customers, but the tender and procurement cycles are unfortunately taking longer than originally anticipated.”

Following the update, analyst Chris Glasper at N+1 Singer said: “In a disappointing update, Servelec has confirmed that it is suffering from procurement delays in both healthcare and automation. This means earnings will be significantly below previous expectations and down year on year. We downgrade our 2016 earnings per share forecasts by 26 per cent and by 22 per cent in 2017, assuming these delays persist.

“This essentially moves our forecasts 12m to the right.“

In its technologies division, Servelec said it has strengthened its market leadership position in the UK water industry following its appointment to a five-year framework to supply a major UK water company.