Upbeat Spice is 'laying ghosts to rest'

Shareholders yesterday backed the sale of the Leeds-based company's telecoms arm, raising 32.8m to pay down debt.

The group also elevated its interim chief executive Martin Towers to permanent chief executive, a move welcomed by analysts.

Spice said it is on track to earn profits before tax and other items slightly ahead of last year's 32.3m, and is trading in line with its expectations.

"We've made some very good progress during the last three months," said Mr Towers, former finance director of Yorkshire Water owner Kelda. "Now it's a case of building on that. We're certainly turning the corner."

The group is emerging from a tough spell which saw the departure of its founder and chief executive Simon Rigby, downgrades from analysts and a collapse in its share price.

Shares dipped 1.2 per cent or 0.5p yesterday to close at 40.25p. However, they have risen almost 50 per cent from a low of 27.5p touched in late March.

"We are definitely moving in the right direction and as part and parcel of that are laying various ghosts to rest," said Mr Towers.

The disposal was backed by 99.7 per cent of shareholders. While debt at Spice's April 30 year end was 118.5m, analysts expect it to fall to around 90m following the sale of telecoms to a management team backed by private equity firm Gresham.

Mr Towers said the group has also made good progress on cutting costs. This is expected to mean exceptional costs of between 8m and 9m – but no figure was put on how much Spice hopes to save. He said the cuts would include some redundancies and property sales, but declined to give further detail.

Under its former chief executive Spice was led on an aggressive acquisitive strategy, buying at least 35 businesses since 2001.

Cost cuts were a legacy of these acquisitions, said Mr Towers, who is now focusing on organic growth.

The group said its supply division has won a number of new contracts, with the Carbon Reduction Efficiency Scheme – the government's mandatory climate change scheme for big organisations – making up 20 per cent of these.

Mr Towers said while looming public sector spending cuts will have an "indirect effect", only two per cent of the group's revenues come from the public sector. It has mitigated the deferral of some project spend by moving engineers to the private sector.

Spice's utilities distribution arm has also extended contracts with Scottish Power, AT&T and Yorkshire Water and is in talks over extending contracts with EDF.

As part of a review of its public-facing distribution arm, Spice is now looking to sell or exit its gas business, which provides registered social landlords with gas safety checks.

It made a 42.9m writedown on the business in December, which has been hit hard by increasing competition from out-of-work gas engineers.

The group said in recent months gas has performed "marginally" better than it hoped, including retendering a significant loss-making contract on better terms.

The board has tasked Mr Towers with creating a strategic plan to develop Spice core businesses.

Thumbs up from analysts

Analysts were "reassured" by Spice's update and said the group is "delivering on its promises".

"We remain positive given the attractive growth prospects," said analysts at KBC Peel Hunt. "We believe that the sale of telecoms, the appointment of Martin Towers as permanent chief executive and that the full year result will match the guidance given in February, will reassure investors."

Mr Towers' permanent appointment "should ensure stability and adds credibility to the trading turnaround", said Liberum Capital analysts.

However, Royal Bank of Scotland analyst Jane Sparrow, who has a sell recommendation, said uncertainty remains around discussions with power firm EDF. "We prefer to avoid until the EDF discussions are concluded," she said.