Carclo PLC (LON:CAR) shares plunged in early trading Friday after the firm said challenges in its LED Technologies division meant full-year profits would be “significantly below” previous expectations.
In a trading update for the year ending 31 March 2019, the specialist plastics maker said Wipac, the main operating business of its LED segment, had seen a worsening of a situation encountered in the first half where the launch of a large number of low-volume automotive programmes meant it was struggling to meet demand.
Carclo said the issue had become worse in the third quarter as “short term operational growing pains” continued longer than expected with growing demand, resulting in “adverse operational variances, expedited freight deliveries and poor customer service leading to additional unplanned costs and, very recently, to delays in new programme awards and the profit recognition”.
While the group said progress was being made to reduce the backlog, it expected the process to take “some time” to complete and that the on-going nature of the costs combined with the loss of profit meant profitability in the division was expected to “fall significantly short” of expectations for the full year.
Across its other divisions, Carclo said its Technical Plastics segment had made “solid progress” in a planned operational improvement programme, although progress had been at a slower rate than anticipated. As a result, the division’s operating profits were expected to be broadly similar to the prior year.
There was some positive news from the group’s smaller Aerospace division, which had continued to perform “slightly ahead of expectations and well ahead of the prior year”.
However, the situation with the LED Technologies segment meant the firm expected its full-year performance to be “significantly below its previous expectations with the second half performance anticipated to be similar to that achieved in the first half”.
Carclo also said its chief executive, Chris Malley, would step down from the position to become LED Technologies divisional chief executive with immediate effect to address the improvements in the business segment. The group’s chairman Mark Rollins will assume the role of executive chairman until a new chief executive is appointed.
Broker knocks down to ‘Hold’ and slashes target price
In a note to clients, analysts at City broker Peel Hunt downgraded the firm to ‘Hold’ from ‘Buy’ and slashed its target price to 80p from 130p, saying it was “prudent at this stage to assume no overall improvement”.
The broker also cut its pre-tax profit forecasts for the current financial year by 33% to £7mln, recognising that “a number of project milestones and new programme awards are required in the final quarter”.
Shares were down 33.3% at 54p.