Entu warns on earnings but remains upbeat long-term

Energy efficiency-focussed home improvement group Entu issued a trading update on Wednesday, reporting that - as it had set out in the full-year results statement on 29 March - the it was implementing a “detailed action plan” to reduce costs, improve operational efficiency, leverage its supply chain, improve cash collection and strengthen controls.

The AIM-traded firm said on Wednesday that its strengthened executive team was progressing with the implementation of the plan, but added that it had become clear that the operational issues outlined in the last full-year results statement were “more complex” and extended further into the supply chain than expected.

As a result, it said it would take longer to resolve those issues.

“Sales in the core home improvements business held up well throughout H1, but the operational and supply chain difficulties meant that fit capacity in late March and April could not be scaled up enough to meet seasonal demand,” the board said in its statement.

“Driving up fit capacity to recover the lost contribution in the last weeks of H1 and meet seasonal demand in early H2 whilst the group is addressing its complex operational and supply chain issues would be unsustainable and counterproductive.

“The group has, therefore, made the difficult decision to hold fit capacity at current levels and bring sales into line in order to protect levels of customer service until the supply chain issues have been resolved.”

To support and accelerate the group's action plan, and contribute to the wider strategy, Entu said it had engaged a senior consultant with “significant industry-relevant experience” in business transformation and turnaround.

As part of the executive team, the role would work closely with the recently-appointed group operations director who also brought to the group a “wealth of experience” in operations process re-engineering and supply chain management, according to the board.

The group said it expected to report a loss before interest, tax, depreciation and amortisation on continuing operations before exceptional items for the six months ended 30 April of around £2.2m-£2.4m.

“Of this loss, [around] £0.7m was lost contribution in late March and April resulting from the constraints in fit capacity, offset partly by additional profit on the group's ECO-funded insulation business following a 15-month extension of the group's contract with a major utility company.”

Net debt at 30 April 2017 was £6.5m.

As it outlined in the last full-year results statement, the previous year comparators would be restated to reflect changes in accounting policies, the board reiterated.

This exercise was ongoing, the board said, but the half-year results were expected to show a comparable loss for the same period last year on an underlying basis.

“Intense competition in the non-core boilers and energy-switching businesses resulted in a loss of [around] £0.2m in H1.

“Following a review of these business units, the group has discontinued these activities.”

Looking ahead, the board said for the reasons it had outlined, fit capacity would be held at current levels throughout H2 and sales brought into line.

“Whilst the improvement in the group's ECO business is expected to offset some of this reduction, the overall impact on EBITDA in H2 is expected to be a shortfall in the range £2.5-£3.5m.

“To focus resources on the core home improvements business, the LED business and other commercial revenue streams will be scaled back in H2.

“Plans to reduce the levels of customer discounts have also been postponed, ensuring that the group remains competitive in tighter market conditions.”

Those actions, along with the closure of the boilers and energy-switching businesses and the loss of previously anticipated contribution, would reduce previously expected EBITDA further by £1.8-£2.2m, Entu said.

As a result of those challenges, while also reflecting progress in the implementation of the group's performance improvement plan, Entu said it expected to make a small profit at the EBITDA level in H2.

“Accordingly, the Group now expects a full-year LBITDA on continuing operations before exceptional items, in the range of £1.2-£2.2m.

“Loss before tax for the full-year is expected to be in the range £2.5-£3.5m after accounting for restructuring and finance costs.

“Entu remains fully focussed on its five-point action plan to improve performance in its core home improvements business.”