Stadium Group warns on profits as transition progresses slowly

Design-led technology supplier Stadium Group updated the market on its trading in Wednesday, reporting that “significant progress” was continuing to be made in transitioning from a purely electronic assemblies business to a design-led technology business.

The AIM-traded firm said it expects to report a year-on-year increase in revenues of 15% to £61m.

It said that, while revenue growth and the development of the forward order book were in line with expectations for the current year, the board now expected single digit percentage growth in normalised profit before tax, which was below current market expectations.

“This is primarily due to customer delays into 2018 for certain higher margin technology products projects, which had originally been expected to ship before the year end,” the board explained in its statement.

It said the “widely reported” global shortage of certain electronic components, particularly memory, integrated circuitry and passive components, had compounded the situation.

“As reported at the time of the interim results, this has also contributed to cost pressures and, despite building inventory, it has not proved possible to fully mitigate this.

“Actions have been taken to offset some of the revenue shortfall by undertaking additional electronic assembly sales, but the lower margin nature of this work will only partially alleviate this impact,” the board explained.

“The delayed sales and increased inventory referred to above are expected to result in increased net debt at 31 December.”

Stadium said its offering of complementary electronics technologies and specialist design-focused engineering expertise continued to be attractive to customers, and the growing demand seen in the first half of the year was evidenced by the “continued growth” in its order book, which currently exceeded £32m - a new record level for the group and up from £25.8m at 31 December 2016.

“Although the board recognises that the delays and some pricing pressure will continue to impact the group in 2018, the forward visibility provided by the order book and the strong design pipeline of newly awarded projects, provides confidence that the company will deliver double-digit revenue and profit before tax growth in the coming year.”

Stadium said it will announce its financial results for the year to 31 December on 13 March.