South Korea drags on Titon trading through year-end

The AIM-traded firm said trading in UK and Europe through to the end of the 2022 period continued in line with its expectations following its 22 July update, as it managed the inflationary environment, the enterprise resource planning (ERP) system implementation, and the supply chain challenges that were present.

However, as a result of the previously-reported weak housing market and the shift in market demand to mechanical ventilation products from natural ventilation in the South Korea market, Titon said its Korean business reported a further decline in results to the group.

As a result, Titon said it now expected that the group's overall underlying loss before tax and exceptional items would be “moderately larger” than previously anticipated.

The group's financial results for the 2022 financial year were still subject to the completion of its audit, with the board expecting to publish them in January.

Trading in the first two months of the 2023 financial year, meanwhile, were also in line with expectations in the UK and Europe.

While supply chain shortages had eased, the group said it was still managing inflationary margin erosion through customer price increases, material cost savings and internal efficiencies.

The group said it had increased the output of ventilation system products as supply shortages eased, adding that it had invested to increase capacity for its hardware products to satisfy the increased demand resulting from the building regulation changes in June.

In the UK and Europe, Titon said it currently expected to report a loss before tax and exceptional items in the first half, but anticipated returning to profitability in the second half.

While full-year results overall would be “somewhat lower” than previous expectations, Titon said it expected 2023 would show a full-year improvement in performance when compared to its expected 2022 results.

Having filled key management vacancies, Titon said it now had a “strong and experienced” leadership team, whose focus was to improve business performance.

In addition, it said it had an ongoing strong order book with customers.

Titon Korea was expected to remain lossmaking in the 2023 period due to the challenging market conditions, as the group was yet to see significant sales of mechanical ventilation products launched in response to the shift in demand in that market.

The group said it was maintaining a “healthy” balance sheet, with no indebtedness.

Group cash at year-end on 30 September was £1.7m.

Following the investment in its inventory holding during the 2022 financial year in a bid to mitigate the previous supply chain issues, a strategic focus in 2023 will be to reduce its inventory holding to normalised levels, to match order book demand and maximise liquidity and overall working capital.

“After a challenging year, we are comforted that the UK and Europe business performed in line with our revised expectations and has had a reasonable start to the new financial year,” said chief executive officer Alexandra French.

“However, we are obviously disappointed to report that overall, the group's trading performance for the full year will be lower than previously indicated due to the poor performance of our Korean subsidiary.

“From a UK and European perspective, we now have a strong leadership team in place who have defined a clear vision for the business, and we are confident that this will enable us to deliver stability and ultimately a return to profit in these regions in the second half of 2023.”

French said Titon Korea's return to profitability was now likely to be in the medium-term, as it develops its position in the mechanical ventilation market, with the firm therefore evaluating options for streamlining the corporate structure and operations of the business.

At 1613 GMT, shares in Titon Holdings were down 12.35% at 71p.

Reporting by Josh White for Sharecast.com.