Alex McLeod could face a chill baptism as boss of Stirling’s Superglass on Wednesday when he is due to present the group’s annual results only three weeks after taking charge at the insulations group.
Brokers accept that both profits and sales fell again in last year’s tough trading conditions and some believe that the new man may court unpopularity by sanctioning a cut in the dividend.
The company’s own brokers at Brewin Dolphin, for example, now accept that the payment may be trimmed to 2p a share against previous hopes for a maintained 3.4p payment.
Among the biggest losers from such a move would be former chief executive John Smellie who is due to retire from the board next month at the age of 60 after 24 years at the company.
With more than five million shares, he would see this part of his pension cut from more than £172,000 to just more than £100,000.
“It makes little sense for the company to continue with a generous dividend policy at a time when it is making strenuous efforts to pay down its debts and Alex, with his strong background in finance at the St.Gobain group, will be well aware of the need to cut his cloth according to his means,” commented one observer.
“While he has only been in the job for a matter of days, I would not be surprised to hear of further measures to save costs in the coming weeks along with fresh initiatives to win new business.”
Most analysts believe that increased competition in the market as a result of the slump in new housebuilding may have seen sales slip to below £40 million last year and expect profits to drop from £7.5m to as little as £5.5m despite earlier efforts to improve efficiency.
The one brighter spot is likely to be the subsidised sales of insulation materials carried out under the Government’s Carbon Emissions Reduction Target Scheme (CERT).
Directors recently reported an increase in this side of the business over the early autumn weeks after Energy and Climate Change minister Ed Miliband increased his targets and other initiatives came into play, including the Scottish Government’s free energy audit which has been offered initially to up to 100,000 households.
Apart from its business with home insulation specialists, Superglass aims to further cash in on CERT through the do-it-yourself market with a new ‘buy two get one free’ offer through builders’ merchants which is being financed by Scottish & Southern Energy.
Under present legislation, the major energy companies are required to spend some £1.5 billion over three years to help customers to reduce carbon emissions through better insulation and other measures (although they can get back most of the cash through higher bills).
Despite the recent encouraging comments from Superglass, others in the industry have complained that some of the energy companies have been dragging their feet on providing the necessary finance to step up the programme.
Only a fortnight ago leading group SIG said that its insulation operations had seen little evidence of a release of additional funding and that its autumn sales trend had remained subdued.
The group’s remarks have led brokers to take a cautious view on prospects for Superglass in the current year and Brewin Dolphin analysts expect little real improvement in overall demand with profits predicted to show only a modest improvement to around the £6m mark.
The brokers still like the shares at current levels of around 34.5p and are particularly enthusiastic about the company’s strong cash flow which should have seen net debt reduce further to below £22m at the end of last year, a cut of more than £5m since 2007.
They believe that the potential dividend cut could help see the figure reduce further to little more than £18m in the current year and have set a share price target of 52p for the shares, a 50% uplift on current levels.
But even that target is likely to leave long term investors feeling cold – the shares were floated at 180p each back in July 2007 and the group’s stock market value has plunged from an initial £105m to around the £20m level.
l Research carried out by the independent think tank New Policy Institute found that more than 250,000 Scottish households have failed to take up grants available for home insulation. Information is available from the Energy Savings Trust (0800 512012) or Home Heat Helpline (0800 336699).
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