Alumasc error proves costly

Alumasc has been punished for failing to keep a handle on costs at its precision engineering division during a rush of business last year. Capacity constraints, production bottlenecks and cost overruns damaged margins there and sliced into group profits. As a result, broker Peel Hunt has slashed full-year estimates by 47 per cent and expects adjusted pre-tax profit of just £2.5m, giving adjusted EPS of only 5p (compared with £4.3m and 8.3p in 2011). Axing the dividend by over two-thirds won't impress income seekers, either.

Alumasc's problems first surfaced in January. Demand from diesel engine manufacturers, needing to beat an emissions deadline, meant an "extremely busy" final quarter for Alumasc's precision engineering business. However, an audit uncovered additional costs of "well over £1m", according to finance director Andrew Magson. Divisional sales actually jumped 19 per cent to £19.5m, but those additional costs meant underlying operating profit collapsed to £0.2m from £1.3m and the group's operating margin slipped to 2.7 per cent from 5.8 per cent. Management is taking action, but improvements "will not happen overnight", admits chief executive Paul Hooper. Revenue rose at the larger building products unit, too, but money spent on driving sales there pushed profits down a fifth to £1.7m.

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