Sales disappoint at Elektron

Just over six months ago Elektron Technology (ET) reported buoyant half-year results. Operating profits before special items of £3.47m represented a 33 per cent increase over the same time period the previous year. But in November the company released a worrying trading update which was followed by comparable full-year operating profits down £300,000 at £5m.

Blame for the second-half set-back falls squarely on a £5m turnover under-shoot that reduced profits by around £2m. This was mainly due to poor sales in Europe and notably Elektron's biggest market, Italy. Sales to the eurozone via Asia were sluggish too. Margins were also depressed by a sharp rise in metal prices (notably tungsten and copper) before selling prices could be increased. And with tax losses largely used up, the 2011-12 tax charge rose from 18 to 24 per cent.

The full results also include special items and non-recurring expenses of £2.2m (previously £1.5m) of which £1.9m (£900,000) related to restructuring costs. Those costs are being incurred to move the company's "subscale, siloed manufacturing businesses" into fewer premises. Following further restructuring this year, Elektron expects to make total annual savings of more than £2m.

Not surprisingly perhaps, management is cautious about current year prospects and so is broker finnCap which forecasts unchanged adjusted pre-tax profits and EPS of £4.7m and 3.3p, respectively. Thereafter, results should improve thanks mainly to new products being launched this year.

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