Sales are expected to be approximately £57.1m (2015: £88.3m) and the operating profit* (post a £0.2m restructuring charge) is expected to be approximately £2.1m (2015: £12.8m). The Group delivered an improved performance in the second half with an estimated H2 2016 operating profit* of £3.0m (H1 2016: operating loss of £0.9m before share based payments charge).
The reduction in sales was mainly driven by significantly lower demand in France. However, sales into Germany recovered strongly in 2016, up 52% on 2015, primarily underpinned by the launch of new FireAngel products in H2 2016. Due to the phased introduction of smoke alarm regulation in further states in Germany and the timing of the commencement of product replacement cycles, the Board expects the German market will continue to provide significant growth opportunities for the Group.
Since the EU referendum, the Group has seen significant product cost inflation due to the weakness of Sterling against the US Dollar, which was only partially offset by the strength of the Euro against Sterling.
FireAngel product returns and FireAngel warranty costs in 2016 were in line with the Board's expectations. Sprue expensed a core level of FireAngel warranty costs equivalent to approximately 1.0 per cent. of expected 2016 sales and released part of the FireAngel warranty provision to offset warranty expense above that core level.
In 2016, the Board increased the stock provision by £0.5m to £0.7m (31 December 2015: £0.2m), primarily in relation to French stock as previously announced. Net of provisions, stock at 31 December 2016 had reduced by 15 per cent. to approximately £13.3m (2015: £15.6m).
The Company's balance sheet remains strong with £14.3m of cash at the year end (2015: £22.4m) and no debt (2015: £nil).
The Company expects to announce its final results for the year ended 31 December 2016 in late March 2017.
Graham Whitworth, Executive Chairman of Sprue, commented:
“We are pleased to report good progress across the Group. The team worked effectively to address the key challenges which is reflected in the stronger performance in H2 2016.
The functionality of home safety products continues to evolve and our R&D team is working to ensure we maintain our “best in class” reputation. We are well placed to capitalise on emerging opportunities including sales of connected home products.”
*Operating profit in 2016 of £2.1m is stated after a £0.2m restructuring charge (2015: £nil) and before share based payments charge of £0.6m (2015: operating profit of £12.8m is stated before exceptional warranty charge of £5.5m and share based payments charge of £0.5m)