Stobart in shock profit warning

City A.M. Reporter
FREIGHT company Stobart Group has cut its full-year profit forecast and warned that government spending cuts and tax rises could hit volumes in 2011.

“We have slightly reduced our full-year profit expectations as a result of reduced spend by Network Rail and increased overall finance costs. We are also cautious that 2011 may see volumes affected by the increase in VAT rate and the government spending review,” said chief executive Andrew Tinkler.

The company said customers were demanding shorter lead times, as hard-pressed retailers ordered fewer items more often.

Tinkler said this was giving the company less time to plan deliveries, leading to a lower vehicle utilisation rate.

But Stobart said in the longer term it would benefit from the flexibility of its business model, which uses its own fleet and drivers, reducing the need to rely on subcontractors, and a pay-as-you-go system.

Ben Whawell, chief financial officer, said the company had not seen much direct effect on volumes from reduced government spending so far, but that the size of the cuts expected from the government spending review might well have some impact.

Stobart reported a 38.7 per cent jump in pre-tax profit in its first half to August 31 to £15.4m, on revenue from continuing operations up 11.7 per cent at £243.7m, with contract wins from Tesco and A.G. Barr adding volume and margin.

Shares in the company tumbled 13 per cent on the release of the statement.

Killick says the statement led to downgrades in forecasts by an average of eight per cent.