Panceltica could run up £40m loss

Trading in Panceltica shares has been restored this morning. The Stock Exchange had suspended dealing for the past fortnight while the company prepared a trading update.

That statement was issued today and as well as a re-structuring it points to an expected operating loss of between £15m and £40m for the year ending 31 December 2008.

Panceltica launched on AIM only at the end of March. Paul Fraser, chief executive, said at the time that it was “one of the best-performing debuts of the year”.

Panceltica describes itself as a Qatar-based provider of fast-track steel technology to the international construction industry.

Eager investors were already ploughing in £77m of new funds just two months before the launch.

Three months ago finance director Colin Fitzpatrick, who had been with Panceltica for 20 years, stepped down. He was replaced by Ben Bright who had previously worked on the group’s flotation on AIM.

The only hard data issued by Panceltica since floating on AIM was the interim results covering the six months to 30 June 2008.

They showed a pre-tax loss of £20m on turnover of £160m. In the comparable period of the previous year the accounts showed a much smaller turnover – just £31m – but a splendid pre-tax profit figure of £5m.

The two sets of figures show two major differences:

• The flotation ran up £8m of one-off costs.
• The company now carries the burden of £33m of finance costs.

Today’s Stock Exchange statement reads: “The range of possible outcomes [of pre-tax loss at the end of the year] is due to uncertainty over the final position on contract variations, settlement of sub contractor agreements and recoveries and a potential provision for liquidated damages.

“The operating loss is largely due to delays in completing the Company's main construction project for 1,984 housing units for Barwa Real Estate Company in Qatar. 

The about-turn on the Barwa project figures is huge – Panceltica had previously pointed to an operating profit of £15m but now hits are surfacing of:

• £30m due to overheads, effect of programme delays and construction alterations without corresponding variation orders.
• £11m of liquidated damages due to completion delays.
• £13m of corporate overhead “in order to increase the business capacity”.

Panceltica has no qualms about the spend in anticipation of further growth, dubbing it to be “an investment for the future”.

The group is calming the situation by making extra funding available.

Panceltica states: “In order to address liquidity needs, shareholders who between them control 74% of the share capital will support the company by injecting liquidity or reducing and/or deferring current liabilities”.

As a result Paul Fraser has coughed up a £3m interest-free loan (unsecured) and three other directors have followed suit, offering about £10m in all.

However Panceltica says: “Should no further contract revenues be secured by the end of the first quarter of 2009, the company will need to secure further capital.”

The Company also announces that Fraser will be in hospital for up to four months and during his absence, interim consultant Paul Manning will take the reins.

Fraser commented: “While the financial outcomes from the Barwa Project are disappointing, they are largely a factor of the single contract risk profile of the business to date.

“The company remains confident of the capability of, and business opportunities for, its light steel construction techniques.”