Bodyshop group Nationwide Accident Repair Services has given a profit warning and announced the start of cost-cutting measures which could see some non-core bodyshops closed.
In an update ahead of the calendar year-end, Nationwide has warned that, while revenues look set to stay flat, profit before tax and non-recurring items looks to be below market expectations from the second half of its financial year.
It added: “At half year results in September, the board reported its confidence in Nationwide's long term prospects but cautioned that current economic conditions were expected to create near term challenges.
“It is now evident that although Nationwide achieved a marginal increase in its core insurance volumes (against market trend) in the first half, volumes in the second half will be impacted by the continuing decline in insurance claims, with the recent milder weather underscoring this factor.”
It has been particularly impacted by the decline of claims for smaller repairs of lower revenue but higher margin, which has been faster than that of more extensive repairs with higher sales value but lower margin.
Nationwide said its management has begun a “decisive programme” to reduce the cost base in the anticipation that no significant improvement in the economic climate is likely in the short term.
This could include the potential closure of non-core centres, with repair volumes transferred to other branches.
“This programme will preserve Nationwide's overall operational capacity and will continue to support the Board's strategy to build the company's presence in the fleet and retail markets,” it added.
The total one-off costs relating to the programme will be approx. £7.7m for the current financial year, of which £1.6m will be a cash cost in the current financial year.
When fully implemented, management expects annualised savings of approx. £1.9m.
It added that Nationwide's balance sheet remains strong and the company expects to close the year with substantial net cash of some £4.5m.
The directors expect to propose a maintained final dividend of 3.5p per share for the year (2010: 3.5p), making a full year dividend of 5.4p per share (2010: 5.3p).
It added: “With a profitable business model, medium and long term prospects for Nationwide to capture market share in its core insurance marketplace (now at only c.5% penetration) remain very positive, helped by the company's comprehensive offering, national reach and operating systems.
“Nationwide's drive into newer non-insurance markets is also developing well and results to date are encouraging.”