Shares of Leeds-based WYG, the international project management consultancy, plummeted 40% on Wednesday after it warned in a trading update its operating profit would not meet market expectations and that it would not meet covenants.
WYG said its UK markets are “now being impacted by the current cautious business sentiment and political uncertainty …”
WYG said it expects a second half operating profit performance “which is below that achieved in the first half, implying an operating profit for the year as a whole which is materially below current market expectations.”
WYG said it is “seeing a steady improvement in the conversion of our international development business’s pipeline into profitable work, with revenues anticipated to be slightly ahead of previous expectations.”
WYG added: “However, the business’s margins remain lower than those of our mainly UK focussed consultancy services business as we continue to incur high bidding costs ahead of building revenues.
“In Turkey and Africa, we have a good order book of new work to be delivered in the next 12 months and our wider pipeline of future prospects continues to build healthily.
“However, our UK markets are now being impacted by the current cautious business sentiment and political uncertainty, meaning that consultancy services is seeing some delays in investment decisions regarding new work as well as the deferral of activity on certain existing projects, across both the public and private sectors.
“As a result, we think it necessary to take a more cautious view as to the likely outturn for our UK business for the year such that we no longer expect to see the marked increase in our UK activity that has been typical of the final quarter of our financial year in the past.
“As a result, we expect that we will not meet either of the net debt to EBITDA or interest cover covenants within our facility agreements for 31 March 2019 and we have opened discussions with our lending bank with a view to securing a deferral or waiver of the relevant covenant tests.
“We already have a number of clearly defined actions underway in order to materially reduce our net debt position.
“Subject to the timing of some larger trading receipts within our international development business, we expect year end net debt to be in line with previous market expectations at around £10.0m.”
WYG CEO Douglas McCormick said: “While it is disappointing to be revising expectations today, subdued domestic economic conditions and the headwind from political uncertainty is affecting many businesses’ willingness to commit to major new projects.
“This has particularly affected the construction sector which underpins much of our business in the UK.
“Our strategy of developing a simpler, more robust platform and driving efficiencies continues.
“I am confident that the actions we are taking will improve the longer term prospects of the business and we will look to accelerate these actions to mitigate against the impact of an unusually difficult final quarter in the current uncertain macro-economic environment.”