Eaga shares fell 13 per cent this morning to 61p after the green energy and retrofit specialist said the Warm Front scheme, which is set for severe funding cuts, represented 44 per cent of its turnover.
The Warm Front scheme will have its funding cut from £345 million this year to £100m in two years’ time, following the Comprehensive Spending review.
Eaga today said about 44 per cent of its revenue in the current financial year was directly related to the roll out of the Warm Front scheme. It said the speed of the reductions outlined by the government were expected to lead to at least a £20m exceptional restructuring charge.
A statement released to the Stock Exchange this morning said: “Delivery of the Warm Front programme currently represents a material proportion of the group’s activities, contributing approximately 44 per cent of group revenues during the financial year ended 31 May 2010.
“Funding for the programme during the current 2010/11 fiscal year is £345m and this will reduce to £110m during the 2011/12 fiscal year and £100m in 2012/13. Eaga has begun discussions with the Department of Energy and Climate Change in respect of the reduced level of funding going forward.”
As a result of these cuts, the firm will take a restructuring charge, potentially to be spread over the next two years, and is also likely to see an exceptional goodwill write down as it assesses the value of companies it has acquired in recent years.
The statement added: “At this stage the cash element of the restructuring costs could total £20m and would be incurred across the next 24 months. In addition, we will review the carrying value of goodwill and other assets allocated to certain business units which could be impacted by the reduced Warm Front funding.”
One positive note from the update said the firm had received detailed offers from potential partners in the installation of solar PV panels for social housing providers. The firm expects to invest an additional £20m in this project, which will hit cash resources along with the restructuring charge.