The Codan Limited (ASX: CDA) share price has continued its slide on Wednesday.
In morning trade, the metal detector focused electronic products company's shares are down 20% to a multi-year low of $3.91.
This makes the Codan share price one of the worst performers on the All Ordinaries index.
Why is the Codan share price sinking?
Investors have been selling down the Codan share price today following the release of the company's annual general meeting update.
That update reveals that FY 2023 is going to be a very tough year for Codan for a variety of reasons.
The company's chair, David Simmons, explained:
We are very pleased that our newly acquired DTC and Zetron businesses are performing above expectation although as advised when we released our FY22 results in August, we are having to rebuild markets in Minelab, which will take time. Africa is an important market for Minelab, but right now large sections are closed for a variety of reasons, mainly geo-political. We also have the ongoing impact of the war in Ukraine.
When we prepared our budgets for FY23, we anticipated sales in Africa would slowly recover, but this has not yet occurred. While we have not lost market share, we are having to work extremely hard to stimulate demand. Elsewhere, in our traditional HF markets, developing world economies are still recovering from the financial impact of COVID.
First half guidance
At the event, Codan's new managing director, Alf Ianniello, provided the market with an idea of what to expect from its first half results. And it isn't pretty. He said:
The company expects sales for Minelab to be in the region of $75 to $80 million in the first half of FY23, compared to $138 million in the prior corresponding period. The reduction primarily relates to the disrupted nature of the African market, normalisation of sales as we transition to living with COVID, the previously disclosed ~$15 million of additional FY22 sales not repeated in FY23 as well as ceased FY22 Russian sales of $7 million.
Based on this level of sales in the first half of FY23, we would expect Minelab to report a segment profit in the range of 30% for the first half. In light of the reduced level of sales, management is re-basing operating costs to maximise future segment profit margins
Things will be better for the company's Communications businesses, which Ianniello believes represent a significant future growth engine for Codan.
He is expecting Communications first half sales to be in the range of $123 million to $135 million, which represents a 5% to 15% increase on the prior corresponding period. And thanks to operating leverage, the company is expecting its Communications segment profit margin to lift from 21% in FY 2022 to 25% over FY 2023.
However, this won't be enough to stop a significant first half profit decline. The update reveals that Codan expects to report a first half net profit after tax in the range of $25 million to $30 million. This will be a decline of upwards of 50% from $50.1 million in the prior corresponding period.
