Epwin Group “strong balance sheet, buoyant demand and robust operations”

Epwin Group Plc (LON:EPWN), the leading manufacturer of low maintenance building products, supplying the Repair, Maintenance and Improvement, new build and social housing sectors, has announced its full year results for the year ended 31 December 2020.

2020 Financial highlights

£m 2020 2019
Revenue241.0282.1
Underlying operating profit 19.421.2
Underlying operating margin 13.9%7.5%
Statutory operating profit6.317.2
Adjusted profit before tax 15.016.4
Profit before tax1.912.4
Adjusted EPS 13.99p10.29p
Basic EPS1.82p7.49p
Dividend per share1.00p1.75p
Covenant net debt 2(18.5)(16.4)
Net debt (including IFRS 16: Leases)(96.9)(80.4)
Covenant net debt to adjusted EBITDA 21.3x0.6x
Underlying operating cash conversion 3252%164%

(1) Adjusted for amortisation of acquired other intangible assets, share-based payments expense and other non-underlying items.

(2) Covenant net debt and covenant net debt to adjusted EBITDA represent pre-IFRS 16 measures.

(3) Underlying operating cash conversion is pre-tax operating cash flow as a percentage of underlying operating profit.

Financial headlines

·    Results impacted by COVID-19 closure in H1

·    Strong H2 performance, gaining momentum:

o  Revenues up 4% on H2 2019

o  H2 2020 underlying operating profit £11.2 million (H2 2019 £11.8 million)

·    RMI demand quicker to return and stronger than newbuild and social housing

·    Robust financial position maintained:

o  Net debt 1.3x adjusted EBITDA

o  Strong cash generation

o  Significant headroom in banking facilities of over £50 million at the year end, facilities now extended to June 2024

o  All pre-COVID banking covenants met with no variation or waivers

o  No additional funding has been sought from shareholders or banks

·    Recommencement of dividend payments, with proposed final dividend of 1.00 penny per share

Operational and strategic headlines

·    Health and safety prioritised in response to the COVID-19 pandemic

·    Levels of demand were very high for extruded products in H2, particularly window profile systems, where capacity was exceeded for much of H2

·    GRP moulding and other new build activities slower to return and at more modest levels. Now returning to pre-COVID levels

·    Positioned to exit 2021 with leaner operations:

o  Ongoing development of operations to improve processes and efficiency

o  Investment in Telford logistics and finishing facility now complete

  • Construction completed on budget with final receipt of £5.2 million received in Q1 2021 and project generating a pre-tax net cash surplus of £10.0 million
  • Five warehousing and finishing facilities consolidating into one
  • Houses new aluminium window system operations
  • Operating savings and aluminium contribution will offset increase in rent, benefits from end of 2021

·    Enhanced product portfolio to augment UK market position

o  Aluminium window system, Stellar, launched Q2 2019

o  Aluminium decking product, Adek, launched Q1 2020

o  PVC decking product launched in 2019

·    Acquisition of SBS in Q1 2021

o  A leading and well-established regional distributor of plastic building products, increasing access to the Group’s product offer

o  8 trade counters in Cumbria, Northumberland and Southern Scotland

o  4x EBITDA multiple, including synergistic benefits

·    New ESG framework is being established

Current trading and outlook

·    H2 2020 recovery has continued into 2021 with stronger than anticipated demand across most of the business in Q1 2021:

o  Revenues in the first three months of the year ahead of 2020 and 2019

o  Encouraging progress, gaining momentum with anticipated growth from new products, which have been well received. Robust demand from customers serving the RMI market (c.70% of Group revenues)

o  New build market continues to improve following a slower recovery from the initial pandemic lockdown, with some Local Authorities and Housing Associations experiencing delays to contract starts

·    Supply chains have been and continue to be under pressure as a result of the pandemic and subsequent acceleration of demand

·    PVC raw materials supply remains under pressure with shortages from global events driving up the price of resin significantly to all-time highs.  Steps are being taken to recover these costs in the market in an equitable manner

·    COVID-19 period has stimulated demand for home, garden and leisure space spending as it has highlighted the need for improvements, addressing maintenance and more recently for creating workspace.  These trends seem set to continue. Medium and long-term drivers for the RMI market remain positive:

o  An ageing, underinvested and historically poorly maintained housing stock

o  Environmental and safety concerns driving legislation that will require improvements to homes on a larger scale than just basic maintenance

o  New build is anticipated to grow through underlying demand and government incentives

o  Social new build is also likely to see growth

·    The Group is reviewing opportunities to accelerate capex following the ‘super deduction’ announcement in the March 2021 budget

·    Potential M&A opportunities emerging

Jon Bednall, CEO of Epwin, commented:

“Our performance this year and the strong underlying demand from our markets have been encouraging against the backdrop of the disruption caused by the pandemic.

The Board is grateful for the hard work and continual effort of all of our people in what has been a very difficult period for everyone to adjust and cope with. Their combined efforts have demonstrated the resilience of our business – from the closure of operations and uncertainties of the second quarter through to the supply chain challenges and unprecedented increases in demand for our extruded products in the second half. Their health and safety, along with that of our customers and suppliers, is and remains our utmost priority.

Despite the continued uncertainties in the wider economy, we look forward to a more positive 2021. With a strong balance sheet, buoyant demand and robust operations supported by the medium and long-term drivers of our markets, we will refocus our efforts on delivering on our strategic priorities for the business and our shareholders.”

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