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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Epwin Group Plc | LSE:EPWN | London | Ordinary Share | GB00BNGY4Y86 | ORD 0.05P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.50 | -0.58% | 85.50 | 84.00 | 87.00 | 85.50 | 85.50 | 85.50 | 1,160 | 08:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Gen Contractor-nonres Bldgs | 355.8M | 8.4M | 0.0580 | 14.83 | 124.64M |
From Apr 2019 to Apr 2024
TIDMEPWN
RNS Number : 5693K
Epwin Group PLC
23 April 2020
23(rd) April 2020
Epwin Group Plc
Final results for the year ended 31 December 2019
Substantial strategic progress on all fronts
Epwin Group Plc (AIM: EPWN) ("Epwin" or the "Group"), a leading manufacturer of low maintenance building products, supplying the Repair, Maintenance and Improvement ("RMI"), new build and social housing sectors, announces its full year results for the year ended 31 December 2019.
2019 Financial highlights
Hot Features
Premium
2019 2019
GBPm Post-IFRS 16 Pre-IFRS 16 2018
----------------------------------- --------------- -------------- -------
Revenue 282.1 282.1 281.1
Underlying operating profi
t (1) 21.2 19.1 18.7
Underlying operating margin
(1) 7.5% 6.8% 6.7%
Statutory operating profit 17.2 23.4 14.8
Adjusted profit before tax
(2) 16.4 17.0 17.2
Profit before tax 12.4 21.3 13.3
Adjusted EPS (3) 10.29p 9.59p 10.29p
Basic EPS - continuing operations 7.49p 12.59p 7.56p
Dividend per share 1.75p 1.75p 4.90p
Net debt (80.4) (16.4) (24.8)
Net debt / EBITDA 2.1x 0.6x 0.9x
Underlying operating cash
conversion (4) 164% 123% 148%
----------------------------------- --------------- -------------- -------
(1) Underlying operating profit and margin are before amortisation of acquired other intangible assets, share-based payments expense, other non-underlying items and discontinued operations.
(2) Adjusted profit before tax is before amortisation of acquired other intangible assets, share-based payments expense, other non-underlying items and discontinued operations.
(3) Adjusted EPS is calculated based on profit after tax adding back amortisation of acquired other intangible assets, share-based payments expense, other non-underlying items and discontinued operations.
(4) Underlying operating cash conversion is pre-tax operating cash flow as a percentage of underlying operating profit.
Encouraging financial performance in 2019
-- Results in line with expectations -- Continued market share gains in core product areas despite weaker market conditions in H2 -- Underlying operating profit (on a pre-IFRS 16 basis) ahead year on year at GBP19.1 million -- Continued strong cash generation from operations -- Purchase, development and sale and leaseback of new Telford logistics and finishing facility:
o Generating year end cash surplus of GBP10.1 million
o On practical completion, this will have generated an anticipated post-tax net cash surplus of GBP8.0 million by the end of H1 2020 after final construction costs are recognised
-- New improved banking facilities, providing significant operating flexibility:
o Revolving credit facility of GBP65.0 million (up from GBP37.5 million) and overdraft of GBP10.0 million
o Leverage ratio 0.6x adjusted EBITDA (on a pre-IFRS 16 basis), down from 0.9x at YE 2018
Delivering on our strategy
-- Substantial progress with the Group's site consolidation programme:
o Development of purpose-built logistics and finishing plant in Telford progressing to plan, consolidating Window Systems sites from seven to two - the build is now substantially complete
o As previously reported, disposed of non-core, loss-making glass sealed unit manufacturing operation in early January 2019
-- Continued investment in enhancing Epwin's product portfolio to further develop the Group's long-term market position:
o Launch of award-winning "Stellar" aluminium window system in H1 2019
o Successful launch of "Dekboard" PVC decking system in Q1 2019
o Development of "Adek" aluminium decking system, launched in Q1 2020
o Ongoing product development to broaden existing ranges
-- Acquisition of PVS:
o Completed in February 2019, PVS is a decking installation business and enhances our capabilities and routes to market whilst establishing Epwin as the only end-to-end, vertically integrated supplier in this market
COVID-19 overview, current trading and outlook (as announced on 25 March 2020)
-- Group traded well in the early part of 2020 pre COVID-19 and following a successful 2019:
o Until the middle of March trading was slightly ahead of the Board's expectations
-- Group operations paused with effect from 25 March in response to COVID-19:
o Focus on cost reduction and cash management measures, including the deferral of capital expenditure and tax payments, with the agreement of HMRC
o The Group is also making use of the Coronavirus Job Retention Scheme ("CJRS") in order to help to retain our valuable and skilled staff through this period of inactivity
o The impact of COVID-19 and our decision to temporarily cease activity on 25 March 2020 will inevitably have a material impact on trading for the year ending 31 December 2020
-- Strong balance sheet; Group financial modelling suggests we can remain within existing bank facilities:
o Net debt at the start of the year was 0.6x EBITDA at GBP16.4 million
o At 31 March 2020, the Group has c.GBP45 million of headroom from its GBP75 million of banking facilities, including cash on the balance sheet
o Whilst the Board believes that the Group is well positioned to withstand a period of uncertainty, such as is associated with this pandemic, it believes that it would be imprudent to recommend the payment of a final dividend for the year ended 31 December 2019
-- Continuing to monitor market activity and developments in the situation:
o The Group is unable to accurately forecast trading in the short to medium term. In line with other businesses in the sector, the Group has withdrawn all market guidance and forecasts for the foreseeable future
-- Medium-term drivers for the RMI market remain positive:
o An ageing and underinvested housing stock, as well as environmental and safety concerns driving legislation and initiatives that will require improvements to homes on a larger scale than just essential maintenance. New build is anticipated to grow through underlying demand and government incentives. Social new build is also likely to see growth
Withdrawal of forecasts
We have no way of predicting accurately the duration and effect of the pandemic on the Group's end markets. The current level of uncertainty consequently means that the Group is unable to forecast accurately trading in the short to medium term and, in line with other businesses in the sector, is withdrawing all market guidance and forecasts for the foreseeable future.
The Group will look to provide further updates as the situation develops and when there is some clarity on the impact of COVID-19 on the Group's end markets and trading.
Jon Bednall, CEO of Epwin, commented:
"We made further substantial strategic progress in 2019 and delivered an encouraging performance, despite the well-publicised tougher market conditions in the second half of the year in the run up to the General Election.
We continued to invest in our facilities and product range while significantly reducing net debt and agreeing renewed and extended facilities, providing greater financial flexibility to execute the Group's growth strategy.
Considerable headway was made with our strategy of site consolidation and broadening our product portfolio, as we continue our operational transformation, alongside advancing our product offer and routes to market. We believe these actions put the Group in a strong position to service its customers and markets.
In response to COVID-19, we think it's the right thing to have paused our operations in line with many other businesses and we remain focussed on taking actions to protect the business, enhance our liquidity and maintain a strong balance sheet to withstand this period of uncertainty."
Contact information
Epwin Group Plc Jon Bednall, Chief Executive Chris Empson, Group Finance Director 0203 128 8572 Shore Capital Limited (Nominated Adviser and Joint Broker) Corporate Advisory Edward Mansfield / Daniel Bush / Hugo 0207 408 4090 Masefield Corporate Broking Fiona Conroy Zeus Capital Limited (Joint Broker) John Goold / Dominic King 0203 829 5000 MHP Communications Reg Hoare / Charlie Barker / Florence Mayo 0203 128 8572
Forthcoming dates:
Annual General Meeting 16 June 2020
About Epwin
Epwin is a leading manufacturer of low maintenance building products with significant market shares, supplying the Repair, Maintenance and Improvement ("RMI"), new build and social housing sectors.
The Company is incorporated, domiciled and operates principally in the United Kingdom.
Information for investors can be accessed www.epwin.co.uk/investors/
Chairman's Statement
Substantial strategic progress on all fronts
2019 represented another year of substantial strategic progress for the Group on all fronts. At the same time, we delivered an encouraging trading performance, despite challenging market conditions in the second half of the year which saw the Group's key markets soften after a stronger first half due to uncertainty around the timing of Brexit and the General Election. Against this background of what were widely acknowledged to have been declining markets, flat year-on-year revenues indicate the Group continues to take market share in its key product areas.
Significant progress has been made with the consolidation of the Group's operating footprint. The construction of the new, purpose-built warehousing and finishing facility in Telford is now substantially complete, despite the disruption from COVID-19, with the Window Systems warehousing operations relocation due to be completed during the second half of 2020. This will streamline the logistics operations and improve customer service, as well as adding capacity for continued growth. This major project is the final significant piece in the footprint consolidation that we have undertaken in the last two years; we anticipate taking progressive advantage of the more efficient operating platform that we have put in place in terms of growth and margin upside potential in the coming years.
The Group has continued to broaden its product portfolio with the launch of a new aluminium window system, Stellar, in May 2019, and also the launch of two new decking systems, "Dekboard" in PVC, successfully launched in H1 2019, and "Adek" in aluminium, launched in Q1 2020, complementing the Group's existing wood plastic composite decking range and responding to more challenging dynamics in this market. The new and existing decking products will be supported by the acquisition of PVS, a decking installation business, in February 2019 which provides further routes to market for the Group's decking products.
Variable market conditions
Trading conditions in 2019 were mixed with a stronger first half followed by weakening conditions in the second half of the year, with the key trading months of September, October and November impacted by poor weather conditions and heightened uncertainty caused by revised Brexit deadlines and a General Election.
The impact of COVID-19 and the decision to temporarily cease activity will have a material impact on trading for the year to 31 December 2020. We have focussed in the short term on taking actions to protect the business and enhance our liquidity to withstand this period of uncertainty.
In addition, with the form of Brexit and in particular the trading relationship with the EU still to be determined, uncertainty and consumer confidence both remain a potential drag on the economy.
Executing our strategy
Operational improvement
The construction of the new, purpose-built warehousing and finishing facility in Telford is now substantially complete, despite the disruption from COVID-19, with the Window Systems warehousing operations relocation due to be completed during the second half of 2020. Therefore, the whole build and relocation project is anticipated to be completed in the second half of 2020 to budget.
Combined with the consolidation of our Macclesfield extrusion site during 2018, the footprint of the Window Systems business will have been consolidated from seven sites into two. This will streamline the logistics operations and improve customer service, whilst increasing capacity and providing a base for our new aluminium operation.
As previously reported, the purchase, development and sale and leaseback of the new Telford facility is expected to generate a post-tax net cash surplus of at least GBP8.0 million, the effect of which is principally reflected in the Group's reduced net debt position as at 31 December 2019. The leases are on an arm's length basis at commercial market rates.
Product development
The Group has continued to invest in and broaden its product portfolio. In May 2019, the Window Systems business launched its new aluminium window system, "Stellar", to a positive reception from its existing customer base as well as a good level of interest from new potential customers and securing a significant industry award for new product of the year. Whilst it is a smaller part of the market than PVC window systems, aluminium window systems are a growing sector; particularly for domestic property improvements and in light commercial applications.
Further products were also introduced to the Group's decking range with the introduction of a PVC decking system "Dekboard" in early 2019 to complement the existing wood plastic composite decking range, and the launch of an aluminium decking product in Q1 2020 in response to changes in fire regulations. Additional products enhancing the existing ranges continue to be added to further develop the Group's market leading position.
Acquisitions
In February 2019, the Group acquired Premier Distribution (Gt. Yarmouth) Limited, trading as "PVS". PVS supplies and installs PVC decking and related products to the holiday park and park home markets as well as to residential customers and local authorities. The acquisition of PVS opens up further routes to market for Epwin's existing and new PVC decking products. Initial consideration was GBP2.5 million with the potential to increase, subject to the performance of the business over an extended earnout period.
In January 2019, the Group also completed the disposal of its non-core, loss-making glass-sealed unit manufacturing business for consideration of GBP0.1 million.
Financing
In July 2019, the Group renegotiated its existing banking facilities onto a two bank, syndicated basis. The new facilities comprise a revolving credit facility of GBP65.0 million (up from GBP37.5 million) and an overdraft of GBP10.0 million, for an initial term of three years with the option to extend for a further two years. The terms are materially improved from the previous facility. With pre-IFRS 16 net debt to adjusted EBITDA of 0.6x at 31 December 2019, down from 0.9x in prior year, these new facilities provide the Group with significant flexibility to pursue its strategy.
Results
IFRS 16: Leases became effective for accounting periods commencing on or after 1 January 2019. The new standard introduces a single lease accounting model that requires the recognition on the balance sheet of right of use assets and lease liabilities in relation to almost all leases. While IFRS 16 has no impact on the cash flows of the business, it does have a fundamental impact on the presentation of the Group's financial statements as well as certain financial measures such as EBITDA, operating profit, interest and net debt.
These financial statements to 31 December 2019 are the first set of full year results to be presented under this new leasing model. As permitted under IFRS 16, comparatives for 2018 have not been restated and the impact on net assets has been recognised within retained earnings at 1 January 2019. To aid understanding of these financial statements the results for 2019 in the Business Review section of this document are set out on an IFRS 16 and pre-IFRS 16 basis.
Underlying operating profit was GBP21.2 million. On a comparable pre-IFRS 16 basis, underlying operating profit was GBP19.1 million (2018: GBP18.7 million). The Board considers this a pleasing performance in markets which are widely acknowledged to have been down year-on-year. Statutory operating profit was GBP17.2 million (2018: GBP14.8 million).
Cash generation remained strong, with pre-tax operating cash flow, on a comparable pre-IFRS 16 basis, of GBP23.4 million (2018: GBP27.7 million). Cash flow and net debt, on a pre-IFRS 16 basis, were further bolstered by GBP10.1 million of net cash surplus from the purchase, development and sale and leaseback, at market rates, of our new Window Systems warehousing and finishing facility. It is anticipated that after tax and final construction costs the post-tax net surplus will be in excess of GBP8.0 million.
The Group finished the year with significantly reduced net debt of GBP16.4 million, on a pre-IFRS 16 basis, (2018: GBP24.8 million), 0.6x adjusted EBITDA and well within covenant levels.
Dividends
Due to the uncertainty around COVID-19, the Board is not recommending the payment of a final dividend. The interim dividend paid in October 2019 was 1.75 pence per ordinary share. Once the extent and duration of any disruption is better understood, the Board fully intends to recommence dividend payments.
Corporate governance
The Board of Directors, including myself as Chairman, acknowledges the importance of the ten principles set out in the QCA Code and details of our compliance with the Code can be found in the Corporate Governance section of the Annual Report as well as on the corporate website.
Sustainability
Minimising our impact on the environment is a priority for the Group - in terms of compliance with relevant legislation and accreditations, as well as working across our supply chain to maximise production efficiency, recycle where possible and reduce packaging, waste, power and water consumption and emissions.
The Group will continue to use its influence and resources to challenge outdated industry attitudes to drive the move from high maintenance unsustainable products to sustainable long-life alternatives like Epwin's.
People
On behalf of the Board and our shareholders I would like to thank all of our employees for the levels of commitment shown to the Group during both 2019 and in 2020 to date, particularly their commitment and response to the COVID-19 situation.
Summary and outlook
Our trading performance in 2019 was encouraging despite market conditions becoming increasingly challenging.
The Group continued to make significant progress with its site consolidation and rationalisation programme. The development of the new Telford site, combined with the consolidation of the Macclesfield extrusion site during 2018, will streamline the Window Systems logistics operations and improve customer service, whilst increasing capacity and providing a base for our new aluminium operation.
When these actions are completed during 2020, the Group will be in a still stronger position, allowing it to focus on servicing its customers from well invested core operations where it has market leading positions and there are significant barriers to entry.
Our strategy continues to be based on operational improvement, broadening the product portfolio and capabilities, selective acquisitions, cross-selling and market share growth in key sectors to build a sustainable, resilient business, prepared for growth as market conditions improve and pent-up demand takes effect.
2020 started well, following the deferral of investment decisions in Q4 2019 as a result of the heightened uncertainty around the timing of Brexit and the General Election. Up to the middle of March, trading was slightly ahead of the Board's expectations despite the poor weather experienced in the second half of February.
Since the outbreak of the COVID-19 pandemic, the Board has been closely monitoring the evolving and rapidly changing situation, with the health, safety and wellbeing of our employees, their families, our customers and suppliers our overriding priority. In anticipation of significantly reduced demand levels and in the interest of customer and employee safety, we took the decision on 25 March 2020 to implement a controlled shutdown of Epwin's operating sites for a temporary period. The subsequent reduction in order and enquiry levels has shown this to be well judged and we will restart the business as soon as it is safe and socially responsible to do so and when demand makes operations economically viable.
Whilst the Board believes that the Group is well positioned to withstand a period of uncertainty such as is associated with this pandemic, it believes that it would be imprudent to recommend the payment of a final dividend for the year ended 31 December 2019. The Board believes that it is in the best interests of all stakeholders to conserve cash reserves until there is a greater level of visibility over the full impact of COVID-19 on the business and subsequently on the wider economy.
Epwin remains an inherently cash generative business and once the extent and duration of any disruption is better understood, the Board fully intends to recommence dividend payments.
In the longer term, the outlook remains favourable, driven by an ageing and underinvested housing stock and environmental and safety concerns driving legislation and initiatives that will require improvements to homes on a larger scale than just essential maintenance.
Andrew Eastgate
Chairman
22 April 2020
COVID-19 impact on the Group
Summary position
-- Group trading well in the early part of 2020 pre COVID-19 and following a successful 2019 -- Group operations paused with effect from 25 March for safety of staff and customers -- Strong balance sheet: net debt at the start of the year was 0.6x EBITDA at GBP16.4 million
-- At 31 March 2020, the Group has c.GBP45 million of headroom from its GBP75 million of banking facilities, including cash on the balance sheet
-- Group financial modelling suggests we can remain within existing bank facilities -- Continuing to monitor market activity and developments in the situation
Current situation
Up to the middle of March, trading was slightly ahead of the Board's expectations. However, the impact of COVID-19 and our decision to temporarily cease activity will inevitably have a material impact on trading for the year ending 31 December 2020.
In anticipation of significantly reduced demand levels and in the interest of customer and employee safety, we took the decision on 25 March 2020 to implement a controlled shutdown of Epwin's operating sites for a temporary period. Subsequent reduction in order and enquiry levels has shown this to be well judged. We will restart the business as soon as it is safe and socially responsible to do so and when demand makes operations economically viable.
Balance sheet, liquidity and dividend
The Group enters the period of expected volatility and uncertainty with a robust balance sheet and significant financial headroom on committed banking facilities which it renewed in June 2019 for an initial period of three years to June 2022, comprising a GBP65 million Revolving Credit Facility and GBP10 million overdraft facility. The Group is maintaining a close relationship with its bankers, Barclays and HSBC.
Assuming that the coming months will be volatile and uncertain with disruption in the Group's end markets, the Board is actively focussed on cost reduction and cash management measures, including the deferral of capital expenditure and tax payments, with the agreement of HMRC. Management acted swiftly in taking these steps in early March when it became apparent that the developing situation would most likely present businesses with a significant liquidity squeeze.
The Group is also making use of the Coronavirus Job Retention Scheme ("CJRS") in order to help to retain our valuable and skilled staff through this period of inactivity as well as mitigating some of the costs to the business of taking the socially responsible approach and following the Government guidance. It is anticipated that this will mitigate circa GBP3.3 million per month of the Group's payroll cost and will avoid the immediate need for aggressive staffing reductions.
Whilst the Board believes that the Group is well positioned to withstand a period of uncertainty, such as is associated with this pandemic, it believes that it would be imprudent to recommend the payment of a final dividend for the year ended 31 December 2019. The Board believes that it is in the best interests of all stakeholders to conserve cash reserves until there is a greater level of visibility over the full impact of COVID-19 on the business and subsequently the wider economy. The impact of this is GBP4.6 million of cash retained in the Group.
Epwin remains an inherently cash generative business and once the extent and duration of any disruption is better understood, the Board fully intends to recommence dividend payments.
COVID-19 forecasts and going concern
Net debt at year end was 0.6x EBITDA (on a pre IFRS-16 basis). At 31 March 2020, the Group had over GBP45 million of headroom on its facilities, including cash on the balance sheet.
The unprecedented events, which are still evolving, are likely to have a short to medium-term impact on the Group's financial performance, though are not easily forecasted. The Group has produced a number of financial models which range from the reasonably optimistic through to an assumed worst-case scenario.
At the optimistic end, the model assumes a loss of all of April revenue, 50% of revenue for May and 25% of revenue for June. Under this scenario the Group would remain within both its facility headroom and within its banking covenants.
At the worst-case end of the scenarios, the Group has modelled the loss of six full months of revenue followed by a phased return of revenue across the remaining months of 2020. Under this scenario, the Group still remains within its facility headroom, assuming cost saving measures are successfully implemented and the CJRS grants are utilised. At this extreme, leverage and interest cover covenants would be breached, however, the Group's bankers have indicated that they remain committed to supporting the Group through this situation and would at this time be minded to waive such breaches.
Given the fluidity of the current situation, we continue to refine and develop our modelling as shareholders would expect, however, our current belief is that the business can sustain a significant loss of revenue within its current facility arrangements and utilising the Government's CJRS support.
Business review
Strategic and operational review
Market conditions in 2019 were mixed. After a strong first quarter, uncertainty set in as Brexit deadlines were delayed with political uncertainty leading to the General Election in Q4. Against this backdrop the Group delivered an encouraging performance. In what were widely acknowledged to have been declining markets, both our core window systems and cellular businesses have taken market share and performed well against strong prior year comparatives. The Window Systems operation has continued to win new fabricator customers due to the benefits of its Profile 22 Optima window system, whilst the cellular operations are winning back business, particularly in the specifier market. These specifier customers are now being supplied with the Group's products, serviced through our own as well as third party distribution networks.
Material input costs improved slightly in comparison to 2018 after a couple of years of significant inflation. This, combined with more stable market conditions in the second half of 2018 and early 2019, allowed the Group to recover some of the c.GBP10.0 million of annualised material cost inflation absorbed by the business through 2017 and 2018.
The Group commenced, and by year-end had made substantial progress, on a significant step in its ongoing strategy to consolidate and rationalise its operating footprint. The acquisition of a 20-acre site in Telford and the development of purpose-built warehousing and finishing facilities will allow the Group to complete the consolidation of its Window Systems operation. In concert with the consolidation of the Macclesfield extrusion operation to the Telford site in 2018, when the move into the new facility is completed, the Window Systems footprint will have been consolidated from seven sites to two. This will significantly streamline the logistics operations and improve customer service whilst increasing capacity and providing a base for our new aluminium operation.
The Board took the decision, consistent with the Group's strategy to lease its land and buildings, to sell and leaseback the new Telford development. This transaction completed in August 2019 for total consideration of GBP28.0 million. As at 31 December 2019, GBP22.8 million of this consideration had been received with the balance of GBP5.2 million due on completion of construction works. At 31 December 2019, construction was ongoing but at an advanced stage, with completion anticipated in Q2 2020. In total the acquisition, development and sale and leaseback of the site are expected to realise a cash benefit of GBP8.0 million net of tax. At 31 December 2019 the net cash benefit was GBP10.1 million due to the timing of construction costs and taxation.
There have been operational challenges for our Window Systems operations due to site complexity ahead of the plant moves commencing in 2020. This is particularly the case in our finishing operations where volumes have increased year-on-year as customer preference has continued to move towards coloured, foiled profiles from the traditional white profiles. Combined with the site move, this has put extra strain on this operation at a critical time. The investment made in the new finishing facility in Telford, as well as in advanced foiling lines, during 2019 will put the business and its operations in a much stronger position.
The Group continues to broaden and enhance its product range. Following investment and design in 2018, the Group launched its new, award-winning aluminium window system, Stellar, in May 2019. The system has a number of unique selling points for both the fabricator and end customer and received a positive reception from our existing customer base as well as a good level of interest from new potential customers.
Whilst a smaller market than PVC window systems, aluminium window systems are a growing part of the market; particularly for domestic property improvements and in commercial applications. Whilst 2019 saw the initial launch and roll-out of the system, 2020 is expected to see a significant uplift in sales as the new aluminium finishing facility comes fully online and up to speed.
2019 also saw the launch of our own PVC decking product, "Dekboard", to complement our existing Wood Plastic Composite decking range. This provides Epwin with the product range to address all parts of the decking market and, combined with the acquisition of PVS, makes Epwin the only vertically integrated supplier in this market, enabling us to provide a full end-to-end service to customers.
In response to changes in building regulations for high rise buildings, following the Grenfell fire, which also has an impact on the use of external decking products on such buildings, the Group has developed a new aluminium decking system, "Adek". The change in regulations has resulted in architects and specifiers moving to products that are non-combustible on high rise buildings. This has impacted the ability of Ecodek to sell its wood plastic composite decking products through these channels. The new aluminium decking system has been launched in Q1 2020 and has already attracted interest from architects and specifiers requiring fire resistant decking for use on balconies.
Uncertainty around fire door regulations post Grenfell, and in particular the testing regime protocols to achieve fire safety standard ratings has also impacted the ability of our door business to market and sell its fire door range. Permadoor now holds full accreditation for its products and manufacturing process and is building its order book well.
In February 2019 the Group acquired PVS. PVS supplies and installs PVC decking and related products to the holiday park and park home markets as well as to residential customers and local authorities. The acquisition of PVS opens up further routes to market for Epwin's existing and new PVC decking products. Initial consideration was GBP2.5 million with the potential to increase subject to the performance of the business over a multi-year earnout period.
As reported last year, in January 2019 the Group completed the disposal of its non-core, loss-making glass sealed unit manufacturing business for consideration of GBP0.1 million. No further gain or loss arose in 2019 following the non-cash asset write-off of GBP3.6 million in 2018. The disposal has enabled the Group to mitigate the significant lease, dilapidation and redundancy costs had the closure of the Northampton site been required.
These steps, along with the rationalisation and operational measures continuing into 2020, are allowing the Group to focus on its core operations, leveraging and focusing investment in areas where it has significant market presence. Our strategy continues to be based on operational improvement, broadening the product portfolio and capabilities, selective acquisitions, cross-selling and market-share growth in key sectors to build a platform for future growth and maintaining a sustainable investment return.
Market overview and outlook
Our low maintenance building products are primarily sold into the private housing RMI market, but with sales also into the social housing new build sector, social housing RMI contracts and the new build housing market.
Trading conditions in 2019 saw a positive first half offset by weakening conditions in the second half of the year, with the key trading months of September, October and November impacted by poor weather conditions and heightened uncertainty caused by revised Brexit deadlines and a General Election. Overall, revenues were flat on a like for like basis, which as the Group's markets are widely considered to have declined during 2019, indicates the Group is continuing to take market share in its key product areas.
The decisive result of the General Election in December 2019 indicated the potential to provide a boost to confidence in 2020. In the more medium term, with the form of Brexit and the trading relationship with the EU still to be determined, uncertainty and consumer confidence both remain a potential drag on the economy.
Private Housing RMI market
Following a positive start to 2019, the private housing RMI market declined sharply in the second half of the year with both private property transactions and spend on big ticket purchases declining year on year. ONS data indicates the private sector RMI market was down approximately 2%. Economic uncertainty and the consequent weakening in the housing market are considered to be the main drivers impacting homeowner confidence and holding back spend on big ticket expenditure of repairs, maintenance and home improvements. This has added further to the significant backlog of RMI expenditure as the condition of the UK's housing stock continues to decline and despite the growing need to address carbon emissions.
Social Housing New Build
Spending should increase as the Government responds to pressure and implements measures to increase the supply of affordable rented and shared ownership social housing. Longer term prospects are more positive following the removal of constraints on local authority borrowing in respect of housing delivery.
Social Housing RMI
Spending by the Government has been depressed for several years, although this is expected to return to growth in the medium term as the pressure to improve social housing stock increases. However, in the short term, this market is expected to remain flat for the Group's products as local authorities and housing associations prioritise budgets and redirect spend towards fire safety works and cladding remediation instead of routine repairs, maintenance and improvements works.
Private New Build Housing
Private housing completions are estimated to have increased in 2019, however, starts are estimated to have decreased as housebuilders took a cautious approach to the political and economic uncertainty around the multiple Brexit dates and General Election. Private new build housing starts are forecast to continue to decline in the near-term as potential buyers remain cautious and house price growth is patchy.
Summary
Up to the middle of March, trading was slightly ahead of the Board's expectations despite the poor weather experienced in the second half of February. The Board is closely monitoring the evolving and rapidly changing status of COVID-19. The unprecedented events, which are still evolving, are likely to have a short to medium-term impact on the Group's financial performance, though are not easily forecasted.
The longer-term outlook remains favourable, driven by the following:
-- The UK's existing housing stock is ageing and the underinvestment in recent years is building up an increasing backlog of properties that will require essential repairs and maintenance in the future
-- Increasing UK population driving demand for new houses that will require maintaining
-- Environmental and safety concerns will continue to drive legislation and initiatives that will require improvements to homes on a larger scale than just essential maintenance. The Committee on Climate Change has stated that it wants the Government to treat renovating the UK's housing stock as a national infrastructure priority, with insulation being key, the installation of new windows with better thermal properties would support this goal
Jonathan Bednall
Chief Executive Officer
22 April 2020
Financial review
Financial Review
Total revenue for the year ended 31 December 2019 was GBP282.1 million (2018: GBP281.1 million). The loss of revenue from the closure of the Cardiff newbuild fabrication operation in 2018 was offset by the acquisition of PVS in February 2019 and full year effect of the 2018 acquisition and growth of Amicus distribution. On a like for like basis, excluding the impact of current and prior year acquisitions and disposals, revenues increased by 0.4%. This was achieved through price increases and taking market share in key product areas in what were widely acknowledged to be difficult second half markets. The ONS data indicates that the Group's key private sector RMI market was down approximately 2%.
Underlying operating profit was GBP21.2 million. On a pre-IFRS 16 basis underlying operating profit was GBP19.1 million (2018: GBP18.7 million). Price increases, and material costs which improved slightly year on year, were partially offset by operating inefficiencies associated with site complexity as the Group prepares for the consolidation of its warehousing and finishing activities in Telford during the second half of 2020.
Year ended Year ended
31 December 31 December Year ended
2019 2019 31 December
pre-IFRS 2018
GBPm 16
Key financials GBPm GBPm
=========================================== ============= ============= =============
Revenue 282.1 282.1 281.1
============================================ ============= ============= =============
Adjusted EBITDA 38.2 26.8 26.5
Amortisation of computer software (0.3) (0.3) (0.3)
Depreciation (16.7) (7.4) (7.5)
============================================ ============= ============= =============
Underlying operating profit (*) 21.2 19.1 18.7
Amortisation of acquired other intangible
assets (0.3) (0.3) (1.2)
Other non-underlying items (2.3) 6.0 (2.0)
Share-based payments expense (1.4) (1.4) (0.7)
Operating profit 17.2 23.4 14.8
============================================ ============= ============= =============
Underlying operating margin (*) 7.5% 6.8% 6.7%
Operating margin 6.1% 8.3% 5.3%
============================================ ============= ============= =============
(*) Underlying operating profit and margin are before amortisation of acquired other intangible assets, share-based payments expense, other non-underlying items and discontinued operations.
Reportable segments
Year ended
31 December
Year ended 2019 Year ended
31 December pre-IFRS 31 December
2019 16 2018
GBPm GBPm GBPm
=========================================== ============= ============= =============
Revenue
=========================================== ============= ============= =============
Extrusion and Moulding 177.6 177.6 177.4
Fabrication and Distribution 104.5 104.5 103.7
=========================================== ============= ============= =============
Total 282.1 282.1 281.1
=========================================== ============= ============= =============
Underlying segmental operating profit
Extrusion and Moulding 18.7 17.5 17.5
Fabrication and Distribution 4.6 3.7 2.9
=========================================== ============= ============= =============
Underlying segmental operating profit
before corporate costs 23.3 21.2 20.4
Corporate costs (2.1) (2.1) (1.7)
=========================================== ============= ============= =============
Underlying operating profit 21.2 19.1 18.7
Amortisation of acquired other intangible
assets (0.3) (0.3) (1.2)
Other non-underlying items (2.3) 6.0 (2.0)
Share-based payments expense (1.4) (1.4) (0.7)
=========================================== ============= ============= =============
Operating profit 17.2 23.4 14.8
=========================================== ============= ============= =============
Extrusion and Moulding
-- Revenue increased by GBP0.2 million to GBP177.6 million (2018: GBP177.4 million) as a consequence of price increases as the Group seeks to recover some of the substantial material price increases borne over the last couple of years. This was largely offset by the acquisition of Amicus Building Products Limited during 2018, an existing customer whose associated revenues are now classified as internal and the external revenue of Amicus is recognised within the Fabrication and Distribution division, and lower volumes at Ecodek where market uncertainty around fire regulations post Grenfell have impacted the ability to specify the wood plastic composite decking product on high rise developments.
-- Underlying segmental operating profit of GBP17.5 million was in line with 2018 as a result of the above factors in addition to slightly improved material cost offset by start-up costs associated with the new aluminium window system and some operational inefficiency associated with site complexity as we prepare for the consolidation of the window system warehousing and finishing activities into a new purpose-built facility in Telford during the second half of 2020.
Fabrication and Distribution
-- Revenues increased to GBP104.5 million (2018: GBP103.7 million) as the loss of revenue associated with the closure of the Cardiff new build fabrication operation in 2018 was more than offset through the acquisition of PVS, the full year impact of the 2018 acquisition of Amicus as well as higher volumes in our Distribution businesses where we have taken market share in the specified cellular sector.
-- Underlying segmental operating profit increased to GBP3.7 million (2018: GBP2.9 million), mainly as a result of the closure of the loss-making Cardiff new build fabrication operation in 2018, the acquisition of PVS in February 2019 and price increases.
Non-underlying items
To assist users of the financial statements the Group reports certain performance measures as underlying as it believes they provide better information on the ongoing trading performance of the business. Items excluded from operating profit in arriving at underlying operating profit are non-cash items such as amortisation of acquired other intangible assets and share-based payments expense, and significant one-off incomes or costs that are not part of the underlying trading performance of the business.
Non-underlying items that have been excluded from operating profit in arriving at underlying operating profit include:
i. Amortisation of acquired other intangible assets
Amortisation of GBP0.3 million was charged during the year (2018: GBP1.2 million), relating to the brand and customer relationship intangible assets recognised on acquisitions.
ii. Other non-underlying items
Other non-underlying items in 2019 include the profit recognised on the sale and leaseback of the new warehousing and finishing facility in Telford. Site consolidation and redundancy costs represent onerous lease provisions associated with sites exited as operations are consolidated into the new facility.
2018 site consolidation and redundancy costs comprise onerous lease provisions and redundancy costs associated with the closure of the Cardiff window fabrication plant as well as other actions taken to right-size the business following the loss of the Group's two largest customers in H2 2017 and in light of the continuing political and economic uncertainties.
Year ended
Year ended 31 December Year ended
31 December 2019 31 December
2019 pre-IFRS 16 2018
GBPm GBPm GBPm
======================================= ============= ============= =============
Acquisition costs (0.1) (0.1) -
Profit on sale and leaseback 0.6 10.0 -
Site consolidation and
redundancy (2.8) (3.9) (2.0)
======================================= ============= ============= ============= Other non-underlying (expense)/income (2.3) 6.0 (2.0) ======================================= ============= ============= ============= iii. Share-based payments expense
Share-based payments include the IFRS 2: Share-based payments charge in respect of the Long-Term Incentive Plan and Save As You Earn ("SAYE") scheme.
Cash flow
Year ended
Year ended 31 December Year ended
31 December 2019 31 December
2019 pre-IFRS 16 2018
GBPm GBPm GBPm
============================= ============= ============= =============
Pre-tax operating cash flow 34.8 23.4 27.7
Tax paid (3.3) (3.3) (2.6)
Acquisitions (2.2) (2.2) -
Net capital expenditure (8.6) (8.6) (12.5)
Net site development cash
flow 10.1 10.1 -
Net interest paid (1.6) (1.6) (1.3)
Borrowings 1.3 1.3 (0.7)
Lease payments (12.3) (0.9) (1.1)
Dividends (7.1) (7.1) (8.8)
Discontinued operations - - (1.9)
Increase/(decrease) in cash 11.1 11.1 (1.2)
============================= ============= ============= =============
Opening cash 6.1 6.1 7.3
============================= ============= ============= =============
Closing cash 17.2 17.2 6.1
Borrowings (32.3) (32.3) (29.6)
Lease assets 5.7 - -
Lease liabilities (71.0) (1.3) (1.3)
============================= ============= ============= =============
Closing net debt (80.4) (16.4) (24.8)
============================= ============= ============= =============
Pre-tax operating cash flow (on a pre-IFRS 16 basis) remained strong at GBP23.4 million (2018: GBP27.7 million) and pre-tax operating cash conversion was 123% (2018: 148%).
Acquisitions
The acquisitions cash flow of GBP2.2 million represents the initial cash consideration, net of cash acquired, of GBP2.0 million for the acquisition of PVS, GBP0.3 million deferred consideration associated with the 2018 acquisition of Amicus and a cash receipt of GBP0.1 million associated with the disposal of the Northampton-based glass sealed unit manufacturing operation.
Net capital expenditure
Net capital expenditure of GBP8.6 million represents investment in plant for the new finishing facilities in the form of an aluminium powder coating plant and clipping line, further investment in our profile foiling capacity and capabilities, as well as new, and upgrades to existing, extrusion lines and replacement tooling following the exit and consolidation of the Macclesfield extrusion operation into the Telford facility in 2018.
Site development
The net site development cash inflow of GBP10.1 million represents the proceeds received to date from the sale and leaseback of the new Telford warehousing and finishing facility of GBP22.8 million, net of costs incurred to date for the acquisition and development of the site. As at 31 December 2019 construction works are at an advanced stage and on track to be completed during Q2 2020 at which point further proceeds of GBP5.2 million fall due.
Financing
In July 2019 the Group renegotiated its existing banking facilities onto a two bank, syndicated basis with Barclays and HSBC. The new facilities comprise a revolving credit facility of GBP65.0 million (up from GBP37.5 million) and overdraft of GBP10.0 million. The facilities are for an initial term of three years with the option to extend for a further two years. The terms are materially improved from the previous facility. With net debt at 31 December 2019 of GBP16.4 million (on a pre-IFRS 16 basis) and net debt to EBITDA of 0.6x, these new facilities provide the Group with significant headroom to pursue its strategy.
IFRS 16: Leases
IFRS 16: Leases became effective for accounting periods beginning on or after 1 January 2019. The standard can be applied with full retrospective effect, or the cumulative impact of initially applying IFRS 16 can be adjusted into opening equity at the date of initial application.
The Group has applied the modified retrospective approach to adopting IFRS 16 with the cumulative effect of initially applying the standard recognised at the date of initial application as an adjustment to the opening balance of retained earnings.
The application of IFRS 16: Leases has no effect on the cash flows of the Group. However, it does have an impact on the way the assets, liabilities and the income statement of the Group are presented.
The adjustments required on the initial implementation of IFRS 16 as at 1 January 2019, as well as their impact on the year to 31 December 2019, are set out in note 9 to this announcement.
Christopher Empson
Group Finance Director
22 April 2020
Consolidated Income Statement and Other Comprehensive Income
for the year ended 31 December 2019
2019 2018
Note GBPm GBPm
==================================== ===== ======== ========
Revenue 2 282.1 281.1
==================================== ===== ======== ========
Cost of sales (193.3) (196.3)
==================================== ===== ======== ========
Gross profit 88.8 84.8
Distribution expenses (33.7) (34.4)
Administrative expenses (37.9) (35.6)
Underlying operating profit 21.2 18.7
Amortisation of acquired
other intangible assets 5 (0.3) (1.2)
Other non-underlying
items 5 (2.3) (2.0)
Share-based payments
expense 5 (1.4) (0.7)
------------------------------------ ----- -------- --------
Operating profit 17.2 14.8
Net finance costs (2.1) (1.5)
IFRS 16 discount unwind
on lease liabilities (2.7) -
==================================== ===== ======== ========
Profit before tax 12.4 13.3
Taxation 6 (1.7) (2.5)
==================================== ===== ======== ========
Profit from continuing operations 4 10.7 10.8
Loss from discontinued operations
net of tax - (5.0)
==================================== ===== ======== ========
Profit for the year and total
comprehensive income 10.7 5.8
==================================== ===== ======== ========
Earnings per share pence
Basic 7 7.49 4.06
Basic - continuing operations 7 7.49 7.56
Basic - discontinued
operations 7 - (3.50)
Diluted 7 7.47 4.05
Diluted - continuing
operations 7 7.47 7.54
Diluted - discontinued
operations 7 - (3.49)
==================================== ===== ======== ========
There are no recognised gains and losses other than those included above and therefore no separate statement of other comprehensive income has been presented.
Consolidated Balance Sheet
as at 31 December 20 19
2019 2018
Note GBPm GBPm
=============================== ===== ====== ======
Assets
Non-current assets
Goodwill 72.2 70.2
Other intangible assets 3.5 3.5
Property, plant and equipment 46.1 37.2
Right of use assets 9 51.4 -
Lease assets 9 5.3 -
Assets held for resale - 0.1
Deferred tax 3.8 0.7
=============================== ===== ====== ======
182.3 111.7
Current assets
Inventories 30.3 29.2
Trade and other receivables 43.6 40.4
Lease assets 9 0.4 -
Cash and cash equivalents 17.2 6.1
=============================== ===== ====== ======
91.5 75.7
Total assets 273.8 187.4
=============================== ===== ====== ======
Liabilities
Current liabilities
Other interest-bearing loans
and borrowings - 5.6
Lease liabilities 9 9.0 -
Trade and other payables 75.2 61.3
Deferred consideration - 0.3
Income tax payable 1.0 0.6
Provisions 1.1 1.5
=============================== ===== ====== ======
86.3 69.3
Non-current liabilities
Other interest-bearing loans
and borrowings 32.3 25.3
Lease liabilities 9 62.0 -
Contingent consideration 3 1.0 -
Provisions 3.4 2.8
=============================== ===== ====== ======
98.7 28.1
Total liabilities 185.0 97.4
=============================== ===== ====== ======
Net assets 88.8 90.0
=============================== ===== ====== ======
Equity
Ordinary share capital 0.1 0.1
Share premium 12.5 12.5
Merger reserve 25.5 25.5
Retained earnings 50.7 51.9
=============================== ===== ====== ======
Total equity 88.8 90.0
=============================== ===== ====== ======
The financial statements were approved by the Board of Directors and authorised for issue on 22 April 2020.
They were signed on its behalf by:
Jonathan Bednall Christopher Empson Chief Executive Officer Group Finance Director Company number: 07742256
Consolidated Statement of Changes in Equity
for the year ended 31 December 2019
Share Share Merger Retained
capital premium reserve earnings Total
GBPm GBPm GBPm GBPm GBPm
================================ ========= ========= ========= ========== ======
Balance as at 1 January
2018 0.1 12.5 25.5 54.2 92.3
================================= ========= ========= ========= ========== ======
Comprehensive income:
Profit for the year - - - 5.8 5.8
================================= ========= ========= ========= ========== ======
Total comprehensive income: - - - 5.8 5.8
================================= ========= ========= ========= ========== ======
Transactions with owners
recorded directly in equity:
Issue of shares - - - - -
Share-based payments expense - - - 0.7 0.7
Dividends - - - (8.8) (8.8)
================================= ========= ========= ========= ========== ======
Total transactions with
owners - - - (8.1) (8.1)
================================= ========= ========= ========= ========== ======
Balance as at 31 December
2018 0.1 12.5 25.5 51.9 90.0
================================= ========= ========= ========= ========== ======
Adoption of IFRS 16 (note
9) - - - (6.2) (6.2)
================================= ========= ========= ========= ========== ======
Balance as at 1 January
2019 0.1 12.5 25.5 45.7 83.8
================================= ========= ========= ========= ========== ======
Comprehensive income:
Profit for the year - - - 10.7 10.7
================================= ========= ========= ========= ========== ======
Total comprehensive income: - - - 10.7 10.7
================================= ========= ========= ========= ========== ======
Transactions with owners
recorded directly in equity:
Issue of shares - - - - -
Share-based payments expense - - - 1.4 1.4
Dividends - - - (7.1) (7.1)
================================= ========= ========= ========= ========== ======
Total transactions with
owners - - - (5.7) (5.7)
================================= ========= ========= ========= ========== ======
Balance as at 31 December
2019 0.1 12.5 25.5 50.7 88.8
================================= ========= ========= ========= ========== ======
Consolidated Cash Flow Statement
for the year ended 31 December 2019
2019 2018
Note GBPm GBPm
=============================================== ===== ======= =======
Cash flows from operating activities
Profit for the year 10.7 5.8
Adjustments for:
Depreciation and amortisation 17.3 9.0
Loss on disposal of property, plant
and equipment 1.7 0.3
Gain on disposal of right of use asset (0.4) -
Exceptional gain on sale and leaseback 9 (0.6) -
Net finance costs 4.8 1.5
Taxation 1.7 2.5
Share-based payments expense 1.4 0.7
Loss from discontinued operations net
of tax - 5.0
=============================================== ===== ======= =======
Operating cash flow before movement
in working capital 36.6 24.8
(Increase)/decrease in inventories (0.9) 1.6
(Increase)/decrease in trade and other
receivables (4.8) 0.7
Increase in trade and other payables 3.3 2.8
Increase/(decrease) in provisions 0.6 (2.2)
=============================================== ===== ======= =======
Pre-tax operating cash flow 34.8 27.7
Tax paid (3.3) (2.6)
=============================================== ===== ======= =======
Net cash inflow from operating activities 31.5 25.1
=============================================== ===== ======= =======
Cash flow from investing activities
Acquisition of subsidiary, net of cash (2.3) -
acquired
Acquisition of property, plant and equipment (8.2) (12.0)
Acquisition of other intangible assets (0.4) (0.5)
Proceeds on sale and leaseback, net
of development costs 9 10.1 -
Proceeds on disposal of subsidiary 0.1 -
=============================================== ===== ======= =======
Net cash outflow from investing activities (0.7) (12.5)
=============================================== ===== ======= =======
Cash flow from financing activities
Interest paid (1.6) (1.3)
Drawdown/(repayment) of borrowings 1.3 (0.7)
Repayment of lease liabilities (12.3) (1.1)
Dividends paid 8 (7.1) (8.8)
=============================================== ===== ======= =======
Net cash outflow from financing activities (19.7) (11.9)
=============================================== ===== ======= =======
Net cash outflow from discontinued operations - (1.9)
Net increase/(decrease) in cash and
cash equivalents 11.1 (1.2)
Cash and cash equivalents at the beginning
of year 6.1 7.3
=============================================== ===== ======= =======
Cash and cash equivalents at end of
year 17.2 6.1
=============================================== ===== ======= =======
Secured bank loans (32.3) (29.6)
Lease assets 9 5.7 -
Lease liabilities 9 (71.0) (1.3)
=============================================== ===== ======= =======
Net debt at end of year (80.4) (24.8)
=============================================== ===== ======= =======
1. Basis of preparation
Whilst the financial information included in this Preliminary Announcement has been prepared on the basis of the requirements of International Financial Reporting Standards (IFRSs) in issue, as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRSs.
The Group expects to publish full Consolidated Financial Statements in May 2020. The financial information set out in this Preliminary Announcement does not constitute the Group's Consolidated Financial Statements for the years ended 31 December 2019 or 2018, but is derived from those Financial Statements which were approved by the Board of Directors on 22 April 2020. The auditor, KPMG LLP, has reported on the Group's Consolidated Financial Statements and the report was unqualified and did not contain a statement under section 498 (2) or 498 (3) of the Companies Act 2006.
The statutory financial statements for the year ended 31 December 2019 have not yet been delivered to the Registrar of Companies and will be delivered following the Company's Annual General Meeting.
The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the "Group"). The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs").
The Group's accounting policies are set out in the 2018 Annual Report and Accounts and have been applied consistently in 2019, with the exception of the changes required for the adoption of new accounting standards, IFRS 16: Leases. Details of the new accounting policy in respect of this accounting standard and its impact on the financial statements is set out in note 9.
The financial statements are prepared on the historical cost basis except where Adopted IFRSs require an alternative treatment.
Going concern
The financial statements of both the Group and Parent Company are prepared on a going concern basis as the Directors have a reasonable expectation that the Group and Parent Company have adequate resources to continue in operational existence for the foreseeable future.
The Group enters the period of expected volatility and uncertainty resulting from the COVID-19 pandemic with a robust balance sheet and significant financial headroom on committed banking facilities, which it renewed in June 2019 for an initial period of three years to June 2022, comprising a GBP65 million Revolving Credit Facility and GBP10 million overdraft facility. The Group is maintaining a close relationship with its bankers, Barclays and HSBC.
In anticipation of significantly reduced demand levels and in the interest of customer and employee safety, we took the decision on 25 March 2020 to implement a controlled shutdown of Epwin's operating sites for a temporary period.
Assuming that the coming months will be volatile and uncertain, with disruption in the Group's end markets, the Board is actively focussed on cost reduction and cash management measures, including the deferral of capital expenditure and tax payments, with the agreement of HMRC. Management acted swiftly in taking these steps in early March when it became apparent that the developing situation would most likely present businesses with a significant liquidity squeeze.
The Group is also making use of the Coronavirus Job Retention Scheme ("CJRS") grants, in order to help to retain our valuable and skilled staff through this period of inactivity as well as mitigating some of the costs to the business of taking the socially responsible approach and following the Government guidance. It is anticipated that this will mitigate circa GBP3.3 million per month of the Group's payroll cost and will avoid the immediate need for aggressive staffing reductions.
The Board prepare detailed budgets which they have confidence in achieving in a normal business environment. The unprecedented events, which are still evolving, are likely to have a short to medium-term impact on the Group's financial performance, though are not easily forecasted. The Group has produced a number of financial models which range from the reasonably optimistic through to an assumed worst-case scenario.
At the optimistic end, the model assumes a loss of all of April revenue, 50% of revenue for May and 25% of revenue for June. Under this scenario the Group would remain within both its facility headroom and within its banking covenants.
At the other end of the scenarios, the Group has modelled an assumed worst-case scenario of the loss of six full months of revenue as operations remain closed, with a phased return of revenue across the remaining months of 2020. Under this scenario, the Group still remains within its facility headroom, assuming cost saving measures are successfully implemented and the CJRS grants are utilised. At this extreme, leverage and interest cover covenants would be breached, however, the Group's bankers have indicated that they remain committed to supporting the Group through this situation and would at this time be minded to waive such breaches.
Given the fluidity of the current situation, we continue to refine and develop our modelling as shareholders would expect, however, our current belief is that the business can sustain a significant loss of revenue within its current facility arrangements and utilising the Government's CJRS support.
Based on the above, the Directors believe that it remains appropriate for the Parent Company and Group to continue to adopt the going concern basis in preparing the Annual Report and Accounts. However, in view of the unprecedented COVID-19 situation and the risks it may pose to the Group and its end markets, together with the essentially unpredictable and constantly evolving nature of the pandemic, the Directors have decided to formally note that this represents a material uncertainty that may cast significant doubt on the Company and Group's ability to continue as a going concern and therefore to continue realising its assets and discharging its liabilities in the normal course of business. The financial statements do not include any adjustments that would result from the basis of preparation as a going concern being inappropriate.
2. Segmental reporting
Segmental information is presented in respect of the Group's reportable operating segments in line with IFRS 8: Operating Segments, which requires segmental information to be disclosed on the same basis as it is viewed internally by the Chief Operating Decision Maker. The Chief Operating Decision Maker is considered to be the Board of Directors.
Operating segments Operations
Extrusion and Moulding Extrusion and marketing of PVC and aluminium window profile systems, PVC cellular roofline and cladding, decking, rigid rainwater and drainage products as well as Wood Plastic Composite ("WPC") and aluminium decking products. Moulding of Glass Reinforced Plastic ("GRP") building components.
Fabrication and Distribution Fabrication, marketing and distribution of windows and doors, cellular roofline, cladding, rainwater, drainage and decking products.
2019 2018
GBPm GBPm
============================================== ======= =======
Revenue from external customers
============================================== ======= =======
Extrusion and Moulding - total revenue 211.6 210.4
Inter-segment revenue (34.0) (33.0)
------- -------
Extrusion and Moulding - external revenue 177.6 177.4
Fabrication and Distribution - total revenue 104.5 104.0
Inter-segment revenue - (0.3)
------- -------
Fabrication and Distribution - external
revenue 104.5 103.7
=============================================== ======= =======
Total revenue from external customers 282.1 281.1
=============================================== ======= =======
Segmental operating profit
Extrusion and Moulding 18.7 17.5
Fabrication and Distribution 4.6 2.9
=============================================== ======= =======
Segmental operating profit before corporate
costs 23.3 20.4
Corporate costs (2.1) (1.7)
=============================================== ======= =======
Underlying operating profit 21.2 18.7
Amortisation of acquired other intangible
assets (0.3) (1.2)
Other non-underlying items (2.3) (2.0)
Share-based payments expense (1.4) (0.7)
=============================================== ======= =======
Operating profit 17.2 14.8
=============================================== ======= =======
3. Acquisition of subsidiaries
Acquisitions in the year ended 31 December 2019
On 1 February 2019, the Group acquired Premier Distribution (Gt. Yarmouth) Limited, trading as PVS, for initial cash consideration of GBP2.5 million. PVS supplies and installs PVC decking and related products to the holiday park and park home markets as well as to residential customers and local authorities. PVS forms part of the Fabrication and Distribution segment.
The following table summarises the consideration paid for PVS and the provisional fair values of the assets and liabilities acquired at the acquisition date.
Premier Distribution
(Gt. Yarmouth) Limited
provisional fair values
on acquisition
GBPm
=============================================== =========================
Recognised amounts of identifiable assets
and liabilities acquired:
Acquired intangibles - brand 0.1
Acquired intangibles - customer relationships 0.1
Property, plant and equipment 1.8
Right of use assets 0.1
Inventories 0.2
Trade and other receivables 0.3
Cash and cash equivalent 0.5
Other interest-bearing loans and borrowings (0.9) Lease liabilities (0.1) Trade and other payables (0.3) Income tax payable (0.2) Provisions (0.1) ================================================ ========================= Fair value of assets acquired 1.5 Goodwill 2.0 ================================================ ========================= Total consideration 3.5 ================================================ ========================= Consideration Cash consideration 2.5 Contingent consideration 1.0 ================================================ ========================= Total consideration 3.5 ================================================ =========================
Contingent consideration is based on the performance of PVS during the earnout period and has been calculated based on management's forecasts for the business. The potential range of contingent consideration is GBPnil to GBP3.4 million.
On acquisition, other intangible fixed assets of GBP0.2 million were recognised, representing the PVS brand and customer relationships.
The goodwill recognised of GBP2.0 million represents the know-how of the workforce, plus the potential for cross-selling and synergies that exist as a result of the vertical integration with, and the larger scale of, the Epwin Group. The goodwill arising on the acquisition of PVS is allocated to the Fabrication and Distribution cash-generating unit for the purpose of impairment testing.
4. Discontinued operations
On 7 January 2019 the Group disposed of the trade and certain assets and liabilities of its glass sealed-unit manufacturing business in Northampton for cash consideration of GBP0.1 million. As a result of the disposal, an impairment charge of GBP3.6 million was recognised in the year to 31 December 2018 to write down property, plant and equipment and inventories to their recoverable amount. This decision exits the Group from the glass sealed-unit market.
2019 2018
GBPm GBPm
================================== ====== ======
Revenue - 4.5
Operating expenses - (6.9)
Impairment charge - (3.6)
=================================== ===== ======
Loss before tax - (6.0)
Taxation - 1.0
=================================== ===== ======
Loss after tax from discontinued
operations - (5.0)
=================================== ===== ======
The trading results of the glass sealed-unit manufacturing business have been presented under discontinued operations and the assets and liabilities associated with the business classified as held for sale.
5. Non-underlying items
Non-underlying items included within operating profit include:
2019 2018
GBPm GBPm
================================ ====== ======
Amortisation of acquired other
intangible assets (0.3) (1.2)
Other non-underlying items (2.3) (2.0)
Share-based payments expense (1.4) (0.7)
================================= ====== ======
Non-underlying expense (4.0) (3.9)
================================= ====== ======
Amortisation of acquired other intangible assets
GBP0.3 million (2018: GBP1.2 million) amortisation of brand and customer contract intangible assets acquired through business combinations.
Other non-underlying items
Other non-underlying items are significant one-off incomes or costs that are not part of the underlying trading performance of the business.
Other non-underlying items include:
2019 2018
GBPm GBPm
========================================== ====== ======
Acquisition costs (0.1) -
Profit on sale and leaseback transaction -
(note 9) 0.6
Site consolidation and redundancy (2.8) (2.8)
Profit on exit of lease - 0.8
=========================================== ====== ======
Other non-underlying items (2.3) (2.0)
=========================================== ====== ======
Share-based payments expense
The share-based payment expense of GBP1.4 million (2018: GBP0.7 million) comprises IFRS 2: Share-based payments charges in respect of the: Long-Term Incentive Plan GBP1.3 million (2018: GBP0.6 million) and SAYE schemes of GBP0.1 million (2018: 0.1 million).
6. Taxation
2019 2018
GBPm GBPm
=========================== ====== ======
Current tax expense
Current period 3.8 1.8
Prior period (0.3) (0.1)
=========================== ====== ======
Total current tax charge 3.5 1.7
Deferred tax expense
Current period (1.2) (0.2)
Prior period (0.6) -
=========================== ====== ======
Total deferred tax charge (1.8) (0.2)
Total tax expense 1.7 1.5
=========================== ====== ======
Analysed as: 2019 2018
GBPm GBPm
========================= ===== ======
Continuing operations 1.7 2.5
Discontinued operations - (1.0)
========================= ===== ======
1.7 1.5
========================= ===== ======
UK corporation tax is calculated at 19.00% (2018: 19.00%) of the estimated assessable profit for the year.
The Group's total income tax charge is reconciled with the standard rates of UK corporation tax for the year of 19.00% (2018: 19.00%) as follows:
2019 2018
GBPm GBPm
============================================== ====== ======
Profit before tax 12.4 13.3
============================================== ====== ======
Tax at standard UK corporation tax rate of
19.00% (2018: 19.00%) 2.4 2.5
Factors affecting the charge for the period:
Expenses not deductible 0.1 0.2
Non-taxable income - (0.2)
Losses utilised for which no deferred tax (0.1) -
previously recognised
Difference in tax rate 0.2 0.1
Prior period (0.9) (0.1)
============================================== ====== ======
1.7 2.5
============================================== ====== ======
Factors that may affect future current and total tax charges
The UK corporation tax rate reduced from 20% to 19% effective from 1 April 2017. A further reduction to 17%, which was to be effective from 1 April 2020, was substantively enacted on 6 September 2016. However, in the Budget held on 11 March 2020, the Government announced that the reduction down to 17% would no longer take place, with the rate to remain at 19% going forward. As at the 31 December 2019 balance sheet date, the reduction to 17% had been enacted and not formally reversed, and so the deferred tax asset at this date has still been calculated using this rate.
7. Earnings per share ("EPS")
Basic earnings per share are calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period. The weighted average number of shares has been adjusted for the issue and cancellation of shares during the period.
Diluted earnings per share are calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period, plus the dilutive potential ordinary shares arising from share options in issue at the end of the period.
2019 2018
EPS summary Pence Pence
=================================== ====== =======
Basic EPS
Basic 7.49 4.06
Basic - continuing operations 7.49 7.56
Basic - discontinued operations - (3.50)
Diluted EPS
Diluted 7.47 4.05
Diluted - continuing operations 7.47 7.54
Diluted - discontinued operations - (3.49)
2019 2018
Number of shares No. No.
===================================== ============ ============
Weighted average number of ordinary
shares (basic) 142,925,173 142,922,704
Effect of share options
in issue 243,590 265,861
======================================== ============ ============
Weighted average number of ordinary
shares (diluted) 143,168,763 143,188,565
======================================= ============ ============
8. Dividends
2019 2019 2018 2018
GBPm Pence per GBPm Pence per
share share
====================== ===== ========== ===== ==========
Previous year final
dividend 4.6 3.20 6.4 4.46
Current year interim
dividend 2.5 1.75 2.4 1.70
====================== ===== ========== ===== ==========
7.1 8.8
====================== ===== ========== ===== ==========
9. Adoption of IFRS 16: Leases
IFRS 16: Leases became effective on 1 January 2019. The Group has applied IFRS 16: Leases with effect from 1 January 2019 using the modified retrospective approach, with the cumulative effect of initially applying the standard recognised, at the date of initial application, as an adjustment to the opening balance of retained earnings.
The Group has applied the following practical expedients in applying IFRS 16: Leases for the first time:
-- Grandfather the definition of a lease on transition, applying IFRS 16: Leases to all contracts entered into before 1 January 2019 that meet the definition of a lease in accordance with the previously applied standard, IAS 17: Leases;
-- In relation to short-term leases and leases of low-value items, recognising the remaining lease rental payments on a straight-line basis over the remaining terms of the lease;
-- The use of a single discount rate for portfolios of leases with reasonably similar characteristics; and
-- Reliance on previous assessments of whether leases are onerous instead of performing an impairment review.
Lessee accounting
Right of use assets were initially measured at the present value of the cash flows payable from inception of the lease, using the Group's incremental borrowing rate at 1 January 2019, net of; depreciation chargeable on a straight-line basis, over the term of the lease, for the period from inception to 1 January 2019, and onerous lease provisions as at 1 January 2019.
Lease liabilities and lease assets were initially measured at the present value of the remaining cash flows payable as lessee or receivable as lessor as at 1 January 2019, discounted using the Group's incremental borrowing rate at that date.
The weighted average incremental borrowing rate applied to property leases on 1 January 2019 was 4.4% and to plant, equipment and motor vehicles was 3.2%.
The tables below set out the impact of IFRS 16: Leases on the consolidated balance sheet, as at implementation on 1 January 2019 and as at the 31 December 2019, and on the consolidated income statement for the year-ended 31 December 2019.
Lessor accounting
The Group acts as a lessor in relation to properties it subleases. It determines at sublease inception whether it is a finance or operating lease. To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all the risks and rewards incidental to ownership of an underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease.
The Group accounts for its interests in the head lease and the sub-lease separately. Upon sublease commencement, the Group derecognises the related right of use asset and recognises a lease asset as a receivable at an amount equal to the net investment in the lease.
Sale and leaseback transaction
To determine whether the transfer of an asset is accounted for as a sale an entity applies the requirements of IFRS 15 - Revenue from Contracts with Customers. If an asset transfer satisfies the requirements to be accounted for as a sale the seller measures the right-of-use asset at the proportion of the previous carrying amount that relates to the right-of-use retained.
If the fair value of the sale consideration received does not equal the asset's fair value, or if the lease payments are not market rates, the sales proceeds are adjusted to fair value, either by accounting for prepayments or additional financing.
During the period the Group acquired, and by year-end had made substantial progress developing, a 20-acre site in Telford. A series of linked transactions was undertaken whereby the Group agreed to the sale and leaseback of an existing property on the site, this transaction was completed in the period, and for the development and then sale and leaseback of a second property on the site for total proceeds of GBP28.0 million. The consideration was allocated to each element of the transaction based on its relative fair value. At 31 December 2019, the sale and leaseback of the existing property had completed and a non-underlying profit of GBP0.6 million recognised. The development of the second property was ongoing at 31 December 2019 and an asset under construction of GBP10.1 million is included in Property, Plant and Equipment.
At 31 December 2019 the Group had a net cash inflow from the transaction of GBP10.1 million, representing the proceeds received to date of GBP22.8 million, net of costs incurred to date for the acquisition and development of the site. As at 31 December 2019 construction works are at an advanced stage and on track to be completed during Q2 2020 at which point further proceeds of GBP5.2 million fall due.
Impact of IFRS 16 on the
Consolidated
Income Statement
for the year-ended 31
December
2019
Year-ended Year-ended
31 December 31 December
2019 2019
pre-IFRS IFRS 16 post-IFRS
16 adjustments 16
GBPm GBPm GBPm
========================== =========================== ============ ============
Group revenue 282.1 - 282.1
========================== =========================== ============ ============
Cost of sales (195.3) 2.0 (193.3)
========================== =========================== ============ ============
Gross profit 86.8 2.0 88.8
Distribution expenses (34.8) 1.1 (33.7)
Administrative expenses (28.6) (9.3) (37.9)
Underlying operating
profit 19.1 2.1 21.2
Amortisation of acquired
other
intangible assets (0.3) - (0.3)
Other non-underlying
items 6.0 (8.3) (2.3)
Share-based payments
expense (1.4) - (1.4)
-------------------------- --------------------------- ------------ ------------
Operating profit 23.4 (6.2) 17.2
Net finance costs (2.1) (2.7) (4.8)
========================== =========================== ============ ============
Profit before tax 21.3 (8.9) 12.4
Taxation (3.3) 1.6 (1.7)
========================== =========================== ============ ============
Profit from continuing
operations 18.0 (7.3) 10.7
========================== =========================== ============ ============
Impact of IFRS 16 on
segmental
underlying operating
profit
for the year-ended 31
December
2019
Extrusion Fabrication
and and Corporate
Moulding Distribution costs Total
GBPm GBPm GBPm GBPm
========================== ============ ============= ============ ============
Underlying operating
profit
excluding impact of IFRS
16 17.5 3.7 (2.1) 19.1
Impact of IFRS 16 1.2 0.9 - 2.1
========================== ============ ============= ============ ============
Reported underlying
operating
profit 18.7 4.6 (2.1) 21.2
========================== ============ ============= ============ ============
Impact of IFRS 16 on the Consolidated Balance Sheet
31
December 31 December
2019 2019 31 IFRS
pre-IFRS IFRS 16 post-IFRS December 16 1 January
16 adjustments 16 2018 adjustments 2019
GBPm GBPm GBPm GBPm GBPm GBPm
===================== ========== ============ ============= ============ ============ ============
Non-current assets
Goodwill 72.2 - 72.2 70.2 - 70.2
Other intangible
assets 3.5 - 3.5 3.5 - 3.5
Property, plant and
equipment 39.0 7.1 46.1 37.2 (2.2) 35.0
Right of use assets - 51.4 51.4 - 56.4 56.4
Lease assets - 5.3 5.3 - - -
Assets held for sale - - - 0.1 - 0.1
Deferred tax asset 1.2 2.6 3.8 0.7 1.3 2.0
===================== ========== ============ ============= ============ ============ ============
115.9 66.4 182.3 111.7 55.5 167.2
===================== ========== ============ ============= ============ ============ ============
Current assets
Inventories 30.3 - 30.3 29.2 - 29.2
Trade and other
receivables 45.6 (2.0) 43.6 40.4 (1.9) 38.5
Lease assets - 0.4 0.4 - - -
Cash and cash
equivalents 17.2 - 17.2 6.1 - 6.1
===================== ========== ============ ============= ============ ============ ============
93.1 (1.6) 91.5 75.7 (1.9) 73.8
===================== ========== ============ ============= ============ ============ ============
Total assets 209.0 64.8 273.8 187.4 53.6 241.0
===================== ========== ============ ============= ============ ============ ============
Current liabilities
Other
interest-bearing
loans and
borrowings 0.7 (0.7) - 5.6 (0.7) 4.9
Lease liabilities - 9.0 9.0 - 8.6 8.6
Trade and other
payables 65.0 10.2 75.2 61.3 (2.9) 58.4
Contingent
consideration - - - 0.3 - 0.3
Tax payable 1.3 (0.3) 1.0 0.6 - 0.6
Provisions 1.6 (0.5) 1.1 1.5 (0.2) 1.3
===================== ========== ============ ============= ============ ============ ============
68.6 17.7 86.3 69.3 4.8 74.1
===================== ========== ============ ============= ============ ============ ============
Non-current
liabilities
Other
interest-bearing
loans and
borrowings 32.9 (0.6) 32.3 25.3 (0.6) 24.7
Lease liabilities - 62.0 62.0 - 55.9 55.9
Contingent
consideration 1.0 - 1.0 - - -
Provisions 4.2 (0.8) 3.4 2.8 (0.3) 2.5
===================== ========== ============ ============= ============ ============ ============
38.1 60.6 98.7 28.1 55.0 83.1
===================== ========== ============ ============= ============ ============ ============
Total liabilities 106.7 78.3 185.0 97.4 59.8 157.2
===================== ========== ============ ============= ============ ============ ============
Net assets 102.3 (13.5) 88.8 90.0 (6.2) 83.8
===================== ========== ============ ============= ============ ============ ============
Equity
Ordinary share
capital 0.1 - 0.1 0.1 - 0.1
Share premium 12.5 - 12.5 12.5 - 12.5
Merger reserve 25.5 - 25.5 25.5 - 25.5
Retained earnings 64.2 (13.5) 50.7 51.9 (6.2) 45.7
===================== ========== ============ ============= ============ ============ ============
Total equity 102.3 (13.5) 88.8 90.0 (6.2) 83.8
===================== ========== ============ ============= ============ ============ ============
Lease liabilities recorded at 1 January 2019 can be reconciled
to operating lease disclosures as at 31 December 2018 as
follows:
Total
GBPm
================================================ ============= ========================== ==========
Operating lease commitments disclosed
as at 31 December 2018 78.0
Effect of discounting (14.8)
Add: finance lease liabilities as at
31 December 2018 1.3
================================================ ============= ========================== ==========
Lease liabilities at 1 January 2019 64.5
================================================ ============= ========================== ==========
Right of use assets
Right of
use assets
GBPm
=============================================================== ======= ========================
Recognised at 1 January 2019 56.4
Acquisitions 0.1
Additions 9.9
Disposals (5.6)
Depreciation (9.4)
=============================================================== ======= ========================
At 31 December 2019 51.4
=============================================================== ======= ========================
The right of use assets relate to the following asset types:
31 December 1 January
2019 2019
GBPm GBPm
============================================================== ====== ================ ==========
Leasehold land and buildings 39.6 43.4
Plant, equipment and motor vehicles 11.8 13.0
====================================================================== ================ ==========
Total 51.4 56.4
====================================================================== ================ ==========
Maturity analysis - contractual undiscounted cash flows
Lease liabilities
GBPm
=============================================== ==================
Less than one year 11.7
One to five years 38.5
More than five years 39.0
=================================================== ==================
Undiscounted lease liabilities at 31 December
2019 89.2
=================================================== ==================
Lease assets
GBPm
=============================================== ==================
Less than one year 0.6
One to five years 2.3
More than five years 4.3
=================================================== ==================
Undiscounted lease asset at 31 December
2019 7.2
=================================================== ==================
During the year the Group sublet three of its lease properties on terms identical to the head lease.
10. Cautionary statement
This Report contains certain forward-looking statements with respect of the financial condition, results, operations and business of Epwin Group Plc. Whilst these statements are made in good faith based on information available at the time of approval, these statements and forecasts inherently involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause the actual result or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this Report should be construed as a profit forecast.
11. Annual General Meeting
The Annual General Meeting of the Company will be held on 16 June 2020 at 1B Stratford Court, Cranmore Boulevard, Solihull, B90 4QT.
In light of the Stay at Home Measures published by the UK Government, and made law on 26 March 2020, public gatherings of more than two persons are not permitted, unless 'essential for work purposes'. It has been confirmed that attendance at a general meeting by shareholders is not 'essential for work purposes', and as such shareholders, proxies and other attendees are not permitted to attend the AGM, and will be refused entry. Shareholders are kindly urged to vote by proxy.
To facilitate the answering of any questions that shareholders have, or would normally raise, during the course of the AGM, a designated questions and answers page will be created by the Company, which can be found at investors.epwin.co.uk. Any questions will be addressed in the normal way, pursuant to an explanatory note in the notices. Shareholders are requested to submit any questions that they may have, in good time, ahead of the meeting.
12. Electronic communications
The full Annual Report and Accounts for the year ended 31 December 2019 are to be published on the Company's website, together with the Notice convening the Company's 2019 Annual General Meeting by 21 May 2020. Copies will also be sent out to those shareholders who have elected to receive paper communications. Copies can be requested by writing to the Company Secretary, Epwin Group Plc, 1B Stratford Court, Cranmore Boulevard, Solihull, B90 4QT or email to investors@epwin.co.uk.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR FLFEASSIFFII
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