Half Yearly Report

RNS Number : 5524S

Epwin Group PLC

25 September 2014

 

Epwin Group Plc

Half year results for the six months to 30 June 2014

Strong financial performance delivering expected improvements

Epwin Group Plc (AIM: EPWN) ("Epwin" or the "Group"), the vertically integrated manufacturer of extrusions, mouldings and fabricated low maintenance building products, supplying the Repair, Maintenance and Improvement ("RMI"), new build property and social housing sectors, is pleased to announce its half year results for the six months to 30 June 2014, which show a strong financial performance delivering the expected improvements in underlying earnings and cash flow.

Epwin Group Plc was admitted to trading on AIM on 24 July 2014. The half year results for the 6 months to 30 June 2014 are therefore under the pre-flotation capital structure.

Highlights for the period include:

·     Adjusted EBITDA increased by £1.1 million to £10.0 million and adjusted EBITDA margin to 7.9% from 7.1% for the same period in 2013.

·     Interim dividend of 1.41 pence per ordinary share.

·     Operating cash inflow up £2.6 million to £2.2 million.

·     Revenue from continuing operations increased 1.5% to £127.0 million with underlying operating profit up 22% to £7.3 million.

·     Current results in line with expectations for the year ending 31 December 2014.

·     Investment in property, plant and equipment continues to improve operational efficiency and manufacturing capacity. Synergistic benefits and cost savings continue to be achieved through further integration of sites.

·     The Group is well positioned to benefit from the UK economic upturn and the anticipated recovery in its core markets.

Jon Bednall, Chief Executive Officer, said:

 "We've made good progress in the first half of the year and the results indicate that we are delivering on our strategy of growing operating profit and margins.  The results reflect the progress we are making from our programme of operational improvements and the investments we have made in our fixed asset base. 

"Following the Group's admission to AIM, the Board anticipates that we are well placed to continue to grow our operating profits in line with our expectations at IPO, to grow market share and to capitalise on future growth opportunities."  

Enquiries:

Epwin Group Plc

[phone]

Jon Bednall, Chief Executive

Chris Empson, Group Finance Director

Zeus Capital Limited (Nomad and Broker)           

Nick Cowles / Andrew Jones / Jamie Peel, Corporate Finance	[phone]
John Goold / Dominic King, Corporate Broking	[phone]

Maitland

[phone]

Tom Eckersley / Lucy Watson

About Epwin

Epwin is a vertically integrated manufacturer of extrusions, mouldings and fabricated low maintenance building products, supplying the RMI, new build property and social housing sectors.

It is structured in three primary operating divisions, designed to provide the most appropriate and relevant product offerings for its customers. These are the Building Components Division, Building Products Division and Window Systems Division.

The Company is incorporated and domiciled in the United Kingdom. It operates principally in the United Kingdom.

www.epwin.co.uk

Group Business Review

During the period the financial performance of the business has been strong with revenue of £127.0 million (2013: £125.1 million on an underlying basis, growth 1.5%) and underlying operating profit before shareholder management charges of £7.3 million (2013: £6.0 million, growth 22%).

				6 months ended	6 months ended
Key financials				30 June 2014 £'million	30 June 2013 £'million
Revenue (excluding discontinued and disposed businesses)				127.0	125.1
Adjusted EBITDA (*)				10.0	8.9
Depreciation				(2.7)	(2.9)
Underlying operating profit (**) before shareholder management charges (***)				7.3	6.0
Pre-IPO Shareholder management charges				(1.2)	(1.1)
Underlying operating profit (**)				6.1	4.9
Amortisation of acquired intangible fixed assets				(0.9)	(0.9)
Business re-organisation costs				(0.4)	(1.7)
Operating profit				4.8	2.3
Underlying operating margin (**) before shareholder management charges (***)				5.7%	4.8%
Operating margin				3.8%	1.8%

(*) Adjusted EBITDA is before non-recurring costs, discontinued operations and shareholder management charges.

(**) Underlying operating profit and margin is before amortisation of acquired intangible fixed assets, business reorganisation costs and acquisition costs.

(***) Shareholder management charges relate to management services provided by entities controlled by the pre-IPO majority shareholders. These charges ceased from the date of admission to AIM.

Operating profit grew by 109%, with significantly reduced business reorganisation costs, and underlying operating profit grew by 24%, driven by strong operating profit growth in the Window Systems and Building Components Divisions.

Operating cash inflow was £2.2 million, compared to an outflow of £0.5 million in 2013.

The Group saw sales growth of 1.5% over the same period last year on a continuing basis after stripping out discontinued and disposed businesses. 

Operational improvements and restructuring were implemented in the Building Products Division to position the division for future growth. The business re-organisation costs in the period of £0.4 million relate primarily to the re-organisation within the Building Products Division. 

EPS of 96.1 pence (HY2013: 30.3 pence), an increase of over 3 times on the same period, based on the capital structure pre-admission to AIM. EPS for the six months to 30 June 2014, had the Group been under the capital structure post admission to AIM, would have been 2.6 pence.

Admission to AIM

On 24 July 2014, Epwin Group Plc was admitted to trading on AIM, a market operated by the London Stock Exchange.

The £10.0 million net proceeds of the placing have been used to repay a portion of bank debt and new debt facilities have been raised.  The new facilities comprise a £25.0 million revolving credit facility, which matures in July 2019, supplemented by an additional £5.0 million overdraft. 

Dividend

The Board is pleased to announce an interim dividend of 1.41 pence per ordinary share in line with the dividend policy set out in the Admission Document.  This will be paid on 24 October 2014 to shareholders on the register on 3 October 2014.

Outlook

The Board believes that the Group is well placed to continue to grow its operating profits and to capitalise on anticipated future market improvements. 

The Group will continue to progress on the rationalisation programme of its operations to shape it for future growth with improving margins.

Divisional Business Review

The Group operates in the market through a number of brands and is structured into three divisions:

·     Building Components Division

•     Manufactures market leading brands of PVC-UE extruded roofline and cladding profile systems for the replacement and installation of soffits, barge boards, cladding and trims, as well as a growing range of PVC-U rainwater and drainage products.

•     Market leader extruding c.38,000 tonnes of cellular and rigid profiles per annum.

•     Developing a complementary rainwater and drainage business.

•     Additionally, operates 27 building plastic trade distribution centres.

·     Building Products Division

•     Fabricates and markets ranges of branded windows and doors from the Group's own profile systems for sale to the trade, social and new build sectors.

•     Manufactures frames, Glass Reinforced Plastic (GRP) and Thermoplastic door sets and glass sealed units.

•     Additionally, operates 16 Window Stores as direct trade outlets for the Group's manufactured products. 

·     Window Systems Division

•     Manufactures and markets complete extruded PVC-U profile systems for fabricators of windows, doors, cavity closers and curtain walling.

•     c.35,000 tonnes of profile manufactured per year, estimated to be the joint largest manufacturer in the UK.

•     A significant proportion of extruded window profile is converted within the Group, giving a valuable 'base-load' for the window profile extrusion facilities.

Results

	6 months ended	6 months ended
	30 June 2014	30 June 2013
	£'million	£'million
Revenue (excluding discontinued and disposed business)
Building Components Division	44.4	41.8
Building Products Division	50.7	53.3
Window Systems Division	31.9	30.0
Total	127.0	125.1
Underlying segmental operating profit
Building Components Division	4.4	3.0
Building Products Division	2.1	3.1
Window Systems Division	1.4	0.9
Underlying segmental operating profit before corporate and other costs	7.9	7.0
Corporate and other costs	(0.6)	(1.0)
Underlying operating profit (*) before shareholder management charges (**)	7.3	6.0
Pre-IPO shareholder management charges	(1.2)	(1.1)
Underlying operating profit (*)	6.1	4.9
Amortisation of acquired intangible fixed assets	(0.9)	(0.9)
Business re-organisation costs	(0.4)	(1.7)
Operating profit	4.8	2.3

(*) Underlying operating profit is before amortisation of acquired intangible fixed assets, business re-organisation costs and acquisition costs.

(**) Shareholder management charges relate to management services provided by entities controlled by the pre-IPO majority shareholders. These charges ceased from the date of admission to AIM.

Building Components Division

·     Operating margins improved to 9.9% compared to 7.2% in the same period in 2013, due to volume increases and site integration savings.  

·     Revenue increased 6.2% to £44.4 million (2013: £41.8 million) during the period and operating profit increased to £4.4 million from £3.0 million for the same period.

·     Investment programme continues at the Scunthorpe site to improve operations and returns.

·     Construction of new Swish Distribution Centre is underway, this will improve efficiency by having warehousing in the same location as manufacture and will bring about further cost savings.

·     Key capacity improvement projects are also underway to position the Group for further growth.

·     Further investment in the division's IT systems means the division now operates on one system.

·     Potential increases in the rainwater business represent an opportunity for 2015 and beyond.

Building Products Division

·     Operating profit of £2.1 million, down from £3.1 million for the same period in 2013 due to operational inefficiencies which are now being addressed.  Consequently operating margins decreased to 4.1% compared to 5.8% in the same period in 2013.

·     Ongoing revenue decreased by 4.9% to £50.7 million (2013: £53.3 million) after removing the effects of Europlas which was disposed of on 2 January 2014.  The revenue decreases are a combination of delays resulting from contract awards and the removal of low margin work. 

·     Improvements in performance of commercial operations are being addressed through recruitment, training and improved management.

·     Investment in new equipment in the glass business is underway to enhance production and provide a platform to grow.

·     Consolidation of the Permadoor business onto one site in Upton upon Severn is underway, this will be completed in H2 of 2014.

·     On 2 January 2014 the Group disposed of the trade and assets of Europlas, a non-core retail window business, for a nominal sum.  The annual revenue of the business was £5.0 million in 2013, less than 2% of Group revenue.  There was no material profit or loss on disposal and this further streamlines the business to focus on its core extrusion, fabrication and glass operations.

Window Systems Division

·     Operating margins improved to 4.4% compared to 3.0% in the same period in 2013, due to the full year effect of synergy projects.

·     Revenue increased by 6.3% to £31.9 million (2013: £30.0 million) during the period and operating profit increased to £1.4 million from £0.9 million for the same period in 2013. 

·     Management continue to assess commercial strategy, systems rationalisation and manufacturing requirements.

Condensed Consolidated Income Statement
for the six months ended 30 June 2014
		6 month ended  30 June 2014	6 months ended  30 June 2013	Year ended 31 December 2013
		(unaudited)	(unaudited)	(audited & restated)
	Note	£'000	£'000	£'000
Group revenue	2	127,008	125,112	259,085
Cost of sales		(92,832)	(90,086)	(188,904)
Gross profit		34,176	35,026	70,181
Distribution expenses		(11,506)	(12,212)	(26,886)
Administrative expenses		(17,890)	(20,501)	(34,628)
Other income		12	15	59
Underlying operating profit	3	6,033	4,916	13,235
Amortisation of acquired intangible assets		(851)	(851)	(1,701)
Business re-organisation costs		(390)	(1,735)	(2,806)
Acquisition costs		-	(2)	(2)
Operating profit		4,792	2,328	8,726
Net finance costs		(409)	(517)	(970)
Profit before tax		4,383	1,811	7,756
Taxation	4	(843)	(425)	(1,288)
Profit from continuing operations		3,540	1,386	6,468
Loss from discontinued operations net of tax	5	-	(271)	(1,447)
Profit for the period and total comprehensive income		3,540	1,115	5,021
Basic and diluted earnings per share		pence	pence	pence
Earnings per share	6	96.1	30.3	136.4
Earnings per share - continuing operations	6	96.1	37.6	175.7
Earnings per share - discontinued operations	6	-	(7.4)	(39.3)

Condensed Consolidated Balance Sheet as at 30 June 2014
		30 June 2014	30 June 2013	31 December 2013
		(unaudited)	(unaudited)	(audited)
	Note	£'000	£'000	£'000
Assets
Non-current assets
Goodwill		24,481	24,481	24,481
Other intangible assets		1,083	2,784	1,934
Property, plant and equipment		25,307	25,822	25,059
Deferred tax asset		3,400	2,680	3,217
		54,271	55,767	54,691
Current assets
Inventories		23,259	21,371	21,670
Trade and other receivables		43,938	46,928	40,097
Cash and cash equivalents	8	374	-	324
		67,571	68,299	62,091
Total assets		121,842	124,066	116,782
Liabilities
Current liabilities
Bank overdraft	8	-	941	-
Other interest bearing loans and borrowings	8	3,181	1,445	2,975
Trade and other payables		48,081	50,731	47,949
Tax payable		1,251	349	515
Provisions		3,184	2,924	3,067
		55,697	56,390	54,506
Non-current liabilities
Other interest bearing loans and borrowings	8	16,565	25,469	16,038
Other payables		2,669	2,669	2,669
Provisions		6,805	6,887	7,003
		26,039	35,025	25,710
Total liabilities		81,736	91,415	80,216
Net assets		40,106	32,651	36,566
Equity
Ordinary share capital		37	37	37
Merger reserve		26,963	26,963	26,963
Share premium		9	-	9
Retained earnings		13,097	5,651	9,557
Total equity		40,106	32,651	36,566

Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 June 2014
		6 months ended  30 June 2014	6 months ended  30 June 2013		Year ended 31 December 2013
		(unaudited)	(unaudited)		(audited)
		£'000	£'000		£'000
Balance at the start of the period		36,566	31,536		31,536
Total comprehensive income for the period		3,540	1,115		5,021
Issue of shares		-	-		9
Balance at the end of the period		40,106	32,651		36,566

Consolidated Cash Flow Statement
for the six months ended 30 June 2014 6 months ended 30 June 2014 6 months ended 30 June 2013 Year ended 31 December 2013 (unaudited) (unaudited) (audited & restated)  Note £'000 £'000 £'000 Cash flows from operating activities Profit for the period 3,540 1,115 5,021 Adjustments for: Depreciation and amortisation 3,545 3,792 7,557 Net finance costs 409 517 970 (Profit)/loss on disposal of property, plant and equipment (18) 28 (129) Taxation 843 425 1,288 Loss from discontinued operations net of tax  4 - 271 1,447 8,319 6,148 16,154 (Increase) in trade and other receivables (3,841) (9,569) (2,732) (Increase) in inventories (1,589) (421) (809) (Decrease)/increase in trade and other payables (342) 3,755 1,000 (Decrease)/increase in provisions (81) (374) (749) 2,466 (461) 12,864 Tax paid (290) - (874) Net cash from operating activities 2,176 (461) 11,990 Cash flows from investing activities Interest received - - 1 Acquisition of subsidiary, net of cash acquired - (210) (210) Acquisition of property, plant and equipment (2,512) (3,186) (5,158) Receipts from disposal of property, plant and equipment 23 1 276 Net cash from investing activities (2,489) (3,395) (5,091) Cash flows from financing activities Interest paid (335) (497) (907) Interest element of finance lease rental payments (23) (21) (36) Proceeds from issue of share capital - - 9 Drawdown of borrowings 844 4,000 - Repayment of borrowings - (1,406) (5,812) Transaction costs relating to new loans and borrowings - (94) (94) Capital element of finance lease repayments (123) (315) (403) Net cash from financing activities 363 1,667 (7,243) Discontinued operations Net cash flow from operating activities - (315) (895) Net cash flow from discontinued operations - (315) (895) Net increase/(decrease) in cash and cash equivalents 50 (2,504) (1,239) Cash and cash equivalents at start of period 324 1,563 1,563 Cash and cash equivalents at end of period 374 (941) 324

Consolidated Cash Flow Statement
for the six months ended 30 June 2014
		6 months ended 30 June 2014	6 months ended 30 June 2013	Year ended 31 December 2013
		(unaudited)	(unaudited)	(audited & restated)
		£'000	£'000	£'000
Net increase/(decrease) in cash and cash equivalents		50	(2,504)	(1,239)
Cash and cash equivalents at the beginning of period		324	1,563	1,563
Cash and cash equivalents at end of period		374	(941)	324
Bank Borrowings		(18,378)	(26,760)	(18,366)
Finance lease liabilities		(1,368)	(154)	(647)
Net debt		(19,372)	(27,855)	(18,689)

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2014.

1.   Basis of preparation

These financial statements have been prepared on the basis of the accounting policies expected to be adopted for the year ended 31 December 2014.  These are in accordance with the Group's accounting policies as set out in the historical financial information included in the AIM Admission document.

The recognition and measurement requirements of all International Financial Reporting Standards ('IFRSs'), International Accounting Standards ('IAS') and interpretations currently endorsed by the International Accounting Standards Board ('IASB') and its committees as adopted by the EU and as required to be adopted by AIM listed companies have been applied.  AIM-listed companies are not required to comply with IAS 34 'Interim Financial Reporting' and accordingly the Company has taken advantage of this exemption.

On the basis of current financial projections and facilities available, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and, accordingly, consider that it is appropriate to adopt the going concern basis in preparing these Interim Financial Statements.

The financial information in these financial statements does not constitute statutory accounts for the six months ended 30 June 2014 and should be read in conjunction with the historical financial information included in the AIM Admission document. Financial information for the year ended 31 December 2013 has been derived from the consolidated audited accounts, included in the Admission document, for that period which were unqualified.

The condensed consolidated financial statements for the six months to 30 June 2014 have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

The condensed consolidated financial statements were approved by the Board of Directors on 24 September 2014.

2.   Segmental reporting

Segmental information is presented in respect of the Group's business 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 Group's Board of Directors, considered as the Chief Operating Decision Makers, view the business as three divisions; Window Systems, Building Products and Building Components, which reflects the way the business operates, is managed and reviewed. 

Reportable segments

Operations

Window systems

Extrusion and marketing of complete PVC-U window profile systems.

Building products

Fabrication and marketing of windows and doors, manufacture of glass sealed units.

Building components

Extrusion and marketing of PVC-UE cellular roofline and cladding, extrusion of rigid rainwater and drainage products.

		6 months ended  30 June 2014	6 months ended  30 June 2013	Year ended  31 December 2013
		(unaudited)	(unaudited)	(restated & audited)
		£'000	£'000	£'000
Revenue from external customers
Building Components Division		44,361	41,788	86,827
Building Products Division		50,723	53,282	107,048
Window Systems Division		31,924	30,042	65,210
Total		127,008	125,112	259,085
Segmental operating profit
Building Components Division		4,387	2,980	7,798
Building Products Division		2,126	3,111	5,922
Window Systems Division		1,395	899	3,322
Segmental operating profit before corporate and other costs		7,908	6,990	17,042
Corporate and other costs		(654)	(953)	(1,564)
Underlying operating profit before shareholder management charges		7,254	6,037	15,478
Shareholder management charges		(1,221)	(1,121)	(2,243)
Underlying operating profit		6,033	4,916	13,235
Amortisation of acquired intangible fixed assets		(851)	(851)	(1,701)
Business re-organisation costs		(390)	(1,735)	(2,806)
Acquisition costs		-	(2)	(2)
Group operating profit		4,792	2,328	8,726
Net finance costs		(409)	(517)	(970)
Profit before tax		4,383	1,811	7,756

3.   Underlying operating profit

'Underlying operating profit' is the key profit measure used by the Board to assess the underlying financial performance of the operating divisions and the Group as a whole. 'Underlying operating profit' is stated before amortisation or impairment of acquired intangible assets, business reorganisation costs and acquisition costs.

4.   Taxation

The tax charge for the six months to 30 June 2014 is based on the estimated tax rate for continuing operations for the full year.

A reduction in the UK corporation tax rate from 24% to 23% (effective from 1 April 2013) was substantively enacted on 3 July 2012. Further reductions to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. This will reduce the Group's tax charge accordingly.

5.   Discontinued operations

On 2 January 2014 the Group disposed of the trade and assets of Europlas, a minor, non-core retail business.  No material gain or loss arose on disposal.  This disposal continues the strategy of rationalisation and focussing on the Group's core activities of window profile and cellular roofline extrusion, window and door fabrication and glass sealed unit manufacture.  The comparative condensed consolidated income statement and cash flow statement have been restated to show the discontinued operation separately from continued operations.

		6 months ended 30 June 2014	6 months ended 30 June 2013	Year ended 31 December 2013
		(unaudited)	(unaudited)	(audited)
		£'000	£'000	£'000
Revenue		-	2,456	5,004
Cost of sales		-	(2,057)	(4,109)
Operating expenses		-	(526)	(954)
Loss before tax		-	(127)	(59)
Taxation		-	-	-
Loss after tax from discontinued operations		-	(127)	(59)

In the year to 31 December 2013, as disclosed in the AIM admission document, the Group closed its material re-processing business. All employees were made redundant, the site has been cleared and the plant and equipment sold.

		6 months ended 30 June 2014	6 months ended 30 June 2013	Year ended 31 December 2013
		(unaudited)	(unaudited)	(audited)
		£'000	£'000	£'000
Revenue		-	2,009	2,822
Cost of sales		-	(1,959)	(2,788)
Operating expenses		-	(237)	(1,842)
Loss before tax		-	(187)	(1,808)
Taxation		-	43	420
Loss after tax from discontinued operations		-	(144)	(1,388)

6.   Earnings per share (EPS)

		6 months ended 30 June 2014	6 months ended 30 June 2013	Year ended 31 December 2013
		(unaudited)	(unaudited)	(restated & audited)
		£'000	£'000	£'000
Profit for the period, being basic earnings attributable to ordinary equity shareholders		3,540	1,115	5,021

			pence	pence	Pence
EPS Summary
Basic and diluted earnings per share			96.1	30.3	136.4
Basic and diluted earnings per share - continuing operations			96.1	37.6	175.7
Basic and diluted earnings per share- discontinued operations			-	(7.4)	(39.3)

Number of shares		No.	No.	No.
Weighted average number of shares used to calculate earnings per share
-       Basic		3,682,930	3,681,820	3,681,950
-       Diluted		3,682,930	3,681,820	3,681,950

7.   Dividends

The Group will pay an interim dividend of 1.41 pence per Ordinary Share in respect of the six months to 30 June 2014 (H1 2013: nil) on 24 October 2014 to shareholders on the register on 3 October 2014.

8.   Net debt

		6 months ended 30 June 2014	6 months ended 30 June 2013	Year ended 31 December 2013
		(unaudited)	(unaudited)	(audited)
		£'000	£'000	£'000
Cash and cash equivalents		374	(941)	324
Bank Borrowings		(18,378)	(26,760)	(18,366)
Finance lease liabilities		(1,368)	(154)	(647)
Net debt		(19,372)	(27,855)	(18,689)

The facilities available to the Group at 30 June 2014, 31 December 2013 and 30 June 2013 were a £15 million term loan, £5 million overdraft and £20 million revolving credit facility, secured on the assets of the Group. These facilities were due to expire in January 2017, however, the Group's facilities have been renegotiated as part of the flotation on the AIM (see note 9). Net debt at admission was £20.5 million.

9.   Post balance sheet events

On 10 July 2014, the Group announced its intention to float on AIM, a market operate by the London Stock Exchange.  The group was admitted to AIM and the first day of dealings was on 24 July 2014. 

On 24 July 2014, the Group renegotiated its existing banking facilities with Barclays agreeing a new £25 million Revolving Credit Facility and £5 million overdraft, secured on the assets of the Group.  These facilities will support Epwin's working capital requirements and also fund growth, both organically and through acquisitions.  The term of the revolving credit facility is for five years ending July 2019.

10.  Cautionary statement

This document contains certain forward-looking statements with respect of the financial condition, results, operations and businesses 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 document should be construed as a profit forecast.

11.  Copies of this half year report

Further copies of this half year report are available from the registered office: Epwin Group Plc, 4 Manor Park Business Centre, Mackenzie Way, Cheltenham, GL51 9TX or on the Company's website - www.epwin.co.uk

 

END

 

 

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