Profits In Line With Expectations At Eurocell

It is earnings season once again the fenestration sector as the largest publicly traded companies begin to report on their 2023 results.

Eurocell have posted a trading update for the year ending December 31st 2023, and as the headline states, it is in line with their expectations for the year. They state that full results will be published on 20th March.

Strong cash flow

Here is the short update, plus data table as published by Eurocell:

Eurocell plc, the market leading, vertically integrated UK manufacturer, recycler and distributor of innovative window, door and roofline PVC products, provides the following update for the year ended 31 December 2023.

Summary

The trends reported at our half year results in September continued for the remainder of 2023, with some further modest weakening in our key markets. Repair, maintenance and improvement (RMI) activity continues to be impacted by low consumer confidence and higher costs of living. The ongoing steep decline in new build activity reflects successive interest rate rises and falling house prices, with house builders reducing build rates in anticipation of falling sales.

Against the challenging market backdrop, we have delivered some resilience in the Group’s sales performance for the year. We continue to focus on closely managing cost and cash flow and, as expected, have seen some easing of input cost pricing in H2.

Despite these challenges, we are pleased to confirm that we anticipate underlying profit before tax for the year ended 31 December 2023 to be in line with market expectations.

Trading Performance

Reported sales for the year ended 31 December 2023 were £365 million, down 4% on an exceptionally strong 2022 comparative period, with volume 6% lower. Comparisons by division were as follows:

Profiles – reduced RMI activity and a significantly weaker new build market, partially offset by the benefit of market share gains, resulted in sales volumes 7% below 2022. We have continued to acquire new fabricator accounts, supported by a reduction in UK capacity following the closure of the Duraflex extrusion business in September. In addition, some of our existing fabricators have benefited from an increase in volume following the administration of Safestyle in October.

Building Plastics – RMI volumes in the branch network were down 5% on 2022 and remain subdued, with increased competition for limited demand leading to ongoing pressure on margins. Sales include an increase in our made-to-order products, which extend living spaces, such as garden rooms.

As reported in September, we experienced persistent input cost inflation H1 2023, particularly for labour and electricity, which we offset with selling price increases where possible. In addition, recycling feedstock prices were significantly higher than the first half of 2022. However, as noted above, we have seen some easing of input cost pricing in H2.

As previously announced, in response to lower sales volumes, we took early and decisive action on costs, with restructuring programmes implemented in Q4 2022 and Q2 2023, securing annualised savings of £9 million, of which £7 million were realised in 2023. The related redundancy costs from the Q2 2023 programme, together with cloud computing costs incurred on strategic IT projects, will be reported as a non-underlying item of approximately £3.5 million in our 2023 financial statements.

We have also continued to focus on efficient inventory management to drive good cash flow performance. As a result, net cash on a pre-IFRS 16 basis was £0.4 million at 31 December 2023, compared to net debt of £14 million at 31 December 2022.

Review of Strategy

As reported in September, we have been reviewing our strategy, including the optimisation and expansion of the branch network, an enhanced customer proposition and simplified business structures. We expect to report the conclusions from our review at the time of our 2023 full year results announcement (see Notice of Results below).

Capital Allocation

The Board is focused on enhancing shareholder returns and recognises the importance of our ordinary dividend. We will also periodically consider supplementary distributions, whilst always seeking to maintain a strong financial position. Taking into account expected organic investment requirements and our successful cash flow management in 2023, which resulted in net cash of £0.4 million at the year end, we are now launching a £5 million share buyback programme, full details of which will be announced separately today.

Notice of Results

We expect to publish our results for the year ending 31 December 2023 on 20 March 2024.

There is going to be a caveat with all 2023 results in that comparing them to 2022 is going to be slightly skewed. 2022 and indeed 2021 were exceptional years in terms of demand, way higher than a normal trading year, so it is likely that we’re going to see small to moderate reductions in revenue for 2023 when compared to the previous year. Any drops should be seen in that context and shouldn’t spark any serious concerns.

To that end, I would judge that single digit reductions, some only a few percentage points, is perhaps better than the general industry performance of late. In a year which saw a number of high-profile bankruptcies, such as UKWDG and Safestyle, these results represent stability. Eurocell forecasted tougher conditions in 2023, took measures to mitigate that, and have come out the other side posting what I think are solid numbers considering how difficult 2023 actually was.

There will be more detail in the March trading update, which will give a clearer picture on the overall performance of Eurocell last year, but on the face of it these are numbers that can carry momentum into this year where hopefully things won’t be as volatile or uncertain.

You can read the original update here: https://ir.q4europe.com/Tools/newsArticleHTML.aspxsolutionID=3486&customerKey=EurocellPlc&storyID=15987158

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