In a sea of instability, last week produced some welcome and somewhat stable news, with 2023 preliminary results from Eurocell showing that profits were in line with expectations.
Against the wider context currently ongoing in our sector and the wider construction market, this should be seen as a positive result.
Strong cash flow
Eurocell is a company that spans both the fenestration and construction sectors. Whilst they have a strong presence in the window and door industry, they are also a business very much in touch with the new-build and builders markets, with a huge network of trade counters and supply into home builders.
2023 was about as rocky a year as we can remember, with a number of fenestration and construction companies going under. However, the reporting of profits being in line with expectations, and strong cash flow, these initial results for their last financial year are a bright spot.
Here are the key stats:
Credit: Eurocell
Summary:
• Profits in line with expectations, despite further market deterioration in the second half
• Challenging backdrop, with weak RMI(1) market and particularly severe decline in new build housing
• Early and decisive action taken on cost in response to lower volumes and to position the business well for when markets recover
• Efficient inventory management driving strong cash flow performance, maintaining strong balance sheet and liquidity
• Review of strategy complete, with pathway to organic growth and improved margins identified
View the full report here: https://investors.eurocell.co.uk/media/1442/2023-prelim-results-final.pdf
Revenue being down 4% from 2022 I think is very respectable. Remember, 2021 and 2022 were far from normal thanks to a post-lockdown boom that pretty much blew the supply chain apart. A slowdown was always going to come, it was a question of what that slowdown looked like and how damaging it would be. A 4% reduction in revenue would be a result other companies would have snatched your hand off for.
Another positive to take is that net debt is down by almost £20m. In this higher-interest period of time, it is important for companies of all kinds to work down what they owe. With market volumes down and a number of external factors still at play all at the same time, finding ways to make your business more streamlined is key.
Net cash also got a big boost compared to 2022 thanks to efficient stock management.
This is what CEO of Eurocell, Darren Waters, said:
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. Against this challenging backdrop, we are pleased to report profits for the year in line with expectations and strong cash flow generation.
We took early and decisive action on costs in response to lower volumes and have continued to focus on efficient working capital management, driving a good cash flow performance. Whilst the near-term outlook for our markets remains challenging, these actions leave us well placed to benefit from a market recovery when it comes.
Our review of strategy is now complete and I am very pleased with the outcome. Looking ahead, we have identified a clear pathway to building a £500m revenue business, generating a 10% operating margin over a five-year period, built around four pillars; Customer Growth, Business Effectiveness, People First and ESG Leadership. This is an ambitious vision, but when we aggregate the growth opportunities, and apply a degree of sensitivity, we believe it is an achievable target, with the potential to create significant shareholder value.
I like the idea that the company, so long as it’s plans remain on track, could pull in over half a billion pounds a year. Of course that revenue has to be profitable, which you should be able to rely on it being so.
However the next 5 years are going to pose various problems. The housing market has to recover and in many ways be reshaped into one that is affordable for all. The new-build market has to be strong, which is what Eurocell supplies into. Interest rates will need to pull back from where they are now to make finance cheaper for first time buyers as well as families who already have homes but are wanting to undertake new projects to invest in their properties. The election needs to come and go as swiftly as possible. There will be a certain amount of the population this year hanging on to wait and see what happens – this dampens spending. The UK domestic economy needs to return to tangible growth. We shouldn’t be celebrating anaemic levels of growth such as 0.2%. We need to be better and a growing economy puts disposable income in people’s pockets.
This is some welcome news for the fenestration sector against a more troubled backdrop both in this industry and the wider construction sector.
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