15 September 2021

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018.  Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

Epwin Group Plc

Half year results for the six months to 30 June 2021

Strong trading continues, actively managing cost pressures

Epwin Group Plc (AIM: EPWN) ("Epwin" or the "Group"), the leading manufacturer of low maintenance building products, supplying the Repair, Maintenance and Improvement ("RMI"), new build and social housing sectors, announces its half year results for the six months to 30 June 2021 ("H1 2021").

Financial highlights

(1) Stated before amortisation of acquired other intangible assets, share-based payments and other non-underlying items.

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

Financial headlines

·    Strong trading performance, despite pandemic operational challenges:

o  High RMI demand continued into H1 2021

o  Revenues 69% ahead of 2020 and 13% up on the same period in 2019

o  Underlying operating profit of £9.4 million recovered to 2019 level

·    Financial position remains strong:

o  Covenant net debt reduced to £15.8 million (HY20: £21.3 million; FY20: £18.5 million); 0.6x adjusted EBITDA

o  Includes cost of £4.6 million on acquisitions in H1 2021

o  Significant headroom on banking facilities, in excess of £60 million at the half year end

·    Interim dividend of 1.75 pence per share declared

Operational and strategic headlines

·    Health and safety remains a priority

·    Continued strategic progress:

o  Site consolidation and rationalisation programme:

§ Construction completed on new Telford distribution and finishing facility, with final payment of £5.2 million received during H1 2021

§ Full relocation of inventories to the new facility in 2022 after exceptionally high demand levels in 2021

o  Value enhancing acquisitions - SBS acquired in January 2021 and PBS in June 2021:

§ Both well-established regional independent distributors of plastic building products, increasing access to the Group's product offer

§ Adds 12 trade counters in Cumbria, Northumberland, Southern Scotland and Norfolk

o  New product development:

§ Aluminium window profile and PVC decking sales building encouraging momentum

·    Ongoing development of ESG framework and sustainability agenda

Current Trading and Outlook

·    Trading in line with analysts' forecasts increased at the July 2021 trading update

·    Strong demand from customers serving the RMI market, which represents around 70% of historic Group revenues, is expected to continue for the foreseeable future

·    Continue to actively manage ongoing supply chains and logistics pressures:

o  PVC raw materials in particular impacted, exacerbated by supplier plant issues restricting availability and driving up the price of resin

o  Steps have been, and continue to be, taken to recover these costs in the market in an equitable manner

o  Labour availability and wage inflation presenting some challenges

·    Medium and long-term drivers for the RMI market remain positive

·    Further potential bolt-on M&A opportunities continue to emerge

·    Well positioned as operating conditions improve and pent-up demand takes effect

Jon Bednall, Chief Executive Officer, said:

"I would again like to recognise and thank all of our people for their continued effort and hard work during the ongoing pandemic disruption.

Our trading performance during the first half has been encouraging and we have continued to make good strategic progress. This has been underpinned by ongoing strong demand from our key RMI markets, together with proactive management of raw material cost inflation and supply chain issues.

We are optimistic for trading prospects in the second half and expect to make further gains in market share, whilst continuing to manage the challenges that the pandemic presents. Looking further ahead, we remain confident that we can take advantage of future opportunities, supported by the positive medium and long-term drivers for the Group's products."

Contact information

Forthcoming dates:

Ex-dividend date                             23 September 2021

Dividend record date                     24 September 2021

Dividend payment date                 15 October 2021

About Epwin

Epwin is the leading manufacturer of low maintenance building products, 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.

www.epwin.co.uk

Group Business Review

Trading and results

Half year revenues of £157.8 million were significantly ahead of the COVID-19 impacted H1 2020 (HY20: £93.3 million) and ahead of pre-pandemic H1 2019 levels (HY19: £140.0 million). Revenue growth was predominantly organic and demand driven as the acceleration experienced in H2 2020, following the March 2020 lockdown, continued through into 2021. Selling price increases passed on as a result of input cost inflation, the acquisition of SBS (Cumbria) ("SBS") and growth in new product sales also contributed to the higher revenues.

Underlying operating profit also recovered strongly to £9.4 million (HY20: loss of £1.8 million), returning to pre-pandemic 2019 levels. The main drivers behind the improvement to underlying operating profit were higher volumes and selling price increases, offset by raw material price increases and operating inefficiencies resulting from the ongoing pandemic.

As has been widely reported, supply chains remain under significant pressure from high market demand, shortages from global events and supplier issues which have continued throughout 2021.  Consequently, raw material prices have continued to increase. The Group has taken and continues to take steps to mitigate these equitably through price increases, surcharges and other measures; albeit this process naturally lags the increase in input prices.

New product development

The Group has seen strong demand for the new products launched during 2019 and 2020, in particular the aluminium window system, Stellar, and the PVC decking product, Dekboard, which have seen demand well ahead of management's expectations. This is particularly pleasing given the impact the COVID-19 lockdown had on the initial phase of their launch.

Progress with site consolidation and rationalisation programme

Construction work on the purpose-built facilities in Telford, to consolidate window systems warehousing and finishing operations, has been completed. Following practical completion, the final £5.2 million payment was received in full in February 2021. In total, the acquisition, development and sale and leaseback of the new Telford site has generated a net cash surplus of £10.0 million.

The COVID-19 pandemic and the continuation of the exceptionally high demand levels seen post lockdown into and throughout H1 2021 has required the window systems operation to continue operating across its existing sites. It is now anticipated that the relocation of inventories and logistics operations to the new facility will take place in 2022 which will allow the Group to start realising the consolidation and synergistic benefits of the new facility.

Value enhancing acquisitions

On 5 January 2021, the Group acquired the trade and related assets of SBS (Cumbria) Limited ("SBS"), a well-established regional distributor of plastic building products operating across eight branches in Cumbria and Southern Scotland. Including synergistic benefits, we anticipate an EBITDA multiple of four times, with the full benefits of the acquisition being realised from the end of 2021. 

On 30 June 2021 the Group acquired the trade counter activities and related assets of Plastic Building Supplies Limited ("PBS"), an established distributor of plastic building products from four branches across Norfolk. We anticipate an EBITDA multiple, including synergies, of three times from the end of 2021.

Total consideration for these acquisitions was £4.8 million, comprising £4.6 million paid in cash and £0.2 million deferred.

These acquisitions further increase the geographical coverage of the Group's plastic distribution business and offer the opportunity for synergies and wider expansion over time alongside the Group's partnerships with its key independent distribution partners.

ESG

The Group continued to make progress with developing its ESG framework and targets, while delivering on its sustainability agenda.

Having aligned its operations with the United Nations (UN) Sustainable Development Goals ("SDGs"), meaningful actions continue to be taken to reduce the Group's carbon footprint such as switching to sustainable raw materials and improvements to energy and resource efficiency.

Segmental Results

Extrusion and Moulding

·    Revenue increased by 60% in comparison to H1 2020 to £97.0 million as a result of the lockdown in March 2020 and the heightened RMI demand levels that have continued since then

·    In comparison to H1 2019, revenues increased by 10% as a result of strong customer demand and selling price increases

·    Supply chain disruption and increases in raw material costs have impacted margins. By the nature of its activities, the Extrusion and Moulding segment has borne the majority of the impact of the supply chain issues and raw material cost increases. The business has taken, and continues to take, steps to mitigate these equitably through price increases, surcharges and other measures; albeit this process naturally lags the continuing increase in input prices

Fabrication and Distribution

·    Revenue increased by 87% in comparison to H1 2020 to £60.8 million, mainly as a result of the lockdown in March 2020

·    In comparison to H1 2019, revenues have increased by 16%, of which 10% is through increased volumes and selling price increases, with the balance due to the acquisition of SBS

·    The improvement in margin in Fabrication and Distribution reflects both the increased volumes and the success of passing on price increases. The segment's result has also significantly benefitted from the site consolidation and rationalisation activities over recent years.

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 £0.2 million was charged during the year (HY20: £0.2 million), relating to the brand and customer relationship intangible assets recognised on acquisitions.

ii.    Other non-underlying items

Other non-underlying items in 2021 relate to professional fees associated with the acquisitions of SBS and PBS.

iii.   Share-based payments expense

The share-based payment expense of £0.2 million (HY20: £nil) comprises IFRS 2: Share-based payments charges in respect of a new Long-Term Incentive Plan established in May 2021 for senior management and a further issue of options under the Group's Save As You Earn ("SAYE") scheme in January 2021.

Cash flow

Pre-tax operating cash flow returned to 2019 levels as the activity of the Group recovered following the pandemic related business closure in H1 2020. As the business had fully reopened during H2 2020, and remained open during the further lockdowns in November 2020 and January 2021, it has not sought to utilise any of the Government support schemes during H1 2021 and all deferred liabilities such as the March 2020 VAT liability have been repaid in full.

Financing

The Group has maintained in excess of £60 million headroom on its existing banking facilities which comprise a £65 million revolving facility through to June 2024 and a £10 million overdraft facility. Covenant net debt has reduced from £29.2 million as at 30 June 2019 to £15.3 million as at 30 June 2021. The increase in net debt (including IFRS 16) since HY19 is as a result of an increase in lease liabilities due to the sale and leaseback transaction associated with the development of the distribution and finishing facility in Telford, which had fully completed by 31 December 2020.

Finance costs for the period comprise £0.6 million interest on borrowings (HY20: £0.9 million). Borrowing costs reduced due to lower levels of facility utilisation during H1 2021 compared to H1 2020, when the Group fully drew down on its facilities in response to the March 2020 temporary business closure due to the COVID-19 pandemic.

During H1 2021, the Group received the final £5.2 million payment associated with the development and sale and leaseback of the Telford distribution and finishing facility. Although the full move into these premises has been delayed by the COVID-19 pandemic and the pressure the subsequent heightened levels of demand have placed on our existing operations, the new facility allows the consolidation of five warehousing and finishing facilities. It also houses the Group's aluminium operations and is expected to generate operational savings once fully operational during 2022.

Dividend

The Board intends to declare an interim dividend of 1.75 pence per share (HY20: nil pence, HY19: 1.75 pence), to be paid on 15 October 2021 to shareholders on the register on 24 September 2021. For the 2021 financial year, the Board intends to split the dividend more evenly between interim and final than the traditional one third, two thirds split of prior years, in recognition both of the performance and cash generation of the business during H1 2021, and of the cancellation of the FY19 final and FY20 interim dividends.

Going concern

As disclosed in the FY20 Annual Report and Accounts, the Directors prepared cash flow forecasts for a period of at least 12 months from the date of approval of those financial statements which indicated that, taking account of reasonably possible downsides and the anticipated impact of COVID-19 on the operations and its financial resources, the Group and Company had sufficient funds to meet its liabilities as they fell due. Actual revenues, profits and cash flows during the 6 months to 30 June 2021 were considerably ahead of these forecasts and re-forecasts indicate that the Group continues to have sufficient funds to meet its liabilities as they fall due. As such, the Directors believe that it remains appropriate for the Group to continue to adopt the going concern basis in preparing these condensed financial statements.

Outlook

The Group's trading performance during the first half of 2021 has been encouraging as it has continued to make good strategic progress in a buoyant trading environment that has presented a number of challenges following the COVID-19 lockdown of the economy during 2020.

Customer demand, particularly from the RMI sector, has continued to be strong throughout H1 2021 and this is expected to continue for the remainder of 2021.

We expect supply chains to remain under pressure and high raw material costs to continue for the remainder of 2021 as businesses continue to experience very high demand and inventory levels recover from the closure of operations and exceptional demand seen since 2020. PVC resin prices, in particular, are expected to remain high for the remainder of 2021 as further force majeure events and planned plant maintenance at the large PVC resin producers continue to restrict capacity and supply. The restrictions on supply experienced in the final quarter of 2020 have continued throughout H1 2021. The Group's strong relationships with the PVC resin suppliers have ensured it has been able to secure material supply; albeit the market price of PVC resin has increased by in excess of 80% from 2019 and early 2020 levels. The Group is passing on these increased costs to its customers in an equitable manner through price increases and surcharges and remains confident of its ability to continue to work with its customers to manage further cost inflation fairly.

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.

The medium to long-term drivers for the market remain positive, with 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 simply essential maintenance. The pandemic has also stimulated demand for home, garden and leisure space spending, with lockdowns highlighting the need for improvements, addressing maintenance and creating workspace.

The Construction Products Association latest summer forecast predicts RMI to be up 16% in 2021 and a further 3% in 2022. Within these forecasts the new build housing sector is anticipated to grow, driven by underlying demand and government incentives. Social new build is also expected to see growth.  

We are optimistic for trading prospects in the second half and expect to make further gains in market share, whilst continuing to manage the challenges that the pandemic presents. Overall, we are confident that we will emerge a stronger business and that we can take advantage of potential opportunities that will present themselves.  

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2020

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 2021.  These are in accordance with the accounting policies as set out in the Group's consolidated financial statements for the year ended 31 December 2020.

As a result of the UK leaving the European Union ("EU") and the end of the transition period on 31 December 2020, UK companies are no longer subject to EU legislation. The recognition and measurement requirements of all UK-adopted International Accounting Standards ('UK-adopted IAS') as required to be adopted by AIM listed companies have been applied as from 1 January 2021. 

AIM listed companies are not required to comply with IAS 34 'Interim Financial Reporting' and accordingly the Company has taken advantage of this exemption.

The financial information in these financial statements does not constitute statutory accounts for the six months ended 30 June 2021 and should be read in conjunction with the Group's consolidated financial statements for the year ended 31 December 2020 which were unqualified and did not contain statements under sections 498(2) and (3) Companies Act 2006.

The condensed consolidated financial statements for the six months to 30 June 2021 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 14 September 2021.

Going concern

These condensed financial statements have been prepared on the going concern basis, after considering the ongoing impact and risks from COVID-19, as the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.

As disclosed in the FY20 Annual Report and Accounts, the Directors prepared cash flow forecasts for a period of at least 12 months from the date of approval of those financial statements which indicated that, taking account of reasonably possible downsides and the anticipated impact of COVID-19 on the operations and its financial resources, the Group and Company had sufficient funds to meet its liabilities as they fell due. Actual revenues, profits and cash flows during the 6 months to 30 June 2021 were considerably ahead of the these forecasts, and re-forecasts indicate that the Group continues to have sufficient funds to meet its liabilities as they fall due.

The banking facilities available to the Group comprise a £65 million Revolving Credit Facility, through to June 2024, and a £10 million overdraft facility. At 30 June 2021 the Group had in excess of £60 million of headroom on its banking facilities.

Based on the above, the Directors believe that it remains appropriate for the Group to continue to adopt the going concern basis in preparing these condensed financial statements.

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.

Reportable segments                    Operations

Extrusion and Moulding             Extrusion and marketing of PVC and aluminium window profile systems, PVC cellular roofline and cladding, rigid rainwater and drainage products as well as PVC, Wood Plastic Composite ("WPC") and aluminium decking products. Moulding of Glass Reinforced Plastic ("GRP") building components.

Fabrication and Distribution   Fabrication, installation and marketing of windows and doors, cellular roofline, cladding, decking, rainwater and drainage products.

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. 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 included within operating profit include:

Amortisation of acquired other intangible assets

£0.2 million (HY20: £0.2 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:

During the period the Group incurred professional fees of £0.1 million in relation to the acquisitions of the trade and assets of SBS (Cumbria) and Plastic Building Supplies, see note 4 for further details.

Share-based payments expense

The share-based payment expense of £0.2 million (HY20: £nil) represents the IFRS 2: Share-based payments charge in respect of a new Long-Term Incentive Plan established in May 2021 for senior management and a further issue of options under the Group's Save As You Earn ("SAYE") scheme in January 2021.

4.   Acquisitions

Acquisitions in the half year ended 30 June 2021

During the period the Group acquired the trade and related assets of two trade distributors.

On 5 January 2021, the Group acquired SBS (Cumbria), trading as SBS, for cash consideration of £3.8 million on a cash and debt free basis. SBS is a well-established distributor of plastic building products operating across eight branches in Cumbria and Southern Scotland.

On 30 June 2021, the Group acquired Plastic Building Supplies, trading as PBS, for initial cash consideration of £0.8 million and further deferred consideration of £0.2m. The consideration is provisional subject to a net asset true-up adjustment. PBS operates four plastic distribution branches across Norfolk.

The following table summarises the consideration paid for SBS and PBS and the provisional fair values of the assets and liabilities acquired at the acquisition date.

On acquisition, other intangible fixed assets of £0.3 million were recognised, representing the SBS and PBS brands.

The goodwill recognised of £2.6 million represents the collective local market knowledge of the workforce, plus the potential for cross selling and synergies that exist as a result of the larger scale of the Epwin Group.

5.   Taxation

The tax charge for the six months to 30 June 2021 is based on the estimated tax rate for continuing operations for the full year.

In the Budget held on 3 March 2021, the Government announced that the corporation tax rate will increase to 25% from 1 April 2023. This change was subsequently enacted on 10 June 2021.  As at the 30 June 2020 balance sheet date, the corporation tax rate was 19%, however the deferred tax asset/liability at this date has been calculated using a blend of rates of 19% and 25%, depending on when the asset/liability is expected to reverse (30 June 2020: 17%).

6.   Earnings per share (EPS)

7.   Dividends

8.   Net debt

The banking facilities available to the Group are a £65.0 million Revolving Credit Facility and £10.0 million overdraft, secured on the assets of the Group.  The revolving credit facility has a term through to June 2024.

9.   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.

10.  Copies of this half year report

Further copies of this half year report are available from the registered office: Epwin Group Plc, 1b Stratford Court, Cranmore Boulevard, Solihull, B90 4QT or on the Company's website www.epwin.co.uk