Chief executive Jon Bednall at building products supplier Epwin (EPWN) remains bullish in the face of flat end-markets, citing acquisitions and further cost efficiencies as key levers to grow profitability.

Acquisitions in the past 18 months helped revenue at the supplier of PVC doors and windows, roofline and cladding grow 15.5% to £143.3 million in the six months to 30 June 2016.

Organic growth, a measure which excludes revenue gains from newly acquired units, was around 1%, Bednall said in an interview with Shares following Epwin’s half-year results announcement published today.

Underlying operating profit, management’s preferred measure of performance, gained 47.5% to £11.8 million driven by revenue growth and an increase in margins from 6.4% to 8.2% in the first half of 2016.

‘It’s steady as you go for us,’ said Bednall.

‘The results show our strategy is delivering as we grow our product range, technical knowhow, channels to market and acquisitions are a key part of that, as we have always said.

‘In interesting market times these are good numbers with a steady increase in profit.’


Epwin Share Price Performance

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Epwin’s website boasts the business was able to increase profit in the last major UK recession, during 2008 and 2009, performance Bednall says was because of ‘self-help’ initiatives which enabled stronger margins on flat revenue.

Now a public company again after a spell in private hands, and after a big merger in 2012 with rival Latium, Bednall says many of the same opportunities to protect profitability in a potentially more difficult market are still available.

Among Epwin’s most recent deals is its purchase of National Plastics for £8.7 million, which adds around 30 regional distribution centres.

‘A lot of the performance in the recession was about top line not growing but bottom line improvement through efficiencies delivered within the business,’ said Bednall.

‘The merger consolidated two businesses in a similar market and that gave us the opportunity for further efficiencies to improve the bottom line further.

‘The market [today] is challenging because it’s fairly flat and in an environment where you have to improve earnings that’s difficult. But we feel we have enough in our own hands to do that in terms of higher efficiency, acquisitions and getting the synergies out of them like we have with the National Plastics deal.’

Bednall says there are some good reasons to be optimistic about future prospects in repair, maintenance and improvement (RMI) markets despite tough industry conditions for many years.

Home improvement spending is estimated to have peaked at £4.25 billion annually in the early 2000s, a period which coincided with a home equity release mortgage lending boom, but has never exceeded that level since.

Chief financial officer Chris Empson said the annual replacement rate for the UK’s estimated 4 million U-PVC window frames is only around 1.7% a year. That implies each window frame needs to last more than 50 years at current rates of replacement, which Empson says is not sustainable. Most of the first generation of PVC windows were installed in the 1980s or earlier, providing a potential replacement cycle over the medium term.

Management are well incentivised to grow the business, via a three-year incentive scheme put in place when Epwin joined the stock market in 2014.

Around 12.5% of the gain in the company's market value or share price of the business in the three years to 2017 will be awarded to key management. Major shareholder and Epwin founder Jim Rawson said at the time of the 100p a share initial public offering (IPO) that the return of the business to public markets was part of a 'five-year succession plan'.

Epwin's previous spell on the stock market in the 1980s and 1990s, when it was a smaller business more focused on windows and doors, does not appear to have worked out that well for investors, culminating in a £44 million takeover by an investment group headed by Rawson himself.


Epwin Performance 1987-2000

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In an interview published in the Birmingham Post around the time the business was bought out, Rawson was quoted as saying , 'The group is worth less today than it was when we floated. But in 12 years as a public company we have never failed but to put the dividend up.'

Shares in Epwin today trade 1.8% higher at 109p.

Issue Date: 15 Sep 2016