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Profile Problems – What Happens If A System Ceases?
Ryan Johnson, the group managing director at the massive fabricator, Emplas, chews over the summer collapse of profile supplier Duraflex and asks what it...
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House Building Halt Halts Profits
A particularly severe decline in new build housing has hit Eurocell’s profits causing the company to warn ‘further deterioration in market conditions means full year performance will be below our previous expectations’.
Eurocell is a UK manufacturer, distributor and recycler of window, door and roofline PVC products.
The warning came as the company declared its half year results for the six months ending 30 June 2023. Eurocell says it has taken decisive action on costs in response to lower volumes and to position the business well for when markets recover. These actions include efficient inventory management to drive good cash flow while maintaining a strong balance sheet and liquidity.
The company says it has also offset some of the damage done by a slow new build market by taking market share.
Trade counters
Eurocell runs a network of trade counters and these have also been hit where the firm says it is facing increased competition for limited demand leading to pressure on margins – although the company is trying to put up its prices where it feels it is possible to do so.
Hedging
Eurocell is a big energy user but when it comes to electricity, the company operates a rolling 12-month forward hedging policy – but even this has provided enough protection to the massive energy price rises all industries are facing.
Cost of plastic
PVC resin prices have fallen back slightly within the year so far but recycling feedstock prices are 66% higher than in 2022.
Jobs
Towards the end of 2022 operating costs were brought down by £5 million per annum (becoming effective from the start of 2023). A further headcount reduction in the second quarter of 2023 is expected to deliver savings in the region of £2 million in the second half of 2023 and circa £4 million per year thereafter although £1.8 million of redundancy costs will have to be borne
What’s going on?
Darren Waters, chief executive of Eurocell plc says: “Market conditions in the first half of 2023 became more challenging than we had anticipated, on the back of a sluggish new build housing market and lower renovation, maintenance and improvement activity, with the Construction Products Association forecasting declines of 19% and 11% respectively in these sectors.
“Against this backdrop and an exceptionally strong comparative period, we delivered some resilience in the Group’s sales performance in the first half, with volumes down 6%, and improved cash flow.
“As expected, half-year profits were down on the prior period. Lower market volumes have resulted in an increasingly competitive environment and margin pressure in the branch network. First half profits were further impacted by recycling feedstock prices, which were significantly higher than in 2022.
“With the decline in market volumes and a tough outlook for the balance of 2023 and 2024, we acted quickly to lower operating costs and focused on efficient working capital management. In addition, we continue to seek operational efficiencies, for profit and cash flow improvement, the benefits of which we should start to see next year.”
Interest rates
Waters adds: “We anticipate that profits in the second half of the year will benefit from lower input prices as well as the operational cost savings already secured. However, with another base rate increase implemented and the prospect of more to come further impacting upon consumer confidence, market conditions have deteriorated since the beginning of August, meaning that we now anticipate full year performance will be below our previous expectations.”
Duraflex
Waters continues: “Our pipeline for new fabricator account wins remains positive, supported by a net reduction in UK capacity following the demise of Duraflex.
“Driven by the structural deficit in new build housing and an ageing housing stock that requires increased repair and maintenance, I believe the actions we are now taking leave the business well positioned to benefit from a recovery in our markets which will, over the medium-term, drive sustainable growth in shareholder value.”
Picture: Eurocell's Darren-Waters.
Article written by Cathryn Ellis
12th September 2023