Epwin Group Share Price Plummets On Half-Year Trading Update

To say it’s a bit of a rocky time for some of the bigger companies in this industry at the moment is a bit of an understatement. There is a lot being talked about internally, but it’s not getting the column inches or pixels on screen. Roller coaster is an apt word I would say at the moment.

Roller coaster is also the way in which I would describe the performance of share prices from some of our industry’s biggest trading companies. Today was no exception. One of our biggest, Epwin Group, took a battering today as it announced it’s half-year trading update.

The statement

Here’s the business bumpf:

Epwin Group Plc (LON:EPWN), the low maintenance building products manufacturer, supplying businesses in the Repair, Maintenance and Improvement (“RMI”), new build and social housing sectors, announced today its half year trading update and notice of its half year results announcement.

Trading update

Revenues and operating profits in the first half year were in line with the Board’s expectations despite market conditions, particularly in the key RMI market, remaining challenging. As reported in the AGM Statement in May, materials price inflation has also had an increasingly significant impact upon costs in the period and this continues to be the case.

In response to the on-going market conditions, since the half year the Group has commenced a programme aimed at adjusting its capacity and cost base.

Additionally, since the AGM the Group has noted changing circumstances within its customer base affecting two of its customers, each accounting for around 5% of the Group’s revenue. One has significant funding issues and is undertaking a strategic review, whilst the other has sold its plastic distribution business which is principally supplied by Epwin, to a competitor of the Group. The implications, if any, of these matters remain unclear at this stage.

Aside from these two specific issues, the Board’s current view is that the outturn for the full year ending 31 December 2017 will be marginally below market expectations. The Group’s financial position remains strong with net debt at the half year less than one times 2016 EBITDA and with significant funding headroom to continue to invest in the business.

Jon Bednall, Epwin Group Plc Chief Executive, commented: “Whilst the current market conditions continue to be challenging, we remain confident of the long term growth drivers in the RMI market and continue to progress with our strategy, focused on operational improvement, selective acquisitions to broaden our product portfolio, cross‐selling across our brands and product development. We are confident in continuing our record of strong cash generation and our ability to offer an attractive dividend to shareholders.”

Notice of results

The Group will announce its half year results for the six months ended 30 June 2017 on Wednesday 13 September 2017.

I’ve highlighted in bold the important bits in that statement. Materials price inflation has been the blame of many for price increases from just about every single supplier in the window and door industry in the past year. I think we all know who the company with significant funding issues is. And the plastics distribution business refers to the SIG buyout by GAP.

Near the end it gives a gentle warning that 2017 isn’t going to be as good as they thought it might be. “Marginally below expectations” is business terminology wheeled out well in advance to cushion what might end up being a bigger blow than predicted.

This is what happened to the share price today:

Credit: Bloomberg

That is a drop of 19.47% in a single day. So despite the tempered language of the statement, traders didn’t like what they saw. Their share price is now at a multi-year low, and now worth less than half their highs from a couple of years ago.

But, Epwin is not the only major UK fenestration company to be giving out warnings and suffering share price drops. We all know the trouble Entu is in right now. And there have been a slew of profit and revenue warnings, poor quarterly and half-year trading updates. Insider industry talk isn’t saying much in the way of good news about the biggest national retailers on the sales front either.

So why now? How are so many of our biggest now in a position where they’re starting to wonder how solid the ground beneath them actually is?

The market and sales tactics

For me, the answer is two-fold. Firstly, the market is killing the big companies right now. Material cost increases show no sign of abating. For the parts they can pass on down the supply chain, the rest is eating up into their profit margins in a big way. The largest always get hit first and hit hardest and we’re seeing the results of that in share prices and company reports.

The second reason is much more long term and widely predicted, and that is all down to sales tactics and business models. We all know how the national retailers go about attempting to sell to home owners. If you watched White Gold on BBC 2 the other month, well that is how many sales people working for the nationals still go about it. Also, the suppliers who sell to the nationals are getting hit too. When their national and large retail businesses struggle with sales, as they reportedly are, they suffer as well.

What we are now seeing is a convergence of two major factors here, short term high-intensity material price fluctuations, coupled together with a business sales model that is massively outdated and is now clearly having a very negative impact on certain companies in our industry.

It will only get worse in my opinion. Prices are only going to rise in the short to medium term, and you can bet your last penny that home owners are only going to continue to shun the typical hard sell approach to sales. The largest companies have failed to change their business models to suit an industry that has grown up in many ways, and it is now some of the largest that currently look like some of the weakest out there.

Watch this space. It could be a very bumpy few weeks and months ahead.