Epwin Group encountered some turbulence in FY17 arising from customer ownership changes but ended the year in line with company expectations set following H1 results. Self-help initiatives are ongoing and we believe Epwin remains conservatively financed with a positive cash flow outlook. These factors support our assertion that the company is able to sustain its dividend attraction even during a temporary earnings dip in FY18.
Market conditions unchanged
Throughout FY17 management consistently described its repair, maintain and improvement (RMI) markets as challenging, while its newbuild exposure, as seen elsewhere, was firmer. Within the product categories, the relatively new Optima 22 window profile system and the Ecodeck range have provided some positive performance impetus though input cost increases have provided headwinds in several business areas. Operationally, the consolidation of Epwin Glass activities on a single existing site at Northampton completed in FY17 and a small extrusion operation is being moved to other group manufacturing sites. Supply to two specific customers whose ownership changed during the year has settled at lower volumes as previously anticipated.
Conservatively financed, strategy intact
Management has understandably reinforced its strategic focus on improving the underlying operational performance (at both COGS and opex levels) as the examples above show. This may not be immediately apparent in headline numbers – and our estimates are unchanged – as the y-o-y customer effects outlined above wash out in FY18. Nevertheless, a healthy underlying cash performance and a conservative gearing position (net debt c 0.9x EBITDA and good interest cover) mean that the company is able to continue to pursue its strategy and at the same time, we believe, stand by existing dividend payout levels.