Somero Enterprises INC- Trading Update for 2020 Financial Year
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Somero provides the following update on trading for the financial year ended 31 December 2020.
The Board is pleased to report that with strong, profitable trading in the fourth quarter, and in particular December, that exceeded the Board's previous expectations, revenues for the six-month period ended 31 December 2020 significantly increased from H1 2020 and surpassed revenues reported pre-pandemic in H2 2019, driven by robust trading activity in the Company's largest market, North America.
As a result, the Board is pleased to report that it now expects to report revenue of approximately US $88.0m for the Period, significantly ahead of market expectations of US$ 80.0m, and annual adjusted EBITDA of approximately US$ 26.0m, also significantly ahead of market expectations of US$ 21.0m. These estimates remain subject to any audit adjustments.
In addition to the stronger than expected trading and corresponding profits, H2 2020 profits converted efficiently to cash flow due to particularly strong collection of accounts receivable and a solid reduction of inventory from the levels reported as at 30 June 2020 in the Interim Results announcement. The combined impact of these two factors has resulted in a one-time benefit of approximately US$ 5.0m to H2 2020 operating cash flow, resulting in net cash as at 31 December 2020 of approximately US$ 35.0m, substantially ahead of previous guidance of US$ 26.0m. As a result of this significantly improved net cash balance, the Board expects to declare a supplemental dividend declared in accordance with the Company's supplementary dividend policy adopted on March 14, 2018.
Growth from Production Innovation
The Company continues to make meaningful progress executing its product innovation growth strategy. During the Period the Company introduced three new products, the SkyScreed© 36, the SRS-4 boomed-screed, and the Somero Broom + CureTM. We are pleased to report that on a combined basis these products contributed over US$ 7.0m to revenue in the Period. This strong performance reflects rapid market acceptance of the new products, highlighting the effectiveness of the Company's customer-driven product development strategy. With regard to the SkyScreed© product line, the loosening of US job-site COVID-19 restrictions in H2 2020 enabled the Company to perform job-site product demonstrations that are critical to the selling process. As a result, H2 2020 SkyScreed© revenues were US$ 0.9m, all relating to sales of the newly released SkyScreed© 36.
On the strength of the H2 2020 performance, all product categories grew compared to 2019 on a full-year basis, with the exception of the Boomed-screed category, reflecting well-balanced trading during the Period. While the Boomed-screed category declined compared to 2019, H2 2020 trading for this product line reflected significant improvement compared to H1 2020. As mentioned, new products made a material contribution to H2 2020 trading in addition to strong trading performance in the Ride-on screeds and Somero Line Dragon product lines.
On a full-year geographic basis, while only one of the Company's six regions grew compared to 2019 (North America), revenues from each of the six regions grew in H2 2020 compared to H1 2020.
North America reported particularly strong H2 2020 trading reflecting a healthy non-residential construction market that has remained intact throughout the year. Our positive view of US non-residential market conditions remains unchanged as we enter 2021 based on consistent customer feedback indicating extended project backlogs that carry well into 2021.
As expected, European trading improved modestly in H2 2020 compared to H1 2020 but did end lower compared to 2019 on a full-year basis as COVID-19 restrictions were more impactful on customer purchasing decisions in this region than in the US.
H2 2020 trading performance in China also improved modestly from H1 2020 but declined meaningfully compared to 2019 on a full-year basis as activity in the Company's targeted, quality market segment remained slow during the period.
Trading activity in the remaining regions (Latin America, Middle East, and the Rest of World territories) all followed a similar pattern of H2 2020 improvement compared to H1 2020 but falling short of full-year 2019 totals. In all non-US regions, while generally positive market conditions and activity levels were present in H2 2020, performance in these territories was tempered due to the broad impact of COVID-19 restrictions to a greater degree than experienced in the US.
As we look forward, we are confident in the long-term growth opportunity from new products. In support of the effort to continually expand our product offering, the Board has made the decision to increase investment in sales and support staff in 2021. As a result of this investment, the Company expects to report a meaningful increase to operating costs alongside typical inflationary cost increases in the Company's operations in 2021. Although the Board expects modest financial growth in the coming year, this net investment will temper our profitability in 2021, but the long term-growth opportunity from new products is substantial and the business is in a good position to be able to make this investment now, in order to realize the benefit in future years.
The Board is pleased with the strong finish to 2020 and looks forward to 2021 with confidence in the strength of the US market supported by healthy customer project backlogs carrying over to 2021. The Board also recognizes that while market conditions and activity levels remain generally positive in non-US regions, factors impacting each market, including the lingering uncertainty of COVID-19, temper underlying growth expectations for 2021. Taking a longer-term view, the Board recognizes the significant long-term value creation opportunity from the Company's pipeline of new products and is committed to accelerating investment in sales and support resources to drive this effort beginning in 2021, a necessary near-term investment with longer-term benefit. With a combined view of all these factors, the Board expects 2021 will be another profitable year with healthy cash generation, modest revenue growth and EBITDA comparable to 2020 due to the aforementioned planned investment in resources for future growth.