Eurocell swings to a loss amid Covid-19 squeeze

When times are good, the group benefits from operational gearing – once fixed costs are covered, profits increase at a faster rate than sales. But with overall sales collapsing by almost a third in the six months to 30 June, the gross margin slipped by 4.3 percentage points to 46.8 per cent. Eurocell swung to an £8.6m adjusted pre-tax loss – versus a £10m profit a year earlier – which includes a £2.9m provision for customer bad debt. The larger statutory pre-tax loss reflects a £5.8m goodwill impairment on its Ecoplas acquisition – a PVC recycler – in anticipation of lower demand, cash flows and selling prices for recycled material.

In line with lockdown restrictions, the business was closed for around a month from mid-March, but all sites are now back up and running. Since reopening, the group has seen better than expected demand in the repair, maintenance and improvement (RMI) market, which accounts for more than 80 per cent of its revenue. This meant like-for-like sales in July and August were 12 per cent ahead of a year earlier.

On the back of a £17m share placing, net debt (excluding lease liabilities) has come down by almost a third since the December year-end to £23.5m. The 2019 final dividend was cancelled and there’s no interim payout either. The group intends to reinstate the dividend from next year.

House broker Peel Hunt anticipates an adjusted pre-tax profit of £6.5m for the full year – down almost three-quarters from 2019 – rising to £17m in 2021.