20 June 2023

Somero Enterprises, Inc.

("Somero" or "the Company")

Trading Update

Somero Enterprises, Inc. provides the following update on trading for the five months ended 31 May 2023 and on expectations for 2023 results. 

The US non-residential construction market has remained active, supported by customers reporting extended project backlogs across a wide range of sectors and project types including large manufacturing facilities, data centres and medical facilities. Alongside this, the positive momentum in Europe and Australia has carried over from 2022 into 2023.  The health of non-residential construction activity in the US, Europe and Australia, the Company's three main markets, that formed the basis for the 2023 outlook provided in the Company's Final Results statement on 8 March 2023, has remained intact. 

While underlying market conditions remain positive, new factors have emerged to impact the translation of construction activity into trading in the US.  Elevated interest rates, tightened bank lending standards and, to a lesser degree, construction permitting delays due to large complex projects creating bottlenecks in the approval process in certain portions of the US, have led to an increase in delayed starts to non-residential construction projects. While US customers have not reported project cancellations, certain customers have indicated these project delays have impacted the timing of their equipment purchase decisions.  In addition, the S-22EZ, re-launched in early 2023, is not scheduled to reach full production until the end of H1 2023, and its limited availability has delayed sales to customers with a preference for it.  Other market factors noted in the Final Results statement, most notably a limited supply of concrete across the US, have remained unchanged. 

Having considered these current factors, the Company expects H1 2023 revenue will range between 15% and 20% below the record US$ 68.5m revenue reported in H1 2022.  The Company now expects 2023 revenue will approximate US$ 120.0m, approximately 10% below 2022 revenue of US$ 133.6m.  The Company anticipates an improvement in H2 2023 revenues over H1 2023 driven primarily by increased availability of the S-22EZ during the second half of the year.  Lowered expectations for H1 2023 and FY 2023 revenue have been driven primarily by the US market.  We continue to anticipate strong contributions to 2023 revenue from Europe, Australia, and the Rest of World territories, with Europe and Australia each expected to report H1 2023 revenue that meets or exceeds the comparable H1 2022 total. 

Somero's operating model enables it to adjust quickly to changing circumstances.  Due to the anticipated 10% reduction in 2023 sales compared to previous expectations, the Company has reduced its operational workforce by 10%, a restructuring that takes effect alongside this trading update.  The workforce reduction combined with strict cost controls for the remainder of 2023 partly offset the profitability impact of the revised 2023 revenue expectations.  The Company has also taken additional steps to minimize inventory levels.  These measures include frequent reviews of safety stock levels to ensure carrying amounts are optimal, and aggressively adjusting inbound inventory purchasing to align with anticipated volume.  The impact of these efforts along with maintaining accounts receivable at low levels are anticipated to have a positive impact on year-end cash.

In consideration of the aforementioned factors, the Company now expects FY 2023 revenues of approximately US$ 120.0m (compared to the previous market consensus estimate of US$ 132.1m), EBITDA of approximately US$ 36.0m (compared to the previous market consensus estimate of US$ 42.8m), and year-end cash of approximately US$ 32.0m (compared to the previous market consensus estimate of US$ 31.0m).  The improvement in 2023 year-end cash compared to the market estimate is attributable to expectations for a meaningfully lower level of net working capital investment in 2023 due to the drivers previously noted.

Jack Cooney, CEO of Somero, said:

"Our customers continue to report high levels of non-residential construction activity across our territories. While some projects in the US are experiencing delays, we are confident the underlying market remains in good health and provides the Company meaningful opportunity.  We expect to see an improved second-half with strong demand for the S-22EZ that will reach full production imminently.

Outside the US, we are pleased with the performance in Europe and Australia that are each poised to deliver strong first half and full year contributions.

Our proven operating model provides the Company the flexibility, through a high level of variable costs, to adapt quickly and effectively to changing conditions.  This continues to be a key strength of the Company. As such, we have been able to mitigate the impact of reduced near-term volumes on profitability without compromising our long-term growth initiatives."

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014 as retained as part of UK law by virtue of the European Union (Withdrawal) Act 2018 as amended. Upon the publication of this Announcement, this inside information is now considered to be in the public domain.