Somero still confident despite weak first half

(Sharecast News) - Somero Enterprises reported a decline in first-half revenues on Thursday, but expressed optimism for improved trading in the latter half of the year. The AIM-traded company reported revenues of $58.9m for the six months ended 30 June - a notable decrease from $68.5m in the first half of last year.

Despite the dip, the company indicated that the non-residential construction markets continued to be robust, with high activity levels reported across a wide range of sectors.

Moreover, three out of Somero's four operational regions - Europe, Australia, and the rest of the world (ROW) - showed a positive trend, with combined revenue growth of 29% over the first half of 2022.

However, revenues in North America faced a 24% decline.

The firm attributed that drop to a number of factors, including delayed project starts and pauses, primarily resulting from elevated interest rates and tighter bank lending standards.

Limited availability of the relaunched S-22EZ, a flagship product, also affected trading in the first half of 2023, although the product was now back in full production.

The company noted that the company's revenue translated efficiently into profits and operating cash flow.

While there was a decline in the adjusted EBITDA margin from 35.3% to 29.5% year-on-year, the firm still managed to generate cash flow from operations of $8.8m, compared to $12.8m during the same period last year.

Looking ahead, Somero remained optimistic, as it expected an upswing in the latter half of the year, trading in line with projections for 2023 revenues of around $120m, EBITDA of $36m, and a year-end cash position of $32m.

"While the state of the overall US non-residential construction market remains fundamentally sound and allows us and our customers to maintain a positive outlook for the remainder of 2023, with customers continuing to report a high level of activity and healthy backlogs, trading was slowed in the US due to delays in project starts, as previously announced," said president and chief executive officer Jack Cooney.

"Our main international markets reported exceptional revenue growth, particularly Europe and Australia, with rest of world regions also contributing favourably.

"In response to the slower first-half trading in the US, we reduced our operational workforce commensurate with revenue decline and imposed cost controls for the remainder of 2023 to partly offset the profitability impact."

Cooney said the company had also taken additional measures to preserve cash through inventory reductions.

"We remained diligent and focused on product development through a high level of customer interactions.

"And we continue to build market acceptance for our new products targeting entirely new market segments and are exploring opportunities to incorporate new technologies to address customer needs today and in the future."

The expected improvement in second-half trading in the US, compared to the first half, supported by the entry of the S-22EZ into full production, contributions from key international markets and positive feedback from customers, reinforced the board's belief that 2023 results would fall in line with market expectations, Jack Cooney added.

"With a healthy financial position, we remain committed to making sound strategic investments to deliver strong results and cash flows to our shareholders."

At 1240 BST, shares in Somero Enterprises were down 5.46% at 276.05p.

Reporting by Josh White for Sharecast.com.