Plastic pipe systems specialist Wavin has announced a massive drop in profits, is predicting “no market recovery in the near future” and has warned it may be at risk of breaking the covenants on its debt facility.
An announcement covering the first quarter of 2009 revealed sales had dropped 35 per cent to €250 million compared to the same period last year with profits before interest, tax, depreciation and amortisation falling more than 80 per cent from £37mill to €7mill.
A Wavin statement said: “As a consequence of the extremely challenging trading environment, Wavin believes there may be a risk its leverage ratio may exceed the level required to be maintained under its existing debt facility at the next covenant testing date, 30 June 2009.”
Wavin chief executive Philip Houben said: Although we had indicated a tough market environment in the first part of the year, reality is that condition are even worse.
'Under the current circumstances we consider it in the interest of all stakeholders to structurally reduce leverage of the company.
'There is no doubt the market will in due course return to normal levels as fundamentals have not changed.'
In response the company is looking to improve its capital structure and reviewing steps to strengthen its balance sheet through capital raising and increasing flexibility under its debt facilities.
The Wavin statement said: “In the first quarter of 2009 Wavin faced a steep decline in market demand. Construction activity in all important European geographies was significantly below the latest Euroconstruct forecast that were already gloomy.”
Wavin said five per cent of the decline in sales could be attributed to the weakening of non-Euro currencies and five to 10 per cent was due to the cold winter. It calculates 20 to 25 per cent was due to the market decline and claimed this was supported by its performance in March where the drop off was not as severe as in January and February.
It also pointed out that the first and fourth quarters of the financial year were traditionally weaker compared to the high activity levels in the spring and summer.
The company is continuing its programme of jobs cuts with 450 redundancies this year - including 165 in the UK - on top of the 650 undertaken in 2008.
The company said: “Management is following market developments closely and will continue to take firm actions in response to local market conditions.”
Despite these setbacks Wavin insists long term trends remain supportive of the business.