Somero Regulatory News (SOM)

22 January 2020

Somero Enterprises, Inc.

("Somero" or the "Company")

Trading Update

Strong finish to 2019 exceeding previous guidance, increasing 2020 investment to drive growth

Somero® provides the following update on trading for the financial year ended 31 December 2019.

The Board is pleased to report that with strong, profitable trading in the fourth quarter which was ahead of the Board's previous expectations, revenues for the six-month period ended 31 December 2019 significantly increased from H1 2019 as weather conditions improved in the US.

The Board now expects 2019 annual revenues will be modestly ahead of the top end of the guidance provided on 11 July 2019 of US $87m with a consequential improvement in adjusted EBITDA of a similar absolute quantum, as the majority of the additional revenue flows through to profits (compared to the top end of the range of guidance provided on 11 July 2019 of adjusted EBITDA of $28m). In addition, with healthy cash generation in H2 2019, the Board now expects net cash at 31 December 2019 will approximate US $23m, significantly ahead of 11 July 2019 guidance of approximately US $18m. As such, the Board intends to maintain the Company's dividend policy of a regular dividend payment equal to 50% of adjusted net income for the calendar year and a supplemental dividend equal to 50% of excess net cash over the year-end target of $15.0m.

SkyScreed progress and increased investment

In 2019, the Company continued to execute its product innovation growth strategy by introducing the SkyScreed© 25, a new product targeting the structural high-rise market segment. We are pleased to report the Company met our initial sales target of US $1m for 2019 for this product line, and more importantly, that we dramatically advanced our knowledge and experience in this attractive new market segment that positions the Company well for future growth.

Reflective of the Board's confidence in the long-term opportunity this market presents, the Board has made the decision to increase investment in the SkyScreed to support its future growth. Investment will be made primarily in sales and support staff for new products. Whilst this net investment will drive an increase in operating costs and slightly temper our overall profitability in FY2020, the long term-growth opportunity for the SkyScreed is substantial and we are pleased that, thanks to our strong balance sheet and positive momentum, the business is in a good position to be able to make this investment now, in order to feel the benefit in future years.

Regional breakdown

On a full-year geographic basis, three of the Company's six regions grew compared to 2018 (North America, China, and Latin America) each reflecting modest growth on a full-year basis. North America reported particularly strong trading H2 2019 as weather conditions improved and previously delayed customer projects were started. Our positive view of US non-residential market conditions remains unchanged as we enter 2020 based on consistent customer feedback indicating extended project backlogs. In China, despite the negative impact of tariffs, activity remained solid throughout the year with H2 2019 trading modestly favourable to H2 2018 resulting in slight growth in full-year revenues compared to 2018.

In Latin America, activity levels picked up in H2 2019 with contributions from multiple countries including Brazil resulting in a modest increase in full-year revenues. As expected, European trading in H2 2019 fell below the comparable prior year as customer concerns over longer-term economic uncertainty impacted purchasing decisions. Also as expected, the Middle East reported revenue declines in H2 2019 compared to H2 2018, as well as on a full-year basis compared to 2018, as enhanced geo-political and economic uncertainty also impacted customer purchasing decisions. Australia reported similar softness in H2 2019 compared to H2 2018 as unfavourable Australian dollar currency effects had a similar impact on trading.

On a product basis, we experienced improvement in every product category in H2 2019 compared to H1 2019 reflecting well-balanced trading during the period. We do note that trading in the Boomed-screed category was particularly strong compared to H1 2019 led by the US market where improved weather conditions in the latter part of 2019 resulted the commencement of large projects that were delayed earlier in the year.

Outlook

The Board is pleased with the strong finish to 2019 and looks forward to 2020 with improved confidence given the strength of the US customer project backlogs that are carrying over to 2020.

The Board recognizes that while market conditions and activity levels remain generally positive in non-US regions, there are factors impacting each market that slightly temper underlying growth expectations for 2020. With this combined view, the Board expects 2020 will be a profitable year with healthy cash generation, revenues comparable to 2019 and EBITDA broadly in line with 2019 and in line with current market expectations due to the aforementioned planned increase in investment for future growth.

We are confident that there remain numerous new growth opportunities across our geographic footprint and particularly from new products in 2020 and beyond. We are excited to see our innovative new SkyScreed product move into its next phase of growth and look forward to providing shareholders with a more detailed update in due course.

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.