Polypipe to axe 250 jobs as virus causes the Doncaster firm's revenues to plunge

The Doncaster-based firm, one of Europe’s biggest manufacturers of plastic pipe systems, said it is taking “regrettable but necessary steps” to adjust its manning levels and cost base to reflect lower levels of demand.

The group said there are no plans to permanently close any of its facilities, which it said will leave it well placed to react to any sustained, but unexpected, increase in customer demand.

Polypipe said medium term economic and industry forecasts show a significant impact from the Covid-19 outbreak on both the wider UK economy and specifically the UK construction industry.

It cited the latest forecasts from the Construction Products Association CPA), which show that residential new build demand in 2021 is likely to be 20 per cent lower than 2019 levels. It added that housing RMI (Repair, Maintenance, and Improvement) is expected to be 15 per cent lower than 2019 levels and commercial demand is forecast to be 18 per cent lower than 2019 levels, even with a recovery in the second half of 2021.

Analyst Graeme Kyle at Shore Capital said: “Management quotes rather bearish CPA forecasts for 2021 construction activity to justify 250 job reductions, but no site closures.

“We note that a) CPA is notoriously poor at forecasting construction demand levels, in our view, and b) it is surprising to us that there are no site closures planned since Polypipe operates from a number of sites, including some that are relatively adjacent.

“Liquidity was obviously helped by the £120m capital raise in May. On our calculations this implies that, including the new money, the group has ‘headroom’ of around £280m.”

In a trading update, Polypipe said: “In response to the challenges created by the Covid-19 crisis, the group has taken significant actions to protect the group’s resilience.

“Whilst there is inevitable uncertainty in the near term, the board remains confident it is taking the necessary actions to continue to deliver long term sustainable returns in markets that remain fundamentally attractive.

“With this current level of uncertainty, we are not yet reinstating financial guidance, and this remains under review by the board for the time being.”

The firm said it has seen an improving trend since May, with June revenue 30 per cent below 2019 levels compared with 66 per cent below in April.

It said its commercial and infrastructure systems business has remained relatively resilient throughout this period, with many contractors managing to return to operations, albeit at reduced productivity levels.

The firm carried out crisis-related emergency project work for NHS hospitals and care/recovery applications, particularly in its ventilation business.

It said recovery in the residential systems business has been more subdued, reflecting the shutdown of the new house build market for much of April and May, followed by a more measured return to work.

Overall, group revenue for the six months to June 2020 was around 24 per cent lower than the six months to June 2019.

The firm added: “We are encouraged by the group’s performance in May and June compared to April and also by reports of better than expected activity in the housing market after its reopening on May 13, as well as Government-announced increased levels of investment in infrastructure projects.

“However, at this stage we remain cautious as to whether this performance will be sustained into the autumn and winter.”

Polypipe is now manufacturing at all main sites at varying levels of capacity, and currently has 25 per cent of our workforce furloughed, compared with 61 per cent at the height of the crisis. The group had net debt of £184m on March 31 and it completed an equity raise of £120m in May.