Overview
The Board is pleased to report that the Company delivered strong, profitable growth and healthy cash generation in the six months since 30 June 2017 exiting 2017 with its strongest trading month of the year. As a result of the strong H2 performance, the Board now expects 2017 revenues will be slightly ahead of market expectations of $84.7m, EBITDA will be comfortably ahead of market expectations of $26.0m driven by the volume increase and effective operating cost management, while net cash at 31 December 2017 is expected to be not less than $18.5m, well ahead of market expectations of $16.5m.
The Company continues to make good progress in the implementation of the strategy to grow through product innovation and geographic expansion, with key contributions to 2017 growth coming from $1.0m in new product revenues and nearly $5.0m in net increased revenues from non-US territories. H2 2017 trading in four of the Company's six regions grew compared to H2 2016, led by strong contributions from North America, Europe and the Company's Rest of World territories.
In North America, H2 2017 trading not only grew compared to H2 2016, but also compared to H1 2017 as the pace of Boomed-screed sales increased and as sales of Ride-on screeds, 3-D Profiler Systems and parts & accessories all contributed to the year-over-year growth. The high level of activity in the US in H2 2017 reflects strength in the underlying commercial construction industry and the strong pipeline of projects that remain in front of our US customer base we had previously anticipated. Europe contributed significantly to H2 2017 growth reflecting the region's broad-based, accelerating economic recovery and the Company's investments to increase sales coverage. The Rest of World region also contributed significantly to H2 2017 growth, with India the most significant contributor to growth in the region which has been driven by the addition of in-country sales leadership. In China, H2 2017 trading grew compared to H2 2016 and improved from H1 2017 driven by recent demand generation and marketing initiatives as the Company works to gain traction in its effort to penetrate this significant market. In Latin America, while H2 2017 trading was down compared to H2 2016, the region reported healthy growth for the full year 2017 over 2016. The Board continues to see meaningful near-term growth opportunities In the Middle East, although trading in H2 2017 was below the prior year.
On a product basis, demand in H2 2017 was balanced across the product range, with particularly strong contributions to growth from the Boomed-screed and Ride-on screed categories, as well as from parts and accessories sales driven by a high level of utilization of the installed base of Somero equipment world-wide. A key contributor to H2 2017 growth also came from new products, led by the SP-16 Concrete Line Pulling and Placing System.
US Tax Law Changes – Impact on Somero Results
Somero expects its future US after-tax earnings and cash flows to be positively impacted by the recently-enacted changes to US corporate tax law, due primarily to the reduction of the US federal corporate income tax rate from 35% to 21% which became effective on 1 January 2018. The ultimate impact of the change in the US corporate income tax rate is subject to many complex provisions in the legislation which Somero is reviewing.
Included in the US tax law change is a one-time deemed repatriation tax on cumulative foreign-sourced profits for corporations. While the analysis is not complete, Somero expects any one-time repatriation tax will not be material, will be more than offset by the benefit of a lower US corporate tax rate in 2018, and can be paid over an eight-year period. Somero is also reviewing the re-measurement of its deferred tax position to reflect the lower future US corporate income tax rate. Any impact from the re-measurement of the Company's deferred tax position will be reflected as a one-off, non-cash charge included in the Company's 2017 results.
Outlook
Following record results in 2017, the Board is confident in the Company's ability to deliver another year of profitable growth in 2018 as the underlying market conditions in our core markets remain positive and as the Board continues to see significant growth opportunities in our other territories. The Board's confidence is further supported by recently enacted pro-growth US corporate tax law changes which are expected to stimulate increased economic activity in the Company's largest market.
In addition, considering the Company's continued, healthy cash generation and strong year-end financial position, the Board plans to review the Company's cash position alongside cash requirements for 2018 as part of its review of the final dividend for 2017. While no decision has been made with regard to future dividends, including any special dividends, the Board has concluded the growth and increased complexity of the business necessitates an increase to the level of net cash to be maintained by the Company to a minimum of $15m at 31 December each year going forward. A decision on the use of excess cash above the increased net cash reserve will be announced as part of the 2017 earnings announcement scheduled to occur on 14 March 2018.