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Final Results

RNS Number : 2101I
Polypipe Group PLC
20 March 2018
 

20 March 2018

 

Polypipe Group plc

Audited results for the year ended 31 December 2017

 

Further growth delivers another record performance

 

Polypipe Group plc ("Polypipe" or the "Group"), a leading manufacturer of plastic piping and ventilation systems for the residential, commercial, civils and infrastructure sectors, today announces its audited results for the year ended 31 December 2017.

 

 

Financial Results

 

 

2017

2016 restated

Change

 

 

 

 

Revenue

£411.7m

£387.2m

+6.3%

Underlying operating profit1

£72.6m

£68.5m

+6.0%

Underlying operating margin1

17.6%

17.7%

-10bps

Underlying profit before tax1

£65.7m

£60.9m

+7.9%

Operating profit

£62.5m

£61.1m

+2.3%

Profit before tax

£55.6m

£53.5m

+3.9%

Earnings per share from continuing operations (basic)

22.7p

21.8p

+4.1%

Underlying earnings per share from continuing operations (basic)1

27.2p

24.7p

+10.1%

Leverage (times EBITDA2)

1.6

1.9

0.3

Dividend per share

11.1p

10.1p

+9.9%

 

 

 

On 31 January 2018, the Group announced that it had entered into advanced negotiations to sell Polypipe France Holding SAS (Polypipe France). The Board determined that the sale was highly probable at 31 December 2017 and accordingly the results for Polypipe France have been treated as discontinued. Comparatives for 2016 have been restated where necessary to reflect this treatment.

 

Financial Highlights

·     Revenue 6.3% higher at £411.7m

·     Underlying operating profit 6.0% higher at £72.6m

·     Underlying operating margin robust at 17.6% despite continued input cost inflation

·     Underlying basic earnings per share from continuing operations 10.1% higher at 27.2 pence

·     Net debt down to 1.6 times EBITDA2

·     Recommended final dividend of 7.5 pence per share giving a full year dividend of 11.1 pence per share, 9.9% higher

Operational Highlights

·     Strong performance in UK - revenue growth at 8.1%

·     Residential Systems segment revenue growth of 10.3% driven by demand in the new housebuild sector, RMI markets remain subdued

·     Disposal of Polypipe France for €16.5m on a cash-free, debt-free, normalised working capital basis expected to complete in the first half of 2018 

·     Decisive action taken to close Dubai factory and pursue alternative manufacturing strategy in the Middle East

·     Management succession implemented, Paul James joined as CFO on 5 March 2018

 

Outlook

·     Fundamentals in Residential Systems segment continue to be strong, driven by the new housebuild sector but UK RMI likely to remain challenging

·     Commercial and Infrastructure project pipeline remains encouraging, although project delays impacting short-term performance

·     Benefit of selling price increases, due to the pass-through of further polymer and other cost inflation, expected to come through from second quarter

·     2018 will be another year of progress for the Group and our expectations for the year remain unchanged

   

Martin Payne, Chief Executive Officer, said:

 

"Polypipe's balanced business model, underpinned by the long-term growth drivers of legacy material substitution and continuing legislative tailwinds, has helped produce another record performance in 2017. Against the backdrop of a mixed UK construction market performance, continued political and economic uncertainty, and challenges in some overseas markets, Polypipe has delivered strong results in line with our expectations by focusing on its core strategic growth drivers. UK construction market performance is likely to remain mixed, but with continued focus on our customers and a balanced exposure to the different sectors within construction, we look forward to another year of progression in 2018."

 

1 Underlying profit and earnings measures are from continuing operations only and exclude certain non-underlying items and where relevant, the tax effect of these items. The Directors consider that these measures provide a better and more consistent indication of the Group's underlying financial performance and more meaningful comparison with prior and future periods to assess trends in our financial performance.

                                     

2 EBITDA is defined as underlying operating profit before depreciation and includes operating profit before depreciation from discontinued operations.

 

For further information please contact:

 

Polypipe

Martin Payne, Chief Executive Officer

Paul James, Chief Financial Officer

 

+44 (0) 1709 770 000

Brunswick

Nina Coad

Emma Walsh

 

+44 (0) 20 7404 5959

A copy of this report will be available on our website www.polypipe.com today from 0700hrs (GMT).

An analyst and investor presentation will be held today at Brunswick's offices at 16 Lincolns Inn Fields, London, WC2A 3ED at 0900hrs (GMT) with registration from 0830hrs.

For those unable to attend, a live conference call will be available at 0900hrs (GMT).

UK Freephone Dial-In Number                        0800 376 7922

Standard International Dial-In number             +44 (0) 2071 928000

Conference PIN                                                8298336

Access to the slide presentation during this live event is available at: this link.

 

Capital Markets Day

A Capital Markets day will be held on 9 May 2018 at 3.00pm at the offices of Numis Securities Ltd., The London Stock Exchange Building, 10 Paternoster Square, London, EC4M 7LT. Please contact Nina Coad or Emma Walsh at Brunswick for further details.

 

 

Notes to Editors:

Polypipe is the largest manufacturer in the UK, and among the ten largest manufacturers in Europe, of plastic piping systems for the residential, commercial, civils and infrastructure sectors by revenue.  It is also a leading designer and manufacturer of energy efficient ventilation systems in the UK.

The Group operates from 20 facilities in total, and with over 20,000 product lines, manufactures the UK's widest range of plastic piping systems for heating, plumbing, drainage and ventilation. The Group primarily targets the UK and European construction markets with a presence in Italy and the Middle East and sales to specific niches in the rest of the world.

 

Group Results

 

On 31 January 2018, the Group announced that it had entered into advanced negotiations to sell Polypipe France Holding SAS (Polypipe France). The Board considered that the sale was highly probable at 31 December 2017 and accordingly the results for Polypipe France have been treated as discontinued in this report. Comparatives for 2016 have been restated where necessary to reflect this treatment.  Polypipe France generated revenue of £58.4m (2016: £49.7m) and underlying operating profit of £1.4m (2016: £0.9m) for the year ended 31 December 2017. The Board expects the transaction to complete in the first half of 2018.

 

Group revenue for the year ended 31 December 2017 was 6.3% higher than the prior year at £411.7m (2016 restated: £387.2m). There is no impact of acquisitions in the year and the effect of currency translation is immaterial, so like-for-like constant currency growth is also 6.3%. This strong result in mixed market conditions demonstrates the resilience the Group gets from its balanced exposure to the different sectors of the construction market, and the strength of its long-term growth drivers. 

Underlying operating profit was 6.0% higher than the prior year at £72.6m (2016 restated: £68.5m) and represents an operating margin of 17.6% (2016 restated: 17.7%). This is a pleasing performance and demonstrates the Group's continued ability to recover materials and other cost inflation through selling price increases and cost reduction initiatives.

Finance costs of £6.9m (2016: £7.6m) were lower than the prior year due to lower average net debt in the year, and the lower interest rate margin payable on our borrowings as leverage reduces.

Net debt at 31 December 2017 of £148.4m does not reflect the net proceeds which will be received on the completion of the disposal of Polypipe France.

Underlying profit before tax was 7.9% higher at £65.7m (2016 restated: £60.9m).

Non-underlying operating costs of £10.1m (2016: £7.4m) primarily relate to non-cash amortisation charges of £5.5m (2016: £6.8m) in respect of intangible assets arising from the Nuaire acquisition, and £4.0m of restructuring costs in respect of the Board's decision to adopt an alternative manufacturing strategy in the Middle East and close the existing manufacturing plant. Further details on our Middle East strategy can be found in the Chief Executive Officer's Review below.

The total tax charge for the year of £10.6m (2016 restated: £10.1m) represents an effective tax rate of 19.1% (2016 restated: 18.9%).  The underlying effective tax rate of 18.0% (2016 restated: 19.2%) is lower than the blended standard UK rate of tax of 19.25% (2016: 20.00%) due primarily to the benefit of patent box relief.

Underlying profit from continuing operations was 9.6% higher than the prior year at £53.9m (2016 restated: £49.2m), with underlying basic earnings per share from continuing operations 10.1% higher at 27.2 pence (2016 restated: 24.7 pence).

A loss from discontinued operations of £11.3m (2016 restated: £0.8m profit) relates to an impairment charge arising under IFRS 5 from the proposed disposal of Polypipe France and its reclassification to assets held-for-sale of £12.5m (2016 restated: £nil), net of the post-tax results of Polypipe France for the year of £1.2m profit (2016 restated: £0.8m profit).

Chief Executive Officer's Review

 

"Polypipe's balanced business model, underpinned by the long-term growth drivers of legacy material substitution and continuing legislative tailwinds, has helped produce another record performance in 2017."

 

In my first review since appointment as Chief Executive Officer, I am pleased to report that Polypipe has delivered another record performance in 2017, with revenue from continuing operations 6.3% higher than the prior year at £411.7m (2016 restated: £387.2m) and underlying operating profit 6.0% higher at £72.6m (2016 restated: £68.5m). Against a background of mixed conditions in the UK construction market, this performance shows the robust nature of the Polypipe business model and the strength of its long-term strategic drivers of legacy material substitution and continuing legislative tailwinds in water management and carbon efficiency. Polypipe continues to be cash generative and has reduced leverage to 1.6 times EBITDA (2016: 1.9 times) leaving the Group well-invested and able to pursue bolt on acquisitions that complement the Group's current activities. The Group will continue to focus on its key strategic and operational priorities, and I am confident that we will maintain revenue growth ahead of the overall UK construction market.

 

In January 2018, the Group announced that it was in advanced negotiations to dispose of its French subsidiaries (Polypipe France) to Ryb S.A., a private French business that operates in similar French markets to Polypipe France, for €16.5m on a cash-free, debt-free, normalised working capital basis. In 2017, Polypipe France generated revenue of £58.4m and underlying operating profit of £1.4m. There is very little strategic overlap between our UK and French businesses as they operate in different product areas, the latter operating in the significantly lower margin electrical conduit, potable water, gas and irrigation pipe product groups. Following a full review of the business, the Board decided Polypipe France was not core to the Group and to dispose of it. Completion of the transaction is expected in the first half of 2018. I believe this deal represents excellent shareholder value and once completed will allow the Group to concentrate on its higher margin product areas. For the purposes of this report, the results of Polypipe France have been treated as discontinued.

 

I am pleased to say that the Group has risen to several commercial and operational challenges during the year. Following the EU referendum in June 2016 and the subsequent devaluation of Sterling, materials costs rose substantially in the second half of 2016 and into 2017. Whilst we do all we can to ameliorate price increases through cost reduction, selling price increases were inevitable. These were successfully implemented across the Group in the first half of 2017 to mitigate materials and other inflationary increases, taking effect progressively throughout the period. Although exchange rates were relatively stable throughout 2017, increasing oil prices as well as tight polymer markets in the second half of the year pushed materials prices higher still, and impacted on second half performance. Further selling price increases are being actioned in early 2018 to address this and other inflationary effects. The Group has a good history of cost inflation recovery, even in difficult market conditions, and I have confidence the Group will be successful with this latest challenge.

 

In June 2017, a trade embargo was introduced between Qatar and many of the Gulf states following ongoing political disagreements. With approximately 60% of our pipeline projects emanating from Qatar, and the more general project financing issues in the wider Gulf in the first half of the year, the decision was taken to temporarily cease manufacturing in our Dubai facility, and a non-underlying charge of £0.9m was recorded in our interim results covering redundancy costs and stock provisions. During the second half of the year there has been no change to the situation between Qatar and the other Gulf states, the trade embargo remains in force, and general project financing still appears to be slow as the region adjusts to a lower oil price. Whilst the Middle East still represents a significant opportunity for the Group, we have decided to pursue an alternative manufacturing strategy in the region through use of sub-contractors and to close permanently our Dubai manufacturing facility. All equipment will be relocated back to our Horncastle plant where Polystorm is manufactured for the UK market, enabling us to remove the need for more expensive sub-contract manufacturing in the UK. A further non-underlying charge of £3.1m has been recorded covering machinery relocation costs, further redundancy, onerous lease costs and asset impairments, leaving the total non-underlying charge for the year at £4.0m, of which £1.7m is non-cash.

 

As well as expanding capacity where necessary, we continue to invest in both new product technology and automation in our businesses. Our new £2.2m multi-layer extrusion lines in our main Doncaster plant became operational in the early part of 2017 which has allowed us to significantly increase the amount of recycled material used in manufacturing our drainage and latterly our soil and waste pipes. Towards the end of the year, our new £5.0m large diameter continuous corrugator came into operation at our Horncastle plant. This increases our capacity to manufacture 750mm and 900mm drainage pipes and allows the Group to make further inroads in this area of the market. These new pipes, as well as much of our existing civils drainage pipe offer, are manufactured from recycled milk bottles and other polyethylene consumer liquid bottles using our wash plant recycling facility at Horncastle. We consume approximately 44,000 tonnes of recycled material representing one third of the overall material requirement across the Group, and both of these projects further enhance our already strong sustainability and recycling credentials, something that is important to Polypipe, our customers and our wider stakeholders.

 

As well as new product technology, there has been further investment in automation in the year to expand capacity, but also to test out new automation techniques. We took delivery of our first collaborative robot in December, which when fully integrated into our manufacturing process, will further improve productivity and quality. This advanced, lower cost automation technology has the potential to unlock productivity opportunities that have not been achievable previously because of technical or financial constraints.

 

The treatment of Polypipe France in this report has caused the Group to review its segmental analysis. The remaining part of the previously reported Commercial and Infrastructure - Mainland Europe segment, being our Italian business Effast, will be consolidated with the existing Commercial and Infrastructure - UK segment to create one segment called Commercial and Infrastructure Systems. The following tables set out Group revenue and underlying operating profit by operating segment:

 

 

Revenue

2017

 

2016 restated

Change

£m

£m

 %

 

 

 

 

Residential Systems

223.5

202.7

10.3

Commercial and Infrastructure Systems

188.2

184.5

2.0

 

 

 

 

Revenue

411.7

387.2

6.3

 

 

 

 

Underlying operating profit

2017

 

2016 restated

Change

£m

£m

 %

 

 

 

 

Residential Systems

44.3

39.1

13.3

Commercial and Infrastructure Systems

28.3

29.4

(3.7)

 

 

 

 

Underlying operating profit

72.6

68.5

6.0

 

 

The Group gains significant resilience by having a balanced exposure to the different elements of the UK construction market, all of which have different drivers and move at different paces, and this year's performance perhaps more than most demonstrates this.

 

Residential Systems

 

Revenue in our Residential Systems segment, which is almost exclusively derived from the UK market, was 10.3% higher than the prior year at £223.5m (2016: £202.7m), of which 6.6% is volume growth, considerably ahead of the market.

 

Strong demand in the new housebuild sector continues to drive growth in the year as the Government's "Help to Buy" scheme continues to support first time buyers' demand. The Renovation, Maintenance and Improvement (RMI) market however continues to be slow, with weak consumer confidence and falling real wages constraining private RMI, and austerity in government spending on social housing stock constraining public RMI.

 

Continued growth in this segment, exacerbated by merchant pull forward of orders ahead of the February 2017 selling price increase, led to some challenges in the earlier part of the year, notably in capacity planning and logistics. The year started with below normal levels of stock following some pull forward of orders into December 2016, but as a number of areas moved into seven day working these stock levels normalised. Capital expenditure on new capacity allowed us to revert back to more normal shift patterns in those areas during the year, and leaves the business well placed to continue to benefit from the buoyant UK residential market.

 

Residential Systems delivered an underlying operating profit 13.3% higher than the prior year of £44.3m (2016: £39.1m) representing a 19.8% margin (2016: 19.3%).

  

Commercial and Infrastructure Systems

 

Revenue in our Commercial and Infrastructure Systems segment was 2.0% higher than the prior year at £188.2m (2016 restated: £184.5m).

 

UK revenue, which accounts for 79% of the overall segment revenue, was 4.1% higher than the prior year, against strong comparatives in 2016. In the infrastructure sector, our Civils business has seen strong demand for stormwater collection, storage and attenuation products from the new housebuild sector. However, strong demand in 2016 from the Aberdeen Bypass road project, which finished in early 2017, and delays in the A14 road upgrade and other projects has meant the roads sector has been more challenging. The dip in commercial project awards seen around the time of the EU Referendum in the middle of 2016, together with a twelve to eighteen month lag before delivery to site for our products, led to subdued demand in the commercial sector. Although the project pipeline improved towards the back end of the year, it is clear that projects are being delayed as the continuing political and economic situation in the UK causes uncertainty.

 

Export revenue, which accounts for approximately 21% of overall segment revenue, was 5.4% lower than the prior year, with the performance in the Middle East driving this. The large Jebel Ali Hills project in 2016 that was supplied initially from of our Horncastle plant, and later in the year from our Dubai manufacturing facility, completed in early 2017. A combination of project customer funding issues, and latterly the Qatar trade embargo, meant new projects did not come through at a pace to compensate. More encouragingly, exports to Europe performed well, and in particular our Italian business, Effast, made good progress.

 

Commercial and Infrastructure Systems delivered an underlying operating profit of £28.3m (2016 restated: £29.4m) and represents a 15.0% margin (2016 restated: 15.9%). The financial performance of our Dubai manufacturing facility, including the temporary cessation of manufacturing in the second half of the year, is the main driver behind this reduction in operating profit, and as described earlier, decisive actions have been taken to improve future performance in the Middle East.

 

Outlook

 

Following the Group's record performance in 2017, the current year has started ahead of the same period last year.  Forecasts for 2018 show a broadly flat construction market although the Group has a strong track record of outperforming the market. Whilst the UK RMI market is likely to remain tough throughout the coming year, the strength of the UK new housebuild sector will continue to drive demand for our Residential Systems segment, for which the year has started well. Conditions in the UK commercial and infrastructure sectors remain positive in terms of project pipeline, and demand from key road projects such as the A14 road upgrade should gather pace this year, but there is evidence that project starts continue to be delayed, impacting performance in our Commercial and Infrastructure Systems segment in the early part of the year. The news of Carillion's demise in January may potentially lead to further project delays as main contracts are renegotiated and the impact on sub-contractors works through the market.

 

Having successfully delivered the necessary actions in 2017 to mitigate polymer and other cost inflation arising from the post EU Referendum weakening of Sterling, we again need to pass-through polymer and other cost inflation seen during 2017 and into early 2018. Whilst doing everything we can to alleviate the need for selling price increases, we are confident that our customers expect us to pass on essential increases, and we expect to see the benefit of these price increases coming through as we move into the second quarter of 2018.

 

Our continued focus on delivering innovative new products and excellent customer service, together with the strength of our growth drivers of legacy material substitution, continuing legislative tailwinds and our balanced exposure to the different sectors of the construction industry, gives the Board confidence that despite a mixed market outlook, 2018 will be another year of progress for the Group and our expectations for the year remain unchanged.

 

   

Financial Review

 

2017

£m

2016

restated

£m

Change

Revenue

411.7

387.2

+6.3%

Underlying operating profit

72.6

68.5

   +6.0%

Underlying operating margin

17.6%

17.7%

   -10bps

 

 

Revenue by geographic destination

2017

£m

2016

restated

£m

Change

UK

365.7

338.3

+8.1%

Rest of Europe

18.9

17.0

  +11.2%

Rest of World

27.1

31.9

   -15.0%

 

Group

411.7

387.2

+6.3%

 

Group revenue at £411.7m was 6.3% higher than the prior year. With Polypipe France now classified as discontinued there is little foreign currency translation effect on reported revenue, and the structure of the Group on a continuing operations basis is the same in both periods, meaning like-for-like growth was also 6.3%. Within this, revenue derived from the UK market grew 8.1%, with approximately 3.7% driven by price increases and 4.4% by volume growth. This volume growth was materially ahead of the overall UK construction market which the Construction Products Association (CPA) winter forecast suggests has grown by 3.0% in the year.

The Group underlying operating margin remained robust at 17.6% (2016 restated: 17.7%). The dilutive effect of increasing selling prices to recover absolute cost inflation and the financial performance of our Dubai manufacturing facility has been offset by operational leverage and cost reduction initiatives in our core businesses.

Non-Underlying Items

 

Non-underlying items in both 2017 and 2016 included non-cash amortisation charges in respect of intangible assets recognised with the acquisitions made during 2015. In 2017, they also included restructuring costs of £4.3m, in respect of the closure of our Dubai manufacturing facility (£4.0m, of which £1.7m is non-cash) and relocation of our Domus Ventilation manufacturing facilities to Nuaire (£0.3m). In 2016, they included a non-cash charge of £0.9m in respect of the impairment of a surplus freehold property that is held-for-sale.

Non-underlying items comprised:

 

2017

£m

2016

£m

Amortisation of intangible assets

5.5

6.8

Restructuring costs

4.3

-

Aborted acquisition costs

0.3

-

Impairment of freehold land and buildings

-

0.9

Profit on disposal of property, plant and equipment

-

(0.3)

Non-underlying items before taxation

10.1

7.4

Taxation

(1.2)

(1.6)

Non-underlying items after taxation

8.9

5.8

 

Taxation on non-underlying items is covered in the note on taxation below.

   

Discontinued Operations

 

On 31 January 2018, the Group announced that it had entered into exclusive negotiations to sell Polypipe France Holding SAS, (Polypipe France), to Ryb S.A., a France-based manufacturer and distributor of plastics in Europe. The cash consideration payable by Ryb S.A. will be €16.5m on a cash-free, debt-free and normalised working capital basis. It was determined that the sale was highly probable at 31 December 2017 and accordingly the net assets of Polypipe France have been classified as held-for-sale in the consolidated balance sheet.  In accordance with IFRS 5, Non-current Assets Held-for-Sale and Discontinued Operations, an impairment loss of £12.5m to remeasure the carrying amount of the assets to fair value less costs to sell has been recognised. A loss from discontinued operations of £11.3m (2016 restated: £0.8m profit) is recorded in the income statement, being the impairment loss of £12.5m (2016 restated: £nil), net of the post-tax results of Polypipe France for the period of £1.2m profit (2016 restated: £0.8m profit).

 

Exchange Rates

 

The Group is exposed to movements in exchange rates when translating the results of its Mainland Europe operations from Euros to Sterling.  Following the EU Referendum in June 2016, Sterling depreciated further against the Euro during 2017 with the average exchange rate used for translation purposes moving from £1:€1.23 in 2016 to £1:€1.15 in 2017.  With Polypipe France now classified as discontinued, the impact of this exchange rate movement is now negligible on both reported revenue and underlying operating profit.

The Group trades predominantly in Sterling but has some revenues and costs in other currencies, mainly the US dollar and the Euro, and takes appropriate forward cover on these flows using forward currency derivative contracts.

Forward foreign currency derivatives are classified as held for trading.  There was no unrealised gain or loss on these derivative contracts at 31 December 2017 (2016: £1.5m loss included in financial liabilities).  The unrealised gains or losses are treated as underlying and recorded in cost of sales in the income statement.

Finance Costs

 

Finance costs of £6.9m (2016: £7.6m) were lower than the prior year driven by lower average net debt in the year, and the lower interest rate margin payable on our borrowings as leverage reduces. This reflects the continued cash generative nature of our business. Interest is payable on the revolving credit facility (RCF) at LIBOR plus an interest rate margin ranging from 1.25% to 2.75%.  The interest rate margin at 31 December 2017 was 1.75% (2016: 2.00%).

In order to reduce exposure to future increases in interest rates the Group has entered into interest rate swaps at fixed rates ranging between 1.735% and 2.21% (excluding margin) with notional amounts hedged ranging from £60.0m to £91.7m over the period of the interest rate swaps.

The unrealised mark to market adjustment on these forward interest rate swaps at 31 December 2017 was £2.5m negative (2016: £4.2m negative).  The movement in the mark to market adjustment during the year of £1.7m is included in the Group Statement of Comprehensive Income.

Taxation

 

Underlying taxation:

 

The underlying tax charge in 2017 was £11.8m representing an effective tax rate of 18.0% (2016 restated: 19.2%).  This is below the blended UK standard tax rate of income tax of 19.25% (2016: 20.00%) due primarily to the benefit of patent box relief.

 

Taxation on non-underlying items:

 

The non-underlying taxation credit of £1.2m in 2017 represents an effective rate of 11.9%, primarily due to a substantial proportion of restructuring costs being incurred in the Jebel Ali tax free zone in the Middle East.

 

Earnings Per Share From Continuing Operations

 

 

2017

2016

Pence per share:

 

 

Basic

22.7

21.8

Underlying basic

 

Diluted

Underlying diluted

27.2

 

22.5

26.9

24.7

 

21.7

24.6

 

The Directors consider that the underlying earnings per share (EPS) measure provides a better and more consistent indication of the Group's underlying financial performance and more meaningful comparison with prior and future periods to assess trends in our financial performance.

Underlying basic EPS improved by 9.9% in 2017 due to the improved underlying operating result, lower interest costs and lower underlying tax rate as explained above.

Dividend

 

The final dividend of 7.5 pence per share is being recommended for payment on 25 May 2018 to shareholders on the register at the close of business on 20 April 2018.  The ex-dividend date will be 19 April 2018.

Our dividend policy is to pay a minimum of 40% of the Group's annual underlying profit after tax.  The Directors intend that the Group will pay the total annual dividend in two tranches, an interim dividend and a final dividend, to be announced at the time of announcement of the interim and preliminary results respectively with the interim dividend being approximately one half of the prior year's final dividend.  The Group may revise its dividend policy from time to time.

Balance Sheet

 

The Group's balance sheet is summarised below:

 

2017

£m

2016

£m

Property, plant and equipment

98.6

101.0

Goodwill

319.7

329.3

Other intangible assets

36.8

42.3

Net assets classified as held-for-sale

13.1

0.7

Net working capital

0.4

0.5

Taxation

(12.6)

(14.3)

Other current and non-current assets and liabilities

(5.6)

(7.8)

Net debt (loans and borrowings, net of cash and cash equivalents)

(148.4)

(164.3)

Net assets

302.0

287.4

 

Property, plant and equipment reduced by £2.4m, and excluding the transfer to assets classified as held-for-sale of £9.2m in respect of Polypipe France, increased by £6.8m predominantly due to capital expenditure exceeding depreciation by a similar amount, which included the £3.0m of expenditure deferred from 2016 as discussed in last year's Annual Report and Accounts.  Other intangible assets decreased by £5.5m, compared to a decrease of £6.8m in 2016, reflecting that some of the assets in respect of the 2015 acquisitions are now fully amortised.  Net working capital reduced by £0.1m but excluding the transfer to assets classified as held-for-sale of £7.2m, increased by £7.1m, driven by higher material costs of inventories and normalisation of stock levels.  Net debt is discussed below.

 

Pensions

 

The Group does not have any defined benefit pension schemes and only has defined contribution pension arrangements in place.  Pension costs for the year amounted to £2.7m (2016: £2.5m).

   

Cash Flow and Net Debt

 

The Group's cash flow statement is summarised below:

 

2017

£m

2016

£m

Operating cash flows before movement in net working capital

90.4

 86.7

Add back non-underlying cash items

0.5

-

Underlying operating cash flows before movement in net working capital

90.9

86.7

Movement in net working capital

(10.0)

(0.2)

Underlying cash generated from operations

80.9

86.5

Capital expenditure net of disposals

(23.2)

(18.7)

Underlying cash generated from operations after net capital expenditure

57.7

67.8

Income tax paid

(12.6)

(10.1)

Interest paid

(6.6)

(7.3)

Non-underlying cash items

(0.5)

-

Dividends paid

(21.0)

(17.1)

Purchase of own shares net of option exercise proceeds

(0.7)

(2.9)

Other

(0.4)

(0.4)

Movement in net debt

15.9

30.0

 

Underlying cash generated from operations after net capital expenditure at £57.7m (2016: £67.8m) represents a conversion rate of 78% (2016: 97%). The lower conversion rate compared to prior year is due to a higher working capital outflow and higher capital expenditure than the prior year. The higher working capital outflow is largely due to increases in stock, partly driven by higher material costs, and also finished goods stock build. This was necessary to replenish stock back to normal levels in the earlier part of the year following pre-price increase buying in December 2016, and further stock build in the latter part of the year in anticipation of further pre-price increase buying ahead of the February 2018 price increase.

As discussed in last year's Annual Report and Accounts, in a measured response to the uncertainty created by the EU Referendum in June 2016, we took the decision to delay certain capacity expansion capital expenditure projects, whilst continuing to spend on development growth projects and essential replacement.  The performance of the Group since the EU Referendum and the more positive economic outlook compared to the period immediately afterwards gave us the confidence to resume those delayed projects, and therefore net capital expenditure in 2017 at £23.2m was £4.5m higher than the prior year.

In 2016, one million shares were purchased at a cost of £2.9m and held for the purpose of satisfying future employee share option schemes.  In 2017, a further 748,000 shares were purchased at a cost of £0.7m net of the proceeds from the maturing Sharesave Plan.

Net debt of £148.4m comprised:

 

2017

£m

2016

£m

Change

£m

Bank loans

(185.0)

(192.0)

7.0

Cash and cash equivalents

35.7

26.5

9.2

Net debt (excluding unamortised debt issue costs)

(149.3)

(165.5)

16.2

Unamortised debt issue costs

0.9

1.2

(0.3)

Net debt

(148.4)

(164.3)

15.9

Net debt (excluding unamortised debt issue costs):EBITDA

1.6

1.9

 

 

At 31 December 2017, liquidity headroom (cash and undrawn committed banking facilities) was substantial and improved to £140.7m (2016: £134.5m) despite the £10.0m contractual reduction in the facility during the year.  Continued focus on deleveraging following the Nuaire acquisition in August 2015 has seen our net debt to EBITDA ratio reduce substantially to 1.6 times EBITDA at 31 December 2017 (2016: 1.9 times), demonstrating the continued cash generative nature of our business.  This headroom, together with the disposal proceeds from Polypipe France when received, enables us to develop our acquisition pipeline and continue to seek out compelling opportunities to accelerate growth in our strategic development areas.

Financing

 

The Group has an RCF committed through to August 2020 with a facility limit at 31 December 2017 of £290m, reducing by £10m per annum at 31 December 2018 and 2019.  At 31 December 2017, £185.0m of the RCF was drawn down. The Group is subject to two financial covenants.  At 31 December 2017 there was significant headroom:

Covenant:

Covenant requirement

 

Position at

31 December 2017

Interest cover*

>4.0:1

 

11.5:1

Leverage**

<3.0:1

 

1.6:1

 

* Underlying operating profit: Finance costs excluding debt issue cost amortisation

** Net debt: EBITDA 

 

Principal Risks and Uncertainties

The principal risks and uncertainties which could impact the Group are those detailed in the Group's Annual Report and Accounts.  These cover the Strategic, Financial and Operational risks and have not changed significantly during the year.

 

Forward-Looking Statements

This report contains various forward-looking statements that reflect management's current views with respect to future events and financial and operational performance.  These forward-looking statements involve known and unknown risks, uncertainties, assumptions, estimates and other factors, which may be beyond the Group's control and which may cause actual results or performance to differ materially from those expressed or implied from such forward-looking statements.  All statements (including forward-looking statements) contained herein are made and reflect knowledge and information available as of the date of preparation of this report and the Group disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise.  There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.  Accordingly, readers should not place undue reliance on forward-looking statements due to the inherent uncertainty therein.  Nothing in this report should be construed as a profit forecast.

 

Directors' Responsibilities

Each of the Directors confirms that, to the best of their knowledge, the consolidated financial statements, prepared in accordance with IFRS as adopted by European Union standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the undertakings included in the consolidation taken as a whole; and the Group Results, Chief Executive Officer's Review and Financial Review includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. 

 

Annual General Meeting

The Annual General Meeting will be held at the Holiday Inn, High Road, Doncaster, DN4 9UX at 10.30am on 23 May 2018.

 

By order of the Board.

 

Martin Payne                                              Paul James

Chief Executive Officer                                Chief Financial Officer

20 March 2018                                             20 March 2018

 

 

 

 

GROUP INCOME STATEMENT

for the year ended 31 December 2017

 

 

2017

2016*

 

Notes

Underlying

£m

Non-

Underlying

£m

Total

£m

Underlying

£m

Non-

Underlying

£m

Total

£m

Continuing operations

 

 

 

 

 

 

 

Revenue

2

411.7

-

411.7

387.2

-

387.2

Cost of sales

4

(236.0)

(2.8)

(238.8)

(219.1)

-

(219.1)

Gross profit

 

175.7

(2.8)

172.9

168.1

-

168.1

Selling and distribution costs

 

(68.7)

-

(68.7)

(64.4)

-

(64.4)

Administration expenses

4

(34.4)

(1.8)

(36.2)

(35.2)

-

(35.2)

Trading profit

 

72.6

(4.6)

68.0

68.5

-

68.5

Profit on disposal of property, plant and equipment

 

4

 

-

 

-

 

-

 

-

 

0.3

 

0.3

Impairment of freehold land and buildings

 

4

 

-

 

-

 

-

 

-

 

(0.9)

 

(0.9)

Amortisation of intangible assets

4

-

(5.5)

(5.5)

-

(6.8)

(6.8)

Operating profit

2, 3

72.6

(10.1)

62.5

68.5

(7.4)

61.1

Finance costs

5

(6.9)

-

(6.9)

(7.6)

-

(7.6)

Profit before tax

2

65.7

(10.1)

55.6

60.9

(7.4)

53.5

Income tax

6

(11.8)

1.2

(10.6)

(11.7)

1.6

(10.1)

Profit from continuing operations

 

53.9

(8.9)

45.0

49.2

(5.8)

43.4

Profit/(loss) from discontinued operations

 

4

 

-

 

(11.3)

 

(11.3)

 

-

 

0.8

 

0.8

Profit for the year attributable to the owners of the parent company

 

 

53.9

 

(20.2)

 

33.7

 

49.2

 

(5.0)

 

44.2

 

 

 

 

 

 

 

 

Basic earnings per share (pence)

 

 

 

 

 

 

 

From continuing operations

7

 

 

22.7

 

 

21.8

From discontinued operations

7

 

 

(5.7)

 

 

0.4

 

7

 

 

17.0

 

 

22.2

 

 

 

 

 

 

 

 

Diluted earnings per share (pence)

 

 

 

 

 

 

 

From continuing operations

7

 

 

22.5

 

 

21.7

From discontinued operations

7

 

 

(5.7)

 

 

0.4

 

7

 

 

16.8

 

 

22.1

 

 

 

 

 

 

 

 

Dividend per share (pence) - interim

8

 

 

3.6

 

 

3.1

Dividend per share (pence) - final

8

 

 

7.5

 

 

7.0

Total

 

 

 

11.1

 

 

10.1

  

* The prior year comparatives have been restated where required to reflect adjustments in respect of discontinued operations.

        

 

GROUP STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2017

 

2017

£m

2016

£m

Profit for the year attributable to the owners of the parent company

Other comprehensive income:

 

 

Items which will be reclassified subsequently to the income statement:

 

 

Exchange differences on translation of foreign operations

0.3

2.9

Effective portion of changes in fair value of interest rate swaps

1.7

(2.1)

Tax relating to items that will be reclassified to the income statement

Other comprehensive income for the year net of tax

Total comprehensive income for the year attributable to the owners of the parent company

 

35.4

 

45.3

 

 

 

Attributable to the owners of the parent company from:

 

 

Continuing operations

46.7

43.1

Discontinued operations

 

35.4

45.3

 

 

 

GROUP BALANCE SHEET

at 31 December 2017

 

 

Notes

31 December

2017

£m

31 December

2016

£m

Non-current assets

 

 

 

Property, plant and equipment

9

98.6

101.0

Intangible assets

10

356.5

371.6

Total non-current assets

 

455.1

472.6

Current assets

 

 

 

Assets classified as held-for-sale

11

24.0

0.7

Inventories

 

53.5

52.2

Trade and other receivables

 

34.5

40.1

Cash and cash equivalents

 

35.7

26.5

Total current assets

 

147.7

119.5

Total assets

 

602.8

592.1

Current liabilities

 

 

 

Liabilities associated with assets classified as held-for-sale

11

(10.9)

-

Trade and other payables

12

(87.6)

(91.8)

Provisions

 

(2.2)

-

Derivative financial instruments

12

(2.5)

(5.7)

Income tax payable

 

(5.6)

(7.0)

Total current liabilities

 

(108.8)

(104.5)

Non-current liabilities

 

 

 

Loans and borrowings

12

(184.1)

(190.8)

Other liabilities

12

(0.9)

(2.1)

Deferred income tax liabilities

 

(7.0)

(7.3)

Total non-current liabilities

 

(192.0)

(200.2)

Total liabilities

 

(300.8)

(304.7)

Net assets

 

302.0

287.4

Capital and reserves

 

 

 

Equity share capital

 

0.2

0.2

Capital redemption reserve

 

1.1

1.1

Own shares

 

(4.3)

(4.6)

Hedging reserve

 

(2.1)

(3.5)

Foreign currency retranslation reserve

 

0.7

0.4

Retained earnings

 

306.4

293.8

Total equity

 

302.0

287.4

 

 

 

GROUP STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2017

 

 

Equity share

capital

£m

Capital

redemption

reserve

£m

Own

shares

£m

Hedging

reserve

£m

Foreign

currency

retranslation

reserve

£m

Retained

earnings

£m

Total

equity

£m

At 31 December 2015

0.2

1.1

(1.7)

(1.7)

(2.5)

265.6

261.0

Profit for the year

-

-

-

-

-

44.2

44.2

Other comprehensive income

-

-

-

(1.8)

2.9

-

1.1

Total comprehensive income for the year

-

-

-

(1.8)

2.9

44.2

45.3

Dividends paid

-

-

-

-

-

(17.1)

(17.1)

Purchase of own shares

-

-

(2.9)

-

-

-

(2.9)

Share-based payments charge

-

-

-

-

-

1.3

1.3

Share-based payments settled

-

-

-

-

-

(0.3)

(0.3)

Share-based payments excess tax benefit

-

-

-

-

-

0.1

0.1

At 31 December 2016

0.2

1.1

(4.6)

(3.5)

0.4

293.8

287.4

Profit for the year

-

-

-

-

-

33.7

33.7

Other comprehensive income

-

-

-

1.4

0.3

-

1.7

Total comprehensive income for the year

-

-

-

1.4

0.3

33.7

35.4

Dividends paid

-

-

-

-

-

(21.0)

(21.0)

Purchase of own shares

-

-

(3.2)

-

-

-

(3.2)

Share-based payments charge

-

-

-

-

-

1.2

1.2

Share-based payments settled

-

-

3.5

-

-

(1.4)

2.1

Share-based payments excess tax benefit

-

-

-

-

-

0.1

0.1

At 31 December 2017

0.2

1.1

(4.3)

(2.1)

0.7

306.4

302.0

 

 

 

GROUP CASH FLOW STATEMENT

for the year ended 31 December 2017

 

 

Notes

2017

£m

2016*

£m

Operating activities

 

 

 

Profit before tax

 

55.6

53.5

Finance costs

5

6.9

7.6

Operating profit

 

62.5

61.1

Profit before tax from discontinued operations

4

1.4

0.9

Non-cash items:

 

 

 

Profit on disposal of property, plant and equipment

4

(0.1)

(0.3)

Non-underlying items - amortisation of intangibles assets

4

5.5

6.8

                                   - provision for restructuring costs

4

4.3

-

                                   - settlement of restructuring costs

 

(0.4)

-

                                   - impairment of freehold land and buildings

4

-

0.9

                                   - provision for aborted acquisition costs

4

0.3

-

                                   - settlement of aborted acquisition costs

 

(0.1)

-

Depreciation

9

16.2

16.3

Share-based payments

 

0.8

1.0

Operating cash flows before movement in working capital

 

90.4

86.7

Movement in working capital:

 

 

 

Receivables

 

(3.2)

(8.3)

Payables

 

2.1

11.5

Inventories

 

(8.9)

(3.4)

Cash generated from operations

 

80.4

86.5

Income tax paid

 

(12.6)

(10.1)

Net cash flows from operating activities

 

67.8

76.4

 

 

 

 

Investing activities

 

 

 

Proceeds from disposal of property, plant and equipment

 

0.2

0.4

Purchase of property, plant and equipment

 

(23.4)

(19.1)

Net cash flows from investing activities

 

(23.2)

(18.7)

 

 

 

 

Financing activities

 

 

 

Repayment of bank loan

 

(7.0)

(25.5)

Interest paid

 

(6.6)

(7.3)

Dividends paid

8

(21.0)

(17.1)

Purchase of own shares

 

(3.2)

(2.9)

Proceeds from exercise of share options

 

2.5

-

Net cash flows from financing activities

 

(35.3)

(52.8)

 

 

 

 

Net change in cash and cash equivalents

 

9.3

4.9

Cash and cash equivalents at 1 January

 

26.5

21.6

Net foreign exchange difference

 

(0.1)

-

Cash and cash equivalents at 31 December

 

35.7

26.5

 

 

 

 

The net increase in cash and cash equivalents in the year from discontinued operations included in the above was £1.3m (2016: £0.5m).

 

* The prior year comparatives have been restated where required to reflect adjustments in respect of discontinued operations.

NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31 December 2017

 

 

1. Basis of preparation

The preliminary results for the year ended 31 December 2017 have been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRSs) as endorsed by the European Union regulations as they apply to the consolidated financial statements of the Group for the year ended 31 December 2017.  Whilst the financial information included in this preliminary announcement has been computed in accordance with the recognition and measurement requirements of IFRS, this announcement does not itself contain sufficient information to comply with IFRS.  The accounting policies adopted are consistent with those of the previous year.

The financial information set out in this announcement does not constitute the statutory accounts for the Group within the meaning of Section 435 of the Companies Act 2006.  The statutory accounts for the year ended 31 December 2016 have been filed with the Registrar of Companies.  The statutory accounts for the year ended 31 December 2017 will be filed in due course.  The auditors' report on these accounts was not qualified or modified and did not contain any statement under sections 498(2) or (3) of the Companies Act 2006 or any preceding legislation.

 

2. Segment information

IFRS 8, Operating Segments, requires operating segments to be identified on the basis of the internal financial information reported to the Chief Operating Decision Maker (CODM). The Group's CODM is deemed to be the Board of Directors, who are primarily responsible for the allocation of resources to segments and the assessment of performance of the segments. 

Following the announcement on 31 January 2018, that the Group had entered into exclusive negotiations to sell Polypipe France Holding SAS, its French operations, to Ryb S.A., the Board of Directors refined its reporting segments.  The Group now has two reporting segments - Residential Systems and Commercial and Infrastructure Systems. The reporting segments are organised based on the nature of the end markets served. There are no significant judgements in aggregating operating segments to arrive at the reporting segments. Inter-segment sales are on an arm's length basis in a manner similar to transactions with third parties.

As explained in Note 11, the operations of Polypipe France have been classified as discontinued during the year and consequently the comparative financial information has been restated where appropriate to meet the presentational requirements of IFRS 5, Non-current Assets Held-for-Sale and Discontinued Operations, to take account of this change.

 

2017

2016

 

Residential Systems

£m

Commercial & Infrastructure Systems

£m

Total*

£m

Residential Systems

£m

Commercial & Infrastructure Systems

£m

Total*

£m

Continuing operations

 

 

 

 

 

 

Segmental revenue

228.8

196.0

424.8

207.6

190.6

398.2

Inter segment revenue

(5.3)

(7.8)

(13.1)

(4.9)

(6.1)

(11.0)

Revenue

223.5

188.2

411.7

202.7

184.5

387.2

Underlying operating profit

44.3

28.3

72.6

39.1

29.4

68.5

Non-underlying items - segmental

(0.3)

(4.0)

(4.3)

0.2

0.1

0.3

Segmental operating profit

44.0

24.3

68.3

39.3

29.5

68.8

Non-underlying items - group

 

 

(5.8)

 

 

(7.7)

Operating profit

 

 

62.5

 

 

61.1

Finance costs

 

 

(6.9)

 

 

(7.6)

Profit before tax

 

 

55.6

 

 

53.5

 

* Underlying result is stated before non-underlying items.

 

Geographical analysis 

Revenue by destination

2017

£m

2016

£m

Continuing operations

 

 

UK

365.7

338.3

Rest of Europe

18.9

17.0

Rest of World

27.1

31.9

Total - Group

411.7

387.2

 

3. Operating profit 

 

2017

£m

2016

£m

Income statement charges

 

 

Continuing operations

 

 

Depreciation of property, plant and equipment (owned)

14.9

15.0

Cost of inventories recognised as an expense

238.8

219.1

Operating lease payments - minimum lease payments

4.0

4.5

Research and development costs written off

0.8

0.5

Discontinued operations

 

 

Depreciation of property, plant and equipment (owned)

1.3

1.3

Cost of inventories recognised as an expense

46.1

38.9

Operating lease payments - minimum lease payments

0.1

0.4

Income statement credits - continuing operations

 

 

Profit on disposal of property, plant and equipment

0.1

0.3

 

4. Non-underlying items

Non-underlying items comprised:

 

2017

2016

 

Gross

£m

Tax

£m

Net

£m

Gross

£m

Tax

£m

Net

£m

Cost of sales: Restructuring costs

2.8

(0.2)

2.6

-

-

-

Administration expenses: Restructuring costs

1.5

-

1.5

-

-

-

Administration expenses: Aborted acquisition costs

0.3

(0.1)

0.2

-

-

-

Profit on disposal of property, plant and equipment

-

-

-

(0.3)

-

(0.3)

Impairment of freehold land and buildings

-

-

-

0.9

-

0.9

Amortisation of intangible assets

5.5

(0.9)

4.6

6.8

(1.6)

5.2

Discontinued operations: loss recognised on remeasurement to fair value less costs to sell

12.5

-

12.5

-

-

-

Discontinued operations: (profit)/loss from discontinued operations

(1.4)

0.2

(1.2)

(0.9)

0.1

(0.8)

Total non-underlying items

21.2

(1.0)

20.2

6.5

(1.5)

5.0

 

Gross restructuring costs of £4.3m were recognised in 2017 in respect of a change in our Commercial and Infrastructure Systems' manufacturing strategy in the Middle East (£4.0m) and the relocation of our Residential Systems' Domus Ventilation manufacturing facilities (£0.3m).  The Middle East restructuring plan was drawn up and announced to the relevant employees in 2017.  The Domus Ventilation restructuring plan was drawn up, announced and completed in 2017.  Of the £4.0m Middle East restructuring costs, £1.7m were non-cash and the remaining £2.3m costs are expected to be fully cash settled in 2018.

 

5. Finance costs

 

 

 

 

 

2017

£m

2016

£m

Interest on bank loan

 

 

 

 

5.8

6.6

Debt issue cost amortisation

 

 

 

 

0.3

0.4

Other finance costs

 

 

 

 

0.8

0.6

Finance costs

 

 

 

 

6.9

7.6

  

6. Income tax

 (a) Tax charged in the income statement

 

2017

£m

2016

£m

Continuing operations

 

 

Current income tax:

 

 

UK income tax

11.2

12.4

Overseas income tax

0.1

-

Total current income tax

11.3

12.4

Deferred income tax:

 

 

Origination and reversal of temporary differences

(0.7)

(2.0)

Effect of changes in income tax rates

-

(0.3)

Total deferred income tax

(0.7)

(2.3)

Total tax expense reported in the income statement

10.6

10.1

 

 

 

2017

£m

2016

£m

Discontinued operations

 

 

Current income tax:

 

 

Overseas income tax

0.2

0.1

Total tax expense reported in the income statement

0.2

0.1

 

Details of the non-underlying tax credit of £1.0m (2016: £1.5m) are set out in Note 4.

(b) Reconciliation of the total tax charge

A reconciliation between the tax expense and the product of accounting profit multiplied by the blended UK standard rate

of income tax for the years ended 31 December 2017 and 2016 is as follows:

 

 

2017

£m

2016

£m

Accounting profit before tax - continuing operations

55.6

53.5

Accounting profit multiplied by the blended UK standard rate of income tax of 19.25% (2016: 20.00%)

10.7

10.7

Expenses not deductible for income tax

0.4

0.7

Non-taxable income

-

(0.1)

Share-based payments

(0.4)

(0.3)

Effects of patent box

(0.8)

(0.7)

Effects of changes in income tax rates

(0.1)

-

Effects of other tax rates / credits

0.8

(0.2)

Total tax expense reported in the income statement - continuing operations

10.6

10.1

Total tax expense reported in the income statement - discontinued operations

0.2

0.1

 

The effective rate for the full year was 19.1% (2016: 18.9%). If the impact of non-underlying items is excluded, the underlying income tax rate would be 18.0% (2016: 19.2%).

 (c) Deferred income tax

The deferred income tax included in the Group balance sheet is as follows:

 

31 December 2017

£m

31 December 2016

£m

Continuing operations

 

 

Deferred income tax liabilities / (assets)

 

 

Short-term timing differences

6.2

6.5

Capital allowances in excess of depreciation

1.3

1.4

Share-based payments

(0.5)

(0.4)

Continuing operations

7.0

7.5

Discontinued operations

(0.3)

(0.2)

 

The Group offsets tax assets and liabilities if, and only if, it has a legally enforceable right to set off current income tax assets and current income tax liabilities and the deferred income tax assets and deferred income tax liabilities relate to income taxes levied by the same tax authority.

A reconciliation of deferred income taxes for the years ended 31 December 2017 and 2016 is as follows:

 

2017

£m

2016

£m

Deferred tax reported in the income statement

(0.7)

(2.3)

Deferred tax reported in other comprehensive income

0.3

(0.3)

Share-based payments excess tax benefit

(0.1)

(0.1)

Net foreign exchange difference

(0.1)

-

 

(0.6)

(2.7)

 

(d) Change in corporation tax rate

The Chancellor has announced that the main UK corporation tax rate will be reduced from the current rate of 19%, which was applied from 1 April 2017, to 17% from 1 April 2020. The reduction in the corporation tax rate to 17% was included within the UK Finance Act 2016 that was enacted in September 2016.

Deferred income tax is measured at income tax rates that are expected to apply in the periods in which the temporary timing differences are expected to reverse based on income tax rates and laws that have been enacted or substantively enacted at the balance sheet date. Deferred income tax has therefore been provided at 17% (2016: 17%).

(e) Unrecognised tax losses

A deferred income tax asset of £0.6m (2016: £1.0m) in respect of surplus non-trading losses of £3.7m (2016: £5.5m), has not been recognised at 31 December 2017 as its recovery is uncertain.

 

7. Earnings per share

Basic earnings per share amounts are calculated by dividing profit for the year attributable to the owners of the parent company by the weighted average number of ordinary shares outstanding during the year. The diluted earnings per share amounts are calculated by dividing profit for the year attributable to the owners of the parent company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

The calculation of basic and diluted earnings per share is based on the following:

 

2017

2016

Weighted average number of ordinary shares for the purpose of basic earnings per share

198,390,485

198,930,384

Share options

1,788,892

1,053,339

Weighted average number of ordinary shares for the purpose of diluted earnings per share

200,179,377

199,983,723

 

Underlying earnings per share is based on the result for the year after tax excluding the impact of non-underlying items of £20.2m (2016: £5.0m). The Directors consider that this measure provides a better and more consistent indication of the Group's underlying financial performance and more meaningful comparison with prior and future periods to assess trends in our financial performance. The underlying earnings per share is calculated as follows:

 

 

2017

2016

Underlying profit for the year attributable to the owners of the parent company (£m)

53.9

49.2

Underlying basic earnings per share (pence)

27.2

24.7

Underlying diluted earnings per share (pence)

26.9

24.6

  

8. Dividends per share

 

2017

£m

2016

£m

Amounts recognised as distributions to equity holders in the year:

 

 

Final dividend for the year ended 31 December 2016 of 7.0p per share (2015: 5.5p)

13.9

11.0

Interim dividend for the year ended 31 December 2017 of 3.6p per share (2016: 3.1p)

7.1

6.1

 

21.0

17.1

Proposed final dividend for the year ended 31 December 2017 of 7.5p per share (2016: 7.0p)

14.9

13.9

 

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these consolidated financial statements.

 

9. Property, plant and equipment

 

Freehold

land and

buildings

£m

Plant

and other

equipment

£m

Total

£m

Cost

 

 

 

At 1 January 2016

48.1

147.0

195.1

Additions

1.2

18.5

19.7

Disposals

-

(3.2)

(3.2)

Reclassified as assets held-for-sale

(3.2)

-

(3.2)

Exchange adjustment

1.0

4.6

5.6

At 31 December 2016

47.1

166.9

214.0

Additions

1.9

21.8

23.7

Disposals

-

(1.3)

(1.3)

Reclassified as assets held-for-sale

(11.5)

(31.4)

(42.9)

Exchange adjustment

0.3

1.2

1.5

At 31 December 2017

37.8

157.2

195.0

Depreciation and impairment losses

 

 

 

At 1 January 2016

10.1

86.9

97.0

Provided during the year

1.4

14.9

16.3

Disposals

-

(3.1)

(3.1)

Impairment

0.9

-

                    0.9

Reclassified as assets held-for-sale

(2.5)

-

(2.5)

Exchange adjustment

0.7

3.7

4.4

At 31 December 2016

10.6

102.4

113.0

Provided during the year

1.3

14.9

16.2

Disposals

-

(1.2)

(1.2)

Impairment

-

0.9

0.9

Reclassified as assets held-for-sale

(6.7)

(27.0)

(33.7)

Exchange adjustment

0.2

1.0

1.2

At 31 December 2017

5.4

91.0

96.4

Net book value:

 

 

 

At 31 December 2017

32.4

66.2

98.6

At 31 December 2016

36.5

64.5

101.0

 

The impairment charge in 2017 of £0.9m related to plant and equipment in the Middle East as explained in Note 4.  The Polypipe France assets with a net book value of £9.2m were reclassified as held-for-sale in accordance with IFRS 5, Non-current Assets Held-for-Sale and Discontinued Operations, as explained in Note 11.

The impairment charge in 2016 of £0.9m related to surplus freehold land and buildings at Wolverhampton that is being actively marketed and writes down its carrying amount to £0.7m being its fair value less costs to sell. The written down asset was reclassified as held-for-sale in accordance with IFRS 5, Non-current Assets Held-for-Sale and Discontinued Operations.

Included in freehold land and buildings is non-depreciable land of £12.6m (2016: £13.0m).

 

10. Intangible assets

 

Goodwill

£m

Patents

£m

Brand

names

£m

Customer

relationships

£m

Customer

order book

£m

Total

£m

Cost

 

 

 

 

 

 

At 31 December 2016

329.3

18.2

25.5

6.4

2.0

381.4

Reclassified as assets held-for-sale

(9.6)

-

-

-

-

(9.6)

At 31 December 2017

319.7

18.2

25.5

6.4

2.0

371.8

Amortisation and impairment

 

 

 

 

 

 

At 1 January 2016

-

0.7

1.0

0.5

0.8

3.0

Charge for the year

-

1.8

2.6

1.2

1.2

6.8

At 31 December 2016

-

2.5

3.6

1.7

2.0

9.8

Charge for the year

-

1.8

2.5

1.2

-

5.5

At 31 December 2017

-

4.3

6.1

2.9

2.0

15.3

Net book value:

 

 

 

 

 

 

At 31 December 2017

319.7

13.9

19.4

3.5

-

356.5

At 31 December 2016

329.3

15.7

21.9

4.7

-

371.6

 

Goodwill is not amortised but is subject to annual impairment testing.

The Polypipe France goodwill of £9.6m was reclassified as held-for-sale in accordance with IFRS 5, Non-current Assets Held-for-Sale and Discontinued Operations, as explained in Note 11. 

 

11. Assets classified as held-for-sale

On 31 January 2018, the Group announced that it had entered into exclusive negotiations to sell Polypipe France Holding SAS, its French operations, to Ryb S.A., a France-based manufacturer and distributor of plastics in Europe. The cash consideration payable by Ryb S.A. will be €16.5m on a cash-free, debt-free and normalised working capital basis. It was determined that the sale was highly probable at 31 December 2017 and accordingly the net assets of the French operations have been classified as held-for-sale in the consolidated balance sheet.  In accordance with IFRS 5, Non-current Assets Held-for-Sale and Discontinued Operations, an impairment loss of £12.5m to remeasure the carrying amount of the assets to fair value less costs to sell has been recognised following the reclassification of the net assets of Polypipe France Holding SAS as held-for-sale.  An analysis of the assets held-for-sale and liabilities associated with the assets held-for-sale is as follows:

 

Book value

£m

 

Impairment loss

£m

31 December

2017

£m

Assets held-for-sale

 

 

 

Intangible assets

9.6

(9.6)

-

Property, plant and equipment

9.2

(2.9)

6.3

Inventories

7.7

-

7.7

Trade and other receivables

9.0

-

9.0

Deferred income tax assets

0.3

-

0.3

 

35.8

(12.5)

23.3

Liabilities associated with assets held-for-sale

 

 

 

Trade and other payables

(9.5)

-

(9.5)

Income tax payable

(0.2)

-

(0.2)

Other liabilities

(1.2)

-

(1.2)

 

(10.9)

-

(10.9)

Net assets held-for-sale

24.9

(12.5)

12.4

 

    

The table below provides further detail of the discontinued operations:

 

2017

£m

2016

£m

Revenue

58.4

49.7

Expenses

(57.0)

(48.8)

Profit before tax

1.4

0.9

Income tax

(0.2)

(0.1)

Profit from discontinued operations

1.2

0.8

Loss recognised on remeasurement to fair value less costs to sell

(12.5)

-

Profit/(loss) from discontinued operations

(11.3)

0.8

 

The remaining assets classified as held-for-sale comprised:

 

31 December

2017

£m

31 December

2016

£m

Property, plant and equipment

0.7

0.7

  

These assets classified as held-for-sale consist exclusively of freehold land currently not in use by the Group. It is expected that the disposal of this asset will be completed during 2018. The assets classified as held-for-sale are analysed between operating segments as follows:

 

31 December

2017

£m

31 December

2016

£m

Residential Systems

0.4

0.4

Commercial and Infrastructure Systems

0.3

0.3

 

0.7

0.7

  

12. Financial liabilities

 

 

31 December

2017

£m

31 December

2016

£m

Non-current loans and borrowings:

 

 

Bank loan   - principal

185.0

192.0

(0.9)

(1.2)

Total non-current loans and borrowings

184.1

190.8

 

 

 

 

£m

£m

Other financial liabilities:

 

 

Trade and other payables

87.6

91.8

Forward foreign currency derivatives

-

1.5

Interest rate swaps

2.5

4.2

0.9

2.1

 

91.0

99.6

 

Bank loan

The bank loan, which is a revolving credit facility, is secured and expires in full in August 2020. Interest is payable on the bank loan at LIBOR plus an interest margin ranging from 1.25% to 2.75% which is dependent on the Group's leverage (net debt as a multiple of EBITDA) and reduces as the Group's leverage reduces. The interest margin at 31 December 2017 was 1.75% (2016: 2.00%).

At 31 December 2017, the Group had available, subject to covenant headroom, £105.0m (2016: £108.0m) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met at 31 December 2017.

The facility reduced by £10m to £290m at 31 December 2017 and will reduce by a further £10m each year, regardless of leverage, at 31 December 2018 and 2019; the remainder is available until August 2020.

The Group is subject to a number of covenants in relation to its bank loan which, if breached, would result in the bank loan becoming immediately repayable. These covenants specify certain maximum limits in terms of net debt as a multiple of EBITDA and interest cover. At 31 December 2017, the Group was not in breach of any bank covenants. The covenant position was as follows:

Covenant

Covenant

requirement

Position at

31 December

2017

Interest cover (Underlying operating profit:Finance costs excluding debt issue cost amortisation)

>4.0:1

11.5:1

Leverage (Net debt:EBITDA)

<3.0:1

1.6:1

The interest cover and leverage covenants remain at 4.0:1 and 3.0:1, respectively, throughout the remaining term of the revolving credit facility to August 2020.

 

 

13. Consolidated cash flow statement

 

The analysis of cash generated from operations split by continuing and discontinued operations is as follows:

 

 

2017

£m

2016

£m

Continuing operations

 

 

 

Profit before tax

 

55.6

53.5

Finance costs

 

6.9

7.6

Operating profit

 

62.5

61.1

Non-cash items:

 

 

 

Profit on disposal of property, plant and equipment

 

(0.1)

(0.3)

Non-underlying items - amortisation of intangibles assets

 

5.5

6.8

                                   - provision for restructuring costs

 

3.4

-

                                   - settlement of restructuring costs

 

(0.4)

-

                                   - impairment of freehold land and buildings

 

-

0.9

                                   - impairment of plant and equipment

 

0.9

-

                                   - provision for aborted acquisition costs

 

0.3

-

                                   - settlement of aborted acquisition costs

 

(0.1)

-

Depreciation

 

14.9

15.0

Share-based payments

 

0.8

1.0

Operating cash flows before movement in working capital

 

87.7

84.5

Movement in working capital:

 

 

 

Receivables

 

(2.5)

(8.2)

Payables

 

0.7

13.4

Inventories

 

(8.0)

(4.7)

Cash generated from operations

 

77.9

85.0

Income tax paid

 

(12.6)

(10.1)

Net cash flows from operating activities

 

65.3

74.9

 

 

 

 

Investing activities

 

 

 

Proceeds from disposal of property, plant and equipment

 

0.2

0.4

Purchase of property, plant and equipment

 

(22.2)

(18.1)

Net cash flows from investing activities

 

(22.0)

(17.7)

 

 

 

 

Financing activities

 

 

 

Repayment of bank loan

 

(7.0)

(25.5)

Interest paid

 

(6.6)

(7.3)

Dividends paid

 

(21.0)

(17.1)

Purchase of own shares

 

(3.2)

(2.9)

Proceeds from exercise of share options

 

2.5

-

Net cash flows from financing activities

 

(35.3)

(52.8)

 

 

 

 

Net change in cash and cash equivalents

 

8.0

4.4

Cash and cash equivalents at 1 January

 

24.5

20.3

Net foreign exchange difference

 

(0.2)

(0.2)

Cash and cash equivalents at 31 December

 

32.3

24.5

         

  

 

 

 

 

2017

£m

2016

£m

Discontinued operations

 

 

 

Profit before tax from discontinued operations

 

1.4

0.9

Loss recognised on remeasurement to fair value less costs to sell

 

(12.5)

-

Operating (loss)/profit

 

(11.1)

0.9

Non-cash items:

 

 

 

Non-underlying item - loss recognised on remeasurement to fair value less costs to sell

 

 

12.5

 

-

Depreciation

 

1.3

1.3

Operating cash flows before movement in working capital

 

2.7

2.2

Movement in working capital:

 

 

 

Receivables

 

(0.7)

(0.1)

Payables

 

1.4

(1.9)

Inventories

 

(0.9)

1.3

Net cash flows from operating activities

 

2.5

1.5

 

 

 

 

Investing activities

 

 

 

Purchase of property, plant and equipment

 

(1.2)

(1.0)

Net cash flows from investing activities

 

(1.2)

(1.0)

 

 

 

 

Net change in cash and cash equivalents

 

1.3

0.5

Cash and cash equivalents at 1 January

 

2.0

1.3

Net foreign exchange difference

 

0.1

0.2

Cash and cash equivalents at 31 December

 

3.4

2.0

         

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
FR EAPDNFLSPEFF

Final Results

RNS Number : 4887I
Polypipe Group PLC
26 March 2015
 



 

 

26 March 2015

 

Polypipe Group plc

Results for the Year ended 31 December 2014

 

Polypipe delivers on strategy with strong profits growth

 

Polypipe Group plc ("Polypipe" or the "Group"), a leading manufacturer of plastic piping systems for the residential, commercial, civils and infrastructure sectors, today announces its full year results for the year ended 31 December 2014.

 

Financial Results

 


2014

2013

Change





Revenue

£327.0m

£300.8m

9%

Operating profit1

£46.3m

£39.7m

17%

Profit before tax (pre exceptionals)2

£37.6m

£24.5m

53%

Profit before tax

£16.9m

£24.6m


Adjusted earnings per share3

16.11p

9.95p

62%

Basic earnings per share

6.96p

10.00p


Interim dividend - declared and paid

1.50p

-


Final dividend - recommended

3.00p

-


Net debt

£76.9m

£84.1m

(9%)

 

1.   Excludes operating exceptional items

2.   Excludes operating exceptional items and exceptional finance costs

3.   Excludes operating exceptional items, exceptional finance costs and related tax relief

 

 

Financial Highlights

 

·      Delivering the strategy set out during the Group's successful IPO in April 2014

·      UK construction market recovery, combined with our strategic focus on structural growth opportunities, generated revenue growth from UK operations of 12.4% over 2013

·      Improved UK volumes resulted in Group operating profit increasing by 16.6% to £46.3m1

·      Strong cashflow - cash from operations1 after capex 26.3% ahead of prior year

·      Recommended final dividend of 3.00 pence per share

·      Exceptional items relate to IPO costs (£12.2m) and IPO related refinancing costs (£8.6m).

 

Operational Highlights

 

·      Strong demand for residential piping systems from UK housebuilders, increasingly from smaller developers and projects outside of London and the South-East

·      Good volumes from road and rail projects and the development of high rise, multi-occupancy buildings in London

·      Structural growth opportunities driving the business: significant increase in sales of Water Management Solutions, driven by legislation aimed at reducing flood risk and continued growth in Carbon Efficient Solutions supported by the need for higher performance ventilation systems

·      Broadened product offer through two small bolt on acquisitions - the Ferrob Ventilation business in October 2014 and the Surestop business in January 2015

·      Improved export performance underpinned by growing presence in the Middle East

 

 

David Hall, Chief Executive said:

 

"I am delighted with the progress that we have made following the Group's successful IPO in April 2014 and these results show that we are delivering on the strategy we set out at that time. The Group's growth ahead of a strong UK market during the year demonstrates our ability to seek out new opportunities for our Water Management and Carbon Efficient Solutions.   Our growth initiatives, combined with this positive market backdrop in our main UK market, mean we entered 2015 with optimism and at this early stage of the year, we are confident that the Group will deliver results for the year in line with market expectations".

 

The Company also announces that following the Chairman's decision to step down from the Board after the 2015 Annual General Meeting, as had previously been disclosed in the Company's Prospectus, the Board has formally appointed Ron Marsh, the Senior Independent Director to succeed Alan Thomson as the Chairman of the Company. A separate RIS announcement has been released to the market at the same time as the release of the Company's full year results.

 

For further information please contact:

 

Polypipe

David Hall, Chief Executive Officer

Peter Shepherd, Chief Financial Officer

 

+44 (0) 1709 770 000

Brunswick

Mike Smith

Simon Maine

+44 (0) 20 7404 5959

 

A copy of this report will be available on our website http://ir.polypipe.com/ today from 7.00am.

An analyst presentation will be held today, Thursday 26th March at 08:30 (GMT). To dial in the call details are:

 

Tel:       +44 (0) 1452 555566

Code:    89739353

 

Notes to Editors:

 

Polypipe is the largest manufacturer in the United Kingdom, and among the ten largest manufacturers in Europe, of plastic piping systems for the residential, commercial, civils and infrastructure sectors by revenue. The Group operates from sixteen facilities in total, and with over 20,000 product lines, manufactures the United Kingdom's widest range of plastic piping systems within its target markets. The Group primarily targets the UK, French and Irish building and construction markets with a presence in Italy and the Middle East and sales to specific niches in the rest of the world.

 

Group Results

 

The Group's revenue for the year ended 31 December 2014 was £327.0m (2013: £300.8m) an improvement of 8.7%. The year started strongly, albeit against relatively weak comparables, and this positive momentum continued throughout the year. This growth has been driven by our strategic focus on structural growth opportunities and the continuing recovery in the UK construction market.

 

Operating profit before operating exceptional items for the year of £46.3m was up 16.6% on last year with the drop through from the revenue growth at 25.2%.

 

Net finance charges for the year of £8.7m were £6.5m lower than the prior year as a result of the refinancing of the £150m Senior Secured Notes in April 2014.

 

Exceptional charges of £12.2m were incurred in the year in relation to the IPO listing costs. A further £8.6m of exceptional finance costs were incurred in the year in relation to refinancing the Senior Secured Notes.  As a result the reported profit before tax was £16.9m (2013: £24.6m).  Basic earnings per share were 6.96 pence (2013: 10.00p).

 

 

Chief Executive's Review

 

The Group's focus has been to ensure that we remain well placed to benefit from the recovering UK construction market and to deliver on our ambition to grow ahead of the market through our initiatives in the areas of materials substitution, carbon efficiency, water management and export, especially to the Middle East.

 

The strength of the recovery in the early part of the year was greater than forecasts predicted.  We met the growing demand whilst maintaining our focus on customer service levels and it is a credit to our employees that we successfully flexed our operations to deliver increased volumes without compromising our customer service standards. Our customers did not suffer product shortages or extended lead times that impacted some other suppliers of construction products during the year. Our customers rely on our ability to deliver the vast majority of our orders in a very short lead time, and manufacturing and carrying the right level of inventory across such a large product range is a key capability of the Group.

 

The Group is committed to providing our customers the broadest product range in the plastic piping systems sector and we have continued to introduce new products to supplement our ranges. We have also broadened our product offer through the acquisition of the Ferrob ventilation business in October 2014 and the Surestop business in January 2015. Ferrob manufacture domestic extract and positive input ventilation systems for Local Authorities and Housing Associations throughout the UK. Surestop manufactures and supplies a unique, patented range of devices, operated by water pressure, designed to conveniently switch off the mains water supply in properties when leaving a property vacant for a period of time or in the event of a leak, avoiding the risk of water damage.

 

We have seen steady progress across most of our product groups that are specifically targeted at substituting legacy materials. Our plastic plumbing systems and sewer systems have delivered a good level of growth against the same period last year, helped by the housebuilders who tend to favour more modern materials as a result of their ease and speed of installation. Our pre-fabricated drainage and chamber systems have also performed well, making good progress in converting contractors from using legacy materials, as the availability of labour has encouraged them to pay greater attention to speed of installation and quality of factory build rather than work on site.

 

Our Carbon Efficient Solutions have performed well in the residential sector as new build starts have commenced on more recently consented land requiring them to adhere to more recent legislation. Although still a very low proportion of the overall heating market, we have seen a small but progressive uptake of underfloor heating in new residential developments, in particular multi occupancy, high rise developments in London. Our ventilation business has performed strongly during the year, with our new range of thermal and radial duct being adopted in both new build and some major refurbishment programmes.

 

2014 saw a significant increase in demand for our comprehensive range of engineered Water Management Solutions which can be individually tailored to meet site specific needs. We invested in further capacity in this area during 2013 and staffed up during 2014 as sales increased. When developers and construction companies begin activity on new sites, they are required to find ways to meet more recent and stringent legislation requiring the storage and attenuation of water. The flooding at the beginning of the year served to emphasise the continued need for flood alleviation schemes with further UK Government budget being allocated to this area.

 

Our investment in export sales resource has delivered sales growth during the year with increasing confidence in the Middle East in particular benefitting our activities. The upturn in project activity in the region encouraged our distributors to re-stock in the first half of the year which was an important step for us in being able to fulfill specifications gained. We are in the process of opening a new training centre in Dubai to act as a showcase for our system solutions and to train contractors on how to more effectively engineer their drainage requirements. The recent decline in oil prices does not appear to have impacted project funding, and commitments to development for the World Expo in Dubai in 2020 and the 2022 Football World Cup in Qatar provide a helpful stimulus to construction in the region. Our success with specialist drainage products for mining infrastructure projects in Africa during the earlier part of the year became more challenging as the impact of the Ebola crisis and the sharp falls in the price of raw materials led to a significant reduction in investment in both the region and the sector as a whole.

 

The following tables set out Group revenue and operating profit* by operating segment:

 

Revenue

2014


2013


Change

£m


£m


 %







Residential Piping Systems

173.3


158.7


9.2

Commercial & Infrastructure Piping Systems - UK

111.1


94.3


17.8

UK Operations

284.4


253.0


12.4

Commercial & Infrastructure Piping Systems - Europe

53.9


58.3


(7.5)

Inter Segment Sales

(11.3)


(10.5)









Group revenue

327.0 


300.8


8.7







Operating profit

2014


2013


Change

£m


£m


 %







Residential Piping Systems

28.4


26.0


9.2

Commercial & Infrastructure Piping Systems - UK

17.0


12.4


37.1

UK Operations

45.4


38.4


18.2

Commercial & Infrastructure Piping Systems - Europe

0.9


1.3


(30.8)













Group operating profit*

46.3


39.7


16.6

 

*before operating exceptional items

 

 

Residential Piping Systems

 

Sales to the Residential Sector were £173.3m, all of which were in the UK and Ireland, and represented 51% of Group revenues in 2014, a growth of 9.2% year on year. Following a strong first half, sales in the second half were at a similar level, reflecting a consistent level of demand across the year, although there appeared to be a more pronounced summer holiday effect during August 2014 and a sense that activity with the national developers, having reached their targets earlier in the year, slowed slightly during the last quarter in preparation for 2015.

 

Activity in the private residential new build sector (18% market output growth in 2014) has been driven largely by the national housebuilders, although it has been encouraging to see some smaller developers start to build, albeit primarily those who have existing consented land. It has also been encouraging to see a reduced concentration of projects in London and the South East as build in a number of the regions has picked up. New build represented approximately 39% of our residential revenues in the year (20% of Group), with the more stable repair, maintenance and improvement (RM&I) sector representing approximately 59% (30% of Group). Historically, home owners have spent the most on improvements either just before selling, or in the eighteen months after acquiring, second hand homes; as such housing transactions are an important demand driver for us. In addition, a healthy level of re-mortgage activity is fundamental to homeowners improving and extending their homes. After an improving trend in the first part of the year, both of these measures flattened out and remain well below their long term averages. As a result, we believe the level of private RM&I has seen a more gradual improvement in the professional contractor market and that homeowners are still exercising a high level of caution in spending their savings improving their homes. Improvement activity in the public residential sector has shown some improvement, however due to continued budget constraints much of the activity remains focused around essential repairs.

 

Residential Piping Systems delivered an operating profit of £28.4m (2013: £26.0m) representing a margin of 16.4% (2013: 16.4%). Sales pricing remained broadly consistent with prior year with the operational gearing benefits from the volume growth being offset principally by higher developer rebates as the market continued to pull in the new build sector where rebates are higher than in the RM&I sector. Factory efficiency and margins benefited during 2013 from improved output as a result of building inventories in preparation for the volume upturn, which also has some affect on the year-on-year comparables.

 

Commercial and Infrastructure Piping Systems - UK

 

Sales from our UK Commercial and Infrastructure businesses, which represented approximately 33% of Group revenues, were £111.1m in 2014, a growth of 17.8% on 2013. Second half growth remained strong and sales into the UK market were approximately 2.5% higher than the first half, whilst exports from this division were weighted towards the first half of the financial year, mainly as a result of the seasonal holiday period in the Middle East falling in the second half.

 

We experienced good demand from road and rail projects and the development of high rise, multi-occupancy buildings continued in London with signs of slowly increasing activity in some other major cities. The level of quotation activity has been encouraging throughout the year albeit this is not an absolute indicator of future orders. The return from our recent significant investment in the polymer re-processing plant improved as the year progressed as we improved the quality of our input as well as our developing capability to process higher volumes for our Civils business in this division.

 

Exports, experienced strong growth over the same period last year reaching £15.1m (2013: £11.5m), primarily for products which are manufactured in this division. We have continued to expand our presence in the Middle East and alongside our traditional drainage ranges we have secured some small water management projects. We continue to seek opportunities to expand our activities in this product area as heavy, periodic rainfall earlier this year, highlighted deficiencies in storm water drainage in a number of urbanised areas in the region.

 

The operational gearing effect of volume growth, particularly in our higher margin Water Management products which also improved the pricing mix throughout the year, when combined with our continuing focus on material cost control drove a 37% improvement in operating profit to £17.0m (2013: £12.4m) representing, a margin of 15.3% (2013: 13.1%).

 

 

Commercial and Infrastructure Piping Systems - Europe

 

Revenues in the Commercial and Infrastructure Sector in Continental Europe (predominantly in France) which represented approximately 16% of Group revenues in 2014, at £53.9m were 2.1% behind in local currency terms but down 7.5% as reported, due to the adverse currency translation impact. The more pronounced impact of holiday periods in Europe generally means that the first half is stronger than the second half and during 2014 the slow down in activity in the French market combined with some destocking by distributors towards the end of the year has accentuated this seasonal effect. At constant exchange rates revenue at the end of the first half was slightly ahead of prior year by 1.3% but was 6.0% behind during the second half of 2014 compared to 2013 leaving the year down 2.1%.  We were able to manage our cost base to flex down our costs to reflect the lower revenues with operating profit falling from £1.3m in 2013 to £0.9m in 2014.

 

From a very low base, our sales of water management systems, where we can derive more value from the technical specification nature of these projects, have made satisfactory progress, although we continue to experience delays in the product approval process for our full suite of products.

 

Outlook

 

The recovery in construction markets in the UK that started towards the end of 2013 took hold in 2014 and forecasts almost universally expect the outlook to remain positive in the medium term. Whilst it is difficult to predict whether there may be some short term impact of the impending General Election in the UK, it appears that whatever the final outcome, all parties are supportive of policies to stimulate the construction of more houses and of improving the national infrastructure.

 

The economy in Europe and France in particular is more fragile and there is little evidence to suggest a significant improvement is likely in the near term. However, this represents only a relatively minor component of our overall business and as we do not envisage significant deterioration, believing that our slow and steady improvements to our French business will benefit in the medium term as the economy recovers.

 

We will continue to explore opportunities to grow our exports and although we may see some reduction in overall activity in our primary export markets driven by the sharp falls in oil prices, we have such a small market share that we believe we can continue to grow as we establish our reputation.

 

Our growth initiatives, combined with this positive market backdrop in our main UK market, mean we entered 2015 with optimism and at this early stage of the year we are confident that the Group will deliver results for the year in line with market expectations.

 

 

Financial Review

 

First half / second half results

 


First Half


Second Half


Full Year

£m


£m


£m







2014






Revenue

168.2


158.8


327.0

Operating profit1

22.7


23.6


46.3

Operating profit1 margin

13.5%


14.9%


14.2%







2013






Revenue

151.8


149.0


300.8

Operating profit1

17.6


22.1


39.7

Operating profit1 margin

11.6%


14.8%


13.2%







Revenue growth:






- Group

10.8%


6.6%


8.7%

- UK

14.2%


10.7%


12.4%

- Mainland Europe as reported

(2.9%)


(13.1%)


(7.5%)

- Mainland Europe at constant exchange rates

1.3%


(6.0%)


(2.1%)

 

1Before operating exceptional items

 

 

Revenue grew by 8.7% during 2014 (10.8% first half; 6.6% second half) and UK revenue growth for the full year of 12.4% was well ahead of the Construction Products Association's (CPA's) estimate of the growth in total UK construction output during 2014 of 5.3%.  As expected revenue growth in the second half was lower due to stronger comparables, particularly in the UK where the market recovery took hold in the second half of 2013.  In addition our operations in France experienced deteriorating market conditions and some merchant destocking in the second half with revenue down 6.0% at constant currency.

 

The revenue to operating profit1 drop through (year-on-year incremental revenue to incremental operating profit1) for 2014 was 25.2% (31.1% first half; 15.3% second half).  The operating profit1 drop through rate declined in the second half of 2014 due to additional "plc costs" and also the operating profit1 margin in the second half of 2013 reflected some benefit from improved manufacturing output as a result of the need to increase inventory levels towards the end of 2013 to meet the upturn in demand.

 

Cashflow and net debt

 

Cash generated from operations during the year, excluding the impact of the exceptional operating items, and the cash conversion rate defined as the ratio of operating cashflow less capital expenditure to operating profit (also excluding the impact of exceptional operating items) were:

 


2014

£m


2013

£m





Operating profit1

46.3


39.7





Depreciation

14.5


13.9





Operating profit1 plus depreciation (EBITDA)

60.8


53.6





Increase in negative working capital

2.3


5.5

Operating cashflow1

63.1


59.1

Capital expenditure

(15.1)


(21.1)





Operating cashflow1 after capital expenditure

48.0


38.0





Cash conversion rate

103.7%


95.7%

 

1Before operating exceptional items

 

Cash generated from operations (excluding exceptional operating costs) after capital expenditure increased by 26.3% during the year to £48.0m (2013: £38.0m) due to the improved operating performance and lower capital expenditure.

 

The cash conversion rate, a key measure of operating cashflow performance, remained strong and improved from 95.7% in 2013 to 103.7% in 2014.

 

Capital expenditure of £15.1m was £6.0m lower than the prior year, however part of this reduction was due to the timing of projects as capital commitments at 31 December 2014 increased to £2.6m from £0.9m a year earlier.

 

Net working capital at 31 December 2014 of negative £4.4m compared with negative £1.7m at 31 December 2013.  This increase in negative working capital was as a result of the increase in the amount of rebates accrued due to increased sales.  Net working capital at our December year end is the lowest position during the year due to the seasonal slowdown in December in construction site activity and our manufacturing operations ahead of the Christmas holiday period, as well as the accumulation of quarterly and annual customer rebate liabilities which are settled in the following year.

 

Net debt (term loan less cash) reduced by £7.2m during the year to £76.9m.  This was after exceptional listing and refinancing costs of £21.9m paid in the year and £1.7m spent on acquiring treasury shares. 

 

At 31 December 2014 liquidity (cash and committed banking facilities) was strong at £83.1m.  This leaves significant headroom to increase payback capital expenditure and to fund further "bolt on" acquisitions as opportunities arise. 

 

The Group is subject to two financial covenants; at 31 December 2014 there was significant headroom:

 

 

Covenant

Covenant requirement

Position at 31 December 2014




Interest cover (EBIT:Net finance costs

excluding debt issuance cost amortisation)

 

>3:1

 

5.7:1

Leverage (EBITDA:Net debt)

<3:1

1.3:1




All convenant definitions exclude exceptional items



 

 

Finance Costs

 

Finance costs for the year ended 31 December 2014 of £8.9m were lower than the finance costs of £15.5m in the prior year as a result of the refinancing of the £150m Senior Secured Notes (fixed interest rate of 9.5%) with £30m from surplus cash balances and £120m from a new five year term bank loan in April 2014. Interest on the new five year term bank loan is payable at LIBOR plus a margin of 2.75% which reduces if the leverage ratio of the Group improves.  As a result of our improved leverage position, the margin fell to 2.50% at 31 December 2014.

 

In order to reduce exposure to future increases in interest rates, the Group entered into an interest rate swap on 16 April 2014 for notional amounts of between 40% and 60% of the term loan over the period of the loan. Interest is payable at a fixed rate of 2.21% (excluding margin) over the period from January 2015 to March 2019.  The unrealised loss on the interest rate swap amounted to £2.4m at 31 December 2014.  The interest rate swap is designated as an "effective hedge" and as such the unrealised loss was treated as "other comprehensive income" and not a charge to the income statement during 2014.

 

Exceptional finance costs of £8.6m were incurred in the year in relation to the refinancing of our Senior Secured Notes.

 

Taxation

 

Exceptional items have had a significant impact on the 2014 tax charge.  To assess the underlying tax rate, the table below shows the level of taxation relief on the exceptional IPO listing and refinancing costs:

 





Tax


Tax

rate



£m


£m


%

Profit before tax (before exceptional IPO

listing and refinancing costs) and related tax


 

37.7


 

5.4


 

14.3%








Exceptional IPO listing (£12.2m) and

refinancing costs (£8.6m) and related tax relief


 

(20.8)


 

(2.0)


 

 








Profit before tax and related tax - current year


16.9


3.4


20.1%








Prior year credit


-


(0.4)










Profit before tax and tax as reported


16.9


3.0


17.8%

 

The underlying tax rate of 14.3% is below the UK standard rate of 21.5% (the impact of mainland European operations is not significant) due to patent box relief and the availability of non trading losses which reduced the UK corporation tax charge by £2.5m in 2014.  In 2015 the Group tax rate will revert back to the standard UK tax rate.

 

Exchange Rates

 

The Group is exposed to movements in exchange rates when translating the results of its mainland European operations from Euros to Sterling.  Sterling appreciated against the Euro during 2014 with the average exchange rate used for translation purposes moving from £1:€1.18 in 2013 to £1:€1.25 in 2014.  The impact of which was £3.2m negative on revenue with no impact on operating profit.

 

Forward currency derivative contracts are classified as held for trading.  There was an unrealised loss of £0.2m (included in financial liabilities) on these derivative contracts at 31 December 2014 (2013: £0.4m financial asset) resulting in an income statement charge of £0.6m during the year.

 

Earnings per share

 


2014


2013

Pence per share:








Basic

6.96


10.00





Adjusted

16.11


9.95

 

The impact of dilution is not significant

 

The movement in basic EPS is distorted by the significant exceptional non trading items during 2014.

 

Adjusted EPS, which removes the impact of exceptional non trading items, improved by 62% in 2014.  Part of this year-on-year improvement was due to the material reduction in finance costs for eight months of the year as a result of the refinancing at the time of the IPO listing.

 

 

In 2015 finance costs will reduce further from the full year benefit of the refinancing but will also be impacted by the interest rate swap which becomes effective from the start of 2015 and the slight benefit from the margin reduction.  As noted under "Taxation" above, the benefit of unutilised non trading taxation losses brought forward will reduce slightly in 2015 as they become fully utilised during the year.  These factors, which impact future finance costs and taxation, will have an effect on our EPS going forward.

 

Dividend

 

The final dividend of 3.0 pence is being recommended for payment on 28 May 2015 to shareholders on the register at the close of business on 8 May 2015.  The ex dividend date will be 7 May 2015.

 

As highlighted in the Group's IPO prospectus, our dividend policy is to pay a minimum of 40% of the Group's annual profit after tax (adjusted to exclude exceptional items). The Directors intend that the Group will pay the total annual dividend in two tranches, an interim dividend and a final dividend, to be announced at the time of announcement of the interim and preliminary results respectively in the approximate proportions of one-third and two-thirds, respectively. As previously guided, the dividend in respect of the current financial year will be paid pro rata to reflect the period of time we have been listed as a proportion of the full year. The Group may revise its dividend policy from time to time.

 

Pensions

 

The Group does not have any defined benefit pension schemes and only has defined contribution pension arrangements in place.  Following the implementation of UK pensions auto enrolment in October 2013, pension costs increased from £1.0m in 2013 to £1.3m in 2014 due to the full year impact of the increased membership.

 

Acquisitions

 

In October 2014 the Group acquired 100% of the business and assets of Ferrob Limited.  The Company is involved in the public sector housing ventilation market within the UK.  The consideration was £0.3m cash and a contingent consideration which is dependent upon the level of sales during the year following acquisition.  The contingent consideration is estimated to be £0.4m.  Ferrob's pre and post acquisition revenue and operating loss for the year ended 31 December 2014 were £1.1m and £0.2m respectively.

 

Subsequent to the year end, in January 2015 the Group acquired 100% of the share capital of Surestop Limited a company which manufactures and supplies a range of patented water mains switch-off devices.  The cash consideration of £6.0m included payment for £0.8m net cash at completion.  Surestop's pre acquisition revenue and operating profit for the year ended 31 December 2014 was £2.1m and £0.7m respectively.

 

Going Concern

 

The Group continues to meet its day to day working capital and other funding requirements through a combination of long term funding and cash deposits.  The Group's bank financing facilities are a £120m five year term loan and a £40m committed revolving credit facility (undrawn at December 2014).  Both the term loan and revolving credit facility expire in March 2019.

 

After making due enquiry, the directors have a reasonable expectation that the Company and its subsidiaries have adequate resources to continue operational existence for the foreseeable future and therefore adopt the going concern principle.

 

Risks and Uncertainties

 

The principal risks and uncertainties that could have a material impact on the Group's performance and prospects and the mitigating activities which are aimed at reducing the impact or likelihood of a major risk materialising are highlighted below.  The Board does recognise however that it will not always be possible to eliminate these risks entirely. 

 

Risk

 

Potential Impact

Mitigations

Raw material prices

The Group is exposed to volatile raw material prices, particularly polymers, due to fluctuations in the market price of crude oil and other petroleum feedstocks, exchange rate movements, and changes to suppliers' manufacturing capacity.

 

 

Any increase in the market price of crude oil and other

Petroleum feedstocks, exchange rate movements, and changes to suppliers' manufacturing capacity could have a direct impact on the

prices the Group pays for raw materials which could adversely affect its operating margins and cash flow.

 

The Group seeks to pass on raw material price increases to its customers wherever possible.  There is usually at least a three month time period from notification of the raw material price increase before selling prices can be actioned in the market.  Competitors of the Group are likely to experience similar levels of polymer cost increases.

 

Business Disruption

The Group's manufacturing and distribution operations could be subjected to disruption due to factors including incidents such as fire, failure of equipment, power outages, strikes, or unexpected or prolonged periods of severe weather.

 

 

 

Incidents such as fires, failure of equipment, power outages, strikes or unexpected severe weather (due to flooding, snow or high winds) could result in the temporary cessation in activity or disruption at one of the production facilities impeding the Group's ability to deliver its products to its customers, adversely affecting its financial results.

 

In addition, prolonged periods of severe weather could result in a slowdown in site construction activity reducing the demand for the Group's products and adversely affecting its financial results.

 

The Group has developed business continuity, crisis response, and disaster recovery plans.

The Group has the ability to transfer some of its production to alternative sites and could also subcontract out some of its tooling to reduce any potential loss in production capacity.

 

The Group maintains a significant amount of insurance to cover business interruption and damage to property from such events.

Reliance on key customers

Some of the Group's businesses are dependent on key customers in highly competitive markets.

 

 

Failure to manage relationships with key customers, whilst continuing to provide high quality products delivered on time in full, and developing new innovate products could lead to a loss of business affecting the financial results of the Group.

 

The Group's strategic objective is to broaden its customer base wherever possible.

 

The Group focuses on delivering exceptional customer service and maintains strong relationships with major customers through direct engagement at all levels.

 

The Group maintains customer service matrices which are continually tracked and monitored and intervention made where required.

 

The Group closely manages its pricing, rebates, and commercial terms with its customers to ensure that they remain competitive.

 

The Group continually seeks to innovate and develop its product lines to ensure its products are the best in the industry.

 

Recruitment and Retention of Key Personnel

The Group is dependent on the continued employment and performance of our Executive Management Team and other key skilled personnel.

 

 

 

Loss of any key personnel without adequate and timely replacement could disrupt business operations and the Group's ability to implement and deliver its growth strategies.

 

 

The Group has a formal succession plan in place ensuring progression through the Group.

 

The Group aims to provide competitive remuneration packages and bonus schemes to retain and motivate key personnel.

 

Economic Conditions

The Group is dependent on the level of activity in the construction industry and is therefore susceptible to any changes in its cyclical economic conditions.

 

 

Lower levels of activity within the construction industry could reduce sales and production volumes adversely affecting the Group's financial results.

 

 

The Group closely monitors trends in the industry, invests in market research and is an active member of the Construction Products Association.  The Group uses Construction Products Association and Euroconstruct forecasts in its budgeting process.

 

The Group closely manages its demand forecasts and costs through weekly operational review meetings.

 

Government Action and Policy

 

The Group is in part dependent on Government action and policies relating to public and private investment and is therefore susceptible to changes in Government spending priorities.

 

 

 

 

 

Significant downward trends in Government spending on public and private investment arising from economic uncertainty and ongoing austerity policies could have an adverse impact on the construction industry which could impact on sales and production volumes affecting the Group's financial results.

 

 

 

 

The Group's strategy is to have its operations structured so that it has a balanced exposure to the residential, commercial and infrastructure construction sectors so as to reduce the impact of any adverse government action or policy on any one of the construction sectors.

 

The Group closely monitors trends in the industry, invests in market research and is an active member of the Construction Products Association.

 

The Group closely manages its demand forecasts and costs through weekly operational review meetings.

Government regulations and standards relating to the manufacture and use of building materials

The Group is subject to the requirements of UK and European environmental and occupational safety and health laws and regulations, including obligations to investigate and clean up environmental contamination on or from properties.

 

 

 

 

 

Failure of the Group to comply with changes to environmental regulations and other obligations relating to environmental matters could result in the Group being liable for fines, require modification to operations, increase manufacturing and delivery costs, and could result in the suspension or termination of necessary operational permits, thereby impacting the Group's financial results.

 

 

 

 

The Group has a formal Health, Safety & Environmental policy, and procedures are in place to monitor compliance with the policy.

 

The Group performs internal environmental audits and is subjected to external environmental audits on a periodic basis.

 

The Group performs weekly and monthly reporting on key Health, Safety & Environmental matters.

 

Product Liability

The Group manufactures products that are potentially vital to the safe operation of its customers' products or processes.  These are often incorporated into the fabric of a building or dwelling, or buried in the ground as part of an infrastructure system and in each case, it would be difficult to access, repair, recall or replace such products.

 

 

A product failure or recall could result in a liability claim for personal injury or other damage leading to substantial money settlements, damage to the Group's brand reputation, costs and expenses and diversion of key management's attention from the operation of the Group, which could all affect the Group's financial results.

 

 

The Group operates comprehensive quality assurance systems and procedures at each site. 

Wherever required, the Group obtains certifications over its products to the relevant national and European standards including Kitemarks, BBAs, WRCs and WRACs. 

 

The Group maintains product liability insurance to cover personal injury and property damage claims from product failures.

Financial Risk Management

The Group's operations expose it to a variety of financial risks that include the effects of:

 

Price Risk (considered in raw material prices above);

 

 

Foreign Exchange Risk - The risk that the fair value of a financial instrument or future cash flows will fluctuate because of changes in foreign exchange rates.  The Group's risk relates primarily to the its operating activities where the revenue or expense is denominated in a currency other than the functional currency of the entity undertaking the transaction;

 

 

 

 

 

Credit Risk - The Group is exposed to credit risk from its trading activities (primarily from trade receivables) and from its financing activities, including deposits with banks;

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liquidity Risk - The risk that the Group will not be able to meets its financial obligations as they fall due; and,

 

 

 

 

 

 

 

Interest rate risk - The risk that interest rates could rise impacting on the Group's financing costs.

 

 

 

 

 

 

 

 

 

 

Foreign Exchange Risk - Exchange rate fluctuations may adversely affect the Group's results.

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Risk - The failure of a counterparty to meet their financial obligations could lead to a financial loss for the Group.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

Liquidity Risk - Insufficient funds could result in the Group not being able to fund its operations.

 

 

 

 

 

 

 

 

Interest rate risk - Increases to interest rates could result in significant additional interest rate payments being required on any borrowings.

 

 

The Group has in place financial risk management procedures that seek to limit the adverse effects of the financial risks as follows:

 

 

 

Foreign Exchange risk - The Group enters into forward currency contracts for the purchase and sale of foreign currencies in order to manage its exposure to fluctuations in currency rates primarily in respect of US Dollar and Euros.  It is not possible for the Group to mitigate exchange rate differences which impact the translation of its overseas subsidiaries' results and net assets as all of the Group's long term borrowings are Sterling denominated.

 

Credit risk - Customer credit risk is managed by each subsidiary subject to the Group's established policy, procedures and control relating to customer credit risk management.  Credit quality of the customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored and any shipments to major export customers are generally covered by letters of credit or credit insurance.

 

Credit risk arising from cash deposits with banks are managed by the Group's Finance Department.  Investments of surplus funds are made only with banks that have as a minimum a single A credit rating.

 

Liquidity risk - The Group's approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

 

Interest rate risk - To reduce the Group's exposure to future increases in interest rates, the Group has entered into interest rate swaps from variable to fixed interest rates.

 

 



Related Party Transactions

 

Prior to the IPO the Company paid a management fee of £116,000 (2013: £400,000) to Cavendish Square Partners Limited Partnership, manager of the Cavendish Square Partners fund, which is a shareholder of the Company.  Since the IPO a non-executive director's fee of £32,000 was paid to Cavendish Square Partners Limited Partnership for Mark Hammond, a partner in Caird Capital which manages Cavendish Square Partners Limited Partnership.

 

Compensation of key management personnel (including Directors) was:

 


2014

£m


2013

£m

Short-term employees benefits

2.4


2.4

Post-employee benefits

-


0.1


2.4


2.5

 

Key management personnel comprise the Executive Directors and key divisional managers.

 

Forward Looking Statements

 

Certain statements in this full year report are forward looking.  Although the Group believes that the expectations reflected in these forward looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct.  Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by these forward looking statements.  We undertake no obligation to update any forward looking statements, whether as a result of new information, future events or otherwise.

 

Directors' Responsibility Statement

 

The following statement will be contained in the 2014 Annual Report and Accounts.

 

We confirm that to the best of our knowledge:

-     the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

 

-     the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

 

-     the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Group's performance, business model and strategy.

 

By order of the Board:

 

 

 

 

D G Hall                                                            P D Shepherd

Chief Executive Officer                                        Chief Financial Officer

26 March 2015                                                   26 March 2015

 

 

Polypipe Group plc

2014 Preliminary results

GROUP INCOME STATEMENT

for the year ended 31 December 2014

 

 

 


Notes

2014


2013



£m


£m

Revenue

2

327.0


300.8

Cost of sales


(202.4)


(188.3)

Gross profit


124.6


112.5






Selling and distribution costs


(49.8)


(46.9)

Administration expenses


(28.5)


(25.9)

Operating profit before operating exceptional items

2

46.3


39.7






Operating exceptional items

3

(12.1)


0.1

Operating profit


34.2


39.8






Finance revenue


0.2


0.3

Finance costs

4

(8.9)


(15.5)

Exceptional finance costs

4

(8.6)


-

Profit before tax


16.9


24.6






Taxation

5

(3.0)


(4.6)

Profit for the year attributable to owners of the parent


 

13.9


 

20.0






 

 

Earnings per share (pence)





Basic

6

6.96


10.00






Adjusted earnings per share (pence)





Basic

6

16.11


9.95

 

The impact of dilution is not significant

 

Dividends per share (pence)





Interim

7

1.50


-

Final proposed

7

3.00


-

 

 

 

 


GROUP STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2014

 



2014


2013



£m


£m

Profit for the year


13.9


20.0

Other comprehensive income:





Items which will be reclassified subsequently to profit and loss:-





Exchange differences on translation of foreign operations


 

(1.1)


 

0.3

Effective portion of changes in fair value of swap derivatives

Tax relating to items that may be reclassified


 

(2.4)

0.5


 

-

-






Other comprehensive income for the year net of tax


(3.0)


0.3

 

Total comprehensive income for the year attributable to owners of the parent


 

10.9


 

20.3






 

 


GROUP BALANCE SHEET

 

at 31 December 2014


 

31 December 2014


 

31 December 2013




£m


£m


Non-current assets






Property, plant and equipment


89.2


89.0


Intangible assets


235.0


234.4








Total non-current assets


324.2


323.4








Current assets






Inventories


39.9


38.9


Trade and other receivables


20.9


21.4


Other financial assets


-


0.4


Cash and cash equivalents


43.1


65.9








Total current assets


103.9


126.6







Total assets


428.1


450.0








Current liabilities






Trade and other payables


(65.2)


(62.0)


Other financial liabilities


(2.6)


-


Income tax payable


(2.0)


(2.4)








Total current liabilities


(69.8)


(64.4)








Non-Current liabilities






Loans and borrowings


(118.0)


(150.6)


Other liabilities


(1.7)


(2.0)


Deferred tax liability


(0.9)


(1.6)








Total non-current liabilities


(120.6)


(154.2)








Total liabilities


(190.4)


(218.6)


 

Net assets


237.7


231.4


 

 

Capital and reserves





Equity share capital


0.2


1.3

Treasury shares


(1.7)


-

Capital redemption reserve


1.1


-

Hedging reserve


(1.9)


-

Foreign currency retranslation reserve


(1.7)


(0.6)

Retained earnings


241.7


230.7






Total equity


237.7


231.4


GROUP STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2014










 

 

Share capital

Share

premium

Capital redemption reserve

Treasury shares

Hedging reserve

Foreign currency retranslation reserve

Retained earnings

Total equity


£m

£m

£m

£m

£m

£m

£m

£m

At 31 December 2012

1.3

315.9

-

-

-

(0.9)

(105.2)

211.1

Profit for the year

-

-

-

-

-

-

20.0

20.0

Other comprehensive income

 

-

 

-

 

-

 

-

 

-

 

0.3

 

-

 

0.3

Total comprehensive income for the year

 

-

 

-

 

-

 

-

 

-

 

0.3

 

20.0

 

20.3

Cancellation of share premium

 

-

 

(315.9)

 

-

 

-

 

-

 

-

 

315.9

 

-

At 31 December 2013

1.3

-

-

-

-

(0.6)

230.7

231.4

Profit for the year

-

-

-

-

-

-

13.9

13.9

Other comprehensive income/(expense)

 

-

 

-

 

-

 

-

 

(1.9)

 

(1.1)

 

-

 

(3.0)

Total comprehensive income/(expense) for the year

 

-

 

-

 

-

 

-

 

(1.9)

 

(1.1)

 

13.9

 

10.9

Dividends paid

-

-

-

-

-

-

(3.0)

(3.0)

Purchase of treasury shares

 

-

 

-

 

-

 

(1.7)

 

-

 

-

 

-

 

(1.7)

Share-based payments

 

-

 

-

 

-

 

-

 

-

 

-

 

0.1

 

0.1

Cancellation of deferred shares

 

(1.1)

 

-

 

1.1

 

-

 

-

 

-

 

-

 

-

 

At 31 December 2014

 

0.2

 

-

 

1.1

 

(1.7)

 

(1.9)

 

(1.7)

 

241.7

 

237.7

 

 

 

 

  

GROUP CASH FLOW STATEMENT

for the year ended 31 December 2014

 

                       


2014


2013



£m


£m

Operating activities





Profit for the year before tax


16.9


24.6

Add back net financing costs


17.3


15.2

Operating profit


34.2


39.8

Adjusted for non cash items:





Gain on disposal of property, plant and equipment


(0.1)


(0.7)

Operating exceptional items - net expense recognised


12.2


-

                                              - cash paid


(12.5)


-

Profit on sale of investments


-


(0.3)

Depreciation


14.5


13.9






Operating cash flow before movement in working capital


48.3


52.7

Movement in working capital:





Receivables


(0.2)


1.9

Payables


4.0


4.7

Inventories


(1.5)


(1.1)






Cash generated from operations


50.6


58.2

Income tax paid


(3.7)


(4.9)

Net cash flows from operating activities


46.9


53.3






Investing Activities





Interest received


0.2


0.3

Proceeds from disposal of property, plant and equipment


0.2


0.8

Proceeds from sale of investments


-


0.3

Acquisition of new business


(0.3)


-

Purchase of property, plant and equipment


(15.1)


(21.1)

Net cash flow used in investing activities


(15.0)


(19.7)






Financing activities





Repayment of bank loan


-


(0.1)

Repayment of Senior Secured Notes


(150.0)


-

New bank loan


120.0



Purchase of own shares


(1.7)


-

Interest paid


(10.6)


(14.6)

Dividend paid


(3.0)


-

Refinancing costs


(9.4)


-






Net cash flows from financing activities


(54.7)


(14.7)






Net (decrease)/increase in cash and cash equivalents


(22.8)


18.9

Cash and cash equivalents at 1 January


65.9


47.0






Cash and cash equivalents at 31 December


43.1


65.9

 

NOTES TO THE GROUP FINANCIAL STATEMENTS

as at 31 December 2014

 

1.   Basis of preparation

The preliminary results for the year ended 31 December 2014 have been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards ("IFRS") as endorsed by the European Union regulations as they apply to the financial statements of the Group for the year ended 31 December 2014. Whilst the financial information included in this preliminary announcement has been computed in accordance with the recognition and measurement requirements of IFRS, this announcement does not itself contain sufficient information to comply with IFRS.  The accounting policies adopted are consistent with those of the previous year.

The financial information set out in this announcement does not constitute the statutory accounts for the Group within the meaning of Section 435 of the Companies Act 2006. The statutory accounts for the year ended 31 December 2013 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2014 will be filed in due course. The auditors' report on these accounts was not qualified or modified and did not contain any statement under sections 498(2) or (3) of the Companies Act 2006 or any preceding legislation.

 

2. Segment information

The Group has three reporting segments - Residential Piping Systems (all UK by origin), Commercial and Infrastructure Piping Systems - UK and Commercial and Infrastructure Piping Systems - Mainland Europe.

 

 

 


2014


2013

 

Revenue


Operating Profit


Revenue


Operating Profit


£m


£m


£m


£m

Residential Piping Systems

 173.3


28.4


158.7


26.0

Commercial & Infrastructure Piping Systems








- UK

      111.1


         17.0


       94.3


         12.4

- Mainland Europe

       53.9


           0.9


      58.3


           1.3


165.0


17.9


152.6


13.7

Inter segment sales

  (11.3)


-


(10.5)


--









Group Revenue / Operating Profit

327.0


46.3


300.8


39.7









Operating exceptional items



 (12.1)




0.1

Net finance costs



(17.3)




(15.2)









Profit before taxation



16.9




24.6

 

 

Geographical analysis










Revenue by destination


2014


2013



£m


£m

UK


253.3


226.2

Rest of Europe


56.9


61.3

Rest of World


16.8


13.3

Total Group


327.0


300.8






 

3. Operating exceptional Items

 

Operating exceptional items comprised:


2014


2013


£m


£m

Listing costs

12.2


-

Restructuring costs

-


0.7

Aborted acquisition costs

-


0.2

Profit on sale of investments

-


(0.3)

Profit on sale of property, plant and equipment

(0.1)


(0.7)

Total charge / (credit)

12.1


(0.1)

 

4. Finance Costs

 


2014


2013


£m


£m

Interest on Senior Secured Notes

5.5


14.2

Interest on Bank loan

2.4


-

Debt issue cost amortisation

0.6


1.1

Bank interest and other finance charges

0.4


0.2

Finance costs

8.9


15.5





 

Debt issue cost amortisation includes a charge of £0.4m in respect of facilities that were refinanced during 2014. The remaining unamortised amount in respect of refinanced facilities at the point of refinancing (£1.4m) was written off within exceptional finance costs as set out below.

 

 


2014


2013


£m


£m

Senior Secured Notes early settlement fee

7.2


-

Write off of unamortised debt issue costs

1.4


-

Exceptional finance costs

8.6


-

 

Refinancing costs paid during 2014 amounted to £9.4m being the early settlement fee on the Senior Secured Notes of £7.2m and £2.2m of debt issue costs relating to the new banking facilities.

 

 

5. Taxation

 

(a) Tax charged in the income statement


2014


2013


£m


£m

Current income tax:




UK corporation tax

3.7


4.3

Overseas tax

-


0.1





Current income tax charge

3.7


4.4

Adjustment in respect of prior years

(0.4)


-





Total current income tax

3.3


4.4





Deferred tax:




Origination and reversal of temporary differences

(0.1)


0.5

Effect of changes in tax rates

-


(0.3)

Overseas taxation

(0.2)


-





Total deferred tax

(0.3)


0.2





Tax expense in the income statement

3.0


4.6





 

(b) Reconciliation of the total tax charge

A reconciliation between the tax expense and the product of accounting profit multiplied by the United Kingdom's standard tax rate for the years ended 31 December 2014 and 2013 is as follows:


2014


2013


£m


£m





Accounting profit before tax

16.9


24.6





Accounting profit multiplied by the UK standard rate of tax of
21.49% (2013: 23.25%)

 

3.6


 

5.7

Expenses not deductible for corporation tax

4.5


0.6

Non-taxable income

(1.8)


(0.4)

Utilisation of tax losses

(2.5)


(1.3)

Adjustments in respect of current income tax of previous years

(0.4)


-

Deferred tax not previously recognised

-


0.1

Effects of chargeable gains

-


0.2

Effects of changes in tax rate

(0.4)


(0.3)





Total tax expense reported in the income statement

3.0


4.6





 

The effective rate for the full year is 17.8%.  If the impact of exceptional costs is excluded, the underlying tax rate would be 14.3%.

 

6. Earnings per ordinary share

Basic earnings per share amounts are calculated by dividing profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. The diluted earnings per share amounts are calculated by dividing profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

The calculation of the basic and diluted earnings per share is based on the following:

 


2014


2013


£m


£m

Earnings




Profit for the year attributable to equity holders of the parent

 

13.9


 

20.0





Number of shares




Weighted average number of ordinary shares for the purpose of basic earnings per share

199,853,984


199,999,862

 

Share options

111,897


-

Weighted average number of ordinary shares for the purpose of diluted earnings per share

199,965,881


199,999,862





 

The weighted average number of shares has been calculated assuming the consolidation and sub-division of shares (as described in note 24) took place as from 1 January 2013.

 

Earnings per share

Pence


Pence

Basic

6.96


10.00

Diluted

6.95


10.00

 

Adjusted Earnings

 

Adjusted profit is derived below and is defined as the result of the year, excluding the impact of exceptional operating items and exceptional finance costs.  The Directors consider that this measure gives a better and more consistent indication of the Group's underlying performance.


2014


2013


£m


£m

Operating profit for the year before operating exceptional items

46.3


 

39.7

Net finance costs (excluding exceptional finance costs)

(8.7)


(15.2)

 

Taxation at underlying tax rate (note 13b)

37.6

(5.4)


24.5

(4.6)

 

Adjusted profit for the year

32.2


19.9





Adjusted Earnings per share

Pence


Pence

Basic

16.11


9.95

Diluted

16.10


9.95

 

7. Dividends

 


2014


2013


£m


£m





Interim dividend for the year ended 31 December 2014 of 1.5p                                                                                                             (2013: nil) per share

 

3.0


 

-





Proposed final dividend for the year ended 31 December 2014 of 3.0p (2013: nil) per share

 

6.0


 

-

 

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
FR EAXDSASPSEFF

Final Results

RNS Number : 2185T
Polypipe Group PLC
19 March 2019
 

19 March 2019

 

Polypipe Group plc

Audited results for the year ended 31 December 2018

 

Continued growth and strategic progress

 

Polypipe Group plc ("Polypipe", the "Company" or the "Group"), a leading provider of sustainable water and climate management solutions for the built environment, today announces its audited results for the year ended 31 December 2018.

Financial Results

 

 

2018

2017

Change

Statutory measures

 

 

 

Revenue

£433.2m

£411.7m

+5.2%

Operating profit

£65.8m

£62.5m

+5.3%

Profit before tax

£58.2m

£55.6m

+4.7%

Earnings per share (basic)

24.5p

22.7p

+7.9%

Cash generated from operations

£90.0m

£80.4m

+11.9%

Dividend per share

11.6p

11.1p

+4.5%

Alternative performance measures

 

 

 

Underlying operating profit1

£74.0m

£72.6m

+1.9%

Underlying operating margin1

17.1%

17.6%

-50bps

Underlying profit before tax1

£67.1m

£65.7m

+2.1%

Underlying earnings per share (basic)1

28.4p

27.2p

+4.4%

Leverage (times pro forma EBITDA2)

1.7

1.6

0.1

 

Financial Highlights

·      Revenue growth of 5.2% despite mixed market conditions demonstrating strength of diversified business model

·      Underlying operating profit 1.9% higher and underlying profit before tax 2.1% higher

·      Resilient margin at 17.1%

·      Underlying basic earnings per share 4.4% higher

·      Robust balance sheet and continued strong operational cash generation. Group pro forma leverage of 1.7x (2017: 1.6x) despite £42.5m invested in acquisitions, net of disposals

·      Proposed final dividend of 7.9p, bringing the total for the year to 11.6p, 4.5% ahead of last year

Operational Highlights

·      UK revenue growth ahead of industry benchmark at 5.9% relative to Construction Products Association winter forecast decline of 0.2% for 2018

·      Residential Systems revenue 9.8% higher and 8.5% higher on a like-for-like basis with strong growth in housebuilding sector

·      Commercial and Infrastructure revenues declined 0.2% for the year but a strong second half performance of 6.7% growth (of which 5.3% was on a like-for-like basis), benefitted from successful product launches and new road projects gaining momentum

·      Price increases successfully passed through to mitigate cost inflation

·      Second half acquisitions - Permavoid and Manthorpe - performing in line with our expectations and integration progressing well

·      France disposal completed in March 2018

·      Alternative manufacturing strategy delivered in the Middle East

·      Recycled plastic represents an improved 40.2% of the Group's overall plastic usage (2017: 34.0%)

 

Outlook

·      Polypipe has made significant strategic progress in 2018 together with a continued focus on organic growth ahead of market and strong cash generation

·      The fundamentals of our markets remain robust with a continued structural housing shortage in the UK, Help-to-Buy extended to 2023, historically low interest rates and good mortgage availability underpinning new housebuilding activity. RMI and commercial and infrastructure markets have been and will continue to remain challenging

·      Whilst we remain vigilant to the impacts of uncertainty on our markets, our balanced portfolio positions the Group well, and we look forward to another year of progress in 2019

 

Martin Payne, Chief Executive Officer, said:

"We are delighted to report another record performance, despite a backdrop of challenging market conditions. Our second half of the year was strong, and we completed two significant acquisitions as part of our strategy to broaden our market offering. Both Manthorpe and Permavoid are performing in line with expectations and we look forward to further progress.  We continue to see strong cash generation, and the long-term growth drivers of legacy material substitution and legislative tailwinds, together with our strong balance sheet, position us well for the future."

 

 

1 Underlying profit and earnings measures are from continuing operations only and exclude certain non-underlying items and where relevant, the tax effect of these items. The Directors consider that these measures provide a better and more consistent indication of the Group's underlying financial performance and more meaningful comparison with prior and future periods to assess trends in our financial performance.

                                     

2 Pro forma EBITDA is defined as underlying operating profit before depreciation for the twelve months preceding the balance sheet date, excluding operating profit before depreciation from discontinued operations, adjusted where relevant to include a full year of EBITDA from acquisitions made during those twelve months.

 

 

 

 

 

 

 

 

 

For further information please contact:

 

Polypipe

Martin Payne, Chief Executive Officer

Paul James, Chief Financial Officer

 

+44 (0) 1709 770 000

Brunswick

Nina Coad

Dan Roberts

Nick Beswick

 

+44 (0) 20 7404 5959

A copy of this report will be available on our website www.polypipe.com today from 0700hrs (GMT).

An analyst and investor presentation will be held today at Brunswick's offices at 16 Lincolns Inn Fields, London, WC2A 3ED at 0900hrs (GMT) with registration from 0830hrs.

For those unable to attend, a live conference call will be available at 0900hrs (GMT).

UK Freephone Dial-In Number                                 08003767922

Standard International Dial-In number                       +44 (0) 2071 928000

Conference PIN                                                        1886904

Access to the slide presentation during this live event is available at: this link.

 

 

 

Notes to Editors:

Polypipe Group plc ("Polypipe", the "Company" or the "Group"), a leading provider of sustainable water and climate management solutions for the built environment is the largest manufacturer in the UK, and among the ten largest manufacturers in Europe, of plastic piping systems for the residential, commercial, civils and infrastructure sectors by revenue.  It is also a leading designer and manufacturer of energy efficient ventilation systems in the UK.

The Group operates from 18 facilities in total, and with over 20,000 product lines, manufactures the UK's widest range of plastic piping systems for heating, plumbing, drainage and ventilation. The Group primarily targets the UK and European building and construction markets with a presence in Italy, the Netherlands and the Middle East and sales to specific niches in the rest of the world.

 

 

Group Results

Group revenue for the year ended 31 December 2018 was 5.2% higher than the prior year at £433.2m (2017: £411.7m).  Group revenue includes £4.1m generated by Permavoid and Manthorpe, and excluding the impact of these acquisitions, Group revenue was 4.2% higher.  Against a backdrop of mixed market conditions, this performance demonstrates the robustness of the Polypipe business and the strength of its long-term strategy.

Underlying operating profit was 1.9% higher than the prior year at £74.0m (2017: £72.6m).  Price increases were implemented in early 2018 to mitigate cost inflation in absolute terms.  This had a margin-dilutive effect and together with the relative growth of lower margin new housebuilding volumes, and towards the end of the year, inefficiencies caused by operating at or near full capacity in certain areas, operating margin in 2018 was slightly lower, at 17.1% (2017: 17.6%). Investments made in 2019 in new production equipment and layout improvements to alleviate capacity constraints should allow a return to more efficient working in the coming year.

Underlying finance costs are in line with 2017 at £6.9m (2017: £6.9m) and the Group achieved interest cover of 11.3x for the year.

Our strong cash generation enabled the Group to fund acquisitions net of disposals of £42.5m during the course of the year whilst net debt only increased £15.8m to £164.2m (2017: £148.4m). Cash conversion for the year was 96% (2017: 79%), leaving net debt to proforma EBITDA at 1.7x (2017: 1.6x).  

Underlying profit before tax was 2.1% higher than the prior year at £67.1m (2017: £65.7m).

Non-underlying operating costs of £8.9m (2017: £10.1m) primarily relate to non-cash amortisation charges of £5.9m (2017: £5.5m) in respect of intangible assets arising from the acquisition of Nuaire in 2015 and Permavoid and Manthorpe in 2018, along with £2.0m of costs associated with the acquisition of Permavoid and Manthorpe. 

The total tax charge for the year of £9.4m (2017: £10.6m) represents an effective tax rate of 16.2% (2017: 19.1%).  The underlying effective tax rate of 15.6% (2017: 18.0%) was lower than the blended standard UK rate of tax of 19.00% (2017: 19.25%) due to the benefit of patent box relief and the one-off benefit from the recognition of a deferred tax asset in respect of previously unrecognised tax losses. We expect the effective tax rate to return to our own historical norm in 2019.

Underlying profit from continuing operations was 5.0% higher than the prior year at £56.6m (2017: £53.9m), with underlying basic earnings per share from continuing operations 4.4% higher at 28.4 pence (2017: 27.2 pence).

Chief Executive Officer's Review

I am pleased to report that Polypipe has delivered another record performance in 2018, with revenue from continuing operations 5.2% higher than the prior year at £433.2m (2017: £411.7m), underlying operating profit 1.9% higher at £74.0m (2017: £72.6m), and underlying basic earnings per share 4.4% higher at 28.4 pence per share. Against a background of mixed conditions in the UK construction market, the "Beast from the East" in February and March 2018, and uncertainty around the nature and timing of the UK withdrawal from the EU, this performance shows the robust nature of the Polypipe business model and the strength of its long-term strategic drivers of legacy material substitution and continuing legislative tailwinds in water management and climate management.

As noted in last year's report, price increases had been implemented in early 2018 to mitigate inflationary effects seen in the second half of 2017. I am pleased to report that these increases were successfully implemented progressively through the first half of the year. In 2018 oil prices rose throughout most of the year, resulting in higher raw material costs as well as increases in energy and transport costs. Wage inflation continued to track consumer price inflation. Whilst the Group does all it can to mitigate inflation through various cost reduction measures, the scale of the oil-related inflation meant that price increases were inevitable. Further price increases have been implemented in the first quarter of 2019 to reflect this, and I am confident that these increases will be successfully delivered.

The year has also seen a number of changes to the Group, all in line with the Group's strategy, which leave it well placed to capitalise on future opportunities in its chosen markets.

On 29 March 2018, the Group completed the sale of Polypipe France Holdings SAS ("Polypipe France"), its French operations, to Ryb S.A., a France-based manufacturer and distributor of plastics in Europe for €16.5m on a debt and cash free normalised working capital basis. Accordingly, the results for Polypipe France have been treated as discontinued. Completion of this transaction, which represented excellent value for shareholders, was a significant step forward in implementing our strategy, allowing the Group to concentrate on its higher margin product groups in plumbing, drainage and ventilation, in both our UK and overseas markets.

In May 2018, Polypipe presented its first Capital Markets Day since it listed in April 2014. This confirmed that, following an in-depth review, the Group would continue to drive profitable organic growth through exploiting legacy material substitution and legislative tailwinds in water and climate management. The Group continues to review bolt-on acquisition opportunities to accelerate growth. Our strategic priorities are to firstly add innovative solutions to our already market-leading offer in water and climate management, in order to provide our customers with a "one stop shop" and secondly to provide further geographic reach to leverage our skills, technical knowledge and IP across a wider market.  

In line with this strategy, the Group announced two acquisitions in the second half of the year. Permavoid Limited ("Permavoid") was acquired on 31 August 2018 for an initial consideration of £4.0m on a debt and cash free normalised working capital basis, with a further consideration of up to £12.5m depending on financial performance in the two years to September 2020. Manthorpe Building Products Holdings Limited ("Manthorpe") was acquired on 25 October 2018 for a total cash consideration of £52.1m on a debt and cash free normalised working capital basis. The strategic rationale for acquiring these businesses is strong, with both businesses providing innovative solutions to complement the Group's existing offer, and I am excited by the prospects for these businesses in the coming years within the Polypipe Group. The integration of these businesses into the Polypipe Group is progressing well and both businesses are performing in line with management expectations.

Polypipe continues to be highly cash generative, and notwithstanding spending £42.5m on acquisitions (net of disposals) during the course of the year and capital expenditure of 1.5x depreciation in our existing businesses. This delivered Group leverage of 1.7x pro-forma EBITDA (2017: 1.6x). The Group is well invested and well placed to continue to pursue selective bolt-on acquisitions where appropriate in line with the Group's strategy, whilst maintaining a strong balance sheet, and a disciplined approach to capital allocation.

The Group continues to take its responsibilities towards sustainability very seriously. Although product standards and certain applications do not permit use of recycled materials in some products, wherever possible we use recycled materials instead of virgin polymer. In 2018 we used 44,700 tonnes of recycled plastics, which represents 40.2% of our overall plastic usage compared to 34.0% in 2017. Of this recycled plastic, 16,000 tonnes were from recycled milk bottles and other polyethylene consumer liquid bottles which are sourced from recycling companies such as Veolia in bales and go through our fifteen stage recycling process at our plant in Horncastle, Lincolnshire. Our strong sustainability and recycling credentials continue to be something that are important not only to Polypipe but to our customers, investors and employees, and we will continue to explore opportunities to increase our usage of recycled material wherever we can.

During the year we have followed events in the UK and across Europe as the UK moves towards withdrawal from the EU on 29 March 2019 ("Brexit"). In doing this we have assessed the risks to our business likely to be caused by Brexit, although this has proved difficult due to the uncertainty of the nature and timing of the withdrawal. Whilst we are not complacent, we have concluded that Polypipe is at the lower end of the risk spectrum with regard to the impact of Brexit. With approximately 90% of our revenues derived from, and manufactured in, the UK market, we have relatively little cross border trade. Also, if material costs increase as a result of either increased tariffs or a devaluation of sterling, we will look to recover these increased costs in selling prices, as we have done historically when faced with cost inflation. Where it is deemed appropriate however, proportionate mitigating actions have been and are being taken, such as building raw material and finished goods stocks to allow for some supply chain disruption at ports, accelerating the refinancing of our debt facility that would otherwise have needed to have been done in the summer of 2019, taking forward currency cover and providing support to our non-UK EU colleagues, who account for approximately 13% of our UK workforce, to register for settled status.

The impact of Brexit on our end markets is difficult to predict, especially given the uncertainty around the nature of the exit. However, we continue to monitor our lead indicators around the Group and remain vigilant to any changes.

The following tables set out Group revenue and underlying operating profit from continuing operations by operating segment:

Revenue

 

2018

£m

2017

£m

Change

%

Residential Systems

245.3

223.5

9.8

Commercial and Infrastructure Systems

187.9

188.2

(0.2)

 

433.2

411.7

5.2

 

Underlying operating profit

 

2018

£m

2017

£m

Change

%

Residential Systems

46.3

44.3

4.5

Commercial and Infrastructure Systems

27.7

28.3

(2.1)

 

74.0

72.6

1.9

The Group continues to show resilience by having a balanced exposure to the different elements of the UK construction market, all of which have different drivers and move at different paces, and again this year's performance perhaps more than most demonstrates this.

Residential Systems

Revenue in our Residential Systems segment, which is almost exclusively derived from the UK market, was 9.8% higher than the prior year at £245.3m (2017: £223.5m). The acquisition of Manthorpe on 25 October 2018 contributed £2.8m revenue in the year, leaving like-for-like growth of 8.5%. This is again considerably ahead of the market and represents a strong performance in a challenging environment.

Conditions in the UK residential markets continued in line with prior years, with growth in the new housebuild sector driven by a structural housing shortage in the UK, continued historically low mortgage rates, and demand side help for first time buyers through the Government's Help-to-Buy scheme. The Repair, Maintenance and Improvement (RMI) market however continues to be slow, with weak consumer confidence driven by uncertainty around the EU withdrawal process impacting private RMI, and continued austerity impacting public RMI. Within that limited public RMI spend, we have seen post Grenfell diversion of expenditure towards fire risk related projects impacting our performance within that segment.

Despite these challenging conditions, our Residential Systems segment delivered a strong result for the year. The adverse weather conditions in February and March 2018 impacted first half performance with year on year revenue growth at the half year of 5.9%. However, concerted efforts by the house developers to claw back some of the weather-related lost time aided by mild weather conditions during the autumn and winter, as well as a two month contribution from Manthorpe, helped second half revenue to grow 13.7% compared to prior year. This exceptional level of growth presented a number of operational challenges in our businesses, with parts of the business operating at or near full capacity.

I am delighted that on 25 October 2018 the Group acquired Manthorpe, a leading designer and manufacturer of moulded and extruded plastic and metal products to the UK and Irish residential and RMI markets. It has performed in line with expectations since joining the Group and we are pleased with how the integration is progressing. As well as a strong cultural fit, the acquisition is a good strategic fit with Polypipe's Residential Systems offering in the water and climate management sectors, with differentiated, patented value-adding products that will help us deliver a one stop shop for our customers. There are exciting operational and commercial synergies that have been identified and will be delivered during 2019 and beyond.

Residential Systems delivered an underlying operating profit 4.5% higher than the prior year at £46.3m (2017: £44.3m) representing a 18.9% margin (2017: 19.8%) with cost reduction activities being more than offset by the dilutive effect of price increases, the relative growth of lower margin new housebuilding volumes, and towards the end of the year, inefficiencies caused by operating at or near full capacity in certain areas. Investment in both new production equipment and yard expansion and layout improvements at our main Doncaster site are being made to alleviate these capacity bottlenecks and will provide for a return to efficient working during the current year.

Commercial and Infrastructure Systems

We had a particularly challenging first half in this segment, with tough market conditions and the adverse weather resulting in first half revenue being 6.6% lower than the prior period. However, with performance significantly improving in the second half, largely through self-help measures and marginal market improvements, revenue grew 6.7% or 5.3% on a like-for-like basis excluding the impact of the £1.3m revenue associated with the Permavoid acquisition on 31 August 2018. This resulted in full year revenue in our Commercial and Infrastructure Systems segment of £187.9m (2017: £188.2m), 0.2% lower than the prior year on a reported basis, and 0.9% lower on a like-for-like basis excluding Permavoid.

UK revenue, which accounts for 81% of the overall segment revenue, was 0.2% higher than the prior year. UK Commercial and Infrastructure markets remained difficult, particularly through the first half, with some small improvements in the second half as road programmes, both smart motorway upgrades and new road projects, began to gather momentum. Successful product launches also helped drive second half performance. The Fuze range of HDPE electrofusion soil stacks launched by our Building Services business in the second half of 2017 has been extremely successful, complemented by the successful launch of a fabrication service supplying fully assembled soil stacks to site. The £5.0m investment in a large-diameter continuous corrugator in our Civils factory at Horncastle, which came on stream in the first quarter of 2018, has also had encouraging early results and contributed to the second half performance, along with the successful launch of Nuaire's IAQ-Valve and expansion of the XBC range of heat recovery ventilation units. It is encouraging to note that the development of these products is squarely in line with the Group's strategic growth pillars of legacy material substitution (for example Fuze replacing cast iron, continuous corrugator replacing concrete) and legislative tailwinds (for example Nuaire IAQ-Valve and XBC range driven by air quality and building energy efficiency).

Export revenue, which accounts for approximately 19% of overall segment revenue, was 1.6% lower than the prior year, with lower revenue in the Middle East driven by difficult market conditions, more than offsetting improved performance in Continental Europe. The alternative manufacturing strategy in the Middle East, announced last year, has been successfully implemented. The first production run of Permavoid product using our tooling with local sub contract injection moulders was successfully completed and sold in the second half of the year, and the closure of our Dubai manufacturing facility and transfer of production machinery back to the UK was also completed during the year.

On 31 August 2018, we announced the acquisition of Permavoid, a specialist designer and supplier of plastic surface water management solutions in commercial, residential and sports pitch applications. This is a great strategic fit with the Group, providing unique patented products that enhance our water management solutions offer in sustainable urban drainage systems, green infrastructure, Blue-Green roofs, podium decks and sports surface applications, as well as some exciting geographic reach opportunities. Permavoid has been used in applications throughout Europe including the redevelopment of Orlysquare in Amsterdam, the Maankwartier Heerlen development in Holland and the redevelopment of Liverpool Football Club's Anfield stadium. Through its US licencing partner, Permavoid is also beginning to see increased demand for its products in the US, an exciting development that will continue into 2019 and beyond.

Commercial and Infrastructure Systems delivered an underlying operating profit of £27.7m (2017: £28.3m) and represents a 14.7% margin (2017: 15.0%). Whilst the closure of our Middle East manufacturing facility improved profitability, this was more than offset by higher costs associated with the adverse weather in the first half of 2018 and again the dilutive effects of price increases.

OUTLOOK

Polypipe has made significant strategic progress in 2018. The disposal of Polypipe France and the acquisition of Permavoid and Manthorpe, have all been firmly in line with the Group's strategy. Organic growth ahead of the UK market and strong cash generation has continued to demonstrate the robust nature of the Group.

Whilst the political and economic uncertainty associated with the UK's withdrawal from the EU may impact markets in the short term, we believe that the fundamentals of our markets remain robust. Government and opposition both understand the structural housing shortage in the UK and recognise the need to increase the housing stock further, and with Help-to-Buy now extended until 2023, historically low interest rates and good mortgage availability, the medium-term fundamentals for new housebuilding remain sound. Whilst RMI, commercial and infrastructure markets have been and will continue to be challenging, the balanced exposure that Polypipe has to these different sectors of the construction industry positions the Group well.

As we look into 2019 and beyond, the opportunities for growth through legacy material substitution, legislative tailwinds in water and climate management are still as strong as ever, and together with helpful emerging trends in green infrastructure and appropriate acquisition opportunities to broaden our product and solutions offer, I am confident the fundamentals for the Group remain strong. Whilst we remain vigilant to the short-term impacts of economic and political uncertainty on our markets, I look forward to another year of progress in 2019.

 Financial Review

 

REVENUE AND OPERATING MARGIN

 

2018

£m

 

2017

£m

Change

Revenue

433.2

411.7

+5.2%

Underlying operating profit

74.0

72.6

   +1.9%

Underlying operating margin

17.1%

17.6%

   -50bps

 

 

Revenue by geographic destination

2018

£m

 

2017

£m

Change

UK

387.1

365.7

+5.9%

Rest of Europe

21.5

18.9

  +13.8%

Rest of World

24.6

27.1

   -9.2%

 

Group

433.2

411.7

+5.2%

 

Group revenue for the year ended 31 December 2018 was £433.2m (2017: £411.7m), an increase of 5.2%. With the acquisitions of Permavoid Limited ("Permavoid") and Manthorpe Building Products Holdings Limited ("Manthorpe") on 31 August and 25 October 2018, respectively, group revenue includes £4.1m from these businesses for the periods since acquisition and on a like-for-like basis, excluding the impact of these businesses, group revenue increased by 4.2%. UK revenue growth was up 5.9% with approximately 2.8% driven by price increases and 3.1% from volume increases of which 1.1% was derived from the acquisitions. This level of growth was materially ahead of the overall UK construction market where the Construction Products Association ("CPA") winter forecast suggests a slight year-on-year decline of 0.2%. The Group's year-on-year growth for the first half was essentially flat as it was impacted by the severe winter weather, with strong year-on-year growth in the second half of 10.6%.

The Group underlying operating margin of 17.1% (2017: 17.6%) was impacted by the dilutive effect of increasing selling prices to recover absolute cost inflation as well as the relative growth in lower margin new housebuilding volumes and inefficiencies caused by operating at or near full capacity in some areas towards the end of the year.

ACQUISITIONS

On 31 August 2018, the Group acquired Permavoid Limited, a specialist designer and supplier of surface water management solutions in commercial, residential, and sports pitch applications, for an initial cash consideration of £4.0m on a debt and cash free, normalised working capital basis, and further contingent consideration of up to £12.5m depending on the EBITDA performance of Permavoid in the two years to 30 September 2020. In accordance with IFRS 3, £1.7m contingent consideration has been accrued at the end of 2018.The acquisition of Permavoid has contributed £1.3m to Group revenue in the year and revenue for the full 12-month period ended 31 December 2018 was £5.1m. On 25 October 2018, the Group acquired Manthorpe, a leading UK producer of a range of moulded and extruded plastic and metal products, and associated land and buildings for £52.1m on a debt and cash free normalised working capital basis. The acquisition of Manthorpe has contributed £2.8m to Group revenue in the year and revenue for the full 12-month period ended 31 December 2018 was  £17.2m. These acquisitions were funded entirely from the Group's revolving credit facility. Acquisition costs of £2.0m have been charged to non-underlying items.

disposals

On 29 March 2018, the Group completed the sale of Polypipe France Holdings SAS ("Polypipe France"), its French operations, to Ryb S.A., a France-based manufacturer and distributor of plastics in Europe, for €16.5m on a debt and cash free normalised working capital basis. The results for Polypipe France have been treated as discontinued since 2017.

IFRS 16 (LEASES)

IFRS 16 'Leases' was issued in January 2016 and is mandatory for annual reporting periods commencing 1 January 2019.  The Group did not apply for early adoption of IFRS 16 and will first report under the new standard in the interim consolidated financial statements for the six months ending 30 June 2019, and the consolidated financial statements for the year ending 31 December 2019. The Group has reviewed all material leasing arrangements over the last year in light of the new lease accounting rules and these existing leases mainly relate to cars, some property and forklift trucks used in warehousing.  The Group does not have any leases previously classified as finance leases. The Group will adopt the simplified approach to transition and will not restate comparative amounts for the year prior to first adoption.  In 2019, the Group's lease commitments will be brought onto the Group's balance sheet and the timing of the recognition of lease costs within the income statement will change. 

 

The value of lease commitments at 31 December 2018 was £14.0m.  The Group expects to recognise an increase in total liabilities within the range of £12.0m - £14.0m, and a similar increase in total assets. The difference between the value of lease commitments and increase in total liabilities is largely driven by the requirement to discount the lease liabilities to present value.

 

On a pro-forma basis the Group expects that underlying EBITDA will increase by approximately £3.9m, that underlying operating profit will increase by approximately £0.2m - £0.4m and that underlying profit before tax will reduce by approximately £0.1m - £0.3m for 2019 as a result of adopting the new rules.  Operating cash flows will increase, and financing cash flows will decrease because repayment of the principal portion of the lease liabilities will be classified as cash flows from financing activities.  Leverage is expected to increase by approximately 0.1x as a result of including the lease liabilities within net debt partially offset by increase in EBITDA.  Interest cover is expected to reduce by approximately 0.5x as a result of a marginal increase in interest costs.  No impact is expected on banking covenants as a result of the ability to use the financial position excluding the impact of IFRS 16 under the RCF agreement (so-called "frozen GAAP").  Further details of the change can be found in Note 2 of this statement.

NON-UNDERLYING ITEMS

Non-underlying items in both 2018 and 2017 included non-cash amortisation charges in respect of intangible assets recognised with the acquisitions made during 2015. In addition, the amortisation of intangible assets charge in 2018 was impacted by the fair valuation of intangible fixed assets on the acquisition balance sheets of Manthorpe and Permavoid.  Intangible assets have increased by £25.1m in the case of Manthorpe and £2.9m in respect of Permavoid, attracting additional amortisation of £0.3m (Manthorpe) and £0.1m (Permavoid).

The provision for restructuring costs of £4.3m recognised in 2017 in respect of our Middle East business has now been fully utilised. The other items included in non-underlying items are highlighted in the narrative further below.

Non-underlying items comprised:

 

2018

£m

2017

£m

Amortisation of intangible assets

5.9

5.5

Restructuring costs

-

4.3

Acquisition costs

2.0

0.3

Contingent consideration on acquisitions

0.3

-

Unamortised debt issue costs written off

0.6

-

Loss on disposal of assets classified as held-for-sale

0.1

-

Non-underlying items before taxation

8.9

10.1

Taxation

(1.1)

(1.2)

Non-underlying items after taxation

7.8

8.9

Taxation on non-underlying items is covered in the Note 5 below.

Exchange Rates

The Group trades predominantly in Sterling but has some revenues and costs in other currencies, mainly the US Dollar and the Euro, and takes appropriate forward cover on these cash flows using forward currency derivative contracts in accordance with its hedging policy.

Finance Costs

Underlying finance costs of £6.9m (2017: £6.9m) are in line with last year and have a cover of 11.3x. The raised gearing from the acquisitions was in the very last stages of the year, marginally increasing borrowing costs for the period.

Interest is payable on the revolving credit facility ("RCF") at LIBOR plus an interest rate margin ranging from 0.9% to 2.75%. The interest rate margin at 31 December 2018 was 1.65% (2017: 1.75%).

In order to reduce exposure to future increases in interest rates the Group entered into interest rate swaps at fixed rates ranging between 1.735% and 2.21% (excluding margin) with notional amounts hedged ranging from £60.0m to £91.7m over the period of the interest rate swaps.

Taxation

Underlying taxation:

The underlying tax charge in 2018 was £10.5m representing an effective tax rate of 15.6% (2017: 18.0%). This was below the UK standard tax rate of 19.00% (2017: 19.25%). Patent box relief contributes to a lowering of the effective tax rate by some 1.5%. In addition, the Group has released legacy tax provisions no longer required of £0.6m and recognised a deferred tax asset resulting from acquisition of Manthorpe in respect of previously unrecognised tax losses, resulting in a benefit of £0.6m. 

Taxation on non-underlying items:

The non-underlying taxation credit of £1.1m in 2018 represents an effective rate of 12.4%, due to £2.0m of acquisition costs being treated as disallowable for tax purposes.

 

 

 

 

EARNINGS PER SHARE FROM CONTINUING OPERATIONS

 

2018

2017

Pence per share:

 

 

Basic

24.5

22.7

Underlying basic

 

Diluted

Underlying diluted

28.4

 

24.3

28.1

27.2

 

22.5

26.9

The Directors consider that the underlying earnings per share (EPS) measure provides a better and more consistent indication of the Group's underlying financial performance and more meaningful comparison with prior and future periods to assess trends in our financial performance.

Underlying basic EPS improved by 4.4% in 2018 due to the improved underlying operating result after taxation.

Dividend

The final dividend of 7.9 pence per share is being recommended for payment on 29 May 2019 to shareholders on the register at the close of business on 23 April 2019. The ex-dividend date will be 18 April 2019.

Our dividend policy is to pay a minimum of 40% of the Group's annual underlying profit after tax. The Directors intend that the Group will pay the total annual dividend in two tranches, an interim dividend and a final dividend, to be announced at the time of announcement of the interim and preliminary results respectively with the interim dividend being approximately one half of the prior year's final dividend.

Balance Sheet

The Group's balance sheet is summarised below:

 

2018

£m

2017

£m

Property, plant and equipment

118.4

98.6

Goodwill

343.0

319.7

Other intangible assets

58.9

36.8

Net assets classified as held-for-sale

-

13.1

Net working capital

(4.1)

0.4

Taxation

(17.3)

(12.6)

Other current and non-current assets and liabilities

(3.5)

(5.6)

Net debt (loans and borrowings, net of cash and cash equivalents)

(164.2)

(148.4)

Net assets

331.2

302.0

 

Property, plant and equipment increased by £19.8m and, excluding the effect of the inclusion of assets from the acquisitions of Permavoid and Manthorpe, increased by £9.0m, predominantly due to capital expenditure exceeding depreciation.

Goodwill increased by £23.3m primarily due to the acquisitions of Permavoid and Manthorpe.  Other intangible assets increased by £22.1m with fair value adjustments associated with the acquisition of Permavoid and Manthorpe being offset by the routine amortisation of patents, brand names and customer relationships.  Net working capital reduced by £4.5m due to continued robust management in our businesses. Net debt is discussed below.

Pensions

The Group does not have any defined benefit pension schemes and only has defined contribution pension arrangements in place. Pension costs for the year amounted to £2.8m (2017: £2.7m).

Cash Flow and Net Debt

The Group's cash flow statement is summarised below:

 

2018

£m

2017

£m

Operating cash flows before movement in net working capital

86.2

 90.4

Add back non-underlying cash items

4.4

0.5

Underlying operating cash flows before movement in net working capital

90.6

90.9

Movement in net working capital

3.8

(10.0)

Underlying cash generated from operations

94.4

80.9

Capital expenditure net of disposals

(23.2)

(23.2)

Underlying cash generated from operations after net capital expenditure

71.2

57.7

Income tax paid

(11.2)

(12.6)

Interest paid

(6.1)

(6.6)

Non-underlying cash items

(4.4)

(0.5)

Acquisition of businesses

(56.1)

-

Disposal of businesses

13.6

-

Dividends paid

(22.3)

(21.0)

Proceeds from exercise of share options net of purchase of own shares

0.3

(0.7)

Other

(0.8)

(0.4)

Movement in net debt

(15.8)

15.9

The Group is highly cash-generative. Underlying cash generated from operations after net capital expenditure at £71.2m (2017: £57.7m) represents a conversion rate of 96% (2017: 79%). This improvement in conversion rate followed a programme in 2017 to replenish stock levels after a period of pre-price increase buying at the end of 2016. As a result of business growth, the Group sustained elevated net capital expenditure investment of £23.2m (2017: £23.2m), which was significantly ahead of depreciation levels, focussing on capacity expansion, efficiency improvement and innovation. The Group spent £56.1m on the acquisition of Permavoid and Manthorpe during the year and received £13.6m for the disposal of Polypipe France

 

Net debt of £164.2m comprised:

 

2018

£m

2017

£m

Change

£m

Bank loans

(212.0)

(185.0)

(27.0)

Cash and cash equivalents

46.2

35.7

10.5

Net debt (excluding unamortised debt issue costs)

(165.8)

(149.3)

(16.5)

Unamortised debt issue costs

1.6

0.9

0.7

Net debt

(164.2)

(148.4)

(15.8)

Net debt (excluding unamortised debt issue costs):  pro forma EBITDA

1.7

1.6

 

 

FINANCING

In light of the uncertainty posed by the UK's withdrawal from the EU, the Group took the decision to bring forward the renewal of its secured RCF from mid-2019.  The RCF was increased from £290m to £300m and renewed for a period of five years to November 2023 with two further uncommitted annual renewals through to November 2025 possible. A new uncommitted "accordion" facility of up to £50m was also added. Refinancing costs of £1.7m will be amortised over the life of the RCF. Unamortised costs of £0.6m from the previous refinancing were written off within non-underlying items. The margin payable under the renewed RCF is 10 basis points lower than the previous agreement for gearing levels up to 2.0x EBITDA.

The Group is subject to two financial covenants. At 31 December 2018 there was significant headroom, and facility interest cover and net debt to EBITDA covenants were comfortably achieved:

Covenant:

Covenant requirement

 

Position at

31 December 2018

Interest cover

>4.0:1

 

11.3:1

Leverage

<3.0:1

 

1.7:1

At 31 December 2018, liquidity headroom (cash and undrawn committed banking facilities) was £134.2m (2017: £140.7m) with the new RCF raised slightly to £300m compared to the previous RCF (2017: £290m). Focus will continue to be on deleveraging and, despite the two debt-funded acquisitions totalling £56.1m in the year, our net debt to EBITDA ratio stood at 1.7x EBITDA at 31 December 2018 (2017: 1.6x). This headroom means the Group enters 2019 well-positioned with a strong balance sheet.

Principal Risks and Uncertainties

The principal risks and uncertainties which could impact the Group are those detailed in the Group's Annual Report and Accounts.  These cover the Strategic, Financial and Operational risks and, other than further consideration towards the impact of Brexit, have not changed significantly during the year.

Forward-Looking Statements

This report contains various forward-looking statements that reflect management's current views with respect to future events and financial and operational performance.  These forward-looking statements involve known and unknown risks, uncertainties, assumptions, estimates and other factors, which may be beyond the Group's control and which may cause actual results or performance to differ materially from those expressed or implied from such forward-looking statements.  All statements (including forward-looking statements) contained herein are made and reflect knowledge and information available as of the date of preparation of this report and the Group disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise.  There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.  Accordingly, readers should not place undue reliance on forward-looking statements due to the inherent uncertainty therein.  Nothing in this report should be construed as a profit forecast.

Directors' Responsibilities

Each of the Directors confirms that, to the best of their knowledge, the consolidated financial statements, prepared in accordance with IFRS as adopted by European Union standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the undertakings included in the consolidation taken as a whole; and the Group Results, Chief Executive Officer's Review and Financial Review includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. 

 

Annual General Meeting

The Annual General Meeting will be held at the Holiday Inn, High Road, Doncaster, DN4 9UX at 10.30am on 23 May 2019.

 

By order of the Board.

 

Martin Payne                                              Paul James

Chief Executive Officer                                  Chief Financial Officer

19 March 2019                                             19 March 2019

 

GROUP INCOME STATEMENT

for the year ended 31 December 2018

 

 

2018

2017

 

Notes

Underlying

£m

Non-

Underlying

£m

Total

£m

Underlying

£m

Non-

Underlying

£m

Total

£m

Continuing operations

 

 

 

 

 

 

 

Revenue

3

433.2

-

433.2

411.7

-

411.7

Cost of sales

5

(251.8)

-

(251.8)

(236.0)

(2.8)

(238.8)

Gross profit

 

181.4

-

181.4

175.7

(2.8)

172.9

Selling and distribution costs

 

(69.6)

-

(69.6)

(68.7)

-

(68.7)

Administration expenses

5

(37.8)

(2.3)

(40.1)

(34.4)

(1.8)

(36.2)

Trading profit

 

74.0

(2.3)

71.7

72.6

(4.6)

68.0

Amortisation of intangible assets

5

-

(5.9)

(5.9)

-

(5.5)

(5.5)

Operating profit

3, 4

74.0

(8.2)

65.8

72.6

(10.1)

62.5

Finance costs

6

(6.9)

(0.7)

(7.6)

(6.9)

-

(6.9)

Profit before tax

3

67.1

(8.9)

58.2

65.7

(10.1)

55.6

Income tax

7

(10.5)

1.1

(9.4)

(11.8)

1.2

(10.6)

Profit from continuing operations

 

56.6

(7.8)

48.8

53.9

(8.9)

45.0

Profit/(loss) from discontinued operations

 

4

-

0.3

0.3

-

(11.3)

(11.3)

Profit for the year attributable to the owners of the parent company

 

56.6

(7.5)

49.1

53.9

(20.2)

33.7

 

 

 

 

 

 

 

 

Basic earnings per share (pence)

 

 

 

 

 

 

 

From continuing operations

8

 

 

24.5

 

 

22.7

From discontinued operations

8

 

 

0.2

 

 

(5.7)

 

8

 

 

24.7

 

 

17.0

 

 

 

 

 

 

 

 

Diluted earnings per share (pence)

 

 

 

 

 

 

 

From continuing operations

8

 

 

24.3

 

 

22.5

From discontinued operations

8

 

 

0.2

 

 

(5.7)

 

8

 

 

24.5

 

 

16.8

 

 

 

 

 

 

 

 

Dividend per share (pence) - interim

9

 

 

3.7

 

 

3.6

Dividend per share (pence) - final

9

 

 

7.9

 

 

7.5

Total

9

 

 

11.6

 

 

11.1

 

 

 

GROUP STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2018

 

2018

£m

2017

£m

Profit for the year attributable to the owners of the parent company

49.1

33.7

Other comprehensive income:

 

 

Items which will be reclassified subsequently to the income statement:

 

 

Exchange differences on translation of foreign operations

0.1

0.3

Recycling of foreign exchange differences to the income statement

(0.3)

-

Effective portion of changes in fair value of interest rate swaps

1.4

1.7

Tax relating to items that may be reclassified subsequently to the income statement

(0.2)

(0.3)

Other comprehensive income for the year net of tax

1.0

1.7

Total comprehensive income for the year attributable to the owners of the parent company

50.1

35.4

 

 

 

Attributable to the owners of the parent company from:

 

 

Continuing operations

50.2

46.7

Discontinued operations

(0.1)

(11.3)

 

50.1

35.4

 

 

 

 

GROUP BALANCE SHEET

at 31 December 2018

 

 

Notes

31 December

2018

£m

31 December

2017

£m

Non-current assets

 

 

 

Property, plant and equipment

10

118.4

98.6

Intangible assets

11

401.9

356.5

Total non-current assets

 

520.3

455.1

Current assets

 

 

 

Assets classified as held-for-sale

13

-

24.0

Inventories

 

58.1

53.5

Trade and other receivables

 

37.4

34.5

Cash and cash equivalents

 

46.2

35.7

Total current assets

 

141.7

147.7

Total assets

 

662.0

602.8

Current liabilities

 

 

 

Liabilities associated with assets classified as held-for-sale

13

-

(10.9)

Trade and other payables

 

(99.6)

(87.6)

Provisions

 

-

(2.2)

Contingent consideration

 

(1.7)

-

Derivative financial instruments

14

(1.1)

(2.5)

Income tax payable

 

(6.3)

(5.6)

Total current liabilities

 

(108.7)

(108.8)

Non-current liabilities

 

 

 

Loans and borrowings

14

(210.4)

(184.1)

Other liabilities

14

(0.7)

(0.9)

Deferred income tax liabilities

 

(11.0)

(7.0)

Total non-current liabilities

 

(222.1)

(192.0)