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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 : 6011T
Polypipe Group PLC
31 March 2016
 

31 March 2016

 

Polypipe Group plc

Audited results for the year ended 31 December 2015

 

Record revenue and profits, strong strategic progress

 

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 full year results for the year ended 31 December 2015.

 

Financial Results

 

 

2015

2014

Increase

 

 

 

 

Revenue

£352.9m

£327.0m

8%

Underlying operating profit

£54.2m

£46.3m

17%

Underlying operating margin

Underlying profit before tax

15.4%

£48.0m

14.2%

£37.6m

 

28%

Profit before tax

£41.5m

£16.9m

 

Underlying earnings per share

19.47p

16.11p

21%

Earnings per share (basic)

17.11p

6.96p

 

Interim dividend - declared and paid

2.3p

1.5p*

 

Final dividend - recommended

5.5p

3.0p*

 

 

*part year (eight months post IPO period in 2014)

Non-underlying items related almost entirely to costs associated with the acquisitions during 2015 and the IPO in 2014

 

Financial Highlights

 

·      Revenue from UK operations increased by 10.6%.  Group revenue was up 7.9%

·      Underlying operating profit ahead by 17.1% at £54.2m

·      120bps improvement in underlying operating margin to a record 15.4%

·      Strong cash conversion of 102%, after absorbing a 28% increase in capital expenditure

·      Underlying net finance costs reduced by £2.5m to £6.2m due to benefits from re-financing

·      Recommended final dividend of 5.5 pence per share giving a full year dividend rate increase of 23%

 

Operational Highlights

 

·      Significant boost to technical capability and presence in the ventilation market through the £144.3m acquisition of Nuaire in August 2015.  Nuaire is performing in line with expectations

·      Structural growth opportunities driving the business ahead of the overall construction market

·      Continuing strong demand from residential new build construction, infrastructure and commercial developments

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

·      Capital expenditure increased by 28% to £19.3m to fund growth opportunities

 

Outlook

 

·    Whilst there remain political and economic uncertainties, underlying fundamentals across all sectors of the UK construction market remain positive

·    In our main UK market, 2016 industry forecasts expect that construction activity will outpace GDP

·    2016 has started well and we are encouraged by reports from the merchants of improvement in RMI spend in the early part of this year.

 

David Hall, Chief Executive said:

 

"2015 was a record performance and another year of excellent progress for the Group.  The acquisition of Nuaire was an important step in our strategic development and our growth initiatives continued to deliver.  I am delighted to report such a strong performance since our IPO in April 2014, with underlying operating profit growth of 36.5% over the last two years.  While there are economic and political uncertainties, 2016 has started well and the Board is confident that the market fundamentals in our main UK market remain positive and that we are pursuing a sound strategy for the future development of the business".

 

Enquiries:

 

Polypipe

David Hall, Chief Executive Officer

Peter Shepherd, Chief Financial Officer

+44 (0) 1709 770 000

 

 

Brunswick

Mike Smith

Nina Coad

 

 +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 and investor presentation will be held today at 16 Lincoln's Inn Fields, London, WC2A 3ED, at 0915hrs (BST) with registration from 0845hrs.

 

For those unable to attend, a live conference call will be available at 0915hrs (BST).

Dial-In number                 +44 (0) 1452 555566

Conference ID                  72914704

 

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 recently acquired Nuaire business is a leading designer and manufacturer of energy efficient ventilation systems in the UK.

 

The Group operates from nineteen facilities in total, and with over 20,000 product lines, manufactures the United Kingdom's widest range of plastic piping systems for heating, plumbing, drainage and ventilation. 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 2015 was £352.9m (2014: £327.0m), an improvement of 7.9%. This improvement in Group revenue has been driven by our strategic focus on structural growth opportunities and the continuing recovery in the UK construction market and from complementary acquisitions benefiting from these growth drivers.

 

Underlying operating profit for the year of £54.2m was up 17.1% on last year with drop through from the revenue growth at 30.5%.

 

Non-underlying operating and finance costs of £6.5m were incurred in 2015 relating mainly to acquisitions and related refinancing.  They include non-cash charges of £4.7m in respect of goodwill amortisation (£3.0m) and unamortised debt issue costs written off (£1.7m). 

 

Underlying net finance costs of £6.2m were lower than prior year (£8.7m) due to the full year benefit in 2015 from refinancing our 9.5% Senior Secured Notes in April 2014 and improved terms of our new revolving credit facility from August 2015.  Finance costs will be higher in 2016 due to the full year impact of the higher net debt associated with the acquisition of Nuaire.

 

The total tax charge (underlying and non-underlying) for the year of £7.4m in 2015 shows an increase on the 2014 tax charge of £3.0m due to the improved operating result and the expiry of the benefit of non-trading tax losses brought forward.

 

Including non-underlying items, profit after tax was £34.1m (2014: £13.9m) and basic earnings per share were 17.11 pence (2014: 6.96 pence).

 

Chief Executive's Review

 

Good progress was made during 2015 whilst the Group's focus was to adapt to the changing dynamics in the UK construction market recovery, manage input cost volatility and availability of our prime polymers, and to deliver on our growth initiatives, both organically and through acquisition.

 

The strength of the recovery in the UK market was considerably more mixed than forecasts had projected.  In particular, lack of strength in the recovery of residential repair, maintenance and improvement (RMI) activity became more evident as the year progressed.

 

The Group has progressively moved towards designing and manufacturing more complex systems that enable a greater level of specification from our customers seeking to meet the needs of sustainable construction.  The acquisition of Nuaire in August 2015 is a significant step in that direction, substantially enhancing our technical capability in the increasingly important area of ventilation.  Nuaire has an excellent track record and has continued to perform well under our ownership.  We have been cautious not to destabilise either the Nuaire business or our existing ventilation business, whilst we undergo a staged integration process.  Nuaire's results are allocated between both Residential Piping Systems and Commercial and Infrastructure Piping Systems - UK in line with the market sectors they serve.

 

Surestop acquired in January 2015 also performed well, and a considered integration programme has enabled an excellent level of sales growth as well as improved manufacturing margins by utilising components and capability from other parts of the Group.

 

Our immediate focus is on deleveraging following the Nuaire acquisition, and we expect net debt to EBITDA to reduce towards 2 times by the end of the 2016 financial year due to the highly cash generative nature of our business.  We have sufficient financial headroom to continue to develop investment opportunities and we continue to seek compelling "bolt on" acquisition opportunities.

 

Despite a strong downward trajectory in crude oil prices, polymer prices have become disconnected from the primary feedstocks and displayed quite significant volatility during the year.  Overall polymer prices were lower than during 2014 and the majority of this has been passed on to customers either in lower prices, discounts or as a result of not having price increases to cover other inflationary effects.  Despite some availability concerns resulting from the polymer producers reducing output, the Group was able to source sufficient volumes to meet our customer's demands.

 

In Residential Piping Systems our products and systems targeted at delivering carbon efficient solutions have performed well, primarily in the new build sector where a higher specification is increasingly required to meet more stringent regulation.  We conducted a high profile marketing campaign for underfloor heating, including television advertising fronted by leading interior designer, Kelly Hoppen, who is a brand ambassador for Polypipe.  The campaign drove a significant surge in traffic to our website stimulating consumer demand and increasing the number of registered installers.

 

In Commercial and Infrastructure Piping Systems, Government and legislative focus on flood alleviation continued to drive strong sales growth for our comprehensive range of engineered water management solutions.  We delivered a number of significant projects during the year helping to design some innovative SUDS (sustainable urban drainage systems) including the use of our 3m diameter pipe as well as experiencing a steady increase in demand from smaller new build residential sites as they commenced development.   During 2015 the Group manufactured solutions for more than 700 different projects to prevent future flooding.  Both our Nuaire and our Building Products division were recognized for innovative promotional campaigns by winning marketing industry awards.

 

We have continued to focus on new product development.  During the period several new products were introduced, including an enhanced smartphone app based controls system for underfloor heating, new controls for ventilation, additions to our innovative radial ventilation duct system and a new surface and sub water treatment drainage system.  Progressive introduction of new products has enabled the Group to win an increasing number of high profile project specifications and secure further penetration into the sectors of the construction industry that offer opportunities for us to add value. 

 

We are increasing our commitment to customer training.  In Doncaster we are strengthening our customer training capability by enhancing our Northern area customer training facility.  We formally opened our new customer training centre in Dubai during October 2015 which enables us to train our customers and demonstrate our full capability across a comprehensive range of systems. 

 

Despite cautious sentiment in the Middle East region, the majority of construction activity we are involved with tends to be high profile, state sponsored projects which have continued to attract funding.  Following recent years where flood risk has attracted more attention in this area, our efforts to help develop a specification for storm water attenuation with the relevant authorities has led to some promising initial orders which have been delivered from the UK.  We are making good progress with our plans to manufacture water management attenuation cells in the Jebel Ali Free Zone in Dubai.

 

The Group continued to invest in its capability to reprocess plastic packaging.  During the year approximately one third of our UK production was based on reprocessed polymer making a considerable contribution to the circular economy with Polypipe one of the largest recyclers of household plastic waste in the UK.  Whilst the recent decline in virgin polymer prices has made this less financially attractive than previously, we are still delivering a good return on investment from our plastic waste reprocessing plant and believe our customers regard it as an important factor in their environmentally responsible sourcing strategies.

 

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

 

Revenue

2015

 

2014

 

Change

£m

 

£m

 

 %

 

 

 

 

 

 

Residential Piping Systems

182.6

 

173.3

 

5.4

Commercial & Infrastructure Piping Systems - UK

131.5

 

111.1

 

18.4

Inter segment sales

(10.2)

 

(9.6)

 

 

UK Operations

303.9

 

274.8

 

10.6

Commercial & Infrastructure Piping Systems - Mainland Europe

50.4

 

53.9

 

(6.5)

Inter segment sales

(1.4)

 

(1.7)

 

 

 

 

 

 

 

 

Group revenue

352.9

 

327.0 

 

7.9

 

 

 

 

 

 

Underlying Operating profit

2015

 

2014

 

Change

£m

 

£m

 

 %

 

 

 

 

 

 

Residential Piping Systems

32.8

 

28.4

 

15.5

Commercial & Infrastructure Piping Systems - UK

20.1

 

17.0

 

18.2

UK Operations

52.9

 

45.4

 

16.5

Commercial & Infrastructure Piping Systems - Mainland Europe

1.3

 

0.9

 

44.4

 

 

 

 

 

 

 

 

 

 

 

 

Group underlying operating profit

54.2

 

46.3

 

17.1

 

 

Residential Piping Systems

 

Sales to the residential sector were £182.6m all of which were in the UK and Ireland and represented 50% of Group revenues in 2015.

 

Private residential new build continued to be dominated by the national housebuilders, with activity levels of smaller builders remaining muted.  The trend toward more building in the regions and less reliance on London seen in the second half of 2014 carried on through 2015.  Public sector housing starts fell 8% during the year being impacted by budgetary concerns around the extension of the 'right to buy' scheme and changes to social housing rents announced by the new Government.  Overall new build represented 38% of our residential revenues (23% of the UK Group) in 2015.

 

A combination of factors appear to have led to private RMI activity growing less quickly than expected.  The mortgage review tightened lending criteria and the targeting of government measures towards new builds appears to be suppressing what would normally be a higher level of second hand housing transactions at this stage of the recovery.  Both levels of remortgaging and the number of housing transactions have traditionally been a primary driver for major residential project works that benefits Polypipe.  Both of these indicators have remained relatively muted and well below long term averages.

 

Residential piping systems delivered an underlying operating profit of £32.8m, an increase of 15.5% over the prior year.

 

Commercial and Infrastructure Piping Systems - UK

 

Sales from our UK commercial and infrastructure businesses were £131.5m and represented 36% of overall Group revenues in 2015.

 

Demand from road and rail projects remained good although changes to the funding model for Highways England resulted in some slowing of activity for a period.  Their published £15.2bn Road Investment strategy for capital enhancement and renewals between 2015 and 2020 is expected to lead to a pick up in growth rates.

 

Private commercial also performed well and the development of high rise multi occupancy buildings in London and more recently in other major cities provided good level of demand for our commercial systems, including the recently acquired Nuaire ranges.

 

Export revenues grew by 18% over 2014, primarily from sales into the Gulf states.  We have continued to expand our sales presence in the region and remain committed to developing further specification activity alongside our intention to commence manufacturing of water attenuation systems during 2016.

 

Volatile polymer costs had a negative impact on the plastics recycling industry.  This resulted in a tightening of supply and combined with formulaic sales pricing mechanisms to our customers, squeezed operating margins as input costs of recyclate did not decline at the rate of virgin polymer prices.

 

Commercial and Infrastructure Piping Systems - UK delivered an underlying profit of £20.1m, an increase of 18.2% over the prior year. 

 

Commercial and Infrastructure Piping Systems - Europe

 

Sales from our continental European businesses were £50.4m and represented 14% of overall Group revenues in 2015.  Although when translated into sterling this is down 6.5% on prior year, in local currency revenues increased by 3.5%.

 

The market showed no real signs of improvement during the year, although our second half revenue performance improved, being 10.3% up in local currency terms against the same period in 2014.  We have continued to focus on our improvement initiatives.

 

Underlying operating profits improved to £1.3m an increase of nearly 50% in local currency.

 

Board and Management changes

 

In November 2015 we announced that Peter Shepherd, Chief Financial Officer, planned to retire close to his 60th birthday in July 2016 after 10 years with Polypipe.  We announced on the same date that Martin Payne, currently Group Finance Director at Norcros plc, will succeed him.  Martin will join our Board as Chief Financial Officer, at our Annual General Meeting on 25 May 2016 when Peter will step down from the Board.

 

Outlook

 

Whilst there remain political and economic uncertainties, underlying fundamentals across all sectors of the UK construction market remain positive with Government announcements and policy generally supportive of stimulating further housebuild, home ownership and improving the national infrastructure.  In our main UK market, 2016 industry forecasts expect that construction activity will outpace GDP.

 

2016 has started well and we are encouraged by reports from the merchants of improvement in RMI spend in the early part of this year following the upturn in housing transactions during the second half of 2015.  A supportive market, our focus on delivering our growth initiatives and a determination to remain agile, mean we look forward to 2016 being a year of further progression.

 

Financial Review

 

Revenue growth and operating margins

 

 

 

2015

 

2014

 

 

£m

 

£m

 

 

 

 

 

 

 

Revenue

 

352.9

 

327.0

 

Underlying operating profit

 

54.2

 

46.3

 

Underlying operating profit margin

 

15.4%

 

14.2%

 

 

 

 

 

 

 

Revenue growth:

 

 

 

 

 

- Group

 

7.9%

 

 

 

- UK

 

10.6%

 

 

 

- Mainland Europe

 

(6.5%)

 

 

 

 

Group revenue growth of 7.9% included revenue growth from our UK operations of 10.6%, which included the benefit of acquisitions, and adverse currency translation impacting the reported revenue of our Mainland European businesses, which at constant exchange rates grew revenue by 3.5%. Reported revenue growth from our UK operations was adversely impacted by polymer cost deflation passed onto our customers. Eliminating the impact of price deflation, our UK operations' revenue growth in volume terms, excluding acquisitions, of c.4% continued to outpace growth in UK construction.   Based on ONS data for 2015 we estimate UK construction growth to be c.0.5% adjusting for anomalies relevant to our business in the ONS reported growth rates for the "Roads" and "Power" sub-sectors within the reported "Infrastructure" growth number.

 

The underlying operating profit margin improved to a record 15.4% (2014: 14.2%) due largely to the operational gearing benefit from the additional sales volumes.  The adverse currency translation impact, whilst significant in revenue terms, had little impact on earnings.

 

Non-underlying items

 

Non-underlying items related almost entirely to costs associated with the acquisitions during 2015 and the IPO in 2014.  In 2015 they included non-cash charges of £4.7m in respect of goodwill amortisation (£3.0m) and unamortised debt issue costs written off (£1.7m). Non-underlying items comprised:

 

 

2015

 

2014

 

 

£m

 

£m

Relating to acquisitions and associated re-financing during 2015:

 

 

 

 

-       Acquisition costs

 

2.0

 

-

-       Amortisation of acquired intangible assets

 

3.0

 

-

-       Unamortised debt issue costs written off

 

1.7

 

-

Relating to the IPO during 2014:

 

 

 

 

-       Listing costs

 

-

 

12.2

-       Senior Secured Notes early settlement fee

 

-

 

7.2

-       Unamortised debt issue costs written off

 

-

 

1.4

Profit on sale of property, plant and equipment

 

(0.2)

 

(0.1)

Non-underlying items before taxation

 

6.5

 

20.7

Taxation

 

(1.8)

 

(2.4)

Non-underlying items after taxation

 

4.7

 

18.3

 

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

 

Cashflow and net debt

 

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

 

 

2015

£m

 

2014

£m

 

 

 

 

Underlying operating profit

54.2

 

46.3

 

 

 

 

Depreciation

15.1

 

14.5

 

 

 

 

Underlying operating profit plus depreciation (EBITDA)

69.3

 

60.8

 

 

 

 

Increase in negative working capital

5.3

 

2.3

Operating cashflow

74.6

 

63.1

Capital expenditure

(19.3)

 

(15.1)

 

 

 

 

Operating cashflow after capital expenditure

55.3

 

48.0

 

 

 

 

Cash conversion rate

102.0%

 

103.7%

 

Cash generated from operations (excluding non-underlying items) after capital expenditure was strong showing an increase of 15.2% during the year to £55.3m (2014: £48.0m) and this was after absorbing a 27.8% increase in capital expenditure to £19.3m (128% of depreciation). The cash conversion rate, a key measure of operating cashflow performance, remained in excess of 100%.

 

Capital expenditure in 2015 increased by £4.2m to £19.3m, much of the increase related to investment in equipment for a new manufacturing facility in the Middle East to produce water management products.  Capital expenditure in 2016 is expected to remain ahead of depreciation as we continue to seek to expand our product range and improve our operating efficiency.

 

Net working capital at 31 December 2015 of negative £2.3m compared with negative £4.4m at 31 December 2014.  This decrease in negative working capital of £2.1m during 2015 comprised:

 

 

 

£m

On acquisition of businesses during the year

 

(7.5)

Cashflow gain

 

5.3

Exchange movements

 

0.1

 

 

(2.1)

 

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 (bank loans less cash) comprised:

 

2015

£m

 

2014

£m

 

Increase

£m

 

 

 

 

 

 

Bank loans

(217.5)

 

(120.0)

 

(97.5)

 

 

 

 

 

 

Cash and cash equivalents

21.6

 

43.1

 

(21.5)

 

 

 

 

 

 

 

 

(195.9)

 

 

(76.9)

 

 

(119.0)

 

Net debt (RCF less cash) increased by £119.0m during the year to £195.9m.  This increase was after spending £151.5m on acquiring businesses (including costs) during the year. 

 

At 31 December 2015 liquidity headroom (cash and undrawn committed banking facilities) was substantial and improved at £104.1m (2014: £83.1m).   Whilst our immediate focus is on deleveraging following the Nuaire acquisition, and we expect net debt to EBITDA to reduce towards approximately 2 times by the end of the 2016 financial year due to the high cash generative nature of our business.  This headroom enables us to continue to develop our acquisition pipeline and we continue to seek out compelling "bolt on" opportunities to accelerate growth in our strategic development areas.

 

Refinancing

 

In August 2015 the Group cancelled its existing £120m term loan and £40m Revolving Credit Facility ("RCF") and entered into a new five year term £300m RCF to finance the acquisition of Nuaire.  At 31 December £217.5m of the new RCF was drawn down. 

 

The Group is subject to two financial covenants, at 31 December 2015 there was significant headroom:

 

 

Covenant:

Covenant requirement

Position at 31 December 2015

 

 

 

Interest cover (EBIT:Net finance costs

excluding debt issuance cost amortisation)

 

>4:1

 

7.6:1

Leverage (EBITDA:Net debt)

<3.5:1

2.5:1

 

 

 

 

Finance Costs

 

Net underlying finance charges for the year of £6.2m were £2.5m lower than the prior year, despite higher year end net debt from acquisition financing, due to the full year benefit in 2015 of refinancing the 9.5% £150m Senior Secured Notes in April 2014 with bank loans at a significantly lower finance cost and improved terms of our new revolving credit facility from August 2015.

 

Interest is payable on the new RCF at LIBOR plus an interest rate margin ranging from 1.5% to 2.75%.  The interest rate margin at 31 December 2015 was 2.25%.

 

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 £60m 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 2015 was £2.1m negative (2014: £2.4m negative), the movement in the mark to market adjustment during the year of £0.3m is included in the Group Statement of Comprehensive Income.

 

Non-underlying finance costs of £1.7m in 2015 related to the write off of unamortised issue costs incurred on our former and now refinanced term loan and RCF.

 

Taxation

 

Underlying taxation:

 

As noted in last year's Annual Report, the underlying tax rate (underlying tax : underlying profit before tax) for 2015 was expected to be close to the UK standard tax rate as the last of the benefit from brought forward non-trading losses was recognised in 2014.  The underlying tax rate in 2015 was 19.2% (2014: 14.4%), slightly below the UK standard tax rate of 20.25% largely due to the benefit of patent box relief.  The impact of our mainland European operations on the Group's tax charge is not significant.

 

Taxation on non-underlying items:

 

The non-underlying taxation credit of £1.8m in 2015 included £1.0m relating to prior year items.  Adjusting for the prior year items in 2015, the relatively low tax credit on non-underlying items in both years was because there was no taxation relief on the acquisition costs incurred in 2015 and limited taxation relief was available on listing costs in 2014.

 

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 further against the Euro during 2015 with the average exchange rate used for translation purposes moving from £1:€1.25 in 2014 to £1:€1.38 in 2015.  The impact of this was £5.4m 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 £0.1m (included in financial liabilities) on these derivative contracts at 31 December 2015 (2014: £0.2m loss) resulting in an income statement credit of £0.1m during the year.

 

Earnings per share

 

 

2015

 

2014

Pence per share:

 

 

 

Basic

17.11

 

6.96

Underlying

19.47

 

16.11

 

The impact of dilution is not significant

 

The movement in basic EPS is distorted by significant non-underlying items during both 2015 and 2014.

 

Adjusted EPS, which removes the impact of non-underlying items, improved by 21% in 2015 due to the improved operating result and reduced finance costs offset by an increase in the underlying tax rate as explained above.

 

Dividend

 

The final dividend of 5.5 pence is being recommended for payment on 1 June 2016 to shareholders on the register at the close of business on 29 April 2016.  The ex dividend date will be 28 April 2016.

 

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 in the approximate proportions of one-third and two-thirds, respectively. 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.  Pension costs for the year amounted to £1.7m (2014: £1.3m).

 

Acquisitions

 

On 30 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 for net cash at completion.  Surestop has contributed revenue of £2.1m and £0.8m operating profit to the Group's result for 2015.  If Surestop had been acquired on 1 January 2015 the Group's results for the tax year would have shown revenue of £353.1m and underlying operating profit of £54.2m.

 

On 18 August 2015 the Group acquired 100% of the share capital of a Nu-Oval Acquisitions 1 Limited ("Nuaire"), a leading provider of ventilation systems.  The cash consideration of £149.2m included a payout of £4.9m for net cash at completion.  Nuaire has contributed post acquisition revenue of £21.9m and £3.2m operating profit to the Group's result for 2015. If Nuaire had been acquired on 1 January 2015 the Group's results for the tax year would have shown revenue of £395.4m and underlying operating profit of £62.9m.  Nuaire's results are allocated between Residential Piping Systems and Commercial and Infrastructure Piping Systems - UK in line with the market sectors they serve.

 

Principal risks and uncertainties

 

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

 

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.

 

Annual General Meeting

 

The Annual General Meeting will be held at the Holiday Inn Doncaster, High Road, Warmsworth, Doncaster DN4 9JX at 10:30am on Wednesday 25 May 2016.

 

By order of the Board:

 

D G Hall

P D Shepherd

Chief Executive Officer

Chief Financial Officer

31 March 2016

31 March 2016

Polypipe Group plc

2015 Preliminary results

GROUP INCOME STATEMENT

for the year ended 31 December 2015

 

 

 

2015

 

2014

 

Notes

Underlying

£m

Non-Underlying*

£m

Total

£m

 

Underlying

£m

Non-Underlying*

£m

Total

£m

Revenue

2

352.9

-

352.9

 

327.0

-

327.0

Cost of sales

 

(210.0)

-

(210.0)

 

(202.4)

-

(202.4)

Gross profit

 

142.9

-

142.9

 

124.6

-

124.6

Selling and distribution costs

 

(56.4)

-

(56.4)

 

(49.8)

-

(49.8)

Administration expenses

 

(32.3)

(2.0)

(34.3)

 

(28.5)

(12.2)

(40.7)

Trading profit

 

54.2

(2.0)

52.2

 

46.3

(12.2)

34.1

Profit on sale of fixed assets

 

-

0.2

0.2

 

-

0.1

0.1

Amortisation of acquisition intangibles

 

-

(3.0)

(3.0)

 

-

-

-

Operating profit

2

54.2

(4.8)

49.4

 

46.3

(12.1)

34.2

Finance revenue

4

0.1

-

0.1

 

0.2

-

0.2

Finance costs

4

(6.3)

(1.7)

(8.0)

 

(8.9)

(8.6)

(17.5)

Profit before tax

 

48.0

(6.5)

41.5

 

37.6

(20.7)

16.9

Taxation

5

(9.2)

1.8

(7.4)

 

(5.4)

2.4

(3.0)

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

 

38.8

(4.7)

34.1

 

32.2

(18.3)

13.9

 

 

 

 

 

 

 

 

 

Basic earnings per share (pence)

6

19.47

 

17.11

 

16.11

 

6.96

Diluted earnings per share (pence)

6

19.42

 

17.07

 

16.10

 

             6.95

 

 

 

 

 

 

 

 

 

Dividend per share (pence) - Interim

7

 

 

2.30

 

 

 

1.50

Dividend per share (pence) - Final

7

 

 

5.50

 

 

 

3.00

Total

 

 

 

7.80

 

 

 

4.50

 

 

* Note 3

GROUP STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2015

 

 

 

 

 

2015

 

2014

 

 

 

 

£m

 

£m

 

 

Profit for the year

 

34.1

 

13.9

 

 

Other comprehensive income:

 

 

 

 

 

 

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

 

 

 

 

 

 

Exchange differences on translation of foreign operations

 

(0.8)

 

(1.1)

 

 

Effective portion of changes in fair value of interest rate swap derivative

 

0.3

 

(2.4)

 

 

Tax relating to items that may be reclassified

 

(0.1)

 

0.5

 

 

Other comprehensive income for the year net of tax

 

(0.6)

 

(3.0)

 

 

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

 

33.5

 

10.9

 

 

GROUP BALANCE SHEET

at 31 December 2015

 

 

 

 

Notes

31 December 2015

 

31 December 2014

 

 

 

 

£m

 

£m

 

 

Non-current assets

 

 

 

 

 

 

Property, plant and equipment

8

98.1

 

89.2

 

 

Intangible assets

9

378.4

 

235.0

 

 

Total non-current assets

 

476.5

 

324.2

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Inventories

 

47.5

 

39.9

 

 

Trade and other receivables

 

30.5

 

20.9

 

 

Cash and cash equivalents

 

21.6

 

43.1

 

 

Total current assets

 

99.6

 

103.9

 

 

Total assets

 

576.1

 

428.1

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade and other payables

 

(80.3)

 

(65.2)

 

 

Other financial liabilities

11

(2.2)

 

(2.6)

 

 

Income tax payable

 

(4.7)

 

(2.0)

 

 

Total current liabilities

 

(87.2)

 

(69.8)

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

Loans and borrowings

11

(215.9)

 

(118.0)

 

 

Other liabilities

 

(2.0)

 

(1.7)

 

 

Deferred tax liability

 

(10.0)

 

(0.9)

 

 

Total non-current liabilities

 

(227.9)

 

(120.6)

 

 

Total liabilities

 

(315.1)

 

(190.4)

 

 

Net assets

 

261.0

 

237.7

 

 

Capital and reserves

 

 

 

 

 

 

Equity share capital

 

0.2

 

0.2

 

 

Capital redemption reserve

 

1.1

 

1.1

 

 

Treasury shares

 

(1.7)

 

(1.7)

 

 

Hedging reserve

 

(1.7)

 

(1.9)

 

 

Foreign currency retranslation reserve

 

(2.5)

 

(1.7)

 

 

Retained earnings

 

265.6

 

241.7

 

 

Total equity

 

261.0

 

237.7

 

GROUP STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2015

 

 

 

Share capital

Capital redemption reserve

Treasury shares

Hedging reserve

Foreign currency retranslation reserve

Retained earnings

Total equity

 

£m

£m

£m

£m

£m

£m

£m

At 31 December 2013

1.3

-

-

-

(0.6)

230.7

231.4

Profit for the year

-

-

-

-

-

13.9

13.9

Other comprehensive expense

-

-

-

(1.9)

(1.1)

-

(3.0)

Total comprehensive (expense)/income 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

Profit for the year

-

-

-

-

-

34.1

34.1

Other comprehensive income/(expense)

-

-

-

0.2

(0.8)

-

(0.6)

Total comprehensive income/(expense) for the year

-

-

-

0.2

(0.8)

34.1

33.5

Dividends paid

-

-

-

-

-

(10.6)

(10.6)

Share-based payments

-

-

-

-

-

0.4

0.4

At 31 December 2015

0.2

1.1

(1.7)

(1.7)

(2.5)

265.6

261.0

 

GROUP CASH FLOW STATEMENT

for the year ended 31 December 2015

 

 

 

 

2015

 

2014

 

 

 

£m

 

£m

 

 

Operating activities

 

 

 

 

 

Profit for the year before tax

41.5

 

16.9

 

 

Add back net financing costs

7.9

 

17.3

 

 

Operating profit

49.4

 

34.2

 

 

Non cash items:

 

 

 

 

 

Gain on disposal of property, plant and equipment

(0.2)

 

(0.1)

 

 

Non-underlying exceptional items - listing costs expensed

-

 

12.2

 

 

                                                      - listing costs paid

-

 

(12.5)

 

 

                                                      - amortisation of acquisition intangibles

3.0

 

-

 

 

Depreciation

15.1

 

14.5

 

 

Operating cash flow before movement in working capital

67.3

 

48.3

 

 

Movement in working capital:

 

 

 

 

 

Receivables

1.6

 

(0.2)

 

 

Payables

5.6

 

4.0

 

 

Inventories

(1.9)

 

(1.5)

 

 

Cash generated from operations

72.6

 

50.6

 

 

Income tax paid

(5.2)

 

(3.7)

 

 

Net cash flows from operating activities

67.4

 

46.9

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Interest received

0.1

 

0.2

 

 

Proceeds from disposal of property, plant and equipment

0.4

 

0.2

 

 

Acquisition of businesses  - purchase consideration

(155.2)

 

(0.3)

 

 

                                           - cash at acquisition

5.7

 

-

 

 

Purchase of property, plant and equipment

(19.3)

 

(15.1)

 

 

Net cash flow used in investing activities

(168.3)

 

(15.0)

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Repayment of Senior Secured Notes

-

 

(150.0)

 

 

New bank loans

148.5

 

120.0

 

 

Bank loan repayment

(51.0)

 

-

 

 

Purchase of own shares

-

 

(1.7)

 

 

Interest paid

(5.8)

 

(10.6)

 

 

Dividend paid

(10.6)

 

(3.0)

 

 

Refinancing costs

(1.7)

 

(9.4)

 

 

Net cash flows from financing activities

79.4

 

(54.7)

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

(21.5)

 

(22.8)

 

 

Cash and cash equivalents at 1 January

43.1

 

65.9

 

 

Cash and cash equivalents at 31 December

21.6

 

43.1

 

 

 

NOTES TO THE COMPANY FINANCIAL STATEMENTS

For the year ended 31 December 2015

 

 

                                           

1.     Basis of preparation

The preliminary results for the year ended 31 December 2015 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 2015.  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 2014 have been filed with the Registrar of Companies.  The statutory accounts for the year ended 31 December 2015 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.

Each of the Directors confirms that, to the best of their knowledge, the financial statements, prepared in accordance with IFRS as adopted by EU 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 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. 

2.     Segment information

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

 

 

2015

 

2014

 

 

                                                                                                                                                                                                                                                                                   

Revenue

£m

Result

£m

Underlying result*

£m

 

Revenue

£m

Result

£m

Underlying result*

£m

 

Residential Piping Systems

182.6

33.0

32.8

 

173.3

28.5

28.4

 

Commercial & Infrastructure Piping Systems (UK)

131.5

20.2

20.1

 

111.1

17.0

17.0

 

Inter segment sales

(10.2)

-

-

 

(9.6)

-

-

 

UK Operations

303.9

53.2

52.9

 

274.8

45.5

45.4

 

Commercial & Infrastructure Piping Systems  (Mainland Europe)

50.4

1.2

1.3

 

53.9

0.9

0.9

 

Inter segment sales

(1.4)

-

-

 

(1.7)

-

-

 

Non-underlying group items

-

(5.0)

-

 

-

(12.2)

-

 

Total Group

352.9

49.4

54.2

 

327.0

34.2

46.3

 

Net finance costs

 

(7.9)

(6.2)

 

 

(17.3)

(8.7)

 

Profit before taxation

 

41.5

48.0

 

 

16.9

37.6

 

Geographical analysis                                                                                                 

 

 

 

 

 

 

 

 

2015

 

2014

 

Revenue by destination

 

 

£m

 

£m

 

UK

 

 

276.7

 

253.3

 

Rest of Europe

 

 

54.2

 

56.9

 

Rest of World

 

 

22.0

 

16.8

 

Total - Group

 

 

352.9

 

327.0

 

 

 

 

 

 

 

 

*The underlying result excludes non-underlying items - see note 3

 

                                     

3.          Non-underlying items

Non-underlying items comprised:

 

2015

 

2014

 

 

Gross

Tax

Net

 

Gross

Tax

Net

 

£m

£m

£m

 

£m

£m

£m

Administration expenses:

 

 

 

 

 

 

 

Acquisition costs

2.0

-

2.0

 

-

-

-

Listing costs

-

-

-

 

12.2

(0.2)

12.0

Profit on sale of property, plant and equipment:

(0.2)

-

(0.2)

 

(0.1)

-

(0.1)

Amortisation of acquired intangible assets:

3.0

(0.5)

2.5

 

-

-

-

Finance costs:

 

 

 

 

 

 

 

Senior secured notes early settlement fee

-

-

-

 

7.2

(1.5)

5.7

Unamortised debt issue costs written off

1.7

(0.3)

1.4

 

1.4

(0.3)

1.1

Taxation:

 

 

 

 

 

 

 

Prior year corporation tax

-

(0.8)

(0.8)

 

-

(0.4)

(0.4)

Effect of tax rate changes on prior year deferred tax liability

-

(0.2)

(0.2)

 

-

-

-

Total non-underlying items

6.5

(1.8)

4.7

 

20.7

(2.4)

18.3

                     

4.          Net Finance Costs

 

 

2015

 

 

 

2014

 

                                                                                                                                          

Underlying

£m

Non-underlying

£m

Total

£m

 

Underlying

£m

Non-underlying

£m

Total

£m

Bank interest income

0.1

-

0.1

 

0.2

-

0.2

Financial income

0.1

-

0.1

 

0.2

-

0.2

 

 

 

 

 

 

 

 

Interest on Senior Secured Notes

-

-

-

 

5.5

-

5.5

Interest on Bank loan

5.4

-

5.4

 

2.4

-

2.4

Debt issue cost amortisation

0.4

-

0.4

 

0.6

-

0.6

Other finance charges

0.5

-

0.5

 

0.4

-

0.4

Senior Secured Notes early settlement fee

-

-

-

 

-

7.2

7.2

Unamortised debt issue costs relating to refinanced debt written off

-

1.7

1.7

 

-

1.4

1.4

Financial expense

6.3

1.7

8.0

 

8.9

8.6

17.5

 

Net financing costs

 

6.2

 

1.7

 

7.9

 

 

8.7

 

8.6

 

17.3

                   

 

5.          Taxation

(a) Tax charged in the income statement

                                                                                                                                           

2015

 

2014

 

£m

 

£m

Current income tax:

 

 

 

UK corporation tax

8.0

 

3.7

Overseas tax

0.2

 

-

Current income tax charge

8.2

 

3.7

Adjustment in respect of prior years

(0.8)

 

(0.4)

Total current income tax

7.4

 

3.3

Deferred tax:

 

 

 

Origination and reversal of temporary differences

0.1

 

(0.1)

Effect of changes in tax rates

(0.1)

 

-

Overseas taxation

-

 

(0.2)

Total deferred tax

-

 

(0.3)

Tax expense in the income statement

7.4

 

3.0

Details of the non-underlying tax credit of £1.8m (2014: £2.4m) are set out in note 3.

 

(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 2015 and 2014 is as follows:

                                                                                                                                           

2015

 

2014

 

£m

 

£m

 

 

 

 

Accounting profit before tax

41.5

 

16.9

 

 

 

 

Accounting profit multiplied by the UK standard rate of tax of
20.25% (2014: 21.49%)

8.4

 

 

3.6

Expenses not deductible for corporation tax

0.8

 

4.5

Non-taxable income

(0.4)

 

(1.8)

Utilisation of tax losses

-

 

(2.5)

Adjustments in respect of current income tax of previous years

(0.8)

 

(0.4)

Effective patent box rate adjustment

(0.4)

 

(0.3)

Effects of changes in tax rate

(0.2)

 

(0.1)

Total tax expense reported in the income statement

7.4

 

3.0

The effective rate for the full year is 17.8% (2014: 17.8%).  If the impact of non-underlying costs is excluded, the underlying tax rate would be 19.2% (2014: 14.4%).

(c) Deferred Tax

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

 

2015

 

2014

 

£m

 

£m

Deferred tax liability

 

 

 

Short term timing differences

8.3

 

(0.3)

Capital allowances in excess of depreciation

1.7

 

2.2

Tax losses carried forward

-

 

(1.0)

 

10.0

 

0.9

The increase in the deferred tax liability during the year of £9.1m relates to businesses acquired as shown in Note 10.

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

authority.

 

(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 20% which was applied from 1 April 2015, to 19% from 1 April 2017 and 18% from 1 April 2020. The reduction in the corporation tax rate to 18% was included within the Finance (No 2) Act 2015 that was substantively enacted in October 2015.

Deferred taxation is measured at tax rates that are expected to apply in the periods in which the temporary timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted at the balance sheet date. Deferred tax has therefore been provided at 18%.

(e) Unrecognised tax losses

A deferred tax asset of £1.0m (2014: £1.3m) in respect of surplus non-trading losses has not been recognised at 31 December 2015 as its recovery is uncertain.

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.

Underlying earnings per share is based on the result for the year after taxation, excluding the impact of non-underlying items, of £38.8m (2014: £32.2m).  The Directors consider that this measure gives a better and more consistent indication of the Group's underlying performance.

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

Number of shares

 

2015

 

2014

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

199,267,136

 

199,853,984

Share options

540,243

 

111,897

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

199,807,379

 

199,965,881

 

7.          Dividends      

 

2015

 

2014

 

£m

 

£m

Amounts recognised as distributions to equity holders in the year:

 

 

 

Final dividend for the year ended 31 December 2014 of 3.0p per share

6.0

 

-

Interim dividend for the year ended 31 December 2015 of 2.3p per share

(2014: 1.5p)                                                                                                        

4.6

 

3.0

 

10.6

 

3.0

 

 

 

 

Proposed final dividend for the year ended 31 December 2015 of 5.5p

(2014: 3.0p) per share

10.9

 

 

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.

 

8.          Property, plant and equipment

 

Freehold land and buildings

 

Plant and other equipment

 

Total

 

£m

 

£m

 

£m

Cost

 

 

 

 

 

At 1 January 2014

43.8

 

119.6

 

163.4

Additions

0.7

 

14.5

 

15.2

Acquisition of businesses

-

 

0.1

 

0.1

Disposals

-

 

(1.9)

 

(1.9)

Exchange adjustment

(0.5)

 

(2.0)

 

(2.5)

At 31 December 2014

44.0

 

130.3

 

174.3

Additions

1.8

 

17.6

 

19.4

Acquisition of businesses

2.6

 

2.6

 

5.2

Disposals

-

 

(2.0)

 

(2.0)

Exchange adjustment

(0.3)

 

(1.5)

 

(1.8)

At 31 December 2015

48.1

 

147.0

 

195.1

 

 

 

 

 

 

Depreciation

 

 

 

 

 

At 1 January 2014

8.0

 

66.4

 

74.4

Provided during the year

1.3

 

13.2

 

14.5

Disposals

-

 

(1.8)

 

(1.8)

Exchange adjustment

(0.3)

 

(1.7)

 

(2.0)

At 31 December 2014

9.0

 

76.1

 

85.1

Provided during the year

1.3

 

13.8

 

15.1

Disposals

-

 

(1.8)

 

(1.8)

Exchange adjustment

(0.2)

 

(1.2)

 

(1.4)

At 31 December 2015

10.1

 

86.9

 

97.0

Net Book Value:

 

 

 

 

 

At 31 December 2015

38.0

 

60.1

 

98.1

At 31 December 2014

35.0

 

54.2

 

89.2

 

9.          Intangible assets

 

Goodwill

 

Patents

 

Brand names

 

Customer relationships

 

Customer order book

 

Total

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

Cost

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2014

234.4

 

-

 

-

 

-

 

-

 

234.4

 

Acquisition of businesses

0.6

 

-

 

-

 

-

 

-

 

0.6

 

At 31 December 2014

235.0

 

-

 

-

 

-

 

-

 

235.0

 

Acquisition of businesses

94.3

 

18.2

 

25.5

 

6.4

 

2.0

 

146.4

 

At 31 December 2015

329.3

 

18.2

 

25.5

 

6.4

 

2.0

 

381.4

 

 

 

 

 

 

 

 

 

 

 

 

Amortisation and impairment

 

 

 

 

 

 

 

 

 

 

At 1 January and 31 December 2014

-

 

-

 

-

 

-

 

-

 

-

 

Charge for the period

-

 

0.7

 

1.0

 

0.5

 

0.8

 

3.0

 

At 31 December 2015

-

 

0.7

 

1.0

 

0.5

 

0.8

 

3.0

 

Net Book Value:

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2015

329.3

 

17.5

 

24.5

 

5.9

 

1.2

 

378.4

 

At 31 December 2014

235.0

 

-

 

-

 

-

 

-

 

235.0

 

                                     

 

10.        Acquisitions

Surestop

On 30 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 £6.0 million included a payment of £0.8 million for net cash at completion. 

Details of the acquisition are as follows: 

 

Book value

£m

 

Fair value adjustments

£m

 

Fair value

£m

Intangible assets

-

 

1.7

 

1.7

Plant and equipment

0.7

 

-

 

0.7

Inventories

0.1

 

-

 

0.1

Trade and other receivables

0.5

 

-

 

0.5

Cash

0.8

 

-

 

0.8

Trade and other payables

(0.4)

 

-

 

(0.4)

Income tax liabilities

(0.1)

 

-

 

(0.1)

Deferred Tax

-

 

(0.3)

 

(0.3)

Net identifiable assets

1.6

 

1.4

 

3.0

Goodwill on acquisition

 

 

 

 

3.0

Total consideration

 

 

 

 

6.0

Patents and the 'Surestop' brand have been recognised have been recognised as specific intangible assets as a result of this acquisition. Fair value adjustments principally relate to the recognition of intangible assets and related deferred taxation.  The goodwill arising on the acquisition primarily represents the assembled workforce, technical expertise and market share.

Post acquisition Surestop has contributed £2.1m revenue and £0.8m operating profit which is included in the group income statement. If Surestop had been acquired on 1 January 2015 the Group's results for the tax year would have shown revenue of £353.1m and underlying operating profit of £54.2m.

Nuaire

On 18 August 2015 the Group acquired 100% of the share capital of Nu-Oval Acquisitions 1 Limited ("Nuaire"), a leading provider of ventilation solutions.  The cash consideration of £149.2 million included a payment of £4.9 million for net cash at completion. 

Details of the acquisition are as follows: 

 

Book value

£m

 

Fair value adjustments

£m

 

Fair value

£m

Intangible assets

-

 

50.4

 

50.4

Plant and equipment

4.7

 

(0.2)

 

4.5

Investments

0.2

 

(0.2)

 

-

Inventories

6.0

 

-

 

6.0

Trade and other receivables

11.1

 

-

 

11.1

Cash

4.9

 

-

 

4.9

Trade and other payables

(9.1)

 

(0.7)

 

(9.8)

Income tax liabilities

(0.4)

 

-

 

(0.4)

Deferred tax

0.2

 

(9.0)

 

(8.8)

Net identifiable assets

17.6

 

40.3

 

57.9

Goodwill on acquisition

 

 

 

 

91.3

Total consideration

 

 

 

 

149.2

Patents, the 'Nuaire' brand, customer relationships and the customer order book have been recognised as specific intangible assets as a result of this acquisition. Fair value adjustments principally relate to the recognition of intangible assets and related deferred taxation and the application of fair values on acquisition.  The goodwill arising on the acquisition primarily represents the assembled workforce, technical expertise and market share.

Post acquisition Nuaire has contributed £21.9m revenue and £3.2m operating profit which is included in the group income statement. If Nuaire had been acquired on 1 January 2015 the Group's results for the tax year would have shown revenue of £395.4m and underlying operating profit of £62.9m.

 

11.        Financial liabilities

 

31 December 2015

 

31 December 2014

 

£m

 

£m

Non-current loans and borrowings:

 

 

 

Bank loans - principal

217.5

 

120.0

            - unamortised debt issue costs

(1.6)

 

(2.0)

Total non-current loans and borrowings

215.9

 

118.0

Other financial liabilities:

 

 

 

Interest rate swap

2.1

 

2.4

Forward currency derivative contracts

0.1

 

0.2

 

2.2

 

2.6

Bank Loans

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 to EBITDA) and reduces as the Group's leverage reduces.  The interest margin at the 31 December 2015 was 2.25%.

At 31 December 2015, the Group had available, subject to covenant headroom, £82.5m (2014: £40m) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met at 31 December 2015.

£10m of the £300m revolving credit facility will be reviewed at 31 December 2016 and the revolving credit facility will be reduced by £10m if the leverage ratio (EBITDA: Net Debt) at 31 December 2016 is greater than or equal to 2.25:1. The facility will also reduce by £10m each year, regardless of leverage, at 31 December 2017, 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 the year end the Group was not in breach of any bank covenants. The covenant position as at 31st December 2015 was as follows:

Covenant

Covenant requirement

 

Position at 31 December 2015

Interest cover (EBIT:Net finance costs excluding debt issuance cost amortisation)

 

>4 : 1

 

 

7.6 : 1

Leverage (EBITDA:Net debt)

<3.5 : 1

 

2.5 : 1

The interest cover covenant remains at 4:1 throughout the duration of the revolving credit facility.  The leverage covenant reduces to 3.25:1 at 31 December 2016 and further reduces to 3.0:1 at 30 September 2017 and remains at that level to August 2020.


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

Final Results

RNS Number : 9460A
Polypipe Group PLC
30 March 2017
 

30 March 2017

 

Polypipe Group plc

Audited results for the year ended 31 December 2016

 

Continued growth drives 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 2016.

 

Financial Results

 


2016

2015

Change





Revenue

£436.9m

£352.9m

+23.8%

Underlying operating profit1

£69.4m

£54.2m

+28.0%

Underlying operating margin1

15.9%

15.4%

+50bps

Underlying profit before tax1

£61.8m

£48.0m

+28.8%

Operating profit

£62.0m

£49.4m

+25.5%

Profit before tax

£54.4m

£41.5m

+31.1%

Earnings per share (diluted)

22.1p

17.1p

+29.2%

Underlying earnings per share (diluted)1

25.0p

19.4p

+28.9%

Cash generated from operations

£86.5m

£72.6m

+19.1%

Dividend per share

10.1p

7.8p

+29.5%

Financial Highlights

·      Revenue 23.8% higher at £436.9m, or 9.1% on a like for like basis2

·      UK revenue 10.5% ahead on a like for like basis2

·      Underlying operating profit 28.0% higher at £69.4m

·      50bps improvement in underlying operating margin to a record 15.9%

·      Underlying diluted earnings per share 28.9% higher at 25.0 pence per share

·      Strong cash conversion rate maintained at 97.1%

·      Net debt down to 1.9 times EBITDA3

·      Recommended final dividend of 7.0 pence per share giving a full year dividend of 10.1 pence per share, 29.5% higher

 

Operational Highlights

·      Excellent UK revenue growth reflecting continued strong demand for our products with no discernible impact of the EU Referendum on our end markets

·      Legacy material substitution and legislative tailwinds driving growth ahead of the overall UK construction market

·      Nuaire successfully integrated into Group and performing in line with expectations

·      Middle East manufacturing plant commissioned and in full operation in the second half of the year

·      Significant growth in export revenue, up by 28.7%

 

Outlook

·      Underlying fundamentals and growth prospects in the overall UK construction market remain positive

·      Level of economic uncertainty has eased since the immediate reaction to the outcome of the EU Referendum, but we remain alert to market risks

·      Impact of selling price increases, due to the increase in base polymer and other costs, expected to come through from second quarter, expected to deliver planned margin for the full year

 

David Hall, Chief Executive said:

"Our record performance during 2016 and continuing growth underscores the strength of the Polypipe business model and the robust fundamentals underlying the majority of our market segments.  In a period of heightened political and market uncertainties, Polypipe continued to focus on its priorities and delivered results toward the top end of our expectations.  The combination of forecast market growth, our focus on executing our strategic development initiatives and resolve to recover input cost inflation mean that we look forward to 2017 being a further year of progression for the Group".

 

1 Underlying profit and earnings measures exclude certain non-underlying items which are provided in Note 3, 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 Like for like (LFL) measures exclude acquisitions, where relevant, and are at constant currency translation.

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

 

For further information please contact:

Polypipe

David Hall, Chief Executive Officer

Martin Payne, Chief Financial Officer

 

+44 (0) 1709 770 000

Brunswick

Mike Smith

Will Rowberry

+44 (0) 20 7404 5959

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

An analyst and investor presentation will be held today at Deutsche Bank's offices, Winchester House, 1 Great Winchester Street, London, EC2N 2DB at 0830hrs (BST) with registration from 0800hrs.

For those unable to attend, a live conference call will be available at 0830hrs (BST).

Dial-In number

+44 (0) 1452 555 566

Conference ID

86980405

 

The webcast can be viewed at this link.

 

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, 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

 

Group revenue for the year ended 31 December 2016 was 23.8% higher at £436.9m (2015: £352.9m).  This substantial improvement is a result of our continued strategic focus on structural growth opportunities and legacy material substitution, together with a significant contribution from our Nuaire ventilation business unit acquired in August 2015.  On a like for like basis, excluding acquisitions and on a constant currency basis, revenue was 9.1% higher than the prior year.

Underlying operating profit was 28.0% higher than the prior year at £69.4m (2015: £54.2m) and represents a record operating margin of 15.9% (2015: 15.4%).

Underlying net finance costs of £7.6m (2015: £6.2m) were higher than the prior year due to increased net debt associated with the Nuaire acquisition, offset partially by the benefits of the improved banking facilities entered into at the same time.

Underlying profit before tax was 28.8% higher at £61.8m (2015: £48.0m).

Non-underlying operating costs of £7.4m (2015: £6.5m) were incurred and primarily relate to £7.7m of non-cash charges including £6.8m of intangible assets amortisation arising from the Nuaire acquisition, and the £0.9m impairment of a surplus freehold property which is held for sale.

The total tax charge for the year of £10.2m (2015: £7.4m) represents an effective tax rate of 18.8% (2015: 17.8%).  The underlying effective tax rate of 19.1% (2015: 19.2%) is lower than the standard UK rate of tax due primarily to the benefit of patent box relief.

Underlying profit after tax was 28.9% higher at £50.0m (2015: £38.8m), with underlying diluted earnings per share also 28.9% higher at 25.0 pence (2015: 19.4 pence).

Including non-underlying items, profit after tax was 29.6% higher at £44.2m (2015: £34.1m) with diluted earnings per share also 29.2% higher at 22.1 pence (2015: 17.1 pence).

Chief Executive's Review

 

"Following on from a record performance in 2016 I am confident that our strategic development initiatives will continue to deliver growth ahead of the market".

 

Our record performance during 2016 and continuing growth underscores the strength of the Polypipe business model and the robust fundamentals underlying the majority of our market segments.  In a period of heightened political and market uncertainties, Polypipe continued to focus on its priorities and delivered results toward the top end of our expectations.  The drivers of our main UK market remain positive and I am confident that our strategic development initiatives will continue to deliver growth ahead of the market.

 

Following the acquisition of Nuaire last year, using cash and our debt facilities, our immediate focus has been to integrate the acquisition and to reduce our level of debt.  I am extremely pleased to report that Nuaire has been successfully integrated and continued to perform well under our ownership, maintaining its previous growth trajectory as well as developing the sales synergies that we had envisaged.  The highly cash generative nature of our business has enabled us to reduce net debt to 1.9 times EBITDA at the end of the year compared to 2.5 times at the end of 2015, delivering on our stated aim to reduce towards 2 times.  We expect this downwards trend to continue but at the same time we have sufficient financial headroom to continue to develop our investment opportunities and will continue to seek compelling "bolt on" acquisition opportunities.

 

Our customers rely on our ability to deliver the vast majority of their orders within a very short lead time and carrying the right level of inventory across such a broad product range is a key capability of the Group.  Our ability to respond and flex rapidly with demand, allowed us to not take any precipitative action with regard to capacity in the immediate period of uncertainty following the EU Referendum result.  Whilst market forecasts were unsettled by the outcome, the majority of our UK market sectors were largely unaffected with our order intake showing no discernible impact.  Political will, especially following the changes in Government leadership, to improve the housing shortage and national infrastructure is evident and has helped maintain and bolster confidence in the construction sector overall.  Whilst we took a measured response to slow capital expenditure relating to capacity expansion in the immediate aftermath of the EU Referendum, as our confidence returned we recommenced those projects, which has the effect of having pushed forward around £3m of expenditure originally planned for 2016 into 2017.  Despite this rescheduling, we still invested £19.1m during the year, some £2.8m ahead of depreciation.

 

The sharp downward movement in exchange rates coupled with increases in crude oil prices, resulted in a steady increase in virgin polymer prices over the second half of the year.  This was a significant reversal of trends seen in the first half and had an increasing impact on margins during the final quarter.  In general, our products represent a small part of overall project costs and because of the historical volatility in commodity polymer prices, customers recognise the need for us to pass through both price increases and decreases in our selling prices.  Although there is an inevitable lag in achieving full pass through, and we do all that we can to ameliorate price increases, Polypipe is well experienced and has a good history of recovering input cost inflation, even in difficult market conditions.

 

In the UK residential sector our core products and systems targeted at the new build market showed strong growth with further ongoing substitution of alternative traditional materials and our comprehensive range of carbon efficient solutions.  We continued to enjoy success with our underfloor heating offer with a well-received launch of a new range of aesthetic and intuitive TFT touch-screen smart controls.  In residential ventilation, our Silavent range benefited from further leverage of Nuaire's routes to market, whilst Nuaire themselves have continued to innovate with the launch of the energy efficient Drimaster-Eco range of positive input ventilation for both new build and retrofit residential applications.

 

In Commercial and Infrastructure Systems - UK, Government and legislative focus on flood alleviation continued to drive strong sales growth for our comprehensive range of engineered water management solutions.  In addition to providing an increasing number of SUDS (sustainable urban drainage solutions) to developers for a variety of different contracts, we were specified for a number of significant projects helping to design some innovative prefabricated solutions, minimizing site work and time, enhancing quality and health and safety.  In one London development project alone, we installed a shallow Permavoid system, designed to handle a one-in-one-hundred-year storm event and capable of handling 1.5 million litres of storm water.  Further north, our 1.5m diameter Ridgistorm-XL catchpits were pre-fabricated off-site and helicoptered into position as part of SSE's repair programme on the Loch Sloy Hydraulic Power Station in the Highlands.

 

We have continued to invest and maintained our focus on our rate of development in new products and enhancement of existing ranges.  During the period many new products were introduced across our businesses, including a new easy-to-install push-fit stainless steel manifold for our underfloor heating range, a range of cast-iron effect PVC rainwater hoppers, a squeezable cavity closure which requires no cutting on site, HDPE 4-way boss pipes and low-level manifolds, a range of guardrail and chain assembly accessories for Ridgistorm-XL installations, Permavoid capillary cone cells, and an upright Boxer packaged solution air handling unit from Nuaire, incorporating high efficiency heat recovery and the latest generation of ecosmart controls.  Progressive introduction of new products enables the Group to win an increasing number of high profile project specifications and secure further penetration into the sectors of the construction industry that offer opportunities for us to add value. 

 

Our most significant operational development project during 2016 was the setting up of a manufacturing facility in the Middle East.  After careful consideration of several options with regard to location we chose the Jebel Ali Free Zone in Dubai.  Being in the Free Zone enables us to have 100% ownership of the operation which we believe gives us flexibility and has also been one of the reasons we have been able to move with such pace.  Presently, we have set up one manufacturing cell for our geocellular storm water attenuation products which are the most space hungry items we export to the region.  All of our other products and ancillaries continue to be manufactured in the UK and exported as previously.  The building is on a relatively short lease, whilst we evaluate the potential opportunity, and the production cell mirrors those in the UK.  This means we have in-depth knowledge and experience of operating the equipment but also minimises risk should we decide at a future date to repatriate the equipment to one of our UK facilities.  After a very fast set up, we started to manufacture samples for test in July and fulfilled sales of £3.8m from the facility during the year.  This is an excellent start, however we will continue to move forward cautiously as we refine our knowledge and skills of operating in the region, to ensure we can as closely as possible match supply and demand in an arena where the average project is considerably larger than those we are used to supplying in the UK.

 

The Group continued to invest in its capability to reprocess consumer waste into durable, long lifecycle, high performance systems.  Approximately one third of our UK production utilises reprocessed polymer, making a considerable contribution to the circular economy with Polypipe one of the largest recyclers of household plastic waste in the UK.  Our latest investment is in state-of-the-art multilayer technology for sewerage pipe within our Building Products business, which will come on stream in early 2017.  Whilst there are some benefits to lower and more stable input costs, these are largely offset by the investment needed and higher processing costs.  Nonetheless, we are committed to continue to increase our use of recycled polymer and believe our customers regard it as an important factor in their environmentally responsible sourcing strategies.

 

We were honoured to receive the Queen's Award for Enterprise: International Trade, which was announced on 21 April 2016, to coincide with the 90th birthday of Queen Elizabeth II.  The Group was recognised for delivering significant growth in export activity, not least to the Middle East, where Polypipe recently solidified our presence in the region with the opening of our first overseas Technical Training Centre in October 2015.

 

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

 

Revenue

2016


2015

Change

LFL Change*

£m


£m

 %

 %







Residential Systems

207.6


182.6

13.7

6.6

Commercial and Infrastructure Systems - UK

184.2


131.5

40.1

16.1

Inter-segment sales

(11.0)


(10.2)



UK Operations

380.8


303.9

25.3

10.5

Commercial and Infrastructure Systems - Mainland Europe

57.9


50.4

14.9

2.4

Inter-segment sales

(1.8)


(1.4)









Group revenue

436.9


352.9 

23.8

9.1







Underlying operating profit

2016


2015

Change

 

£m


£m

 %

 






 

Residential Systems

39.1


32.8

19.2

 

Commercial and Infrastructure Systems - UK

29.0


20.1

44.3

 

UK Operations

68.1


52.9

28.7

 

Commercial and Infrastructure Systems - Mainland Europe

1.3


1.3

n/a

 






 

Group underlying operating profit

69.4


54.2

28.0

 

* Like for like (LFL) measures exclude acquisitions, where relevant, and are at constant currency translation.

 

Residential Systems

Revenue from the residential systems segment was £207.6m all of which was in the UK and Ireland and represented 46% of overall Group revenue in 2016.

 

Growth in activity in private residential new build has continued to be driven by the national housebuilders, whilst smaller builders still appear to be constrained or reluctant to commit capital investment to enable higher volume growth.  The much reported trend of the slowing rate of growth in the London market is evident with faster growth in the regions and in particular some of the larger regional cities.  Public sector housing starts fell again during the year being impacted by budgetary concerns arising from Government funding and obligations. 

 

Private Renovation, Maintenance and Improvement (RMI) activity has grown at a slower pace than market conditions would suggest.  Although the second hand housing market, which is historically a driver of RMI, has remained very sluggish, the rise in real incomes and strong mortgage availability coupled with a slow housing market would have been expected to have driven more improvement activity by those who cannot move.  There were no significant changes to Government funding to help alleviate the squeeze on public housing RMI budgets resulting from the impact of policies such as Right to Buy and the obligation to reduce rents.  The combination of these factors led to overall housing RMI output to decline marginally during the year.

 

Residential systems delivered an underlying operating profit of £39.1m, an increase of 19.2% over the prior year.

 

Commercial and Infrastructure Systems - UK

Revenue from our UK commercial and infrastructure systems segment was £184.2m and represented 41% of overall Group revenue in 2016.

 

Although there is some uncertainty over the timing of the Governments £15.2bn Road Investment Strategy a number of significant road projects were commenced and our products are installed towards the front end of those works.  As a result, 2016 was a strong year for demand from this sector and the additional schemes which have been tendered and are starting to be initiated for 2017, are encouraging.

 

Although private commercial project awards faltered during the middle of the year, picking up again towards the end, the long gestation period of these kind of projects meant site activity remained good throughout the period.  Infrastructure related to residential development also performed well and combined with the increase in the construction of high rise multi occupancy buildings in London, and more recently in other major cities, provided a good level of demand for our commercial systems, including the Nuaire ranges.

 

Export revenue is predominantly from our commercial and infrastructure systems product portfolio and is primarily targeted at the Gulf states, although we also won some notable projects in other British Standard regions of the world.  We report sales from our new Middle East facility in this segment as the products are combined with pipes, fittings and ancillaries which are exported from the UK.  Including locally manufactured products, export revenue grew by 28.7% over 2015.

 

Commercial and Infrastructure Systems - UK delivered an underlying profit of £29.0m, an increase of 44.3% over the prior year.

 

Commercial and Infrastructure Systems - Mainland Europe

Revenue from our Mainland Europe segment was £57.9m and represented 13% of overall Group revenue in 2016.  When translated into Sterling this is an increase of 14.9% on prior year, compared to an increase of 2.4% in local currency.

 

Although traditionally the French market improves as construction and municipal spending is accelerated towards an election period, we saw little evidence of improvement during the year.  During the first half we ran some distributor incentives to encourage them to build stock, however given the market picked up less than had been hoped, this had the effect of pulling forward some sales into the first half of the year to the detriment of our sales in the second half of the year, resulting in only a small incremental volume growth overall.  Nonetheless, our management initiatives are delivering a gradual improvement, maintaining profitability despite the lag in passing through the adverse impact of higher raw material costs in this segment, where materials represent a higher proportion of input costs.

 

Underlying operating profit was flat at £1.3m, a slight decrease in local currency.

 

Outlook

 

The new year has started well, with the underlying momentum in our main UK market carrying through from a strong final quarter, boosted by some pre-price increase orders from our stockists.  Market forecasts coupled with statements made by contractors and housebuilders regarding their anticipated activity levels, suggest that the overall UK construction market will continue to grow.  We intend to maintain our focus and investment on those development opportunities which enable us to add value to our customer proposition and deliver growth ahead of the market.  Whilst the level of uncertainty appears to have eased since the immediate reaction to the outcome of the EU Referendum, we remain alert to market risks and are confident in our ability to adapt to any changes in market conditions quickly and from a position of strength.

 

Passing on the impact of input inflation on our base polymers and other costs is one of our most immediate priorities.  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.  We expect to see the impact of these price increases coming through as we move into the second quarter, delivering our planned margin over the year as a whole, albeit resulting in a different profile through the year when compared to 2016.

 

The combination of forecast market growth, our focus on executing our strategic development initiatives and resolve to recover input cost inflation mean that we look forward to 2017 being a further year of progression for the Group.

 

Financial Review


2016

£m

2015

£m

Revenue

436.9

352.9

Underlying operating profit

69.4

54.2

Underlying operating margin

15.9%

15.4%





Growth

LFL Growth*

Group

23.8%

9.1%

UK

25.3%

10.5%

Mainland Europe

14.9%

2.4%

* Like for like (LFL) measures exclude acquisitions, where relevant, and are at constant currency translation.

 

Group revenue at £436.9m grew 23.8% in the year, or 9.1% on a like for like basis excluding acquisitions and on a constant currency translation basis.  Our UK operations, which include our Middle East factory due to the strong link with UK manufactured export product, grew 25.3% or 10.5% on a like for like basis.  Strong growth in the Commercial and Infrastructure Systems - UK segment and improving performance in the UK Residential Systems segment in the second half of the year contributed to this performance, with little impact of the EU Referendum seen in our end markets.  The effect of selling prices on revenue growth was negligible in the year, with deflationary effects from prior year running on into the first part of 2016, offset by a small selective price increase in April 2016.  UK like for like volume growth is therefore 10.5%, although adjusting for one extra working day in 2016 compared to 2015, and an element of pre-price increase ordering by the merchants, we estimate true underlying volume growth to be c.8.8%.  This growth is ahead of the UK construction market which according to ONS/CPA data for 2016 we estimate to have grown 2.3% adjusting for anomalies relevant to our business.  This demonstrates the continued success of our strategy to grow by focussing on legacy material substitution opportunities, legislative tailwinds relating to carbon reduction and water management, and selective export markets such as the Middle East.  Mainland Europe revenue grew 14.9% although much of this was down to currency translation, with like for like revenue growth at 2.4%.

 

The Group underlying operating margin improved to a record 15.9% (2015: 15.4%).  Operational leverage and self-help efficiency benefits have more than offset the impact of polymer cost inflation driven by the post EU Referendum weakening of Sterling.  Selling price increases have been implemented to recover this and other inflationary effects, but will not impact margins until the second quarter of the current year.  The favourable currency translation impact relating to our Mainland Europe businesses, whilst significant in revenue terms, had little impact on earnings.

 

Non-Underlying Items

Non-underlying items in both 2016 and 2015 predominantly related to costs associated with the acquisitions made during 2015.  In 2016 they included non-cash charges of £7.7m in respect of a full year of intangible assets amortisation (£6.8m) and the impairment of a surplus freehold property which is held for sale (£0.9m).  In 2015 they included non-cash charges of £4.7m in respect of a part year of intangible assets amortisation (£3.0m) and unamortised debt issue costs written off (£1.7m).

Non-underlying items comprised:


2016

£m

2015

£m




Amortisation of intangible assets

6.8

3.0

Acquisition costs

-

2.0

Unamortised debt issue costs written off

-

1.7

Impairment of freehold land and buildings

0.9

-

Profit on disposal of property, plant and equipment

(0.3)

(0.2)

Non-underlying items before taxation

7.4

6.5

Taxation

(1.6)

(1.8)

Non-underlying items after taxation

5.8

4.7

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

Exchange Rates

The Group is exposed to movements in exchange rates when translating the results of its Mainland Europe operations from Euros to Sterling.  Sterling depreciated against the Euro during 2016, particularly following the EU Referendum in June, with the average exchange rate used for translation purposes moving from £1:€1.38 in 2015 to £1:€1.23 in 2016.  The impact of this was a £6.2m positive effect on revenue with no significant impact on 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 currency derivative contracts are classified as held for trading.  There was an unrealised loss of £1.5m (included in financial liabilities) on these derivative contracts at 31 December 2016 (2015: £0.1m loss) resulting in an income statement charge of £1.4m during the year (2015: £0.1m credit).  This charge is treated as an underlying charge and is recorded in Cost of sales in the income statement.

Finance Costs

Net underlying finance costs for the year of £7.6m were £1.4m higher than the prior year.  This increase reflected the full year impact of higher net debt following the Nuaire acquisition in August 2015, offset by the improved terms of our new RCF entered into at the same time.

Interest is payable on the RCF at LIBOR plus an interest rate margin ranging from 1.25% to 2.75%.  The interest rate margin at 31 December 2016 was 2.00% (2015: 2.25%).

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 2016 was £4.2m negative (2015: £2.1m negative), the movement in the mark to market adjustment during the year of £2.1m is included in the Group Statement of Comprehensive Income.

Taxation

Underlying taxation:

The underlying tax charge in 2016 was £11.8m representing an effective tax rate of 19.1% (2015: 19.2%).  This is slightly below the UK standard tax rate of income tax of 20.0% due primarily to the benefit of patent box relief.  The impact of our Mainland Europe operations on the Group's tax charge is currently not significant.

 

Taxation on non-underlying items:

The non-underlying taxation credit of £1.6m in 2016 represents an effective rate of 21.6%.

Earnings Per Share


2016

2015

Pence per share:



Basic

22.2

17.1

Underlying basic

 

Diluted

Underlying diluted

25.1

 

22.1

25.0

19.5

 

17.1

19.4

 

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 diluted EPS improved by 28.9% in 2016 due to the improved underlying operating result and the marginally lower underlying tax rate as explained above offset by higher interest costs.

 

Dividend

The final dividend of 7.0 pence per share is being recommended for payment on 2 June 2017 to shareholders on the register at the close of business on 28 April 2017.  The ex-dividend date will be 27 April 2017.

 

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 in the approximate proportions of one-third and two-thirds, respectively.  The Group may revise its dividend policy from time to time.

 

Balance Sheet

The Group's balance sheet is summarised below:


2016

£m

2015

£m

Property, plant and equipment

101.0

98.1

Goodwill

329.3

329.3

Other intangible assets

42.3

49.1

Net working capital

0.5

(2.3)

Taxation

(14.3)

(14.7)

Other current and non-current assets and liabilities

(7.1)

(4.2)

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

(164.3)

(194.3)

Net assets

287.4

261.0

 

Property, plant and equipment increased by a net £2.9m predominantly due to capital expenditure exceeding depreciation by a similar amount.  Other intangible assets decreased by £6.8m reflecting a full year of amortisation in respect of the 2015 acquisitions.  Net working capital increased by £2.8m although much of this relates to currency translation effects in our Mainland Europe operations.  Other current and non-current assets and liabilities increased by a net £2.9m primarily due to the increase in the fair value liability of our forward foreign currency derivatives and interest rate swaps.  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 (2015: £1.7m).

Cash Flow and Net Debt

Cash generated from operations during the year, excluding the impact of non-underlying items, and the cash conversion rate defined as the ratio of operating cash flow after capital expenditure to operating profit (also excluding the impact of non-underlying items) were:


2016

£m

2015

£m

Underlying operating profit

69.4

54.2

Depreciation

16.3

15.1

Underlying operating profit before depreciation (EBITDA)

85.7

69.3

Movement in net working capital

Share-based payments

(0.2)

1.0

4.9

0.4

Operating cash flow

86.5

74.6

Capital expenditure

(19.1)

(19.3)

Operating cash flow after capital expenditure

67.4

55.3

Cash conversion rate

97.1%

102.0%

 

Cash generated from operations (excluding non-underlying items) after capital expenditure was strong showing an increase of 21.9% during the year to £67.4m (2015: £55.3m) and this was after capital expenditure of £2.8m or 17.2% greater than depreciation.  The cash conversion rate, a key measure of operating cash flow performance, remained strong at 97.1% of underlying operating profit.

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.  Consequently, capital expenditure in 2016 was marginally lower than the prior year at £19.1m (2015: £19.3m), and significantly below our original plans for 2016.  Spend on key projects such as completion of our manufacturing facility in the Gulf, a replacement extrusion line in our Broomhouse Lane plant and investment in equipment to allow product range expansion in our Terrain business unit has however continued during the year.  The performance of the Group since the EU Referendum and the more positive economic outlook compared to the period immediately afterwards has given us the confidence to resume those delayed projects, and therefore capital expenditure in 2017 is expected to be up to 30% higher than 2016 expenditure.

During the year, one million shares were purchased and held in treasury, for the purposes of satisfying future employee share option schemes.  This cost a total of £2.9m in the year.

Net debt of £164.3m comprised:


2016

£m

2015

£m

Change

£m

Bank loans

(192.0)

(217.5)

25.5

Cash and cash equivalents

26.5

21.6

4.9

Net debt (excluding unamortised debt issue costs)

(165.5)

(195.9)

30.4

Unamortised debt issue costs

1.2

1.6

(0.4)

Net debt

(164.3)

(194.3)

30.0

Net debt (excluding unamortised debt issue costs):EBITDA

1.9

2.5*


* Adjusted to include a full year of EBITDA from acquisitions made during the previous twelve months.

At 31 December 2016 liquidity headroom (cash and undrawn committed banking facilities) was substantial and improved to £134.5m (2015: £104.1m).  Continued focus on deleveraging following the Nuaire acquisition in August 2015 has seen our net debt to EBITDA ratio reduce substantially to 1.9 times EBITDA at 31 December 2016 (2015: 2.5 times), beating the target of 2.0 times EBITDA set at the beginning of the year, and demonstrating the cash generative nature of the business.  This headroom enables us to continue to develop our acquisition pipeline and we continue to seek out compelling opportunities to accelerate growth in our strategic development areas.

 

Financing

The Group has a revolving credit facility (RCF) committed through to August 2020 with a facility limit at 31 December 2016 of £300m, reducing by £10m per annum at 31 December 2017, 2018 and 2019.  At 31 December 2016, £192.0m of the RCF was drawn down.

The Group is subject to two financial covenants.  At 31 December 2016 there was significant headroom:

Covenant:

Covenant requirement


Position at

31 December 2016

Interest cover*

>4.00:1


9.7:1

Leverage**

<3.25:1


1.9:1

* Underlying operating profit:Net 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.  These cover the Strategic, Financial and Operational risks and have not changed significantly during the year.  The Board believes that, whilst not specifically noted, the potential impact of the EU Referendum result is covered within these principal risks and uncertainties.

 

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'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 24 May 2017.

 

By order of the Board:

 

D G Hall

Chief Executive Officer

30 March 2017

M K Payne

Chief Financial Officer

30 March 2017

 

GROUP INCOME STATEMENT

for the year ended 31 December 2016



2016


2015


Notes

Underlying

£m

Non-underlying

£m

Total

£m


Underlying

£m

Non-underlying

£m

Total

£m

Revenue

2

436.9

-

436.9


352.9

-

352.9

Cost of sales


(256.8)

-

(256.8)


(210.0)

-

(210.0)

Gross profit


180.1

-

180.1


142.9

-

142.9

Selling and distribution costs


(69.4)

-

(69.4)


(56.4)

-

(56.4)

Administration expenses


(41.3)

-

(41.3)


(32.3)

(2.0)

(34.3)

Trading profit


69.4

-

69.4


54.2

(2.0)

52.2

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