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For immediate release
7 May 2020
Polypipe Group plc
Polypipe Group plc (“Polypipe”, the “Company” or the “Group”), a leading provider of sustainable water and climate management solutions for the built environment, today provides an update following its announcement on 25 March 2020 on the impact of the COVID-19 pandemic, and the Group’s response to date.
We continue to prioritise the health, safety and wellbeing of our employees, adhering to government guidelines on social distancing and hygiene in all aspects of our operations.
The Group has been operating at approximately 70% below normal demand, supplied mainly from existing stock, driven by urgent NHS and care-related activity as well as some ongoing infrastructure and commercial work, and essential Repair, Maintenance, and Improvement (“RMI”).
As previously announced, in response to COVID-19, the Company has implemented a range of measures to reduce costs and conserve cash during this period. These actions include:
· furloughing approximately 60% of our workforce and keeping this under constant review as circumstances change;
· severely curtailing capital expenditure, which was expected to have been approximately £25 million for the FY20 financial year;
· standing down all agency staff and any consultants;
· curtailing discretionary spend whilst honouring contractual payment terms with creditors;
· negotiating temporary lease terms with some providers and agreeing return to normal (non-early) payment terms with some suppliers;
· cancelling the FY19 final dividend which was due for payment on 28 May 2020, saving the Group £16 million of cash;
· reductions in base salary/fees for both executive directors and non-executive directors of 20% until further notice;
· agreeing with HMRC that PAYE and NIC payments that are due will be deferred until June 2020 and VAT payments deferred until March 2021; and
· as set out in detail below, taking a number of steps to increase the Group’s banking facilities and liquidity and also securing agreement from our banking group to temporarily waive certain requirements within the Group’s Revolving Credit Facility Agreement (the “RCF”) as a result of the impact of COVID-19 on the business and operations of the Group and to suspend the June 2020 quarterly leverage covenant test.
Financing, cash management and covenant waiver
The Group entered this period of uncertainty with a strong balance sheet and good liquidity. Excluding IFRS16, net debt at 31 December 2019 stood at £150.0 million, representing 1.5 times EBITDA on a pre IFRS16 basis. Net debt as at 31 March 2020 was £184.0 million reflecting normal working capital seasonality.
We are pleased to announce that the Group has entered into an agreement with its banking group to provide an additional £50 million revolving credit facility for a period of twelve months. This facility is in addition to the existing £300 million revolving credit facility made available under the RCF, which is committed through to November 2023, leaving the Group with £350 million of total revolving credit facilities for the next twelve months. We have also secured agreement from our banking group to temporarily waive certain requirements within the Group’s RCF as a result of the impact of COVID-19 on the business and operations of the Group and to suspend the June 2020 quarterly leverage covenant test.
The Group has fully established (with all necessary programme documentation signed and dated 1 May 2020) a £100 million Euro-commercial paper programme (“ECP Programme”), initially without any public rating from a third party ratings agency, in response to the United Kingdom government’s initiatives designed to help United Kingdom businesses with regard to the COVID-19 pandemic, details of which were published jointly by H.M. Treasury and the Bank of England on 23 March 2020.
Uncertainty around the scale, duration and impact of the COVID-19 pandemic on the markets in which Polypipe operates, namely the new house building and RMI market and the UK commercial and infrastructure markets, mean it is difficult at this time, to determine the impact on the performance of the Company and its subsidiaries (the “Group”), and the consequences for the Company’s financial performance for the current financial year and beyond.
The Group has analysed a broad range of potential scenarios, primarily based on assumptions regarding the period of lockdown and the level of activity subsequently in both the Group’s Residential and Commercial and Infrastructure divisions. However, this scenario analysis does not constitute financial guidance and no assurance can be given that any particular assumptions will prove correct or modelled scenarios will result.
This scenario analysis has focused on two key scenarios, which are summarised as follows:
- an operating case where (i) trading in April to June 2020 continues to operate at approximately 70% below FY19 levels; (ii) a phased recovery in trading in July to September 2020; and (iii) trading through September to December 2020 and throughout FY21 in the Residential division and Commercial & Infrastructure divisions at levels of 15% and 10% respectively, below that achieved in FY19 (the “Operating Scenario”); and
- a more prudent scenario where (i) trading in April to June 2020 continues to operate at approximately 70% below FY19 levels; (ii) a phased recovery in trading in July to September 2020; and (iii) trading through September to December 2020 and throughout FY21 in the Residential division and Commercial & Infrastructure divisions at levels of 25% and 20% respectively, below that achieved in FY19 (the “Prudent Scenario”).
Although the Group entered this period of uncertainty with a strong balance sheet and good liquidity, the Group has needed to secure agreement from its banking group to temporarily waive certain requirements within the Group’s RCF as a result of the impact of COVID-19 on the business and operations of the Group and to suspend the June 2020 quarterly leverage covenant test.
Polypipe has a strong track record of investment in new product development to drive growth and margin expansion. In recent years, Polypipe has invested between £20 million to £25 million per annum in innovative and exciting product and system launches. This investment is key to enhancing Polypipe’s position as a leading provider of sustainable water and climate management solutions for the built environment and developing its ‘one stop shop’ offering for customers in the UK.
Rather than having to significantly curtail investment in new product development and capital expenditure and implement further cost reduction measures, all of which may damage the Company’s long term operational capacity and competitive position, the Board has concluded that it is prudent to now raise equity.
Proposed equity placing
As a result, the Company has separately announced its intention to conduct a non-pre-emptive placing of new ordinary shares of the Company to raise total gross proceeds of approximately £120 million. The Chairman, Chief Executive Officer, Chief Financial Officer and some Non-Executive Directors intend to participate in the Placing.
The net proceeds from the Placing will be used to strengthen Polypipe’s balance sheet and reduce overall debt. In the Prudent Scenario leverage will be reduced to 2.5x EBITDA (LTM) at the peak point in financial year 2021 creating an appropriate balance sheet structure while ensuring that the Group does not breach covenants in the financial years 2020 and 2021 or require further waivers that may or may not be forthcoming. In addition, the Placing, if completed would:
· prevent investment being constrained and business decisions influenced by a focus on leverage and covenant management for the next 12 to 24 months and therefore managing the business in a manner that may cause detriment to Polypipe’s long-term prospects;
· enhance operating strength and enable continuation of organic investment in exciting new products & systems; and
· provide stability and strength to increase competitive positioning and accelerate growth post COVID-19.
If the Placing were not to proceed, in the Prudent Scenario, peak net debt would be over 6x EBITDA (LTM) compared to a covenant of 3.0x EBITDA (LTM), and the Company would breach each of its quarterly covenants out to June 2021.
As set out above, the Board has agreed to reduce base salaries for Executive Directors and base fees for Non-Executive Directors by 20% from 1 April 2020 until further notice. Furthermore, the grant of awards under the Polypipe Group plc Long Term Incentive Plan have been deferred and will be reconsidered by the Remuneration Committee in due course.
Martin Payne, Chief Executive Officer
Paul James, Chief Financial Officer
+44 (0) 1709 770 000
Nina Coad / Charles Pretzlik
+44 (0) 20 7404 5959
Notes to Editors:
Polypipe Group plc (“Polypipe”, the “Company” or the “Group”), a leading provider of sustainable water and climate management solutions for the built environment is the largest manufacturer in the UK, and among the ten largest manufacturers in Europe, of plastic piping systems for the residential, commercial, civils and infrastructure sectors by revenue. It is also a leading designer and manufacturer of energy efficient ventilation systems in the UK.
The Group operates from 19 facilities in total, and with over 20,000 product lines, manufactures the UK’s widest range of plastic piping systems for heating, plumbing, drainage and ventilation. The Group primarily targets the UK and European building and construction markets with a presence in Italy, the Netherlands, Ireland and the Middle East and sales to specific niches in the rest of the world.
This Trading Update (the “Report”) has been prepared in accordance with the Disclosure Guidance and Transparency Rules of the UK Financial Conduct Authority and is not audited. No representation or warranty, express or implied, is or will be made in relation to the accuracy, fairness or completeness of the information or opinions contained in this Report. Statements in this Report reflect the knowledge and information available at the time of its preparation. Certain statements included or incorporated by reference within this Report may constitute “forward-looking statements” in respect of the Group’s operations, performance, prospects and/or financial condition. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions and actual results or events may differ materially from those expressed or implied by those statements. Accordingly, no assurance can be given that any particular expectation will be met and reliance shall not be placed on any forward-looking statement. Additionally, forward-looking statements regarding past trends or activities shall not be taken as a representation that such trends or activities will continue in the future. The information contained in this Report is subject to change without notice and no responsibility or obligation is accepted to update or revise any forward-looking statement resulting from new information, future events or otherwise. Nothing in this Report shall be construed as a profit forecast. This Report does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase or subscribe for any shares in the Company, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions relating thereto, nor does it constitute a recommendation regarding the shares of the Company or any invitation or inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000. Past performance cannot be relied upon as a guide to future performance. Liability arising from anything in this Report shall be governed by English Law, and neither the Company nor any of its affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this Report or its contents or otherwise arising in connection with this Report. Nothing in this Report shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws.