TIDMPLP
RNS Number : 2185T
Polypipe Group PLC
19 March 2019
19 March 2019
Polypipe Group plc
Audited results for the year ended 31 December 2018
Continued growth and strategic progress
Polypipe Group plc ("Polypipe", the "Company" or the "Group"), a
leading provider of sustainable water and climate management
solutions for the built environment, today announces its audited
results for the year ended 31 December 2018.
Financial Results
2018 2017 Change
Statutory measures
Revenue GBP433.2m GBP411.7m +5.2%
Operating profit GBP65.8m GBP62.5m +5.3%
Profit before tax GBP58.2m GBP55.6m +4.7%
Earnings per share (basic) 24.5p 22.7p +7.9%
Cash generated from operations GBP90.0m GBP80.4m +11.9%
Dividend per share 11.6p 11.1p +4.5%
Alternative performance
measures
Underlying operating profit(1) GBP74.0m GBP72.6m +1.9%
Underlying operating margin(1) 17.1% 17.6% -50bps
Underlying profit before
tax(1) GBP67.1m GBP65.7m +2.1%
Underlying earnings per
share (basic)(1) 28.4p 27.2p +4.4%
Leverage (times pro forma
EBITDA(2) ) 1.7 1.6 0.1
Financial Highlights
-- Revenue growth of 5.2% despite mixed market conditions
demonstrating strength of diversified business model
-- Underlying operating profit 1.9% higher and underlying profit before tax 2.1% higher
-- Resilient margin at 17.1%
-- Underlying basic earnings per share 4.4% higher
-- Robust balance sheet and continued strong operational cash
generation. Group pro forma leverage of 1.7x (2017: 1.6x) despite
GBP42.5m invested in acquisitions, net of disposals
-- Proposed final dividend of 7.9p, bringing the total for the
year to 11.6p, 4.5% ahead of last year
Operational Highlights
-- UK revenue growth ahead of industry benchmark at 5.9%
relative to Construction Products Association winter forecast
decline of 0.2% for 2018
-- Residential Systems revenue 9.8% higher and 8.5% higher on a
like-for-like basis with strong growth in housebuilding sector
-- Commercial and Infrastructure revenues declined 0.2% for the
year but a strong second half performance of 6.7% growth (of which
5.3% was on a like-for-like basis), benefitted from successful
product launches and new road projects gaining momentum
-- Price increases successfully passed through to mitigate cost inflation
-- Second half acquisitions - Permavoid and Manthorpe -
performing in line with our expectations and integration
progressing well
-- France disposal completed in March 2018
-- Alternative manufacturing strategy delivered in the Middle East
-- Recycled plastic represents an improved 40.2% of the Group's
overall plastic usage (2017: 34.0%)
Outlook
-- Polypipe has made significant strategic progress in 2018
together with a continued focus on organic growth ahead of market
and strong cash generation
-- The fundamentals of our markets remain robust with a
continued structural housing shortage in the UK, Help-to-Buy
extended to 2023, historically low interest rates and good mortgage
availability underpinning new housebuilding activity. RMI and
commercial and infrastructure markets have been and will continue
to remain challenging
-- Whilst we remain vigilant to the impacts of uncertainty on
our markets, our balanced portfolio positions the Group well, and
we look forward to another year of progress in 2019
Martin Payne, Chief Executive Officer, said:
"We are delighted to report another record performance, despite
a backdrop of challenging market conditions. Our second half of the
year was strong, and we completed two significant acquisitions as
part of our strategy to broaden our market offering. Both Manthorpe
and Permavoid are performing in line with expectations and we look
forward to further progress. We continue to see strong cash
generation, and the long-term growth drivers of legacy material
substitution and legislative tailwinds, together with our strong
balance sheet, position us well for the future."
(1) Underlying profit and earnings measures are from continuing
operations only and exclude certain non-underlying items and where
relevant, the tax effect of these items. The Directors consider
that these measures provide a better and more consistent indication
of the Group's underlying financial performance and more meaningful
comparison with prior and future periods to assess trends in our
financial performance.
(2) Pro forma EBITDA is defined as underlying operating profit
before depreciation for the twelve months preceding the balance
sheet date, excluding operating profit before depreciation from
discontinued operations, adjusted where relevant to include a full
year of EBITDA from acquisitions made during those twelve
months.
For further information please contact:
Polypipe
Martin Payne, Chief Executive
Officer
Paul James, Chief Financial
Officer +44 (0) 1709 770 000
Brunswick
Nina Coad
Dan Roberts
Nick Beswick +44 (0) 20 7404 5959
A copy of this report will be available on our website
www.polypipe.com today from 0700hrs (GMT).
An analyst and investor presentation will be held today at
Brunswick's offices at 16 Lincolns Inn Fields, London, WC2A 3ED at
0900hrs (GMT) with registration from 0830hrs.
For those unable to attend, a live conference call will be
available at 0900hrs (GMT).
UK Freephone Dial-In Number 08003767922
Standard International Dial-In number +44 (0) 2071 928000
Conference PIN 1886904
Access to the slide presentation during this live event is
available at: this link.
Notes to Editors:
Polypipe Group plc ("Polypipe", the "Company" or the "Group"), a
leading provider of sustainable water and climate management
solutions for the built environment is the largest manufacturer in
the UK, and among the ten largest manufacturers in Europe, of
plastic piping systems for the residential, commercial, civils and
infrastructure sectors by revenue. It is also a leading designer
and manufacturer of energy efficient ventilation systems in the
UK.
The Group operates from 18 facilities in total, and with over
20,000 product lines, manufactures the UK's widest range of plastic
piping systems for heating, plumbing, drainage and ventilation. The
Group primarily targets the UK and European building and
construction markets with a presence in Italy, the Netherlands and
the Middle East and sales to specific niches in the rest of the
world.
Group Results
Group revenue for the year ended 31 December 2018 was 5.2%
higher than the prior year at GBP433.2m (2017: GBP411.7m). Group
revenue includes GBP4.1m generated by Permavoid and Manthorpe, and
excluding the impact of these acquisitions, Group revenue was 4.2%
higher. Against a backdrop of mixed market conditions, this
performance demonstrates the robustness of the Polypipe business
and the strength of its long-term strategy.
Underlying operating profit was 1.9% higher than the prior year
at GBP74.0m (2017: GBP72.6m). Price increases were implemented in
early 2018 to mitigate cost inflation in absolute terms. This had a
margin-dilutive effect and together with the relative growth of
lower margin new housebuilding volumes, and towards the end of the
year, inefficiencies caused by operating at or near full capacity
in certain areas, operating margin in 2018 was slightly lower, at
17.1% (2017: 17.6%). Investments made in 2019 in new production
equipment and layout improvements to alleviate capacity constraints
should allow a return to more efficient working in the coming
year.
Underlying finance costs are in line with 2017 at GBP6.9m (2017:
GBP6.9m) and the Group achieved interest cover of 11.3x for the
year.
Our strong cash generation enabled the Group to fund
acquisitions net of disposals of GBP42.5m during the course of the
year whilst net debt only increased GBP15.8m to GBP164.2m (2017:
GBP148.4m). Cash conversion for the year was 96% (2017: 79%),
leaving net debt to proforma EBITDA at 1.7x (2017: 1.6x).
Underlying profit before tax was 2.1% higher than the prior year
at GBP67.1m (2017: GBP65.7m).
Non-underlying operating costs of GBP8.9m (2017: GBP10.1m)
primarily relate to non-cash amortisation charges of GBP5.9m (2017:
GBP5.5m) in respect of intangible assets arising from the
acquisition of Nuaire in 2015 and Permavoid and Manthorpe in 2018,
along with GBP2.0m of costs associated with the acquisition of
Permavoid and Manthorpe.
The total tax charge for the year of GBP9.4m (2017: GBP10.6m)
represents an effective tax rate of 16.2% (2017: 19.1%). The
underlying effective tax rate of 15.6% (2017: 18.0%) was lower than
the blended standard UK rate of tax of 19.00% (2017: 19.25%) due to
the benefit of patent box relief and the one-off benefit from the
recognition of a deferred tax asset in respect of previously
unrecognised tax losses. We expect the effective tax rate to return
to our own historical norm in 2019.
Underlying profit from continuing operations was 5.0% higher
than the prior year at GBP56.6m (2017: GBP53.9m), with underlying
basic earnings per share from continuing operations 4.4% higher at
28.4 pence (2017: 27.2 pence).
Chief Executive Officer's Review
I am pleased to report that Polypipe has delivered another
record performance in 2018, with revenue from continuing operations
5.2% higher than the prior year at GBP433.2m (2017: GBP411.7m),
underlying operating profit 1.9% higher at GBP74.0m (2017:
GBP72.6m), and underlying basic earnings per share 4.4% higher at
28.4 pence per share. Against a background of mixed conditions in
the UK construction market, the "Beast from the East" in February
and March 2018, and uncertainty around the nature and timing of the
UK withdrawal from the EU, this performance shows the robust nature
of the Polypipe business model and the strength of its long-term
strategic drivers of legacy material substitution and continuing
legislative tailwinds in water management and climate
management.
As noted in last year's report, price increases had been
implemented in early 2018 to mitigate inflationary effects seen in
the second half of 2017. I am pleased to report that these
increases were successfully implemented progressively through the
first half of the year. In 2018 oil prices rose throughout most of
the year, resulting in higher raw material costs as well as
increases in energy and transport costs. Wage inflation continued
to track consumer price inflation. Whilst the Group does all it can
to mitigate inflation through various cost reduction measures, the
scale of the oil-related inflation meant that price increases were
inevitable. Further price increases have been implemented in the
first quarter of 2019 to reflect this, and I am confident that
these increases will be successfully delivered.
The year has also seen a number of changes to the Group, all in
line with the Group's strategy, which leave it well placed to
capitalise on future opportunities in its chosen markets.
On 29 March 2018, the Group completed the sale of Polypipe
France Holdings SAS ("Polypipe France"), its French operations, to
Ryb S.A., a France-based manufacturer and distributor of plastics
in Europe for EUR16.5m on a debt and cash free normalised working
capital basis. Accordingly, the results for Polypipe France have
been treated as discontinued. Completion of this transaction, which
represented excellent value for shareholders, was a significant
step forward in implementing our strategy, allowing the Group to
concentrate on its higher margin product groups in plumbing,
drainage and ventilation, in both our UK and overseas markets.
In May 2018, Polypipe presented its first Capital Markets Day
since it listed in April 2014. This confirmed that, following an
in-depth review, the Group would continue to drive profitable
organic growth through exploiting legacy material substitution and
legislative tailwinds in water and climate management. The Group
continues to review bolt-on acquisition opportunities to accelerate
growth. Our strategic priorities are to firstly add innovative
solutions to our already market-leading offer in water and climate
management, in order to provide our customers with a "one stop
shop" and secondly to provide further geographic reach to leverage
our skills, technical knowledge and IP across a wider market.
In line with this strategy, the Group announced two acquisitions
in the second half of the year. Permavoid Limited ("Permavoid") was
acquired on 31 August 2018 for an initial consideration of GBP4.0m
on a debt and cash free normalised working capital basis, with a
further consideration of up to GBP12.5m depending on financial
performance in the two years to September 2020. Manthorpe Building
Products Holdings Limited ("Manthorpe") was acquired on 25 October
2018 for a total cash consideration of GBP52.1m on a debt and cash
free normalised working capital basis. The strategic rationale for
acquiring these businesses is strong, with both businesses
providing innovative solutions to complement the Group's existing
offer, and I am excited by the prospects for these businesses in
the coming years within the Polypipe Group. The integration of
these businesses into the Polypipe Group is progressing well and
both businesses are performing in line with management
expectations.
Polypipe continues to be highly cash generative, and
notwithstanding spending GBP42.5m on acquisitions (net of
disposals) during the course of the year and capital expenditure of
1.5x depreciation in our existing businesses. This delivered Group
leverage of 1.7x pro-forma EBITDA (2017: 1.6x). The Group is well
invested and well placed to continue to pursue selective bolt-on
acquisitions where appropriate in line with the Group's strategy,
whilst maintaining a strong balance sheet, and a disciplined
approach to capital allocation.
The Group continues to take its responsibilities towards
sustainability very seriously. Although product standards and
certain applications do not permit use of recycled materials in
some products, wherever possible we use recycled materials instead
of virgin polymer. In 2018 we used 44,700 tonnes of recycled
plastics, which represents 40.2% of our overall plastic usage
compared to 34.0% in 2017. Of this recycled plastic, 16,000 tonnes
were from recycled milk bottles and other polyethylene consumer
liquid bottles which are sourced from recycling companies such as
Veolia in bales and go through our fifteen stage recycling process
at our plant in Horncastle, Lincolnshire. Our strong sustainability
and recycling credentials continue to be something that are
important not only to Polypipe but to our customers, investors and
employees, and we will continue to explore opportunities to
increase our usage of recycled material wherever we can.
During the year we have followed events in the UK and across
Europe as the UK moves towards withdrawal from the EU on 29 March
2019 ("Brexit"). In doing this we have assessed the risks to our
business likely to be caused by Brexit, although this has proved
difficult due to the uncertainty of the nature and timing of the
withdrawal. Whilst we are not complacent, we have concluded that
Polypipe is at the lower end of the risk spectrum with regard to
the impact of Brexit. With approximately 90% of our revenues
derived from, and manufactured in, the UK market, we have
relatively little cross border trade. Also, if material costs
increase as a result of either increased tariffs or a devaluation
of sterling, we will look to recover these increased costs in
selling prices, as we have done historically when faced with cost
inflation. Where it is deemed appropriate however, proportionate
mitigating actions have been and are being taken, such as building
raw material and finished goods stocks to allow for some supply
chain disruption at ports, accelerating the refinancing of our debt
facility that would otherwise have needed to have been done in the
summer of 2019, taking forward currency cover and providing support
to our non-UK EU colleagues, who account for approximately 13% of
our UK workforce, to register for settled status.
The impact of Brexit on our end markets is difficult to predict,
especially given the uncertainty around the nature of the exit.
However, we continue to monitor our lead indicators around the
Group and remain vigilant to any changes.
The following tables set out Group revenue and underlying
operating profit from continuing operations by operating
segment:
Revenue
2018 2017 Change
GBPm GBPm %
--------------------------------------- ------ ------ -------
Residential Systems 245.3 223.5 9.8
Commercial and Infrastructure Systems 187.9 188.2 (0.2)
--------------------------------------- ------ ------ -------
433.2 411.7 5.2
--------------------------------------- ------ ------ -------
Underlying operating profit
2018 2017 Change
GBPm GBPm %
--------------------------------------- ------ ------ -------
Residential Systems 46.3 44.3 4.5
Commercial and Infrastructure Systems 27.7 28.3 (2.1)
--------------------------------------- ------ ------ -------
74.0 72.6 1.9
--------------------------------------- ------ ------ -------
The Group continues to show resilience by having a balanced
exposure to the different elements of the UK construction market,
all of which have different drivers and move at different paces,
and again this year's performance perhaps more than most
demonstrates this.
Residential Systems
Revenue in our Residential Systems segment, which is almost
exclusively derived from the UK market, was 9.8% higher than the
prior year at GBP245.3m (2017: GBP223.5m). The acquisition of
Manthorpe on 25 October 2018 contributed GBP2.8m revenue in the
year, leaving like-for-like growth of 8.5%. This is again
considerably ahead of the market and represents a strong
performance in a challenging environment.
Conditions in the UK residential markets continued in line with
prior years, with growth in the new housebuild sector driven by a
structural housing shortage in the UK, continued historically low
mortgage rates, and demand side help for first time buyers through
the Government's Help-to-Buy scheme. The Repair, Maintenance and
Improvement (RMI) market however continues to be slow, with weak
consumer confidence driven by uncertainty around the EU withdrawal
process impacting private RMI, and continued austerity impacting
public RMI. Within that limited public RMI spend, we have seen post
Grenfell diversion of expenditure towards fire risk related
projects impacting our performance within that segment.
Despite these challenging conditions, our Residential Systems
segment delivered a strong result for the year. The adverse weather
conditions in February and March 2018 impacted first half
performance with year on year revenue growth at the half year of
5.9%. However, concerted efforts by the house developers to claw
back some of the weather-related lost time aided by mild weather
conditions during the autumn and winter, as well as a two month
contribution from Manthorpe, helped second half revenue to grow
13.7% compared to prior year. This exceptional level of growth
presented a number of operational challenges in our businesses,
with parts of the business operating at or near full capacity.
I am delighted that on 25 October 2018 the Group acquired
Manthorpe, a leading designer and manufacturer of moulded and
extruded plastic and metal products to the UK and Irish residential
and RMI markets. It has performed in line with expectations since
joining the Group and we are pleased with how the integration is
progressing. As well as a strong cultural fit, the acquisition is a
good strategic fit with Polypipe's Residential Systems offering in
the water and climate management sectors, with differentiated,
patented value-adding products that will help us deliver a one stop
shop for our customers. There are exciting operational and
commercial synergies that have been identified and will be
delivered during 2019 and beyond.
Residential Systems delivered an underlying operating profit
4.5% higher than the prior year at GBP46.3m (2017: GBP44.3m)
representing a 18.9% margin (2017: 19.8%) with cost reduction
activities being more than offset by the dilutive effect of price
increases, the relative growth of lower margin new housebuilding
volumes, and towards the end of the year, inefficiencies caused by
operating at or near full capacity in certain areas. Investment in
both new production equipment and yard expansion and layout
improvements at our main Doncaster site are being made to alleviate
these capacity bottlenecks and will provide for a return to
efficient working during the current year.
Commercial and Infrastructure Systems
We had a particularly challenging first half in this segment,
with tough market conditions and the adverse weather resulting in
first half revenue being 6.6% lower than the prior period. However,
with performance significantly improving in the second half,
largely through self-help measures and marginal market
improvements, revenue grew 6.7% or 5.3% on a like-for-like basis
excluding the impact of the GBP1.3m revenue associated with the
Permavoid acquisition on 31 August 2018. This resulted in full year
revenue in our Commercial and Infrastructure Systems segment of
GBP187.9m (2017: GBP188.2m), 0.2% lower than the prior year on a
reported basis, and 0.9% lower on a like-for-like basis excluding
Permavoid.
UK revenue, which accounts for 81% of the overall segment
revenue, was 0.2% higher than the prior year. UK Commercial and
Infrastructure markets remained difficult, particularly through the
first half, with some small improvements in the second half as road
programmes, both smart motorway upgrades and new road projects,
began to gather momentum. Successful product launches also helped
drive second half performance. The Fuze range of HDPE electrofusion
soil stacks launched by our Building Services business in the
second half of 2017 has been extremely successful, complemented by
the successful launch of a fabrication service supplying fully
assembled soil stacks to site. The GBP5.0m investment in a
large-diameter continuous corrugator in our Civils factory at
Horncastle, which came on stream in the first quarter of 2018, has
also had encouraging early results and contributed to the second
half performance, along with the successful launch of Nuaire's
IAQ-Valve and expansion of the XBC range of heat recovery
ventilation units. It is encouraging to note that the development
of these products is squarely in line with the Group's strategic
growth pillars of legacy material substitution (for example Fuze
replacing cast iron, continuous corrugator replacing concrete) and
legislative tailwinds (for example Nuaire IAQ-Valve and XBC range
driven by air quality and building energy efficiency).
Export revenue, which accounts for approximately 19% of overall
segment revenue, was 1.6% lower than the prior year, with lower
revenue in the Middle East driven by difficult market conditions,
more than offsetting improved performance in Continental Europe.
The alternative manufacturing strategy in the Middle East,
announced last year, has been successfully implemented. The first
production run of Permavoid product using our tooling with local
sub contract injection moulders was successfully completed and sold
in the second half of the year, and the closure of our Dubai
manufacturing facility and transfer of production machinery back to
the UK was also completed during the year.
On 31 August 2018, we announced the acquisition of Permavoid, a
specialist designer and supplier of plastic surface water
management solutions in commercial, residential and sports pitch
applications. This is a great strategic fit with the Group,
providing unique patented products that enhance our water
management solutions offer in sustainable urban drainage systems,
green infrastructure, Blue-Green roofs, podium decks and sports
surface applications, as well as some exciting geographic reach
opportunities. Permavoid has been used in applications throughout
Europe including the redevelopment of Orlysquare in Amsterdam, the
Maankwartier Heerlen development in Holland and the redevelopment
of Liverpool Football Club's Anfield stadium. Through its US
licencing partner, Permavoid is also beginning to see increased
demand for its products in the US, an exciting development that
will continue into 2019 and beyond.
Commercial and Infrastructure Systems delivered an underlying
operating profit of GBP27.7m (2017: GBP28.3m) and represents a
14.7% margin (2017: 15.0%). Whilst the closure of our Middle East
manufacturing facility improved profitability, this was more than
offset by higher costs associated with the adverse weather in the
first half of 2018 and again the dilutive effects of price
increases.
OUTLOOK
Polypipe has made significant strategic progress in 2018. The
disposal of Polypipe France and the acquisition of Permavoid and
Manthorpe, have all been firmly in line with the Group's strategy.
Organic growth ahead of the UK market and strong cash generation
has continued to demonstrate the robust nature of the Group.
Whilst the political and economic uncertainty associated with
the UK's withdrawal from the EU may impact markets in the short
term, we believe that the fundamentals of our markets remain
robust. Government and opposition both understand the structural
housing shortage in the UK and recognise the need to increase the
housing stock further, and with Help-to-Buy now extended until
2023, historically low interest rates and good mortgage
availability, the medium-term fundamentals for new housebuilding
remain sound. Whilst RMI, commercial and infrastructure markets
have been and will continue to be challenging, the balanced
exposure that Polypipe has to these different sectors of the
construction industry positions the Group well.
As we look into 2019 and beyond, the opportunities for growth
through legacy material substitution, legislative tailwinds in
water and climate management are still as strong as ever, and
together with helpful emerging trends in green infrastructure and
appropriate acquisition opportunities to broaden our product and
solutions offer, I am confident the fundamentals for the Group
remain strong. Whilst we remain vigilant to the short-term impacts
of economic and political uncertainty on our markets, I look
forward to another year of progress in 2019.
Financial Review
REVENUE AND OPERATING MARGIN
2018 2017
GBPm GBPm Change
---------------------------- ----- ------ --------
Revenue 433.2 411.7 +5.2%
Underlying operating profit 74.0 72.6 +1.9%
Underlying operating margin 17.1% 17.6% -50bps
2018 2017
Revenue by geographic destination GBPm GBPm Change
---------------------------------- ----- ------ -------
UK 387.1 365.7 +5.9%
Rest of Europe 21.5 18.9 +13.8%
Rest of World 24.6 27.1 -9.2%
Group 433.2 411.7 +5.2%
Group revenue for the year ended 31 December 2018 was GBP433.2m
(2017: GBP411.7m), an increase of 5.2%. With the acquisitions of
Permavoid Limited ("Permavoid") and Manthorpe Building Products
Holdings Limited ("Manthorpe") on 31 August and 25 October 2018,
respectively, group revenue includes GBP4.1m from these businesses
for the periods since acquisition and on a like-for-like basis,
excluding the impact of these businesses, group revenue increased
by 4.2%. UK revenue growth was up 5.9% with approximately 2.8%
driven by price increases and 3.1% from volume increases of which
1.1% was derived from the acquisitions. This level of growth was
materially ahead of the overall UK construction market where the
Construction Products Association ("CPA") winter forecast suggests
a slight year-on-year decline of 0.2%. The Group's year-on-year
growth for the first half was essentially flat as it was impacted
by the severe winter weather, with strong year-on-year growth in
the second half of 10.6%.
The Group underlying operating margin of 17.1% (2017: 17.6%) was
impacted by the dilutive effect of increasing selling prices to
recover absolute cost inflation as well as the relative growth in
lower margin new housebuilding volumes and inefficiencies caused by
operating at or near full capacity in some areas towards the end of
the year.
ACQUISITIONS
On 31 August 2018, the Group acquired Permavoid Limited, a
specialist designer and supplier of surface water management
solutions in commercial, residential, and sports pitch
applications, for an initial cash consideration of GBP4.0m on a
debt and cash free, normalised working capital basis, and further
contingent consideration of up to GBP12.5m depending on the EBITDA
performance of Permavoid in the two years to 30 September 2020. In
accordance with IFRS 3, GBP1.7m contingent consideration has been
accrued at the end of 2018.The acquisition of Permavoid has
contributed GBP1.3m to Group revenue in the year and revenue for
the full 12-month period ended 31 December 2018 was GBP5.1m. On 25
October 2018, the Group acquired Manthorpe, a leading UK producer
of a range of moulded and extruded plastic and metal products, and
associated land and buildings for GBP52.1m on a debt and cash free
normalised working capital basis. The acquisition of Manthorpe has
contributed GBP2.8m to Group revenue in the year and revenue for
the full 12-month period ended 31 December 2018 was GBP17.2m. These
acquisitions were funded entirely from the Group's revolving credit
facility. Acquisition costs of GBP2.0m have been charged to
non-underlying items.
disposals
On 29 March 2018, the Group completed the sale of Polypipe
France Holdings SAS ("Polypipe France"), its French operations, to
Ryb S.A., a France-based manufacturer and distributor of plastics
in Europe, for EUR16.5m on a debt and cash free normalised working
capital basis. The results for Polypipe France have been treated as
discontinued since 2017.
IFRS 16 (LEASES)
IFRS 16 'Leases' was issued in January 2016 and is mandatory for
annual reporting periods commencing 1 January 2019. The Group did
not apply for early adoption of IFRS 16 and will first report under
the new standard in the interim consolidated financial statements
for the six months ending 30 June 2019, and the consolidated
financial statements for the year ending 31 December 2019. The
Group has reviewed all material leasing arrangements over the last
year in light of the new lease accounting rules and these existing
leases mainly relate to cars, some property and forklift trucks
used in warehousing. The Group does not have any leases previously
classified as finance leases. The Group will adopt the simplified
approach to transition and will not restate comparative amounts for
the year prior to first adoption. In 2019, the Group's lease
commitments will be brought onto the Group's balance sheet and the
timing of the recognition of lease costs within the income
statement will change.
The value of lease commitments at 31 December 2018 was GBP14.0m.
The Group expects to recognise an increase in total liabilities
within the range of GBP12.0m - GBP14.0m, and a similar increase in
total assets. The difference between the value of lease commitments
and increase in total liabilities is largely driven by the
requirement to discount the lease liabilities to present value.
On a pro-forma basis the Group expects that underlying EBITDA
will increase by approximately GBP3.9m, that underlying operating
profit will increase by approximately GBP0.2m - GBP0.4m and that
underlying profit before tax will reduce by approximately GBP0.1m -
GBP0.3m for 2019 as a result of adopting the new rules. Operating
cash flows will increase, and financing cash flows will decrease
because repayment of the principal portion of the lease liabilities
will be classified as cash flows from financing activities.
Leverage is expected to increase by approximately 0.1x as a result
of including the lease liabilities within net debt partially offset
by increase in EBITDA. Interest cover is expected to reduce by
approximately 0.5x as a result of a marginal increase in interest
costs. No impact is expected on banking covenants as a result of
the ability to use the financial position excluding the impact of
IFRS 16 under the RCF agreement (so-called "frozen GAAP"). Further
details of the change can be found in Note 2 of this statement.
NON-UNDERLYING ITEMS
Non-underlying items in both 2018 and 2017 included non-cash
amortisation charges in respect of intangible assets recognised
with the acquisitions made during 2015. In addition, the
amortisation of intangible assets charge in 2018 was impacted by
the fair valuation of intangible fixed assets on the acquisition
balance sheets of Manthorpe and Permavoid. Intangible assets have
increased by GBP25.1m in the case of Manthorpe and GBP2.9m in
respect of Permavoid, attracting additional amortisation of GBP0.3m
(Manthorpe) and GBP0.1m (Permavoid).
The provision for restructuring costs of GBP4.3m recognised in
2017 in respect of our Middle East business has now been fully
utilised. The other items included in non-underlying items are
highlighted in the narrative further below.
Non-underlying items comprised:
2018 2017
GBPm GBPm
------------------------------------------------------- ----- -----
Amortisation of intangible assets 5.9 5.5
Restructuring costs - 4.3
Acquisition costs 2.0 0.3
Contingent consideration on acquisitions 0.3 -
Unamortised debt issue costs written off 0.6 -
Loss on disposal of assets classified as held-for-sale 0.1 -
------------------------------------------------------- ----- -----
Non-underlying items before taxation 8.9 10.1
Taxation (1.1) (1.2)
------------------------------------------------------- ----- -----
Non-underlying items after taxation 7.8 8.9
------------------------------------------------------- ----- -----
Taxation on non-underlying items is covered in the Note 5
below.
Exchange Rates
The Group trades predominantly in Sterling but has some revenues
and costs in other currencies, mainly the US Dollar and the Euro,
and takes appropriate forward cover on these cash flows using
forward currency derivative contracts in accordance with its
hedging policy.
Finance Costs
Underlying finance costs of GBP6.9m (2017: GBP6.9m) are in line
with last year and have a cover of 11.3x. The raised gearing from
the acquisitions was in the very last stages of the year,
marginally increasing borrowing costs for the period.
Interest is payable on the revolving credit facility ("RCF") at
LIBOR plus an interest rate margin ranging from 0.9% to 2.75%. The
interest rate margin at 31 December 2018 was 1.65% (2017:
1.75%).
In order to reduce exposure to future increases in interest
rates the Group entered into interest rate swaps at fixed rates
ranging between 1.735% and 2.21% (excluding margin) with notional
amounts hedged ranging from GBP60.0m to GBP91.7m over the period of
the interest rate swaps.
Taxation
Underlying taxation:
The underlying tax charge in 2018 was GBP10.5m representing an
effective tax rate of 15.6% (2017: 18.0%). This was below the UK
standard tax rate of 19.00% (2017: 19.25%). Patent box relief
contributes to a lowering of the effective tax rate by some 1.5%.
In addition, the Group has released legacy tax provisions no longer
required of GBP0.6m and recognised a deferred tax asset resulting
from acquisition of Manthorpe in respect of previously unrecognised
tax losses, resulting in a benefit of GBP0.6m.
Taxation on non-underlying items:
The non-underlying taxation credit of GBP1.1m in 2018 represents
an effective rate of 12.4%, due to GBP2.0m of acquisition costs
being treated as disallowable for tax purposes.
EARNINGS PER SHARE FROM CONTINUING OPERATIONS
2018 2017
-------------------- ----- -----
Pence per share:
Basic 24.5 22.7
Underlying basic 28.4 27.2
Diluted 24.3 22.5
Underlying diluted 28.1 26.9
-------------------- ----- -----
The Directors consider that the underlying earnings per share
(EPS) measure provides a better and more consistent indication of
the Group's underlying financial performance and more meaningful
comparison with prior and future periods to assess trends in our
financial performance.
Underlying basic EPS improved by 4.4% in 2018 due to the
improved underlying operating result after taxation.
Dividend
The final dividend of 7.9 pence per share is being recommended
for payment on 29 May 2019 to shareholders on the register at the
close of business on 23 April 2019. The ex-dividend date will be 18
April 2019.
Our dividend policy is to pay a minimum of 40% of the Group's
annual underlying profit after tax. The Directors intend that the
Group will pay the total annual dividend in two tranches, an
interim dividend and a final dividend, to be announced at the time
of announcement of the interim and preliminary results respectively
with the interim dividend being approximately one half of the prior
year's final dividend.
Balance Sheet
The Group's balance sheet is summarised below:
2018 2017
GBPm GBPm
----------------------------------------------------- ------- -------
Property, plant and equipment 118.4 98.6
Goodwill 343.0 319.7
Other intangible assets 58.9 36.8
Net assets classified as held-for-sale - 13.1
Net working capital (4.1) 0.4
Taxation (17.3) (12.6)
Other current and non-current assets and liabilities (3.5) (5.6)
Net debt (loans and borrowings, net of cash and
cash equivalents) (164.2) (148.4)
----------------------------------------------------- ------- -------
Net assets 331.2 302.0
----------------------------------------------------- ------- -------
Property, plant and equipment increased by GBP19.8m and,
excluding the effect of the inclusion of assets from the
acquisitions of Permavoid and Manthorpe, increased by GBP9.0m,
predominantly due to capital expenditure exceeding
depreciation.
Goodwill increased by GBP23.3m primarily due to the acquisitions
of Permavoid and Manthorpe. Other intangible assets increased by
GBP22.1m with fair value adjustments associated with the
acquisition of Permavoid and Manthorpe being offset by the routine
amortisation of patents, brand names and customer relationships.
Net working capital reduced by GBP4.5m due to continued robust
management in our businesses. Net debt is discussed below.
Pensions
The Group does not have any defined benefit pension schemes and
only has defined contribution pension arrangements in place.
Pension costs for the year amounted to GBP2.8m (2017: GBP2.7m).
Cash Flow and Net Debt
The Group's cash flow statement is summarised below:
2018 2017
GBPm GBPm
---------------------------------------------------- ------ ------
Operating cash flows before movement in net working
capital 86.2 90.4
Add back non-underlying cash items 4.4 0.5
---------------------------------------------------- ------ ------
Underlying operating cash flows before movement
in net working capital 90.6 90.9
Movement in net working capital 3.8 (10.0)
---------------------------------------------------- ------ ------
Underlying cash generated from operations 94.4 80.9
Capital expenditure net of disposals (23.2) (23.2)
---------------------------------------------------- ------ ------
Underlying cash generated from operations after
net capital expenditure 71.2 57.7
Income tax paid (11.2) (12.6)
Interest paid (6.1) (6.6)
Non-underlying cash items (4.4) (0.5)
Acquisition of businesses (56.1) -
Disposal of businesses 13.6 -
Dividends paid (22.3) (21.0)
Proceeds from exercise of share options net of
purchase of own shares 0.3 (0.7)
Other (0.8) (0.4)
---------------------------------------------------- ------ ------
Movement in net debt (15.8) 15.9
---------------------------------------------------- ------ ------
The Group is highly cash-generative. Underlying cash generated
from operations after net capital expenditure at GBP71.2m (2017:
GBP57.7m) represents a conversion rate of 96% (2017: 79%). This
improvement in conversion rate followed a programme in 2017 to
replenish stock levels after a period of pre-price increase buying
at the end of 2016. As a result of business growth, the Group
sustained elevated net capital expenditure investment of GBP23.2m
(2017: GBP23.2m), which was significantly ahead of depreciation
levels, focussing on capacity expansion, efficiency improvement and
innovation. The Group spent GBP56.1m on the acquisition of
Permavoid and Manthorpe during the year and received GBP13.6m for
the disposal of Polypipe France.
Net debt of GBP164.2m comprised:
2018 2017 Change
GBPm GBPm GBPm
------------------------------------------- ------- ------- ------
Bank loans (212.0) (185.0) (27.0)
Cash and cash equivalents 46.2 35.7 10.5
------------------------------------------- ------- ------- ------
Net debt (excluding unamortised debt issue
costs) (165.8) (149.3) (16.5)
Unamortised debt issue costs 1.6 0.9 0.7
------------------------------------------- ------- ------- ------
Net debt (164.2) (148.4) (15.8)
------------------------------------------- ------- ------- ------
Net debt (excluding unamortised debt issue
costs): pro forma EBITDA 1.7 1.6
------------------------------------------- ------- ------- ------
FINANCING
In light of the uncertainty posed by the UK's withdrawal from
the EU, the Group took the decision to bring forward the renewal of
its secured RCF from mid-2019. The RCF was increased from GBP290m
to GBP300m and renewed for a period of five years to November 2023
with two further uncommitted annual renewals through to November
2025 possible. A new uncommitted "accordion" facility of up to
GBP50m was also added. Refinancing costs of GBP1.7m will be
amortised over the life of the RCF. Unamortised costs of GBP0.6m
from the previous refinancing were written off within
non-underlying items. The margin payable under the renewed RCF is
10 basis points lower than the previous agreement for gearing
levels up to 2.0x EBITDA.
The Group is subject to two financial covenants. At 31 December
2018 there was significant headroom, and facility interest cover
and net debt to EBITDA covenants were comfortably achieved:
Position
at
Covenant 31 December
Covenant: requirement 2018
--------------- ------------- ------------
Interest cover >4.0:1 11.3:1
Leverage <3.0:1 1.7:1
--------------- -------------- ------------
At 31 December 2018, liquidity headroom (cash and undrawn
committed banking facilities) was GBP134.2m (2017: GBP140.7m) with
the new RCF raised slightly to GBP300m compared to the previous RCF
(2017: GBP290m). Focus will continue to be on deleveraging and,
despite the two debt-funded acquisitions totalling GBP56.1m in the
year, our net debt to EBITDA ratio stood at 1.7x EBITDA at 31
December 2018 (2017: 1.6x). This headroom means the Group enters
2019 well-positioned with a strong balance sheet.
Principal Risks and Uncertainties
The principal risks and uncertainties which could impact the
Group are those detailed in the Group's Annual Report and Accounts.
These cover the Strategic, Financial and Operational risks and,
other than further consideration towards the impact of Brexit, have
not changed significantly during the year.
Forward-Looking Statements
This report contains various forward-looking statements that
reflect management's current views with respect to future events
and financial and operational performance. These forward-looking
statements involve known and unknown risks, uncertainties,
assumptions, estimates and other factors, which may be beyond the
Group's control and which may cause actual results or performance
to differ materially from those expressed or implied from such
forward-looking statements. All statements (including
forward-looking statements) contained herein are made and reflect
knowledge and information available as of the date of preparation
of this report and the Group disclaims any obligation to update any
forward-looking statements, whether as a result of new information,
future events or results or otherwise. There can be no assurance
that forward-looking statements will prove to be accurate, as
actual results and future events could differ materially from those
anticipated in such statements. Accordingly, readers should not
place undue reliance on forward-looking statements due to the
inherent uncertainty therein. Nothing in this report should be
construed as a profit forecast.
Directors' Responsibilities
Each of the Directors confirms that, to the best of their
knowledge, the consolidated financial statements, prepared in
accordance with IFRS as adopted by European Union standards, give a
true and fair view of the assets, liabilities, financial position
and profit or loss of the Group and the undertakings included in
the consolidation taken as a whole; and the Group Results, Chief
Executive Officer's Review and Financial Review includes a fair
review of the development and performance of the business and the
position of the Group and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
Annual General Meeting
The Annual General Meeting will be held at the Holiday Inn, High
Road, Doncaster, DN4 9UX at 10.30am on 23 May 2019.
By order of the Board.
Martin Payne Paul James
Chief Executive Officer Chief Financial Officer
19 March 2019 19 March 2019
GROUP INCOME STATEMENT
for the year ended 31 December 2018
2018 2017
Non- Non-
Underlying Underlying Total Underlying Underlying Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Continuing operations
Revenue 3 433.2 - 433.2 411.7 - 411.7
Cost of sales 5 (251.8) - (251.8) (236.0) (2.8) (238.8)
--------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Gross profit 181.4 - 181.4 175.7 (2.8) 172.9
Selling and distribution
costs (69.6) - (69.6) (68.7) - (68.7)
Administration expenses 5 (37.8) (2.3) (40.1) (34.4) (1.8) (36.2)
--------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Trading profit 74.0 (2.3) 71.7 72.6 (4.6) 68.0
Amortisation of intangible
assets 5 - (5.9) (5.9) - (5.5) (5.5)
--------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
3,
Operating profit 4 74.0 (8.2) 65.8 72.6 (10.1) 62.5
Finance costs 6 (6.9) (0.7) (7.6) (6.9) - (6.9)
--------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Profit before tax 3 67.1 (8.9) 58.2 65.7 (10.1) 55.6
Income tax 7 (10.5) 1.1 (9.4) (11.8) 1.2 (10.6)
--------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Profit from continuing
operations 56.6 (7.8) 48.8 53.9 (8.9) 45.0
Profit/(loss) from
discontinued operations 4 - 0.3 0.3 - (11.3) (11.3)
--------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Profit for the year
attributable to the
owners of the parent
company 56.6 (7.5) 49.1 53.9 (20.2) 33.7
--------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Basic earnings per
share (pence)
From continuing operations 8 24.5 22.7
From discontinued
operations 8 0.2 (5.7)
--------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
8 24.7 17.0
--------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Diluted earnings per
share (pence)
From continuing operations 8 24.3 22.5
From discontinued
operations 8 0.2 (5.7)
--------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
8 24.5 16.8
--------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Dividend per share
(pence) - interim 9 3.7 3.6
Dividend per share
(pence) - final 9 7.9 7.5
--------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Total 9 11.6 11.1
--------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
GROUP STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2018
2018 2017
GBPm GBPm
----------------------------------------------------- ----- ------
Profit for the year attributable to the owners
of the parent company 49.1 33.7
----------------------------------------------------- ----- ------
Other comprehensive income:
Items which will be reclassified subsequently
to the income statement:
Exchange differences on translation of foreign
operations 0.1 0.3
Recycling of foreign exchange differences to
the income statement (0.3) -
Effective portion of changes in fair value of
interest rate swaps 1.4 1.7
Tax relating to items that may be reclassified
subsequently to the income statement (0.2) (0.3)
----------------------------------------------------- ----- ------
Other comprehensive income for the year net of
tax 1.0 1.7
----------------------------------------------------- ----- ------
Total comprehensive income for the year attributable
to the owners of the parent company 50.1 35.4
----------------------------------------------------- ----- ------
Attributable to the owners of the parent company
from:
Continuing operations 50.2 46.7
Discontinued operations (0.1) (11.3)
----------------------------------------------------- ----- ------
50.1 35.4
----------------------------------------------------- ----- ------
GROUP BALANCE SHEET
at 31 December 2018
31 December 31 December
2018 2017
Notes GBPm GBPm
---------------------------------------------- ----- ----------- -----------
Non-current assets
Property, plant and equipment 10 118.4 98.6
Intangible assets 11 401.9 356.5
---------------------------------------------- ----- ----------- -----------
Total non-current assets 520.3 455.1
---------------------------------------------- ----- ----------- -----------
Current assets
Assets classified as held-for-sale 13 - 24.0
Inventories 58.1 53.5
Trade and other receivables 37.4 34.5
Cash and cash equivalents 46.2 35.7
---------------------------------------------- ----- ----------- -----------
Total current assets 141.7 147.7
---------------------------------------------- ----- ----------- -----------
Total assets 662.0 602.8
---------------------------------------------- ----- ----------- -----------
Current liabilities
Liabilities associated with assets classified
as held-for-sale 13 - (10.9)
Trade and other payables (99.6) (87.6)
Provisions - (2.2)
Contingent consideration (1.7) -
Derivative financial instruments 14 (1.1) (2.5)
Income tax payable (6.3) (5.6)
---------------------------------------------- ----- ----------- -----------
Total current liabilities (108.7) (108.8)
---------------------------------------------- ----- ----------- -----------
Non-current liabilities
Loans and borrowings 14 (210.4) (184.1)
Other liabilities 14 (0.7) (0.9)
Deferred income tax liabilities (11.0) (7.0)
---------------------------------------------- ----- ----------- -----------
Total non-current liabilities (222.1) (192.0)
---------------------------------------------- ----- ----------- -----------
Total liabilities (330.8) (300.8)
---------------------------------------------- ----- ----------- -----------
Net assets 331.2 302.0
---------------------------------------------- ----- ----------- -----------
Capital and reserves
Equity share capital 0.2 0.2
Capital redemption reserve 1.1 1.1
Own shares (3.8) (4.3)
Hedging reserve (0.9) (2.1)
Foreign currency retranslation reserve 0.5 0.7
Retained earnings 334.1 306.4
---------------------------------------------- ----- ----------- -----------
Total equity 331.2 302.0
---------------------------------------------- ----- ----------- -----------
GROUP STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2018
Foreign
Equity Capital currency
share redemption Own Hedging retranslation Retained Total
capital reserve shares reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- -------- ----------- ------- -------- -------------- --------- -------
At 31 December
2016 0.2 1.1 (4.6) (3.5) 0.4 293.8 287.4
--------------------- -------- ----------- ------- -------- -------------- --------- -------
Profit for the
year - - - - - 33.7 33.7
Other comprehensive
income - - - 1.4 0.3 - 1.7
--------------------- -------- ----------- ------- -------- -------------- --------- -------
Total comprehensive
income for the
year - - - 1.4 0.3 33.7 35.4
Dividends paid - - - - - (21.0) (21.0)
Purchase of own
shares - - (3.2) - - - (3.2)
Share-based payments
charge - - - - - 1.2 1.2
Share-based payments
settled - - 3.5 - - (1.4) 2.1
Share-based payments
excess tax benefit - - - - - 0.1 0.1
--------------------- -------- ----------- ------- -------- -------------- --------- -------
At 31 December
2017 0.2 1.1 (4.3) (2.1) 0.7 306.4 302.0
--------------------- -------- ----------- ------- -------- -------------- --------- -------
Profit for the
year - - - - - 49.1 49.1
Other comprehensive
income - - - 1.2 (0.2) - 1.0
--------------------- -------- ----------- ------- -------- -------------- --------- -------
Total comprehensive
income for the
year - - - 1.2 (0.2) 49.1 50.1
Dividends paid - - - - - (22.3) (22.3)
Share-based payments
charge - - - - - 1.0 1.0
Share-based payments
settled - - 0.5 - - (0.2) 0.3
Share-based payments
excess tax benefit - - - - - 0.1 0.1
--------------------- -------- ----------- ------- -------- -------------- --------- -------
At 31 December
2018 0.2 1.1 (3.8) (0.9) 0.5 334.1 331.2
--------------------- -------- ----------- ------- -------- -------------- --------- -------
GROUP CASH FLOW STATEMENT
for the year ended 31 December 2018
2018 2017
Notes GBPm GBPm
----------------------------------------------------------------------------- ----- ------- ------
Operating activities
Profit before tax 58.2 55.6
Finance costs 6 7.6 6.9
----------------------------------------------------------------------------- ----- ------- ------
Operating profit 65.8 62.5
Profit before tax from discontinued operations 5 0.3 1.4
Non-cash items:
Profit on disposal of property, plant
and equipment 5 (0.3) (0.1)
Non-underlying items - amortisation of
intangibles assets 5 5.9 5.5
- provision for restructuring costs 5 - 4.3
- provision for aborted acquisition
costs - 0.3
- provision for acquisition costs 5 2.2 -
- loss on disposal of assets held-for-sale 5 0.1 -
Depreciation 5 15.6 16.2
Share-based payments 1.0 0.8
Cash items - settlement of restructuring
costs (2.3) (0.4)
- settlement of aborted acquisition
costs (0.2) (0.1)
- settlement of acquisition costs (1.9) -
Operating cash flows before movement
in working capital 86.2 90.4
Movement in working capital:
Receivables (2.9) (3.2)
Payables 10.8 2.1
Inventories (4.1) (8.9)
----------------------------------------------------------------------------- ----- ------- ------
Cash generated from operations 90.0 80.4
Income tax paid (11.2) (12.6)
----------------------------------------------------------------------------- ----- ------- ------
Net cash flows from operating activities 78.8 67.8
----------------------------------------------------------------------------- ----- ------- ------
Investing activities
Acquisition of businesses net of cash
at acquisition (56.1) -
Proceeds from disposal of property, plant
and equipment 0.9 0.2
Purchase of property, plant and equipment (24.1) (23.4)
Disposal of subsidiary undertaking net
of overdraft divested 13.6 -
----------------------------------------------------------------------------- ----- ------- ------
Net cash flows from investing activities (65.7) (23.2)
----------------------------------------------------------------------------- ----- ------- ------
Financing activities
New bank loan 226.1 -
Repayment of bank loan (199.1) (7.0)
Interest paid (6.1) (6.6)
Dividends paid 9 (22.3) (21.0)
Purchase of own shares - (3.2)
Proceeds from exercise of share options 0.3 2.5
Debt issue costs (1.6) -
----------------------------------------------------------------------------- ----- ------- ------
Net cash flows from financing activities (2.7) (35.3)
----------------------------------------------------------------------------- ----- ------- ------
Net change in cash and cash equivalents 10.4 9.3
----------------------------------------------------------------------------- ----- ------- ------
Cash and cash equivalents at 1 January 35.7 26.5
Net foreign exchange difference 0.1 (0.1)
----------------------------------------------------------------------------- ----- ------- ------
Cash and cash equivalents at 31 December 46.2 35.7
----------------------------------------------------------------------------- ----- ------- ------
The net decrease in cash and cash equivalents in the year from
discontinued operations included in the above was GBP4.2m (2017:
GBP1.3m increase).
1. Basis of preparation
The preliminary results for the year ended 31 December 2018 have
been prepared in accordance with the recognition and measurement
requirements of International Financial Reporting Standards (IFRSs)
as endorsed by the European Union regulations as they apply to the
consolidated financial statements of the Group for the year ended
31 December 2018. 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 2017 have been filed with the
Registrar of Companies. The statutory accounts for the year ended
31 December 2018 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. Change in accounting standards
Under IFRS 16 the present distinction between operating and
finance leases will be removed, resulting in all leases being
recognised on the balance sheet (except short-term leases and
leases of low-value assets) and termed right-of-use assets. At
inception, a right-of-use asset will be recognised together with an
equivalent liability reflecting the discounted lease payments over
the estimated term of the lease. While the overall cost of using
the asset over the lease term should be the same, it is likely that
the weighting of the charge between periods may differ due to the
requirement to distinguish between the lease and non-lease elements
of the agreement.
IFRS 16 was issued in January 2016 and is mandatory for annual
reporting periods commencing 1 January 2019. The Group did not
apply for early adoption of IFRS 16 and will first report under the
new standard in the interim consolidated financial statements for
the six months ending 30 June 2019, and the consolidated financial
statements for the year ending 31 December 2019. The Group has
reviewed all material leasing arrangements over the last year in
light of the new lease accounting rules. The Group does not have
any leases previously classified as finance leases. The Group will
adopt the simplified approach to transition and will not restate
comparative amounts for the year prior to first adoption. In 2019,
the Group's lease commitments will be brought onto the Group's
balance sheet and the timing of the recognition of lease costs in
the income statement will change.
The value of lease commitments at 31 December 2018 is GBP14.0m
(see Note 27). The Group expects to recognise an increase in total
liabilities in the range of GBP12.0m-GBP14.0m, and a similar
increase in total assets. The difference between the value of lease
commitments and increase in total liabilities is largely driven by
the requirement to discount the lease liabilities to present
value.
The Group expects that underlying EBITDA will increase by
approximately GBP3.9m, that underlying operating profit will
increase by approximately GBP0.2m - GBP0.4m and that underlying
profit before tax will reduce by approximately GBP0.1m - GBP0.3m
for 2019 as a result of adopting the new rules. Operating cash
flows will increase and financing cash flows will decrease because
repayment of the principal portion of the lease liabilities will be
classified as cash flows from financing activities.
3. Segment information
IFRS 8, Operating Segments, requires operating segments to be
identified on the basis of the internal financial information
reported to the Chief Operating Decision Maker (CODM). The Group's
CODM is deemed to be the Board of Directors, who are primarily
responsible for the allocation of resources to segments and the
assessment of performance of the segments.
The Group has two reporting segments - Residential Systems and
Commercial and Infrastructure Systems. The reporting segments are
organised based on the nature of the end markets served. There are
no significant judgements in aggregating operating segments to
arrive at the reporting segments. Inter-segment sales are on an
arm's length basis in a manner similar to transactions with third
parties.
2018 2017
Commercial Commercial
Residential & Infrastructure Residential & Infrastructure
Systems Systems Total Systems Systems Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----------- ----------------- ------ ----------- ----------------- ------
Continuing operations
Segmental revenue 249.9 197.2 447.1 228.8 196.0 424.8
Inter segment revenue (4.6) (9.3) (13.9) (5.3) (7.8) (13.1)
--------------------------- ----------- ----------------- ------ ----------- ----------------- ------
Revenue 245.3 187.9 433.2 223.5 188.2 411.7
--------------------------- ----------- ----------------- ------ ----------- ----------------- ------
Underlying operating
profit* 46.3 27.7 74.0 44.3 28.3 72.6
Non-underlying items
- segmental (3.6) (4.5) (8.1) (2.1) (7.7) (9.8)
--------------------------- ----------- ----------------- ------ ----------- ----------------- ------
Segmental operating profit 42.7 23.2 65.9 42.2 20.6 62.8
Non-underlying items
- group (0.1) (0.3)
------ ------
Operating profit 65.8 62.5
Non-underlying items
- finance costs (0.7) -
Finance costs (6.9) (6.9)
------ ------
Profit before tax 58.2 55.6
--------------------------- ----------- ----------------- ------ ----------- ----------------- ------
* Underlying operating profit is stated before non-underlying
items, and is the measure of segment profit used by the Group's
CODM. Details of the non-underlying items of GBP8.9m (2017:
GBP10.1m) are set out below at Non-underlying items before tax.
2018 2017
Revenue by destination GBPm GBPm
----------------------- ----- -----
Continuing operations
UK 387.1 365.7
Rest of Europe 21.5 18.9
Rest of World 24.6 27.1
----------------------- ----- -----
Total - Group 433.2 411.7
----------------------- ----- -----
Geographical analysis
4. Operating profit
2018 2017
GBPm GBPm
---------------------------------------------------- ----- -----
Income statement charges
Continuing operations
Depreciation of property, plant and equipment
(owned) 15.3 14.9
Cost of inventories recognised as an expense 251.8 238.8
Operating lease payments - minimum lease payments 3.9 4.6
Research and development costs written off 0.7 0.8
---------------------------------------------------- ----- -----
Discontinued operations
Depreciation of property, plant and equipment
(owned) 0.3 1.3
Cost of inventories recognised as an expense 13.5 46.1
Operating lease payments - minimum lease payments - 0.1
Income statement credits - continuing operations
Profit on disposal of property, plant and equipment 0.3 0.1
---------------------------------------------------- ----- -----
5. Non-underlying items
Non-underlying items comprised:
2018 2017
Gross Tax Net Gross Tax Net
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- ----- ----- ----- ----- ----- -----
Cost of sales: Restructuring
costs - - - 2.8 (0.2) 2.6
Administration expenses: Restructuring
costs - - - 1.5 - 1.5
Administration expenses: Aborted
acquisition costs - - - 0.3 (0.1) 0.2
Administration expenses: Acquisition
costs 2.2 - 2.2 - - -
Administration expenses: Loss
on disposal of assets classified
as held-for-sale 0.1 - 0.1 - - -
Amortisation of intangible
assets 5.9 (1.0) 4.9 5.5 (0.9) 4.6
Finance costs: Unamortised
debt issue costs written off 0.6 (0.1) 0.5 - - -
Finance costs: Unwind of discount
on contingent consideration 0.1 - 0.1 - - -
Discontinued operations: loss
recognised on remeasurement
to fair value less costs to
sell - - - 12.5 - 12.5
Discontinued operations: (profit)/loss
from discontinued operations (0.3) - (0.3) (1.4) 0.2 (1.2)
--------------------------------------- ----- ----- ----- ----- ----- -----
Total non-underlying items 8.6 (1.1) 7.5 21.2 (1.0) 20.2
--------------------------------------- ----- ----- ----- ----- ----- -----
Acquisition costs relate to the acquisition of Manthorpe
Building Products Holdings Limited and Permavoid Limited.
The loss on disposal of assets held-for-sale relates to surplus
freehold land and buildings at Wolverhampton.
Gross restructuring costs of GBP4.3m were recognised in 2017 in
respect of a change in our Commercial and Infrastructure Systems'
manufacturing strategy in the Middle East (GBP4.0m) and the
relocation of our Residential Systems' Domus Ventilation
manufacturing facilities (GBP0.3m). Of the GBP4.0m Middle East
restructuring costs, GBP1.7m were non-cash and the remaining
GBP2.3m costs were fully cash settled during 2018. The Domus
Ventilation restructuring plan was drawn up, announced and
completed in 2017.
The discontinued operations relate to the sale of Polypipe
France Holding SAS.
6. Finance costs
2018 2017
GBPm GBPm
----------------------------- ----- -----
Interest on bank loan 5.8 5.8
Debt issue cost amortisation 0.4 0.3
Other finance costs 0.7 0.8
Unamortised debt issue
costs written off 0.6 -
Unwind of discount on
contingent consideration 0.1 -
Finance costs 7.6 6.9
--------------------------------- ----- -----
7. Income tax
(a) Tax charged in the income statement
2018 2017
GBPm GBPm
--------------------------------------------------- ----- -----
Continuing operations
Current income tax:
UK income tax 11.6 11.2
Overseas income tax 0.1 0.1
--------------------------------------------------- ----- -----
Current income tax charge 11.7 11.3
Adjustment in respect of prior years (0.5) -
--------------------------------------------------- ----- -----
Total current income tax 11.2 11.3
--------------------------------------------------- ----- -----
Deferred income tax:
Origination and reversal of temporary differences (1.7) (0.7)
Effect of changes in income tax rates - -
--------------------------------------------------- ----- -----
Deferred income tax charge (1.7) (0.7)
Adjustment in respect of prior years (0.1) -
--------------------------------------------------- ----- -----
Total deferred income tax (1.8) (0.7)
--------------------------------------------------- ----- -----
Total tax expense reported in the income statement 9.4 10.6
--------------------------------------------------- ----- -----
Discontinued operations
Current income tax:
Overseas income tax - 0.2
--------------------------------------------------- ----- -----
Total tax (income) / expense reported in the
income statement - 0.2
--------------------------------------------------- ----- -----
Details of the non-underlying tax credit of GBP1.1m (2017:
GBP1.0m) are set out in Note 5.
(b) Reconciliation of the total tax charge
A reconciliation between the tax expense and the product of
accounting profit multiplied by the blended UK standard rate of
income tax for the years ended 31 December 2018 and 2017 is as
follows:
2018 2017
GBPm GBPm
----------------------------------------------------- ----- -----
Accounting profit before tax - continuing operations 58.2 55.6
----------------------------------------------------- ----- -----
Accounting profit multiplied by the blended UK
standard rate of
income tax of 19.00% (2017: 19.25%) 11.1 10.7
Expenses not deductible for income tax 0.8 0.4
Share-based payments 0.1 (0.4)
Adjustment in respect of prior years (0.6) -
Effects of patent box (0.9) (0.8)
Effects of changes in income tax rates (0.1) (0.1)
Effects of tax losses (0.6) -
Effects of other tax rates / credits (0.4) 0.8
----------------------------------------------------- ----- -----
Total tax expense reported in the income statement
- continuing operations 9.4 10.6
----------------------------------------------------- ----- -----
Total tax expense reported in the income statement
- discontinued operations - 0.2
----------------------------------------------------- ----- -----
The effective rate for the full year was 16.2% (2017: 19.1%). If
the impact of non-underlying items is excluded, the underlying
income tax rate would be 15.6% (2017: 18.0%).
(c) Deferred income tax
The deferred income tax included in the Group balance sheet is
as follows:
31 December 31 December
2018 2017
GBPm GBPm
--------------------------------------------- ----------- -----------
Continuing operations
Deferred income tax liabilities / (assets)
Short-term timing differences 9.9 6.2
Capital allowances in excess of depreciation 2.4 1.3
Share-based payments (0.7) (0.5)
Tax losses (0.6) -
--------------------------------------------- ----------- -----------
Continuing operations 11.0 7.0
--------------------------------------------- ----------- -----------
Discontinued operations - (0.3)
--------------------------------------------- ----------- -----------
The Group offsets tax assets and liabilities if, and only if, it
has a legally enforceable right to set off current income tax
assets and current income tax liabilities and the deferred income
tax assets and deferred income tax liabilities relate to income
taxes levied by the same tax authority.
A reconciliation of deferred income taxes for the years ended 31
December 2018 and 2017 is as follows:
2018 2017
GBPm GBPm
---------------------------------------------- ----- -----
Deferred tax reported in the income statement (1.8) (0.7)
Deferred tax reported in other comprehensive
income 0.2 0.3
Share-based payments excess tax benefit (0.1) (0.1)
Deferred income tax disposed 0.3 -
Deferred income tax acquired 5.7 -
Net foreign exchange difference - (0.1)
---------------------------------------------- ----- -----
4.3 (0.6)
---------------------------------------------- ----- -----
(d) Change in corporation tax rate
The Chancellor has announced that the main UK corporation tax
rate will be reduced from the current rate of 19%, which was
applied from 1 April 2017, to 17% from 1 April 2020. The reduction
in the corporation tax rate to 17% was included within the UK
Finance Act 2016 that was enacted in September 2016.
Deferred income tax is measured at income tax rates that are
expected to apply in the periods in which the temporary timing
differences are expected to reverse based on income tax rates and
laws that have been enacted or substantively enacted at the balance
sheet date. Deferred income tax has therefore been provided at 17%
(2017: 17%).
(e) Unrecognised tax losses
A deferred income tax asset of GBP0.6m in respect of surplus
non-trading losses of GBP3.7m was recognised during the year ended
31 December 2018. No deferred income tax asset was recognised as at
31 December 2017 in respect of those historical surplus non-trading
losses of GBP3.7m since at that date recovery was uncertain.
8. Earnings per share
Basic earnings per share amounts are calculated by dividing
profit for the year attributable to the owners of the parent
company by the weighted average number of ordinary shares
outstanding during the year. The diluted earnings per share amounts
are calculated by dividing profit for the year attributable to the
owners of the parent company by the weighted average number of
ordinary shares outstanding during the year plus the weighted
average number of potential ordinary shares that would be issued on
the conversion of all the dilutive share options into ordinary
shares.
The calculation of basic and diluted earnings per share is based
on the following:
2018 2017
--------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
for the purpose of basic earnings per share 198,989,726 198,390,485
Effect of dilutive potential ordinary shares 2,112,645 1,788,892
--------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
for the purpose of diluted earnings per
share 201,102,371 200,179,377
--------------------------------------------- ----------- -----------
Underlying earnings per share is based on the result for the
year after tax excluding the impact of non-underlying items of
GBP7.5m (2017: GBP20.2m). The Directors consider that this measure
provides a better and more consistent indication of the Group's
underlying financial performance and more meaningful comparison
with prior and future periods to assess trends in our financial
performance. The underlying earnings per share is calculated as
follows:
2018 2017
----------------------------------------------- ---- ----
Underlying profit for the year attributable to
the owners of the parent company (GBPm) 56.6 53.9
----------------------------------------------- ---- ----
Underlying basic earnings per share (pence) 28.4 27.2
----------------------------------------------- ---- ----
Underlying diluted earnings per share (pence) 28.1 26.9
----------------------------------------------- ---- ----
9. Dividends per share
2018 2017
GBPm GBPm
------------------------------------------------ ----- -----
Amounts recognised as distributions to equity
holders in the year:
Final dividend for the year ended 31 December
2017 of 7.5p per share (2016: 7.0p) 14.9 13.9
Interim dividend for the year ended 31 December
2018 of 3.7p per share (2017: 3.6p) 7.4 7.1
------------------------------------------------ ----- -----
22.3 21.0
------------------------------------------------ ----- -----
Proposed final dividend for the year ended 31
December 2018 of 7.9p per share (2017: 7.5p) 15.7 14.9
------------------------------------------------ ----- -----
The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting and has not been
included as a liability in these consolidated financial
statements.
10. Property, plant and equipment
Freehold Plant
land and and other
buildings equipment Total
GBPm GBPm GBPm
------------------------------------- ---------- ---------- ------
Cost
At 1 January 2017 47.1 166.9 214.0
Additions 1.9 21.8 23.7
Disposals - (1.3) (1.3)
Reclassified as assets held-for-sale (11.5) (31.4) (42.9)
Exchange adjustment 0.3 1.2 1.5
------------------------------------- ---------- ---------- ------
At 31 December 2017 37.8 157.2 195.0
Additions 0.4 23.5 23.9
Disposals - (4.6) (4.6)
Reclassified as assets held-for-sale 8.4 2.8 11.2
Exchange adjustment - 0.1 0.1
------------------------------------- ---------- ---------- ------
At 31 December 2017 46.6 179.0 225.6
------------------------------------- ---------- ---------- ------
Depreciation and impairment losses
At 1 January 2017 10.6 102.4 113.0
Provided during the year 1.3 14.9 16.2
Disposals - (1.2) (1.2)
Impairment - 0.9 0.9
Reclassified as assets held-for-sale (6.7) (27.0) (33.7)
Exchange adjustment 0.2 1.0 1.2
------------------------------------- ---------- ---------- ------
At 31 December 2017 5.4 91.0 96.4
Provided during the year 1.1 14.2 15.3
Disposals - (4.5) (4.5)
At 31 December 2018 6.5 100.7 107.2
------------------------------------- ---------- ---------- ------
Net book value:
At 31 December 2018 40.1 78.3 118.4
------------------------------------- ---------- ---------- ------
At 31 December 2017 32.4 66.2 98.6
------------------------------------- ---------- ---------- ------
The impairment charge in 2017 of GBP0.9m related to plant and
equipment in the Middle East. The Polypipe France assets with a net
book value of GBP9.2m were reclassified as held-for-sale in
accordance with IFRS 5, Non-current Assets Held-for-Sale and
Discontinued Operations, as explained in Note 8.
Included in freehold land and buildings is non-depreciable land
of GBP14.7m (2017: GBP12.6m).
11. Intangible assets
Brand Customer
Goodwill Patents names relationships Licences Total
GBPm GBPm GBPm GBPm GBP'm GBPm
-------------------------- -------- ------- ------ -------------- ---------- -----
Cost
At 1 January 2017 329.3 18.2 25.5 6.4 - 379.4
Reclassified as
assets held-for-sale (9.6) - - - - (9.6)
At 31 December 2017 319.7 18.2 25.5 6.4 - 369.8
Acquisition of businesses 23.3 14.5 3.6 9.1 0.8 51.3
-------------------------- -------- ------- ------ -------------- ---------- -----
At 31 December 2018 343.0 32.7 29.1 15.5 0.8 421.1
-------------------------- -------- ------- ------ -------------- ---------- -----
Amortisation and
impairment
At 1 January 2017 - 2.5 3.6 1.7 - 7.8
Charge for the year - 1.8 2.5 1.2 - 5.5
-------------------------- -------- ------- ------ -------------- ---------- -----
At 31 December 2017 - 4.3 6.1 2.9 - 13.3
Charge for the year - 2.0 2.6 1.3 - 5.9
At 31 December 2018 - 6.3 8.7 4.2 - 19.2
-------------------------- -------- ------- ------ -------------- ---------- -----
Net book value:
At 31 December 2018 343.0 26.4 20.4 11.3 0.8 401.9
-------------------------- -------- ------- ------ -------------- ---------- -----
At 31 December 2017 319.7 13.9 19.4 3.5 - 356.5
-------------------------- -------- ------- ------ -------------- ---------- -----
Goodwill is not amortised but is subject to annual impairment
testing.
During 2017 the Polypipe France goodwill of GBP9.6m was
reclassified as held-for-sale in accordance with IFRS 5,
Non-current Assets Held-for-Sale and Discontinued Operations, as
explained in Note 13.
Impairment testing of goodwill
Goodwill acquired through business combinations has been
allocated for impairment testing purposes to a number of
cash-generating units (CGUs). These represent the lowest level in
the Group at which goodwill is monitored for internal management
purposes.
Carrying amount of goodwill allocated to each of the CGUs:
31 December 31 December
2018 2017
CGU GBPm GBPm
------------------ ----------- -----------
Building Products 146.1 146.1
Building Services 31.4 31.4
Civils 36.0 36.0
Nuaire 91.3 91.3
Manthorpe 21.3 -
Others 16.9 14.9
------------------ ----------- -----------
343.0 319.7
------------------ ----------- -----------
Impairment tests on the carrying amounts of goodwill are
performed by analysing the carrying amount allocated to each CGU
against its value in use. Value in use is calculated for each CGU
as the net present value of that CGU's discounted future pre-tax
cash flows. These pre-tax cash flows are based on budgeted cash
flows information for a period of one year, construction industry
forecasts of growth for the following year and growth of between 2%
to 3% thereafter (2017: 2% to 3%).
A pre-tax discount rate of 10.0% (2017: 10.0%) has been applied
in determining the recoverable amounts of CGUs. The pre-tax
discount rate is estimated based on the Group's risk adjusted cost
of capital.
The Group has applied sensitivities to the remaining goodwill of
GBP343.0m to assess whether any reasonably possible changes in
assumptions could cause an impairment that would be material to
these consolidated financial statements. The application of these
sensitivities did not cause an impairment of goodwill.
12. Acquisitions
Permavoid
On 31 August 2018 the Group acquired 100% of the share capital
of Permavoid Limited, a specialist designer and supplier of surface
water management solutions in commercial, residential, and sports
pitch applications, for an initial cash consideration of GBP4.3m on
a cash-free, debt-free and normalised working capital basis , and
further contingent consideration of up to GBP12.5m depending on the
EBITDA performance of Permavoid in the two years to 30 September
2020. The initial cash consideration of GBP4.3m included a payment
of GBP0.3m for net cash at completion.
Details of the acquisition are as follows:
Book Fair value Fair
value adjustments value
GBPm GBPm GBPm
--------------------------------- ------ ------------ ------
Intangible assets - 2.9 2.9
Plant and equipment 0.3 - 0.3
Inventories 0.1 - 0.1
Trade and other receivables 1.2 - 1.2
Cash 0.3 - 0.3
Trade and other payables (0.4) (0.1) (0.5)
Income tax liabilities (0.1) - (0.1)
Deferred income tax - (0.5) (0.5)
--------------------------------- ------ ------------ ------
Net identifiable assets 1.4 2.3 3.7
--------------------------------- ------ ------------ ------
Goodwill on acquisition 2.0
Estimated deferred consideration (1.4)
--------------------------------- ------ ------------ ------
Initial cash consideration 4.3
--------------------------------- ------ ------------ ------
Patents, licences and customer relationships 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 the related deferred income
tax. The goodwill arising on the acquisition primarily represents
the assembled workforce, technical expertise and market share. The
goodwill is allocated entirely to the Commercial and Infrastructure
Systems segment.
Post-acquisition Permavoid has contributed GBP1.3m revenue and
GBP0.2m operating profit which is included in the group income
statement. If Permavoid had been acquired on 1 January 2018 the
Group's results for the year ended 31 December 2018 would have
shown revenue from continuing operations of GBP437.0m and
underlying operating profit of GBP74.3m.
The analysis of cash flows from the acquisition was as
follows:
GBPm
Cash consideration (included in cash flows from investing
activities) 4.3
Cash acquired (included in cash flows from investing
activities) (0.3)
Acquisition costs (included in cash flows from operating
activities) (0.3)
-------
Net cash flow on acquisition 3.7
=======
Acquisition costs of GBP0.5m were expensed and are included in
non-underlying costs in administration expenses. Of the GBP0.5m
acquisition costs, GBP0.3m were fully cash settled and GBP0.2m is
included in trade and other payables.
Contingent consideration at fair value of GBP1.7m has been
recognised at the balance sheet date. Of this, GBP1.4m is
contingent on EBITDA performance in the first year of trading
following acquisition and has been included in the purchase
consideration. The balance of GBP0.3m is included in non-underlying
costs and relates to a second payment that is contingent on EBITDA
performance in the second year of trading following acquisition and
the continued employment of key personnel and is being accrued over
the two year period. Of the GBP0.3m, GBP0.2m is included in
administration costs and GBP0.1m is included in finance costs. The
EBITDA used to estimate the contingent cash consideration is
derived from the budgets and forecasts for Permavoid. The fair
value of the consideration has been derived by discounting the
estimated cash consideration at 10.0% being the Group's estimated
risk adjusted cost of capital.
Manthorpe
On 25 October 2018 the Group acquired 100% of the share capital
of Manthorpe Building Products Holdings Limited, ("Manthorpe") a
leading designer and manufacturer of moulded and extruded plastic
and metal products to the UK and Irish residential and RMI markets,
together with associated freehold land and buildings, for a total
cash consideration of GBP56.7m on a cash-free, debt-free and
normalised working capital basis. The cash consideration of
GBP56.7m included a payment of GBP4.6m for net cash at completion
and GBP8.0m for land and buildings that were separately
transacted.
Details of the acquisition are as follows:
Book Fair value Fair
value adjustments value
GBPm GBPm GBPm
---------------------------- ------ ------------ ------
Intangible assets - 25.1 25.1
Plant and equipment 10.5 - 10.5
[Investments] - - -
Inventories 1.0 - 1.0
Trade and other receivables 3.8 - 3.8
Cash 4.6 - 4.6
Trade and other payables (3.0) (0.9) (3.9)
Income tax liabilities (0.5) - (0.5)
Deferred income tax (0.1) (5.1) (5.2)
---------------------------- ------ ------------ ------
Net identifiable assets 16.3 19.1 35.4
---------------------------- ------ ------------ ------
Goodwill on acquisition 21.3
---------------------------- ------ ------------ ------
Total consideration 56.7
---------------------------- ------ ------------ ------
Patents, the 'Manthorpe' brand and customer relationships have
been recognised as specific intangible assets as a result of this
acquisition. Fair value adjustments principally relate to the
recognition of intangible assets, provision for warranty-related
costs and the deferred income tax arising on these adjustments and
on the property acquired. The goodwill arising on the acquisition
primarily represents the assembled workforce, technical expertise
and market share. The goodwill is allocated entirely to the
Residential Systems segment.
The fair value of trade and other receivables is GBP3.8m. The
gross amount of trade and other receivables is GBP4.2m and it is
expected that the full contractual amounts will be collected.
Post-acquisition Manthorpe has contributed GBP2.8m revenue and
GBP0.9m operating profit which is included in the group income
statement. If Manthorpe had been acquired on 1 January 2018 the
Group's results for the year ended 31 December 2018 would have
shown revenue from continuing operations of GBP447.6m and
underlying operating profit of GBP78.2m.
The analysis of cash flows from the acquisition was as
follows:
GBPm
Cash consideration (included in cash flows from investing
activities) 56.7
Cash acquired (included in cash flows from investing
activities) (4.6)
Acquisition costs (included in cash flows from operating
activities) (1.2)
Stamp duty on asset purchase (included in cash flows
from operating activities) (0.4)
-------
Net cash flow on acquisition 50.5
=======
Acquisition costs of GBP1.5m were expensed and are included
within non-underlying costs in administration expenses. Of the
GBP1.5m acquisition costs, GBP1.2m were fully cash settled and
GBP0.3m is included in trade and other payables.
Stamp duty of GBP0.4m on the land and buildings separately
transacted has been added to fixed assets.
13. Assets classified as held-for-sale
On 31 January 2018, the Group announced that it had entered into
exclusive negotiations to sell Polypipe France Holdings SAS, its
French operations, to Ryb S.A., a France-based manufacturer and
distributor of plastics in Europe. After successful completion of
the required employee consultation process the sale was completed
on 29 March 2018. The cash consideration paid by Ryb S.A. was
EUR16.5m on a cash-free, debt-free and normalised working capital
basis. At 31 December 2017 the net assets of the French operations
were classified as held-for-sale in the consolidated balance sheet.
In accordance with IFRS 5, Non-current Assets Held-for-Sale and
Discontinued Operations, an impairment loss of GBP12.5m to
remeasure the carrying amount of the assets to fair value less
costs to sell was recognised following the reclassification of the
net assets of Polypipe France Holdings SAS as held-for-sale. An
analysis of the assets classified as held-for-sale and liabilities
associated with the assets held-for-sale at 31 December 2017 was as
follows:
Impairment 31 December
Book value loss 2017
GBPm GBPm GBPm
------------------------------------------------- ---------- ------------ -----------
Assets held-for-sale
Intangible assets 9.6 (9.6) -
Property, plant and equipment 9.2 (2.9) 6.3
Inventories 7.7 - 7.7
Trade and other receivables 9.0 - 9.0
Deferred income tax assets 0.3 - 0.3
35.8 (12.5) 23.3
------------------------------------------------- ---------- ------------ -----------
Liabilities associated with assets held-for-sale
Trade and other payables (9.5) - (9.5)
Income tax payable (0.2) - (0.2)
Other liabilities (1.2) - (1.2)
(10.9) - (10.9)
------------------------------------------------- ---------- ------------ -----------
Net assets held-for-sale 24.9 (12.5) 12.4
------------------------------------------------- ---------- ------------ -----------
A total loss on disposal of GBP12.5m was anticipated and
previously recognised. The actual loss on disposal at 29 March 2018
was GBP12.5m, after recycling of foreign exchange differences to
the income statement, with no change to the loss on disposal
previously recognised. The actual loss on disposal was calculated
as follows:
GBPm
Intangible assets 9.6
Property, plant and equipment 9.0
Inventories 8.4
Trade and other receivables 14.2
Deferred income tax assets 0.2
Trade and other payables (14.0)
Other liabilities (1.2)
------
Net assets sold 26.2
------
Disposal proceeds:
Cash 14.0
Directly attributable costs (0.6)
------
Net proceeds 13.4
------
Loss on disposal before tax and recycling of foreign
exchange differences 12.8
Recycling of foreign exchange differences to the
income statement (0.3)
------
Loss on disposal 12.5
======
The net cash inflow from the disposal reported in investing
activities was as follows:
GBPm
Disposal proceeds 13.2
Directly attributable costs (0.4)
Overdraft divested 0.8
-------
Net cash inflow 13.6
=======
The table below provides further detail of the discontinued
operations:
2018 2017
GBPm GBPm
----------------------------------------------- ------ ------
Revenue 16.7 58.4
Expenses (16.4) (57.0)
----------------------------------------------- ------ ------
Profit before tax 0.3 1.4
Income tax - (0.2)
----------------------------------------------- ------ ------
Profit from discontinued operations 0.3 1.2
Loss recognised on remeasurement to fair value
less costs to sell - (12.5)
----------------------------------------------- ------ ------
Profit/(loss) from discontinued operations 0.3 (11.3)
----------------------------------------------- ------ ------
The remaining assets classified as held-for-sale comprised:
31 December 31 December
2018 2017
GBPm GBPm
------------------------------ ----------- -----------
Property, plant and equipment - 0.7
------------------------------ ----------- -----------
These assets classified as held-for-sale consisted exclusively
of freehold land currently not in use by the Group. The disposal of
this asset was completed during 2018 resulting in a loss on
disposal of GBP0.1m. The assets classified as held-for-sale were
analysed between operating segments as follows:
31 December 31 December
2018 2017
GBPm GBPm
-------------------------------------- ----------- -----------
Residential Systems - 0.4
Commercial and Infrastructure Systems - 0.3
-------------------------------------- ----------- -----------
- 0.7
-------------------------------------- ----------- -----------
31 December 31 December
2018 2017
GBPm GBPm
------------------------------------------------- ----------- -----------
Non-current loans and borrowings:
Bank loan - principal 212.0 185.0
- unamortised debt issue costs (1.6) (0.9)
------------------------------------------------- ----------- -----------
Total non-current loans and borrowings 210.4 184.1
------------------------------------------------- ----------- -----------
GBPm GBPm
------------------------------------------------- ----------- -----------
Other financial liabilities:
Trade and other payables 99.6 87.6
Forward foreign currency derivatives 0.1 -
Interest rate swaps 1.0 2.5
Other liabilities 0.7 0.9
Contingent consideration 1.7 -
------------------------------------------------- ----------- -----------
103.1 91.0
------------------------------------------------- ----------- -----------
14. Financial liabilities
Bank loan
On 19 November 2018, the Group entered into an Amendment and
Restatement Agreement with various lenders which amends and
restates the Company's previous revolving credit facility agreement
dated 4 August 2015. The bank loan, which comprises a GBP300.0m
revolving credit facility and GBP50.0m accordion facility, is
secured and expires in full in November 2023. Interest is payable
on the bank loan at LIBOR plus an interest margin ranging from
0.90% to 2.75% which is dependent on the Group's leverage (net debt
as a multiple of EBITDA) and reduces as the Group's leverage
reduces. The interest margin at 31 December 2018 was 1.65% (2017:
1.75%).
The Group incurred GBP1.7m of debt issue costs in respect of
entering into the Amendment and Restatement Agreement dated 19
November 2018 which have been capitalised and are being amortised
to the income statement over the term of the facility to November
2023. Unamortised debt issue costs of GBP0.6m in respect of
entering into the Amendment and Restatement Agreement dated 4
August 2015 have been written off to the income statement.
At 31 December 2018, the Group had available, subject to
covenant headroom and excluding the GBP50.0m accordion facility,
GBP88.0m (2017: GBP105.0m) of undrawn committed borrowing
facilities in respect of which all conditions precedent had been
met at 31 December 2018.
The Group is subject to a number of covenants in relation to its
bank loan which, if breached, would result in the bank loan
becoming immediately repayable. These covenants specify certain
maximum limits in terms of net debt as a multiple of EBITDA and
interest cover. At 31 December 2018, the Group was not in breach of
any bank covenants. The covenant position was as follows:
Position
at
Covenant 31 December
Covenant requirement 2018
--------------------------------------------- ------------- ------------
Interest cover (Underlying operating profit:
Finance costs excluding debt issue cost
amortisation) >4.0:1 11.3:1
Leverage (Net debt: EBITDA) <3.0:1 1.7:1
--------------------------------------------- ------------- ------------
The interest cover and leverage covenants remain at 4.0:1 and
3.0:1, respectively, throughout the remaining term of the revolving
credit facility to November 2023, though there exists the option to
apply to extend the leverage covenant to 3.5:1 for a limited period
of time if the Group makes an acquisition.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EAXDPFSPNEFF
(END) Dow Jones Newswires
March 19, 2019 03:00 ET (07:00 GMT)
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