TIDMPLP
RNS Number : 3258N
Polypipe Group PLC
08 August 2017
8 August 2017
Polypipe Group plc
Interim results for the six months ended 30 June 2017
Continued strong performance
Polypipe Group plc ("Polypipe", the "Company" or the "Group"), a
leading manufacturer of plastic piping and ventilation systems for
the residential, commercial, civils and infrastructure sectors,
today announces its unaudited interim results for the six months
ended 30 June 2017.
Financial Results
H1 H1 Change
2017 2016
Revenue GBP242.0m GBP223.3m 8.4%
Underlying operating
profit(1) GBP38.9m GBP37.7m 3.1%
Underlying operating
margin(1) 16.1% 16.9%
Underlying profit
before tax(1) GBP35.5m GBP33.7m 5.3%
Operating profit GBP34.9m GBP33.9m 2.8%
Profit before tax GBP31.5m GBP29.9m 5.3%
Earnings per share
(diluted) 12.5p 12.0p 4.2%
Underlying earnings
per share (diluted)(1) 14.3p 13.5p 5.9%
Cash generated from
operations GBP21.1m GBP30.5m (30.8)%
Dividend per share 3.6p 3.1p 16.1%
Financial Highlights
-- Performance in line with management expectations
-- Revenue 8.4% higher at GBP242.0m, or 6.9% on a like for like basis(2)
-- UK revenue 6.8% ahead
-- Underlying operating profit 3.1% higher at GBP38.9m
-- Underlying diluted earnings per share 5.9% higher at 14.3 pence per share
-- Net debt of 2.0 times LTM EBITDA(3) compared to 2.3 times in
the prior year, and on track to meet management expectations for
the year.
-- Interim dividend increased 16.1% to 3.6 pence per share
Operational Highlights
-- Market outperformance in both UK segments, demonstrating
continued success of strategic growth initiatives of legacy
material substitution, carbon efficiency and water management.
-- UK Residential Systems segment particularly strong with 9.2%
growth driven predominantly by new house build.
-- Pricing actions to recover H2 2016 input cost inflation
progressively implemented through first half and successfully
completed.
-- Decisive action taken at our Middle East manufacturing plant
(<1% Group revenue) to temporarily cease manufacturing and
reduce costs in response to recent trade embargo between UAE and
Qatar.
Outlook
-- Market fundamentals continue to be robust, but we remain
alert to potential impact from uncertainties arising from the
recent UK election and Brexit negotiations.
-- Following a slow start to the year, the UK Roads programme is
expected to accelerate in H2, underpinning demand in our UK
Commercial and Infrastructure Systems segment.
-- With different sectors of the UK construction market
performing at different rates the Group benefits from its strategic
balance of activity with no over reliance on any one sector.
-- Middle East situation unlikely to be resolved in the short term.
-- Conditions in the French market continue to improve.
-- Well placed to continue to deliver results in line with
management expectations for the year ending 31 December 2017.
David Hall, Chief Executive Officer said:
"The Group has delivered another record performance, building on
the strong momentum from last year and demonstrating that our
strategic focus on structural growth opportunities is delivering
results.
Although underlying fundamentals remain positive, the Group has
experienced varying conditions in its different markets and has
also faced some challenges in the first half of the year. I am
encouraged by the way the business has risen to these challenges
which is further evidence of the depth and strength of management
across the Group. As a result of our growth initiatives, balanced
exposure to our markets and overall performance, the Board is
confident that the Group will continue to make progress in line
with management expectations for the year."
(1) Underlying profit and earnings measures exclude certain
non-underlying items which are provided in Note 4, and where
relevant, the tax effect of these items. The Directors consider
that these measures provide a better and more consistent indication
of the Group's underlying financial performance and more meaningful
comparison with prior and future periods to assess trends in our
financial performance.
(2) Like for like (LFL) measures are at constant currency
translation. The structure of the Group is the same in both periods
so no adjustment is necessary for acquisitions or disposals.
(3) LTM EBITDA is defined as underlying operating profit before
depreciation for the twelve months preceding the balance sheet
date.
For further information please contact:
Polypipe
David Hall, Chief Executive
Officer
Martin Payne, Chief
Financial Officer +44 (0) 1709 770 000
Brunswick
Tim Danaher
Simon Maine +44 (0) 20 7404 5959
A copy of this report will be available on our website
www.polypipe.com today from 0700hrs (BST).
An analyst and investor presentation will be held today at
Brunswick's offices, 16 Lincolns Inn Fields, London, WC2A 3ED at
1000 hrs (BST) with registration from 0930hrs.
For those unable to attend, a live conference call will be
available at 1000 hrs (BST).
Dial-In number +44 (0) 1452 555 566
Conference ID 64328914
The presentation can be viewed at this link.
Notes to Editors:
Polypipe is the largest manufacturer in the UK, and among the
ten largest manufacturers in Europe, of plastic piping systems for
the residential, commercial, civils and infrastructure sectors by
revenue. It is also a leading designer and manufacturer of energy
efficient ventilation systems in the UK.
The Group operates from 20 facilities in total, and with over
20,000 product lines, manufactures the UK's widest range of plastic
piping systems for heating, plumbing, drainage and ventilation. The
Group primarily targets the UK, French and Irish building and
construction markets with a presence in Italy and the Middle East
and sales to specific niches in the rest of the world.
Group Results
Group revenue for the six months ended 30 June 2017 was 8.4%
higher than the prior year at GBP242.0m (2016: GBP223.3m). On a
constant currency basis, revenue was 6.9% higher than the prior
year. The Group structure has remained the same in both periods so
this represents organic growth with no adjustments required for
acquisitions or disposals. This strong performance is a result of
our continued focus on strategic growth initiatives such as legacy
material substitution, legislative tailwinds in water management
and carbon efficiency, and development of selected export
markets.
Underlying operating profit was 3.1% higher than the prior year
at GBP38.9m (2016: GBP37.7m). This represents an operating margin
of 16.1% (2016: 16.9%), and reflects the expected time lag in
progressive implementation of selling price increases to recover
input cost inflation in the period.
Finance costs of GBP3.4m (2016: GBP4.0m) were lower than the
prior year due to reduced levels of net debt together with improved
margins through reduced leverage.
Non-underlying operating costs of GBP4.0m (2016: GBP3.8m) were
incurred and relate to amortisation of intangible assets of GBP2.8m
arising from the Nuaire acquisition, costs associated with the
temporary cessation of production in our factory in the Middle East
of GBP0.9m, and the consolidation of our ventilation businesses
onto the Nuaire site of GBP0.3m.
The total tax charge for the period was GBP6.4m (2016: GBP5.9m).
The underlying tax charge of GBP6.9m (2016: GBP6.6m) represents an
effective underlying tax rate of 19.4% (2016: 19.6%).
Underlying profit after tax was 5.5% higher at GBP28.6m (2016:
GBP27.1m), with underlying diluted earnings per share 5.9% higher
at 14.3 pence (2016: 13.5 pence).
Including non-underlying items, profit after tax was 4.5% higher
at GBP25.1m (2016: GBP24.0m) with diluted earnings per share also
4.2% higher at 12.5 pence (2016: 12.0 pence).
Business Review
Revenue H1 H1 LFL
2017 2016 Change Change*
-------------------------------
GBPm GBPm % %
------------------------------- ------ ------ ------- ---------
Residential Systems 115.0 105.4 9.2 9.2
Commercial and Infrastructure
Systems - UK 97.7 92.7 5.4 5.4
Inter-segment sales (7.0) (5.5)
UK operations 205.7 192.6 6.8 6.8
Commercial and Infrastructure
Systems - Mainland Europe 37.4 31.5 18.9 8.6
Inter-segment sales (1.1) (0.8)
Group revenue 242.0 223.3 8.4 6.9
------------------------------- ------ ------ ------- ---------
Underlying operating H1 H1
profit 2017 2016 Change
-------------------------------
GBPm GBPm %
------------------------------- ------ ------ -------
Residential Systems 22.9 21.5 6.5
Commercial and Infrastructure
Systems - UK 14.5 15.2 (3.9)
UK operations 37.4 36.7 2.2
Commercial and Infrastructure
Systems - Mainland Europe 1.5 1.0 32.4
Group underlying operating
profit 38.9 37.7 3.1
------------------------------- ------ ------ -------
* Like for like (LFL) measures are at constant currency
translation. The structure of the Group is the same in both periods
so no adjustment is necessary for acquisitions or disposals
Operational Review
The Group continued to focus on its core strategic growth
initiatives in the period, in legacy material substitution, water
management and carbon efficiency legislation, and development of
selected export markets. We continue to make excellent progress in
these areas, with revenue 8.4% higher than the prior year. The UK
operations continued to outpace the market maintaining strong
organic growth of 6.8%, with the UK Residential Systems segment
showing the strongest growth in the period. Although selling price
increases represent approximately 3% of the first half revenue
growth, as noted in our 2016 Annual Report and Accounts, the
earlier part of the year was impacted by the effect of the merchant
order pull forward into December 2016, meaning underlying volume
growth was broadly in line with revenue.
The Group has successfully implemented selling price increases
and cost reduction measures progressively through the period to
recover material cost and other inflation arising primarily from
the effect of Sterling devaluation post the EU Referendum in June
2016. These measures leave the Group in a good position as we enter
the second half of the year, and as anticipated the progressive
nature of these actions through the first half has resulted in a
return on sales of 16.1%, marginally lower than the same period
last year.
A project to consolidate our Doncaster based ventilation
business into our Nuaire business in Caerphilly, South Wales has
been completed in the period. This will generate cost savings and
service efficiencies which help drive improvements in the combined
business. Exceptional costs of GBP0.3m relating to this project
have been recorded in the results for the period.
Towards the end of the period, it became clear that the trade
embargo between many of the Gulf states and Qatar would severely
impact revenue in our manufacturing unit in Dubai. Approximately
60% of pipeline projects emanate from Qatar and the business had
just started to deliver to two significant infrastructure projects
for Doha, which would have absorbed the bulk of our local
manufacturing capacity. With no imminent solution in sight to this
issue, and in recognition of the more general project financing
issues in the wider Gulf in recent months meaning order cycles are
becoming extended, the decision was taken to temporarily cease
manufacturing in Dubai. Stock is available to service short term
orders from non-Qatari customers, and manufacturing can be resumed
at relatively short notice. However, a significant proportion of
the manufacturing workforce has been made redundant, leaving only
key operational management in place. Exceptional costs of GBP0.9m
relating to this decision have been recorded in the results for the
period, covering redundancy costs and stock provisions.
Residential Systems
Residential Systems segment revenue was 9.2% higher at GBP115.0m
(2016: GBP105.4m), all of which was derived from the UK and Irish
markets, and excluding inter segment revenue represented 47% of
Group revenue for the six months ended 30 June 2017 (2016: 46%).
The effect of selling price increases in the period largely offsets
the effect of the merchant order pull forward into December 2016
noted in our 2016 Annual Report and Accounts, and so this growth is
largely volume driven.
Demand has remained robust from the national house builders
throughout the first half, with particularly strong demand for our
underground products as they continue to open new sites. As the
house builders move through different build phases on site, demand
is beginning to pick up in our above ground product ranges. We
continue to see the UK RM&I (repairs maintenance and
improvement) market as static, with housing transactions remaining
muted and consumer confidence impacted by post-election uncertainty
and negative real wage growth.
This continued growth in volumes enabled Residential Systems to
deliver an underlying operating profit of GBP22.9m in the first
half, up 6.5% over the same period last year and representing a
return on sales of 19.9% (2016: 20.4%). The progressive
implementation of selling price increases and cost reduction
measures to mitigate post EU Referendum material cost and other
inflation resulted in margins being marginally lower than prior
year.
Commercial and Infrastructure Systems - UK
Commercial and Infrastructure Systems UK segment revenue was
5.4% higher at GBP97.7m (2016: GBP92.7m), and excluding inter
segment revenue represented 38% of overall Group revenue for the
six months ended 30 June 2017 (2016: 40%). This segment includes
our export business as well as the results of our manufacturing
operation in the Middle East.
Water management and flood prevention legislation continued to
drive demand for our Polystorm attenuation cells as residential
driven infrastructure is installed. Furthermore, light commercial
ventilation continues to perform well, driven by carbon efficiency
legislation. Growth in the UK in the first half has been somewhat
impacted by delays in roads projects such as the A14 upgrade,
although there are encouraging signs that this project will
commence in the second half. Export markets, and in particular
Middle East markets, have remained tough. Project financing delays
in the Middle East and distributor credit issues, combined with the
ban on exporting from the UAE to Qatar have resulted in overall
export revenue (including revenue from our Dubai manufacturing
facility) being below the prior year. As previously noted, the
decision has been taken to temporarily cease manufacturing in
Dubai.
Underlying operating profit in the period at GBP14.5m (2016:
GBP15.2m) was 3.9% lower than the prior year, and represents a
return on sales of 14.9% (2016: 16.4%). Again, progressive
implementation of selling price increases and cost reduction
measures to mitigate post EU Referendum material cost and other
inflation, combined with the lower revenues from our higher margin
export business, meant that margins were lower than prior year.
Commercial and Infrastructure Systems - Europe
Revenue in our Commercial and Infrastructure Systems - Europe
segment at GBP37.4m (2016: GBP31.5m) represented 15% of overall
Group revenue for the six months ended 30 June 2017 (2016: 14%).
This represented growth of 18.9% against the prior year, and 8.6%
on a constant currency basis. This segment relates predominantly to
our French operations, although it also includes Effast, our
Italian pressure pipe business.
There have been some encouraging signs of recovery in the French
market, and this has helped drive demand, particularly in the
utilities sector where potable water, irrigation and gas pipes have
all shown reasonable growth. The market however remains very price
competitive, with distributors continuing to compete heavily with
each other. Underlying operating profits improved to GBP1.5m (2016:
GBP1.0m) representing an improved margin of 3.9% (2016: 3.4%) with
improved volumes driving this performance.
Board and Management Changes
On 24(th) May 2017, the Group announced that David Hall, Chief
Executive Officer, is to retire on 2(nd) October 2017, and is to be
succeeded by Martin Payne, currently Chief Financial Officer. It
further announced that Glen Sabin, currently Managing Director
Polypipe Plumbing and Heating Division, would be appointed to the
Board as Chief Operating Officer, also on 2(nd) October 2017. The
handover process is progressing well, as is the process to find a
new Chief Financial Officer. Further announcements will be made in
due course.
Outlook
Despite the uncertainty caused by EU exit negotiations and the
recent UK election, the Group has performed well in the first half
of the year, and is well placed to achieve management expectations
for the year to 31 December 2017.
The market outlook for the second half remains mixed with new
house building continuing to perform well, and with some of the
road projects beginning to gather pace, the infrastructure market
looks as if it will perform better in the second half. We believe
that UK RMI has been static and will continue to be challenging
given potential consumer confidence headwinds such as negative real
wage growth and continued low levels of housing transactions.
Neither the wider Middle East project financing issues nor the more
specific Qatar situation show any signs of being resolved in the
short term, but exports into other markets are being explored to
mitigate the impact on our overall export business, which is not
material to the Group.
Despite the uncertainties in some sectors of the market, other
parts are expected to continue to perform well. With the long term
strategic growth drivers of legacy material substitution,
legislative tailwinds in water management and carbon efficiency,
and development of selected export markets still strong, and a
balanced exposure to the different sectors within the UK
construction market, the group is confident of making further
progress.
Financial Review
Finance Costs
Net underlying finance costs for the six-month period ended 30
June 2017 of GBP3.4m were GBP0.6m lower than the prior year
primarily due to lower net debt as well as reduced interest rate
margins resulting from reduced leverage. Interest is payable on the
Group's revolving credit facility at LIBOR plus an interest rate
margin ranging from 1.25% to 2.75% depending on leverage. The
interest rate margin at 30 June 2017 was 1.75%.
In order to reduce exposure to future increases in interest
rates the Group has entered into interest rate swaps at fixed rates
ranging between 1.735% and 2.21% (excluding margin) with notional
amounts hedged ranging from GBP72.2m to GBP91.7m over the period of
the interest rate swaps. Details of these swaps are set out in Note
10 to these condensed set of consolidated financial statements.
The unrealised mark to market adjustment on these forward
interest rate swaps at 30 June 2017 was GBP3.3m adverse (31
December 2016: GBP4.2m adverse). The movement of GBP0.9m favourable
in the period is included in the Group Statement of Comprehensive
Income.
Taxation
The Group's tax charge for the six months ended 30 June 2017 was
GBP6.4m (2016: GBP5.9m). The underlying tax rate (underlying tax:
underlying profit before tax) has been provided at the estimated
full year rate of 19.4% (2016 full year: 19.6%). The UK standard
tax rate reduced from 20% to 19% on 1 April 2017, and therefore on
a simple time apportioned basis the UK standard tax rate for the
calendar year 2017 will be 19.25%, broadly in line with the Group's
underlying rate. The impact of our mainland European operations on
the Group's effective tax rate is not material.
Cash Flow and Net Debt
Cash generated from operations during the period amounted to
GBP21.1m (2016: GBP30.5m). This result includes a working capital
outflow of GBP26.1m (2016: GBP15.5m). A significant first half
working capital outflow is a standard feature of the Group's annual
working capital cycle and arises primarily as a result of the
timing of rebate settlements. The working capital outflow for the
current period is larger than the same period last year for two
reasons. Firstly, creditor outflows are GBP8.4m worse than prior
year and relate to differences in the timing of purchases in the
lead up to the half year, driven by merchant order pull forward in
both periods. Secondly, stock levels have increased by GBP6.0m in
the period compared to GBP2.4m in the prior year, which reflects
stock getting back to normal levels following strong pre price
increase demand in December 2016. Whilst the creditor issue is one
of timing only, the stock increase is likely to be permanent whilst
demand stays at current levels.
Capital expenditure of GBP11.3m (2016: GBP8.4m) is GBP3.2m
higher than depreciation and in line with management expectations
of GBP25.0m for the year. The large diameter continuous corrugator
project at our Horncastle site (which accounts for GBP2.2m in the
period) continues to make good progress and is planned to be
operational in the first half of 2018.
Net debt (including unamortised debt issue costs) at 30 June
2017 was GBP178.0m and is after the final dividend of GBP13.9m
(2016: GBP11.0m) and the working capital outflow and capital
expenditure noted above. Leverage at 2.0 times LTM EBITDA compares
to 2.3 times proforma LTM EBITDA at 30 June 2016 and 1.9 times LTM
EBITDA at 31 December 2016. The Group's working capital cycle means
cash generation is significantly stronger in the second half of the
year such that leverage will reduce in line with management
expectations for the year.
Dividend
The Board has declared an interim dividend of 3.6 pence per
share, a 16.1% increase on the 2016 interim dividend. This dividend
will be paid on 22 September 2017 to shareholders on the register
at the close of business on 25 August 2017.
Our dividend policy is to pay a minimum of 40% of the Group's
annual underlying profit after tax. The Directors intend that the
Group will pay the total annual dividend in two tranches, an
interim dividend and a final dividend, to be announced at the time
of announcement of the interim and preliminary results respectively
in the approximate proportions of one-third and two-thirds,
respectively.
Going Concern
The Group continues to meet its day-to-day working capital and
other funding requirements through a combination of long term
funding and cash deposits. The Group's bank financing facilities
consists of a GBP300.0m revolving credit facility of which GBP92.0m
was undrawn at 30 June 2017. Cash balances of a further GBP29.0m as
at 30 June 2017 gives total facility headroom of GBP121.0m.
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to continue its
operational existence for the foreseeable future and for a period
of at least twelve months from the date of this report.
Accordingly, the Board continues to adopt and consider appropriate
the going concern basis in preparing these condensed set of
consolidated financial statements.
Principal Risks and Uncertainties
The Board continually assesses and monitors the key risks of the
business and Polypipe has developed a risk management framework to
identify, report, and manage its principal risks and uncertainties.
The principal risks and uncertainties that could have a material
impact on the Group's performance and prospects, and the mitigating
activities which are aimed at reducing the impact or likelihood of
a major risk materialising, have not changed from those which are
set out in detail in the principal risks and uncertainties section
of our 2016 Annual Report and Accounts. The Directors believe that,
whilst not specifically noted, the potential impact of the EU
Referendum result is covered within these principal risks and
uncertainties.
These principal risks and uncertainties cover raw material
prices; business disruption; reliance on key customers; recruitment
and retention of key personnel; economic conditions; Government
action and policies; Government regulations and standards relating
to the manufacture and use of building materials; product
liability; information systems; acquisitions and financial risk
management (foreign currency exchange risk, credit risk, liquidity
risk and interest rate risk).
A copy of the 2016 Annual Report and Accounts is available on
the Company's website www.polypipe.com.
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' Responsibility Statement
We confirm that to the best of our knowledge:
-- The condensed set of consolidated financial statements has been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting, as adopted by the European Union; and
-- The Interim Management Report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have occurred
during the first six months of the financial year and their impact
on the condensed set of consolidated financial statements; and a
description of the principal risks and uncertainties for the
remaining six months of the financial year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last Annual Report and Accounts that
could do so.
This report was approved by the Board of Directors on 8 August
2017 and is available on the Company's website
www.polypipe.com.
The Directors of the Company are:
Ron Marsh Chairman
David Hall Chief Executive Officer
Martin Payne Chief Financial Officer
Paul Dean Non-executive Director and Senior Independent Director
Mark Hammond Non-executive Director
Moni Mannings Non-executive Director
By order of the Board:
D G Hall M K Payne
Chief Executive Officer Chief Financial Officer
INTERIM GROUP INCOME STATEMENT
for the six months ended 30 June 2017 (unaudited)
Notes Six months ended Six months ended
30 June 2017 30 June 2016
Underlying Non-Underlying* Total Underlying Non-Underlying* Total
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 3 242.0 - 242.0 223.3 - 223.3
Cost of sales (144.1) (1.2) (145.3) (129.8) - (129.8)
----------- ---------------- -------- ----------- ---------------- --------
Gross profit 97.9 (1.2) 96.7 93.5 - 93.5
Selling and
distribution
costs (37.9) - (37.9) (34.3) - (34.3)
Administration
expenses (21.1) - (21.1) (21.5) - (21.5)
-----------
Trading profit 38.9 (1.2) 37.7 37.7 - 37.7
Profit on disposal
of property,
plant and equipment - - - - 0.1 0.1
Amortisation
of intangible
assets - (2.8) (2.8) - (3.9) (3.9)
Operating profit 3 38.9 (4.0) 34.9 37.7 (3.8) 33.9
Finance costs 5 (3.4) - (3.4) (4.0) - (4.0)
----------- ---------------- -------- ----------- ---------------- --------
Profit before
tax 35.5 (4.0) 31.5 33.7 (3.8) 29.9
Income tax 6 (6.9) 0.5 (6.4) (6.6) 0.7 (5.9)
----------- ---------------- -------- ----------- ---------------- --------
Profit for
the period
attributable
to the owners
of the parent
company 28.6 (3.5) 25.1 27.1 (3.1) 24.0
=========== ================ ======== =========== ================ ========
Basic earnings
per share (pence) 7 12.7 12.0
======== ========
Diluted earnings
per share (pence) 7 12.5 12.0
======== ========
Dividend per
share (pence)
- interim 8 3.6 3.1
======== ========
* Non-underlying items are presented separately. Non-underlying
items are detailed in Note 4 to the condensed set of consolidated
financial statements.
INTERIM GROUP STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 June 2017 (unaudited)
Six months Six months
ended ended
30 June 30 June
2017 2016
GBPm GBPm
Profit for the period attributable
to the owners of the parent
company 25.1 24.0
----------- -----------
Other comprehensive income/(expense):
Items which will be reclassified
subsequently to the income
statement:
Exchange differences on translation
of foreign operations 0.3 1.9
Effective portion of changes
in fair value of interest
rate swaps 0.9 (3.3)
Tax relating to items that
will be reclassified to the
income statement (0.1) 0.6
----------- -----------
Other comprehensive income/(expense)
for the period net of tax 1.1 (0.8)
----------- -----------
Total comprehensive income
for the period attributable
to the owners of the parent
company 26.2 23.2
=========== ===========
INTERIM GROUP BALANCE SHEET
at 30 June 2017 (unaudited)
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
Non-current assets
Property, plant
and equipment 104.2 99.9 101.0
Intangible assets 368.8 374.6 371.6
--------- --------- ------------
Total non-current
assets 473.0 474.5 472.6
Current assets
Assets held for
sale 0.7 - 0.7
Inventories 58.3 51.0 52.2
Trade and other
receivables 59.2 51.9 40.1
Cash and cash equivalents 29.0 30.3 26.5
--------- --------- ------------
Total current assets 147.2 133.2 119.5
--------- --------- ------------
Total assets 620.2 607.7 592.1
========= ========= ============
Current liabilities
Trade and other
payables (93.1) (88.8) (91.8)
Other financial
liabilities (3.3) (6.1) (5.7)
Income tax payable (7.2) (7.0) (7.0)
--------- --------- ------------
Total current liabilities (103.6) (101.9) (104.5)
--------- --------- ------------
Non-current liabilities
Loans and borrowings (207.0) (221.6) (190.8)
Other liabilities (2.1) (2.0) (2.1)
Deferred income
tax liabilities (6.9) (8.7) (7.3)
--------- --------- ------------
Total non-current
liabilities (216.0) (232.3) (200.2)
Total liabilities (319.6) (334.2) (304.7)
--------- --------- ------------
Net assets 300.6 273.5 287.4
========= ========= ============
Capital and reserves
Equity share capital 0.2 0.2 0.2
Capital redemption
reserve 1.1 1.1 1.1
Treasury shares (4.6) (1.7) (4.6)
Hedging reserve (2.7) (4.4) (3.5)
Foreign currency
retranslation reserve 0.7 (0.6) 0.4
Retained earnings 305.9 278.9 293.8
--------- --------- ------------
Total equity 300.6 273.5 287.4
========= ========= ============
INTERIM GROUP STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 June 2017 (unaudited)
Foreign
Equity Capital currency
share redemption Treasury Hedging retranslation Retained Total
capital reserve shares reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Six months ended
30 June 2017
Opening balance 0.2 1.1 (4.6) (3.5) 0.4 293.8 287.4
---------- ------------- ----------- ---------- --------------- ----------- ---------
Profit for
the period - - - - - 25.1 25.1
Other comprehensive
income - - - 0.8 0.3 - 1.1
---------- ------------- ----------- ---------- --------------- ----------- ---------
Total comprehensive
income for
the period - - - 0.8 0.3 25.1 26.2
Dividends
paid - - - - - (13.9) (13.9)
Share-based
payments - - - - - 0.9 0.9
---------- ------------- ----------- ---------- --------------- ----------- ---------
Closing balance 0.2 1.1 (4.6) (2.7) 0.7 305.9 300.6
========== ============= =========== ========== =============== =========== =========
Six months ended
30 June 2016
Opening balance 0.2 1.1 (1.7) (1.7) (2.5) 265.6 261.0
---------- ------------- ----------- ---------- --------------- ----------- ---------
Profit for
the period - - - - - 24.0 24.0
Other comprehensive
(expense)/income - - - (2.7) 1.9 - (0.8)
---------- ------------- ----------- ---------- --------------- ----------- ---------
Total comprehensive
income for
the period - - - (2.7) 1.9 24.0 23.2
Dividends
paid - - - - - (11.0) (11.0)
Share-based
payments - - - - - 0.3 0.3
---------- ------------- ----------- ---------- --------------- ----------- ---------
Closing balance 0.2 1.1 (1.7) (4.4) (0.6) 278.9 273.5
========== ============= =========== ========== =============== =========== =========
INTERIM GROUP CASH FLOW STATEMENT
for the six months ended 30 June 2017 (unaudited)
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
Operating activities
Profit before tax 31.5 29.9 54.4
Net finance costs 3.4 4.0 7.6
----------- ----------- -------------
Operating profit 34.9 33.9 62.0
Non-cash items:
Profit on disposal
of property, plant
and equipment (0.1) (0.1) (0.3)
Non-underlying items:
- amortisation of intangible
assets 2.8 3.9 6.8
- provision for restructuring 1.2 - -
costs
- settlement of restructuring (0.3) - -
costs
- impairment of freehold
land and buildings - - 0.9
Depreciation 8.1 8.0 16.3
Share-based payments 0.6 0.3 1.0
----------- ----------- -------------
Operating cash flows
before movement in
working capital 47.2 46.0 86.7
Movement in working
capital:
Receivables (18.9) (20.3) (8.3)
Payables (1.2) 7.2 11.5
Inventories (6.0) (2.4) (3.4)
----------- ----------- -------------
Cash generated from
operations 21.1 30.5 86.5
Income tax paid (6.4) (4.3) (10.1)
----------- ----------- -------------
Net cash flows from
operating activities 14.7 26.2 76.4
----------- ----------- -------------
Investing activities
Proceeds from disposal
of property, plant
and equipment 0.2 0.2 0.4
Purchase of property,
plant and equipment (11.3) (8.4) (19.1)
----------- ----------- -------------
Net cash flows from
investing activities (11.1) (8.2) (18.7)
----------- ----------- -------------
Financing activities
Drawdown of bank loan 16.0 5.5 -
Repayment of bank loan - - (25.5)
Interest paid (3.2) (3.8) (7.3)
Dividends paid (13.9) (11.0) (17.1)
Purchase of own shares - - (2.9)
----------- ----------- -------------
Net cash flows from
financing activities (1.1) (9.3) (52.8)
----------- ----------- -------------
Net change in cash
and cash equivalents 2.5 8.7 4.9
Cash and cash equivalents
- opening balance 26.5 21.6 21.6
----------- ----------- -------------
Cash and cash equivalents
- closing balance 29.0 30.3 26.5
=========== =========== =============
NOTES TO THE INTERIM FINANCIAL STATEMENTS
for the six months ended 30 June 2017
1. Basis of preparation
Polypipe Group plc is incorporated in the UK. The condensed set
of consolidated financial statements have been prepared in
accordance with the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority and IAS 34, Interim Financial
Reporting, as adopted by the European Union.
As required by the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority, the condensed set of consolidated
financial statements have been prepared applying the accounting
policies and presentation that were applied in the preparation of
the Company's published consolidated financial statements for the
year ended 31 December 2016. These statements do not include all
the information required for full annual consolidated financial
statements and should be read in conjunction with the full Annual
Report and Accounts for the year ended 31 December 2016.
The comparative figures for the financial year ended 31 December
2016, where reported, are not the Company's statutory accounts for
that financial year. Those accounts have been reported on by the
Company's auditors and delivered to the Registrar of Companies. The
report of the auditors was (i) unqualified, (ii) did not include a
reference to any matters to which the auditors drew attention by
way of emphasis without qualifying their report, and (iii) did not
contain a statement under Section 498 (2) or (3) of the Companies
Act 2006.
There are no accounting standards or interpretations that have
become effective in the current reporting period which have had a
material effect on the net assets, results and disclosures of the
Group.
The following listing of standards and interpretations issued
are those that the Group reasonably expect to have an impact on
disclosures, financial position or performance; but which have an
effective date after the date of these consolidated financial
statements. The Group has not early adopted them and plans to adopt
them from the effective dates adopted by the European Union.
International Accounting Standards Effective
(IAS/IFRSs) date
------------------------------------------ ----------
IFRS 9 Financial Instruments: 1 January
Classification and Measurement 2018
-------- -------------------------------- ----------
IFRS 15 Revenue from Contracts 1 January
with Customers 2018
-------- -------------------------------- ----------
IFRS 16 Leases 1 January
2019
-------- -------------------------------- ----------
None of these standards or interpretations are expected to have
a material impact on the Group's consolidated financial statements
with the exception of IFRS 16, Leases. 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 for those with a very low value). 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. Whilst 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. Adoption of this standard is likely to result in
an increase in gross assets and gross liabilities in the balance
sheet, and finance costs being reclassified in the income
statement. Currently the Group does not have any finance leases but
does have operating leases. It is not practicable to provide a
reasonable financial estimate of the effect of these standards
until a detailed review has been completed.
The condensed set of consolidated financial statements are
prepared on a going concern basis. This is considered appropriate
given that the Company and its subsidiaries have adequate resources
to continue in operational existence for the foreseeable
future.
There have been no related party transactions in the period to
30 June 2017 apart from compensation of key management
personnel.
Two non-statutory measures have been used in preparing the
condensed set of consolidated financial statements:
-- Underlying profit and earnings measures exclude certain
non-underlying items which are provided in Note 4, 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.
-- LTM EBITDA is defined as underlying operating profit before
depreciation for the twelve months preceding the balance sheet
date.
2. Financial risks, estimates, assumptions and judgements
The preparation of the condensed set of consolidated financial
statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets and liabilities, income and
expenses. Actual results may differ from estimates.
In preparing these condensed set of consolidated financial
statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
consolidated financial statements as at and for the year ended 31
December 2016.
3. Segment information
The Group has three reporting segments - Residential Systems
(all UK by origin), Commercial and Infrastructure Systems - UK, and
Commercial and Infrastructure Systems - Mainland Europe. Several
operating segments that have similar economic characteristics have
been aggregated into these three reporting segments.
Six months ended Six months ended
30 June 2017 30 June 2016
-------------------------------- ------------------------------
Underlying Underlying
Revenue Result result Revenue Result result
GBPm GBPm GBPm GBPm GBPm GBPm
Residential Systems 115.0 22.6 22.9 105.4 21.6 21.5
Commercial and
Infrastructure
Systems - UK 97.7 13.6 14.5 92.7 15.2 15.2
Inter-segment
sales (7.0) (5.5)
---------- ------- ----------- -------- ------- -----------
UK operations 205.7 36.2 37.4 192.6 36.8 36.7
Commercial and
Infrastructure
Systems - Mainland
Europe 37.4 1.5 1.5 31.5 1.0 1.0
Inter-segment
sales (1.1) (0.8)
Non-underlying
Group items - (2.8) - - (3.9) -
---------- ------- ----------- -------- ------- -----------
Total - Group 242.0 34.9 38.9 223.3 33.9 37.7
========== ========
Net finance costs (3.4) (3.4) (4.0) (4.0)
Profit before
tax 31.5 35.5 29.9 33.7
======= =========== ======= ===========
Geographical analysis
Revenue by destination:
Six months Six months
ended ended
30 June 30 June
2017 2016
GBPm GBPm
UK 185.7 171.4
Rest of Europe 41.0 35.5
Rest of World 15.3 16.4
----------- -----------
Total - Group 242.0 223.3
=========== ===========
4. Non-underlying items
Non-underlying items comprised:
Six months Six months
ended ended 30 June
30 June 2017 2016
--------------------- ---------------------
Gross Tax Net Gross Tax Net
GBPm GBPm GBPm GBPm GBPm GBPm
Profit on disposal
of property, plant
and equipment - - - 0.1 - 0.1
Restructuring costs (1.2) - (1.2) - - -
Amortisation of intangible
assets (2.8) 0.5 (2.3) (3.9) 0.7 (3.2)
Total non-underlying
items (4.0) 0.5 (3.5) (3.8) 0.7 (3.1)
====== ===== ====== ====== ===== ======
Restructuring costs of GBP1.2m (2016: GBPnil) related to the
temporary cessation of production in our factory in the Middle East
of GBP0.9m and the consolidation of our ventilation business on to
one site of GBP0.3m.
5. Finance costs
Six months Six months
ended ended
30 June 30 June
2017 2016
GBPm GBPm
Interest on bank loan 2.8 3.5
Debt issue cost amortisation 0.2 0.2
Other finance costs 0.4 0.3
Finance costs 3.4 4.0
=========== ===========
6. Income tax
Tax has been provided on the profit before tax, at the estimated
effective rate for the full year of 20.3% (2016: 19.7%). Tax on
underlying profit before tax was 19.4% (2016: 19.6%).
7. Earnings per share
Basic earnings per share amounts are calculated by dividing
profit for the period attributable to the owners of the parent
company by the weighted average number of ordinary shares
outstanding during the period. The diluted earnings per share
amounts are calculated by dividing profit for the period
attributable to the owners of the parent company by the weighted
average number of ordinary shares outstanding during the period
plus the weighted average number of ordinary shares that would be
issued on the conversion of all the dilutive potential ordinary
shares into ordinary shares.
The calculation of basic and diluted earnings per share is based
on the following:
Six months Six months
ended ended
30 June 30 June
2017 2016
Weighted average number of
ordinary shares for the purpose
of basic earnings per share 198,287,022 199,273,278
Share options 2,196,051 831,665
-------------- --------------
Weighted average number of
ordinary shares for the purpose
of diluted earnings per share 200,483,073 200,104,943
============== ==============
Underlying earnings per share is based on the result for the
period after tax, excluding the impact of non-underlying items of
GBP3.5m (2016: GBP3.1m). 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:
Six Six
months months
ended ended
30 June 30 June
2017 2016
Underlying profit for the period
attributable to the owners of
the parent company (GBPm) 28.6 27.1
========= =========
Underlying basic earnings per
share (pence) 14.4 13.6
========= =========
Underlying diluted earnings per
share (pence) 14.3 13.5
========= =========
8. Dividends
The Directors have proposed an interim dividend for the current
year of GBP7.1m which equates to 3.6 pence per share.
9. Analysis of net debt
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
Cash and cash equivalents 29.0 30.3 26.5
-------- -------- ------------
Non-current loans
and borrowings:
- Bank loan (208.0) (223.0) (192.0)
- Unamortised debt
issue costs 1.0 1.4 1.2
-------- -------- ------------
(207.0) (221.6) (190.8)
-------- -------- ------------
Net debt (178.0) (191.3) (164.3)
======== ======== ============
10. Other financial liabilities
Fair values of financial assets and financial liabilities
The book value of trade and other receivables, trade and other
payables, cash balances, bank loan and other financial liabilities
equates to fair value.
30 June 2017 Carrying Fair value
value GBPm
GBPm
Interest rate swaps (3.3) (3.3)
========= ===========
30 June 2016 Carrying Fair value
value GBPm
GBPm
Forward foreign currency derivatives (0.7) (0.7)
Interest rate swaps (5.4) (5.4)
========= ===========
31 December 2016 Carrying Fair value
value GBPm
GBPm
Forward foreign currency derivatives (1.5) (1.5)
Interest rate swaps (4.2) (4.2)
========= ===========
The interest rate on the Group's GBP300m revolving credit
facility is variable, being payable at LIBOR plus a margin. To
reduce the Group's exposure to future increases in interest rates
the Group has entered into interest rate swaps for the following
notional amounts, with interest payable at a fixed rate return
dependant on the swap of either 2.21% or 1.735% (2016: 2.21% or
1.735%) (excluding margin):
Year ended 31 December Notional Notional
amount - amount -
rate of rate of 1.735%
2.21% GBPm
GBPm
2017 70.2 10.7
2018 66.6 25.1
2019 - 82.0
To August 2020 - 72.2
The fair value of the interest rate swaps were determined by
reference to market values.
Forward foreign currency exchange contracts fair value was
determined using quoted forward exchange rates matching the
maturities of the contracts.
Fair value hierarchy
The Group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
Level 1: quoted (unadjusted) prices in active markets for
identical assets or liabilities;
Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
The fair values disclosed above all relate to items categorised
as Level 2.
There have been no transfers in any direction in the period.
INDEPENDENT REVIEW REPORT TO
POLYPIPE GROUP PLC
Introduction
We have been engaged by the Company to review the condensed set
of consolidated financial statements in the interim financial
report for the six months ended 30 June 2017 which comprises the
Interim Group Income Statement, the Interim Group Statement of
Comprehensive Income, the Interim Group Balance Sheet, the Interim
Group Statement of Changes in Equity, the Interim Group Cash Flow
Statement and the related Notes 1 to 10. We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of consolidated financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland), Review of Interim Financial Information
Performed by the Independent Auditor of the Entity, issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The interim financial report is the responsibility of, and has
been approved by, the Directors. The Directors are responsible for
preparing the interim financial report in accordance with the
Disclosure Guidance and Transparency Rules of the UK's Financial
Conduct Authority.
As disclosed in Note 1, the annual consolidated financial
statements of the group are prepared in accordance with IFRSs as
adopted by the European Union. The condensed set of consolidated
financial statements included in this interim financial report has
been prepared in accordance with IAS 34, Interim Financial
Reporting, as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of consolidated financial statements in the
interim financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity, issued by the Auditing Practices Board for use in
the UK. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of consolidated
financial statements in the interim financial report for the six
months ended 30 June 2017 is not prepared, in all material
respects, in accordance with IAS 34 as adopted by the European
Union and the Disclosure Guidance and Transparency Rules of the
UK's Financial Conduct Authority.
Ernst & Young LLP
Leeds
8 August 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
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