RPC Group PLC - Half year results

RPC Group Plc, a leading global plastic products design and engineering company, announces its half year results for the six months ended 30 September 2018.

 

Financial highlights1:

 

·   Revenue growth of 7% to £1,892m reflecting continued organic growth of 3.2%, the contribution from acquisitions, pass-through of higher polymer prices partially offset by foreign exchange movements

·   Adjusted operating profit increase of 3% to £214.3m demonstrating good organic profit growth despite polymer headwind

·     Statutory profit after tax, from continuing operations of £119.1m up 1%, with a 2% improvement in statutory basic EPS to 28.9p

·     Robust adjusted operating cash conversion achieving 89% whilst investing in growth projects  

·     Interim dividend of 8.1p up 4% representing the 26th year of consecutive growth

 

Strategic highlights:

 

·     Significant organic growth in China and US due to higher added value products

·    Investment in the Group's sustainability proposition with the acquisition of UK based recycler PLASgran positioning RPC as one of Europe's leading recyclers

·     Selective consolidation of European markets continued with the Nordfolien acquisition

·   Finalised the disposal of Letica Foodservice whilst continuing with the disposal of the other non-core businesses

·   Returned £99m to shareholders through dividend payments and the completion of the inaugural share buyback scheme

 

Pim Vervaat, Chief Executive, said:

 

"I am pleased with the trading performance over the last six months. We achieved good profitable organic growth with a robust cash flow performance whilst investing for future higher added value growth. I am excited by the many opportunities to further develop both organically and through acquisitions. With RPC's unique global network of design and engineering centres, the Group is well placed to benefit from the development opportunities driven by globalisation and recent sustainability and e-commerce trends. Looking ahead we continue to target through the cycle organic growth ahead of GDP."

1 For continuing operations only

 

 

6 months to September 2018

6 months to September 2017

Increase / (decrease)

 

Increase / (decrease)

(constant

currency)

Key Financial Highlights

from continuing operations

 

 

 

 

Revenue (£m) 2

1,892

1,770

7%

7%

Adjusted EBITDA (£m)1, 2

299.3

287.3

4%

5%

Adjusted operating profit (£m)1, 2

214.3

208.7

3%

3%

Return on sales1, 2

11.3%

11.8%

(50)bps

(50)bps

Adjusted profit before tax (£m)1, 2

188.9

193.5

(2)%

(2)%

Adjusted basic earnings per share1, 2

35.4p

35.0p

1%

2%

Free cash flow (£m) 1, 2

142.9

166.8

(14)%

 

RONOA1, 2

26.8%

28.1%

(130)bps

 

ROCE1, 2

14.7%

15.3%

(60)bps

 

 

 

 

 

 

Statutory

 

 

 

 

Operating profit (£m) 2

184.3

177.5

4%

 

Profit before tax (£m) 2

154.4

161.7

(5)%

 

Profit after tax (£m) 2

119.1

117.6

1%

 

Net cash flows from operating activities (£m)

214.6

245.4

(13)%

 

Basic earnings per share from continuing operations 2

 

28.9p

 

28.4p

 

2%

 

Interim dividend per share

8.1p

7.8p

4%

 

INTERIM MANAGEMENT REPORT

Results Summary

The Group's results in the first half of the year showed another successful period. The Vision 2020: Focused Growth Strategy continued to deliver, with the Group being well placed for future growth. The recent acquisitions of PLASgran and Nordfolien have added two sustainability focused businesses to the Group and ensures the Group remains well placed to benefit from the current focus on sustainability.

Revenues in the first half of the year grew by 7% to £1,892m, with strong growth in both packaging and non-packaging segments leading to organic growth of 3.2%. At constant exchange rates, reported revenues also grew by 7%.

Group operating profitability levels, both before and after adjusting items, increased compared with the prior period due to the contribution of acquisitions, the realisation of synergies and organic growth, offset by a foreign exchange translation loss and an adverse polymer price pass-through time lag. Adjusted EBITDA grew 4% to £299.3m and adjusted operating profit increased 3% to £214.3m. At constant exchange rates, adjusted EBITDA and adjusted operating profit grew by 5% and 3% respectively, while return on sales declined 50 basis points (bps) to 11.3% or 50 bps on a constant currency basis primarily due to higher polymer prices. Once these are added back return on sales remains constant at 11.8%.

RONOA (return on net operating assets) was 26.8% and ROCE (return on capital employed) at 14.7%, remains well ahead of the Group's weighted average cost of capital having been impacted by both foreign exchange translation losses and polymer price pass-through lag. Restating for these losses, ROCE would have been 15.2%, in line with the prior period and above the year end. RONOA would have been 27.8%, also an improvement from the year end at 27.2%. Adjusting items were lower than last year at £30.0m (2017: £31.2m), reflecting the completion of the acquisition integration programmes. Statutory profit before tax declined 5% compared with the prior period due to increases in net finance costs resulting from increased net debt, as well as LIBOR and margin increases.

The Group continues to invest in future growth and capital expenditure was £103.5m (2017: £109.1m) in the period of which c.50% was spent on growth projects. The Group's cash flow continues to develop and cash generated from operations was £262.8m. This is slightly down from last year's £285.9m due to the seasonal working capital inflow from some businesses being offset by growth investment in other areas. This working capital outflow, combined with interest and tax payments being higher than last year, has resulted in free cash flow being lower than prior period at £142.9m (2017: £166.8m). Adjusted cash conversion remains strong at 89% (2017: 99%). Working capital as a percentage of sales at 6.5% was in-line with the year end result. The Group retains a strong balance sheet with net debt of £1,181m (March 2018: £1,139m) representing a pro forma 2.0x EBITDA multiple, in line with March 2018. Total finance facilities of £2,137m were available as at 30 September 2018.

Balance sheet

During the period, property, plant and equipment increased by £25.3m and included fixed asset additions of £113.3m and acquisitions of £39.8m, offset by the transfer of assets to Assets held for sale as part of the discontinued operations disclosure and depreciation.

Goodwill increased by £43.2m mainly due to exchange rate movements, with the additions from acquisitions being offset by an impairment of the assets classed as held for sale.

Also included within non-current assets are:

·     Derivative financial instruments of £17.9m (March 2018: £7.2m) which largely comprise the mark-to-market value of euro currency swaps taken out in 2011 to hedge the US dollar borrowings from the US Private Placement (USPP).

·     Deferred tax of £106.5m (March 2018: £108.9m) as discussed below.

·   Other intangible assets of £316.3m (March 2018: £324.2m). These decreased by a net £7.9m and comprise mainly customer relationships, technology and brands capitalised on acquisition and new product development expenditure, net of amortisation charges.          

Working capital (the sum of inventories, trade and other receivables and trade and other payables) was £248.7m, which was 6.5% of pro forma revenue compared with £239.7m at March 2018, which represented 6.4% of pro forma revenue.

The long-term employee benefit liabilities improved from £196.9m to £166.6m, mainly due to net actuarial gains of £23.7m as a result of strong asset returns and updated discount rate assumptions.

Total provisions and other liabilities decreased to £40.3m (March 2018: £53.3m) due to utilisation of provisions of £16.3m including out of market contract provisions from acquired businesses (£5.3m),  termination and restructuring provisions (£3.2m) and other environmental and legal provisions (£7.8m). In addition, a £4.8m out of contract provision for the Hefei site was released to adjusting items following improvements in production at this growing site. Out of market contract provisions are generally utilised within 12 months of the acquisition date.

Total provision for deferred and contingent consideration relating primarily to Ace and Letica remained at similar levels at £38.4m (March 2018: £37.3m), with the Letica element of $7.5m being paid in October 2018.

Net assets held for sale of £27.0m as at 30 September 2018 primarily relate to the net assets of Group's discontinued businesses that are actively being marketed for sale and hence are treated as current assets. Proceeds from the Manuplastics building sale were received in the period.

The net current tax liability increased to £82.8m (March 2018: £50.9m) as a result of current period tax charges on profits which includes a one off charge arising on the disposal of the Letica Foodservice business. This was offset by payments made to tax authorities in the period. Included in the current tax liabilities are uncertain tax provisions, which although individually are not material in amount, represent a number of tax risks across a variety of jurisdictions including liabilities inherited on recent acquisitions. There has been no material movement in uncertain tax provisions in the period to 30 September 2018.

The Group had a net deferred tax liability of £108.6m (March 2018: £110.2m). Deferred tax assets of £106.5m (March 2018: £108.9m) represent the future tax benefit from settling net pension liabilities and the recognition of tax losses which are expected to offset tax due on future income streams. The deferred tax liabilities of £215.1m (March 2018: £219.1m) relate in the main to fixed asset and intangible asset temporary differences.

Equity shareholder funds increased by £56.8m in the period, with statutory net profit attributable to equity shareholders for the period of £89.8m, favourable foreign currency translation movements, pension related net actuarial gains, share-based payments from employee share schemes and share issues being offset by dividends paid of £81.8m, share repurchase of £17.0m, and unfavourable net fair value movements on derivatives used for hedging. Further details are shown in the Consolidated statement of changes in equity which is included in the financial statements.

Outlook

The Group had an encouraging trading performance over the last six months. We achieved good profitable organic growth with a robust cash flow performance whilst investing for future higher added value growth. There are many opportunities to further develop both organically and through acquisitions. With RPC's unique global network of design and engineering centres, the Group is well placed to benefit from the development opportunities driven by globalisation and recent sustainability and e-commerce trends. Looking ahead we continue to target through the cycle organic growth ahead of GDP.