Company Announcements

 KINGSPAN GROUP PLC

HALF-YEARLY FINANCIAL REPORT

for the period ended 30 June 2019

KINGSPAN GROUP PLC

RESULTS FOR THE HALF YEAR 30 JUNE 2019

Kingspan, the global leader in high performance insulation and building envelope solutions, issues its half-yearly financial report for the six-month period ended 30 June 2019.

Financial Highlights:

·    Revenue up 12% to €2.2bn, (pre-currency, up 11%).

·    Trading profit up 18% to €230.4m, (pre-currency, up 17%). 

·    Group trading margin of 10.3%, an increase of 60bps versus the same period in 2018.

·    Acquisitions contributed 8% to sales growth and 8% to trading profit growth in the period.

·     Net debt of €734.3m (H1 2018: €739.4m). Net debt to EBITDA of 1.31x (H1 2018: 1.59x).

·     Basic EPS up 16% to 93.8 cent (H1 2018: 80.7 cent).

·    Strong free cashflow of €80.6m (H1 2018: €38.4m).

·     Interim dividend per share up 8% to 13.0 cent (H1 2018: 12.0 cent).

·     ROCE of 17.1% (H1 2018: 15.6%).

Operational Highlights:

·  Insulated Panels sales growth of 14%. Solid performance in the UK, strong performance in the Americas and Ireland with Mainland Europe performing well overall. Subdued activity in the Middle East.

·    Insulation Boards sales growth of 5%. Strong volume growth offsetting the impact of reduced selling prices due to lower raw material costs. Robust Kooltherm^® activity in key markets as well as share gain from traditional materials.

·    Light & Air sales growth of 11% boosted by a strong performance in the US. Industry leading facility opened in Lyon in France to serve the wider region.

·    Water & Energy sales growth of 7% reflecting an acquisition in the Nordic region in the second half of 2018. Softer rainwater harvesting activity in Australia.

·    Data & Flooring sales growth of 17% with strong data centre activity.

·    All acquisitions made in previous year performing to plan.

·  Organic capacity expansion underway. Notable projects include new Insulated Panel plants under construction in California and Brazil as well as a Kooltherm^® facility in Sweden.

Summary Financials:

*Operating profit before amortisation of intangibles

** Operating profit before amortisation of intangibles divided by total revenue

Gene Murtagh, Chief Executive of Kingspan commented:

"We have delivered a record first half with revenue growth in all our business units and a strong trading profit performance. We continue to expand our global production footprint with new facilities under construction in the US, Brazil and Sweden. The near-term outlook is solid although the political uncertainty in the UK, weakness in sterling, and weaker German economy are amongst risks we are monitoring closely.

Alongside today's results, we are also announcing a series of sustainability targets under our Planet Passionate Programme, which builds on the Net Zero Energy journey we started in 2011. Seismic transformations are required to address the growing issue of climate change, and we are committed to delivering on the challenging targets we have set ourselves."

For further information contact:

Business Review

The first half of 2019 proved to be a strong period for Kingspan with both revenue and trading profit reaching records of €2,243m and €230m, growth of 12% and 18% respectively. Total investment in the period was €74.5m predominantly comprising expenditure around capacity expansion.

Trading was generally positive across most of Continental Europe, with the exception of Germany which was a little weaker. The UK performed robustly for us although weakness can be expected in the near-term, and activity in the Americas was encouraging once again as penetration growth continues in North America with solid organic expansion in Latin America.

By product group, Insulated Panels global sales were ahead by 14% and QuadCore™ volume was up 42% from the same period last year. Insulation Boards volumes were significantly ahead as advanced insulation continued to regain share from traditional fibrous materials following a temporary interruption due to raw material volatility in 2017 and early 2018. Light & Air achieved growth of 11% and was particularly strong in North America. Underlying Water & Energy revenue was broadly flat, hampered partly by softer demand for residential rainwater systems in Australia. Data & Flooring had a strong outcome driven by our continued progress in our data solutions in both the Americas and Europe.

Planet Passionate: Our 2030 commitments

Back in 2011 we embarked on our Net Zero Energy mission with the then stated ambition of achieving 50% by 2016 and 100% by 2020. This programme is a success and we are on schedule to achieve our 2020 goal. Climate Change evidence is now undeniable and at Kingspan we are intensifying our efforts to play our part in delivering against the Sustainable Development Goals. We have set the following internal targets for the coming decade which is certain to be a seismic transformation in how we all address this growing issue.

Just as Net Zero Energy was a challenge ten years ago, delivering on these goals will be challenging but is core to what we plan to achieve in the next ten years.

Insulated Panels

(1)   Comprising underlying +3%, currency impact +1% and acquisitions +10%

The first half has been positive for the Insulated Panels business, with particularly strong outcomes in both France and Spain. The momentum in conversion from traditional systems in France has continued and as Spain continues its wider recovery so too has our business. The 2018 Synthesia acquisition in that region has performed excellently, bolstered by significant manufacturing and raw material synergies. In contrast, Germany has been somewhat weaker for Kingspan and we anticipate this trend continuing for the foreseeable future. More broadly, central Europe performed solidly, as did the Nordics, and the 2018 Balex acquisition in Poland has integrated well and is operating fully to plan. Overall, QuadCore™ represented 8% of insulated panels sales revenue in the period.

The backdrop in the UK has been predictably negative, yet despite this our volumes were only marginally down. Whilst the project pipeline in the region looks reasonably encouraging, we remain cautious given the political uncertainty that has heightened in recent weeks.

Progress has been good in the Americas where conversion and penetration growth continued in North America, and where the near-term project pipeline remains strong. Three facilities are now QuadCore™ enabled and the specification effort has started in earnest. In Brazil, our business has performed well in an economic environment that remains challenging despite the change in political leadership last year. Our focus is on conversion from traditional building methods in a region that remarkably still includes asbestos as an option.

In Australia and New Zealand, the business has performed better than prior year and in the Middle East the competitive environment remains a challenge.

To facilitate further organic expansion a new plant in Modesto California is nearing completion, plans are being finalised for a new 2021 facility in Pennsylvania and a new facility in Cambuí Brazil will be operational by the fourth quarter this year.

Insulation Boards

(1)   Comprising currency impact +1% and acquisitions +4%

Overall, the Insulation Boards segment performed exceptionally well during the first half with strong volume growth right across Mainland Europe and Ireland, and a solid outcome in the UK. Margins reached an all-time high benefiting from strong pricing in a deflationary raw material environment. This aspect of the business' performance is not sustainable and is expected to gradually unwind through the latter part of 2019 and into 2020.

As PIR board regained its competitiveness over the last 12 months, volumes have consistently taken share from traditional fibrous material, particularly in Continental Europe. In the UK, first quarter volumes were exceptionally strong, although this trend is expected to turn through the second half as we prioritise margin over volume. Sales in the Nordics improved marginally despite an increasingly challenging economic environment in Sweden. In the Middle East, the business is benefitting from the growing transition to Kooltherm^® based ducting as well as a growing presence in the building insulation market in the region.

Activity in North America improved over the same period last year with growing XPS sales and a better performance for Kooltherm^®. In Australia the resolute focus on Kooltherm^® conversion from PIR has delivered an improvement in volume in recent times.

Industrial Insulation performed well in the period as our new generation Kooltherm^® pipe facility in the UK enabled volume growth against the traditional mineral fibre based alternatives. In Ireland, the Insulated Timberframe business unit experienced rapid growth in output and orderbook as this type of building methodology grows in popularity against traditional block-based construction.

Regarding capacity expansion, a new UK based XPS plant is now operational, as is a new Kooltherm^® ducting line in the UAE, and significant progress has been made on the construction of a greenfield Kooltherm^® plant in Sweden due for production mid 2020. In Ireland we have recently commissioned a new Timberframe production facility that increases capacity by a further 50%.

Light & Air 

(1)   Comprising underlying +6%, currency impact +1% and acquisitions +4%

This segment achieved encouraging growth over prior year, driven in the main by the performance in North America which experienced a significant improvement on the West Coast as well as a notable advancement in the higher value Engineered Systems product set. First half order intake and the order bank indicate this trend should continue through the remainder of the year.

In Europe, France has performed solidly supported by our new facility in Lyon, whilst Germany has been somewhat weaker, and the Benelux has been stable with a strong order bank which should deliver an improved second half.

In Ireland, the polycarbonate extrusion line is operating well and will be the subject of further and ongoing expansion through 2020 and 2021.

Water & Energy

(1)   Comprising underlying -1% and acquisitions +8%

Activity across this segment has been somewhat mixed, yet steady on the whole. Underlying revenue was broadly flat with Continental Europe and the Nordics showing some improvement. Much of our Mainland European volume is sourced from our Polish facility and as we expand deeper into the Benelux and France we will examine options for production closer to those markets.

In the UK, the performance was stable and in Australia the environment has been more challenging as the residential end market in New South Wales contracted further.

Data & Flooring

(1)   Comprising underlying +13% and currency impact +4%

This segment delivered an excellent performance during the first half by growing revenues, and margins, and continuing to expand its advanced product offering and global reach.

Geographically, the North American market had a particularly strong performance largely as a result of the continuing growth of our data solutions and despite a relatively challenging office end market. In the UK, the market has been predictably weaker, and in Australia the first half performance delivered satisfactory growth over prior year.

The data solutions product set now represents over 50% of global revenue and is further bolstered by the recent acquisition of WeGo in Germany which, in conjunction with our existing Belgian unit, will advance our presence across the continent. The data solutions project pipeline is strong and should support the continuing growth of this offering through the second half and into 2020.

Financial Review

Overview of results

Group revenue increased by 12% to €2,243.1m (H1 2018: €2,009.9m) and trading profit increased by 18% to €230.4m (H1 2018: €195.3m). This represents an 11% increase in sales and a 17% increase in trading profit on a constant currency basis. The Group's trading margin increased by 60bps to 10.3% (H1 2018: 9.7%) primarily reflecting the divisional mix of earnings and the impact of lower raw material prices year on year. The amortisation charge in respect of intangibles was €11.0m compared to €9.0m in the first half of 2018 with the increase reflecting the effect of intangible assets acquired as part of business acquisition activity during 2018. Group operating profit after amortisation grew 18% to €219.4m (H1 2018: €186.3m). Profit after tax was €173.2m compared to €146.7m in the first half of 2018, driven in the main by the growth in trading profit. Basic EPS for the period was 93.8 cent, representing an increase of 16% on the first half of 2018 (H1 2018: 80.7 cent).

The Group's underlying sales and trading profit performance by division is set out below:

The Group's trading profit measure is earnings before interest, tax and amortisation of intangibles:

IFRS 16 Leases

A new accounting standard, IFRS 16 Leases, was adopted with effect from 1 January 2019. The standard requires leases which were previously treated as operating leases to be recognised as a lease liability with the associated asset capitalised and treated as a right of use asset. On 1 January 2019 €127.9m of leases were recognised as liabilities on adoption of the standard and €128.8m capitalised as right of use assets. In the first half of 2019 depreciation on the right of use assets was €15.0m and operating lease rentals decreased by €16.2m leading to an increase in operating profit of €1.2m. The interest charge on the associated leases was €1.8m and the aggregate impact of IFRS 16 on profit before tax was a decrease of €0.6m.

Finance costs (net)

Finance costs for the period were higher than the same period last year at €10.5m (H1 2018: €8.7m). As referred to above, IFRS 16 Leases was adopted from 1 January 2019 and an amount of €1.8m was recorded (H1 2018: nil) in associated lease interest. Finance costs include a non-cash charge of €0.1m (H1 2018: €0.1m) relating to the Group's legacy defined benefit pension schemes. A net non-cash charge of €0.3m was recorded in respect of swaps on the Group's USD private placement notes (H1 2018: credit of €0.6m). The Group's net interest expense on borrowings (bank and loan notes) in the first half of 2019 was €8.2m compared to €8.9m in the same period in 2018. The decreased net interest charge reflects interest earned on higher average cash balances.

Free cashflow

*Earnings before finance costs, income taxes, depreciation, amortisation and IFRS 16 adjustments  

**Excludes working capital on acquisition but includes working capital movements since that point

Working capital at 30 June 2019 was €617.4m (31 December 2018: €543.9m), an increase of €73.5m in the period. This increase is driven by the typical seasonal build in the first half of the year. The average working capital to sales percentage was 13.1% compared with 13.8% in H1 2018, reflecting, in the main, a targeted structural improvement in accounts payable days. The annualised sales in the last three months is used to calculate this metric reflecting the seasonal profile of the Group.

Net Debt

Net debt increased by €6m during the first half of the year to €734.3m (31 December 2018: €728.3m). The movement in debt is analysed in the table below:

*Adjustment reflects the inclusion of deferred consideration in prior period net debt, which was settled in cash in April 2019

Retirement benefits

The primary method of pension provision for current employees is by way of defined contribution arrangements. The Group has two legacy defined benefit schemes in the UK which are closed to new members and to future accrual. In addition, the Group assumed a number of defined benefit pension liabilities in Mainland Europe through acquisitions completed in recent years. The net pension liability in respect of these schemes and obligations was €12.8m at 30 June 2019 (30 June 2018: €13.9m).

Taxation

The tax charge for the first half of the year was €35.7m (H1 2018: €30.9m) which represents an effective tax rate of 17.1% on profit before tax (H1 2018: 17.4%). The decrease in the effective rate reflects the global mix of earnings year on year and rate reductions in certain territories.

Acquisitions

There were no material acquisitions during the period. The deferred consideration paid during the period of €59.7m represents €30m relating to the Synthesia business which was acquired in 2018 and €29.7m relating to the Isoeste business which was acquired in 2017 (2018: €nil).

During the first half of 2018 the Group made a number of acquisitions for a total consideration of €265m. The main components consisted of the Synthesia Group (€242.6m) and Vestfold Plastindustri AS (€12.3m).

Capital structure and Group financing

The Group funds itself through a combination of equity and debt. Debt is funded through a combination of syndicated bank facilities and private placement loan notes. The principal syndicated facility is a revolving credit facility of €451m with a committed term to June 2022. There was €20m drawn on this facility at period end. The Group arranged an additional revolving credit facility of €300m in June 2019 with a committed term to June 2021. This facility was undrawn at period end.

In addition, as part of the Group's longer-term capital structure, the Group has total private placement loan notes of €839m (H1 2018: €833m) which have a weighted average maturity of 5 years (H1 2018: 6 years).

The weighted average maturity of all debt facilities is 4.8 years (H1 2018: 5.8 years).

As well as ongoing free cashflow generation, the Group has significant available undrawn facilities and cash which provide appropriate headroom for operational requirements and development funding. Total available headroom was €888.6m at 30 June 2019 (H1 2018: €671m).

Related party transactions

There were no changes in related party transactions from the 2018 Annual Report that could have a material impact on the financial position or performance of the Group in the first half of the year.

Principal risks & uncertainties

Details of the principal risks and uncertainties facing the Group can be found in the 2018 Annual Report. These risks, namely volatility in the macro environment, failure to innovate, product failure, business interruption (including IT continuity), credit risks and credit control, employee development and retention, fraud and cybercrime and acquisition and integration of new businesses, remain the most likely to affect the Group in the second half of the current year. The Group actively manages these and all other risks through its control and risk management processes.

Dividend

The Board has proposed an interim dividend of 13.0 cent per ordinary share, an increase of 8% on the 2018 interim dividend of 12.0 cent per share. The interim dividend will be paid on 4 October 2019 to shareholders on the register on the record date of 6 September 2019.

Looking Ahead

Orders on hand are presently at decent levels and intake patterns through the early part of the second half have been broadly solid.

In assessing our prospects for the remaining part of the year we are mindful of a number of factors. In the UK, the environment remains highly uncertain and this is likely to persist for some time. In Europe, the trading environment in Germany is tough with no near term sign of that changing. Furthermore, the second half of the year has a steeper comparative overall exacerbated by the impact of a weaker Sterling exchange rate on translation.

That said, our business is in good shape and the quality of our proposition, the diversity of our end markets and a world that is ever embracing energy efficient methods of construction positions Kingspan well for the years ahead.

2019 Statement of Directors Responsibilities

for the 6 month period ended 30 June 2019

The Directors are responsible for preparing the half-yearly financial report in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, as amended, (the "Transparency Regulations") and the Transparency Rules of the Central Bank of Ireland.

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The Directors confirm that to the best of their knowledge:

1)   the condensed set of consolidated financial statements included within the half-yearly financial report of Kingspan Group Plc for the six months ended 30 June 2019 (the "interim financial information") which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows and the related explanatory notes, have been presented and prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU, the Transparency Directive and Transparency Rules of the Central Bank of Ireland;

2)   the interim financial information presented, as required by the Transparency Regulations, includes:

a.  a fair review of the important events that have occurred during the first 6 months of the financial year, and their impact on the condensed set of consolidated financial statements;

b.  a description of the principal risks and uncertainties for the remaining 6 months of the financial year;

c.  a fair review of related parties' transactions that have taken place in the first 6 months of the current financial year and that have materially affected the financial position or the performance of the enterprise during that period; and

d.  any changes in the related parties' transactions described in the last annual report that could have a material effect on the financial position or performance of the enterprise in the first 6 months of the current financial year.

On behalf of the Board

Independent Review Report to Kingspan Group plc

Introduction

We have been engaged by Kingspan Group plc ("the Company") to review the condensed set of consolidated financial statements in the half-yearly financial report for the six months ended 30 June 2019, which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows and the related explanatory notes. Our review was conducted having regard to the Financial Reporting Council's International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity'.

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 half-yearly financial report for the six months ended 30 June 2019 is not prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU, the Transparency (Directive 2004/109/EC) (Amendment) Regulations 2007 ("Transparency Directive") and the Transparency Rules of the Central Bank of Ireland.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Transparency Directive and the Transparency Rules of the Central Bank of Ireland. The annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for ensuring that the condensed set of consolidated financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of consolidated financial statements in the half-yearly financial report based on our review.

Scope of review 

We conducted our review having regard to the Financial Reporting Council's International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity.  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 (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. 

We read the other information contained in the half-yearly financial report to identify material inconsistencies with the information in the condensed set of consolidated financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the review. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

The purpose of our review work and to whom we owe our responsibilities

This report is made to the Company and its directors in accordance with the terms of our engagement to assist the Company and the directors in meeting the requirements of the Transparency Directive and the Transparency Rules of the Central Bank of Ireland. Our review has been undertaken so that we might state to the Company and the directors those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the directors for our review work, for this report, or for the conclusions we have reached.

KPMG                                                                                                            23 August 2019

Chartered Accountants

1 Stokes Place

St. Stephen's Green

Dublin 2

Kingspan Group plc

Condensed consolidated income statement (unaudited)

for the 6 month period ended 30 June 2019