Interim Results

Kingspan Group PLC 07 September 2004 Kingspan Group plc Kingspan Group plc announces half year results to 30th June 2004 Summary •Turnover up 15.5% to €439.4 million (H1 2003 : €380.3 million). •Profit before tax up 32.5% to €37.5 million (H1 2003 : €28.3 million). •Basic earnings per share before goodwill ('adjusted EPS') up 28% to 20.2 cent. •Interim dividend up 31% to 3.4 cent per share. •Net debt as a percentage of shareholders' funds of 40% at 30th June 2004 (49% at 31st December 2003). •Interest cover was 15.4 times before goodwill amortisation (13.2 times for the calendar year 2003). •Capital investment was €28.4 million in the period, mostly related to additional manufacturing capacity. Interim Statement Results The Directors of Kingspan Group plc are pleased to announce the results for the Group for the six months ended 30th June 2004. Profit before tax was €37.5 million, an increase 32.5% on the corresponding period last year, on turnover of €439.4 million, up 15.5%. Goodwill of €3.9 million has been amortised against profits in the period compared to €4.0 million in the corresponding period last year. Basic earnings per share before goodwill amortisation of 20.2 cent were up 28% compared to the same period last year. It is proposed that an interim dividend of 3.4 cent per share will be paid on 15th October 2004 to shareholders on the register at close of business on 17th September 2004. This represents an increase of 31% on the 2003 interim dividend. The interim dividend is covered 5.9 times by earnings before goodwill amortisation. Market conditions Kingspan businesses aim to remain market leaders in their main product categories, based on their reputation for design, quality, technical expertise and an ability to re-invent themselves to accommodate the requirements of an ever-changing construction environment. Kingspan products meet the specialist needs of architects, specifiers, developers and the PFI sector. Kingspan aims to provide a range of products that meet or exceed current regulations and where practicable, anticipate future changes to the regulations. It provides integrated solutions across a broad range of product categories that combine to increase efficiency by reducing on-site construction time, cost and problems. This continued focus on solutions in the area of thermal efficiency, fire ratings, speed of erection and structural and aesthetic quality resulted in very healthy growth for Kingspan in all its main geographic markets and across the full product range, except for access flooring in Europe. Sales by geographical market (Half 1 2004 versus Half 1 2003): Ireland + 18.5% Britain and Northern Ireland + 11.2% Mainland Europe + 30.2% United States of America + 33.6% Sales by product group (Half 1 2004 versus Half 1 2003): Insulated panels + 23.2% Raised access flooring - USA + 36.2% Raised access flooring - Europe - 26.8% Insulation products + 26.8% Environmental containers + 13.6% Building components + 6.4% Foreign exchange rates did not have a material impact on the translation of Group sales with the exception of raised access flooring in the USA where growth in local currency was 51%. Insulated panels Sales of insulated panels represented 37.5% of Group turnover in the period and, at €164.8 million, sales were up 23.2% in the period compared to the corresponding period last year. Kingspan continues to press ahead with its strategy of increasing the penetration of insulated panels in the cladding market in the UK. To help achieve this goal, the Group will have the benefit of even more stringent building regulations in 2006. This growth will be further assisted by the increased penetration of Kingspan products in market segments that are relatively new to Kingspan. We have ensured that manufacturing capacity has kept pace with demand and will have invested €14 million in the period 2003/2004. The Group is very satisfied with the progress being made in Central Europe which has gone from strength to strength from our initial investment there 6 years ago. Sales in this region now represent 18.6% of the Group's panel sales. Kingspan's brand recognition is improving and spreading through many of the new countries that have joined the EU this year and it is becoming evident to the Group that market shares can be achieved in these markets comparable to those achieved in other markets. To this end, Kingspan is further enhancing its presence in the region by establishing a new facility in Hungary. This involves an investment of €12 million and the new line will be commissioned in April 2005. Raised access flooring Sales of raised access flooring represented 13.8% of Group turnover in the period and, at €60.7 million, sales were down 5% in the period compared to the corresponding period last year. In Europe the market for raised access flooring which had shown sharp declines in the past two and a half years is showing some signs of stabilisation, particularly in the UK and Ireland. While new build can be expected to be slower to recover, the fit-out sector is looking more buoyant. As a result of the very competitive environment brought about by the steep decline in demand, two manufacturers exited the industry in the UK. Similar strains were evident in mainland Europe which is likely to result in significant rationalisation in that market. The market for raised access flooring in the USA was much more encouraging and sales increased by 51% from $23.7 million in the first half of 2003 to $35.9 million in the current period. There are signs that the marketing drive to promote the use of raised access flooring, in combination with under-floor air, is bringing positive results. One third of all projects being tracked have specified raised access flooring to handle their air distribution requirements as well as for cable management. Raw material inputs, specifically steel, in this market were subject to much more dramatic price increases than elsewhere in the Group. Because these increases came in rapid succession, it was difficult to avoid a time lag in passing them on into the marketplace. This resulted in margins being impacted negatively in the period. Nevertheless the market demonstrated its ability to absorb the price increases, albeit with a time lag, as is evidenced by the increased volumes achieved. Insulation products Sales of insulation products represented 21.3% of Group turnover in the period and, at €93.7 million,sales were up 26.8% in the period compared to the corresponding period last year. Kingspan is recognised for its exclusive range of high performance boards for the construction sector. Following the completion of the current extensive investment programme in manufacturing technologies, Kingspan is well placed to satisfy current demand. The next round of Building Regulations takes effect in 2006, and capacity planning for this is already in progress. The more stringent the regulations, the more efficient and cost effective Kingspan products become relative to competing products. Additionally, Kingspan manufactures a range of products targeted at HVAC process and industrial sectors specifically for pipe work and duct work. These solutions have been used successfully in applications where fibrous insulants are considered unsuitable, particularly in: Hospitals, hostels, schools, public buildings; Food, beverage, brewing, pharmaceuticals; Petrochemical and cryogenic industries. Structural and Off-Site Sales of structural and Off-Site products represented 11.4% of Group turnover in the period and, at €50.2 million, sales were up 6.4% in the period compared to the corresponding period last year. The structural products element of this business services a very mature market and it is for this reason that Kingspan set about adding the Off-Site dimension which is the fastest growing sector of the UK construction industry. The Group is investing to develop the business away from just being a supplier of components to a fragmented market, to being a key player in the Off-Site sector, working with all of the PFI participants in the areas of Education, Healthcare and Single Living Accommodation. The concept of alliances is increasingly fundamental to Kingspan's view as to how efficiency and quality in construction can be improved and made available to the client. Kingspan's unique Off-Site concept embraces this principle to a degree that gives real meaning to partnering the supply chain. The concept goes the whole way in developing long term alliances that include those involved in the process of delivering the product from identification of the clients' requirements to the fulfilment of those needs. Environmental containers Sales of environmental containers represented 15.9% of Group turnover in the period and were up 13.6% in the period, rising from €61.5 million in the same period last year to €69.9 million this year. Kingspan provides a wide range of high specification storage solutions designed to meet and exceed regulations which are being driven forward throughout Europe by environmental demands. The expected impact of these will be that bunding and telemetry will become a mandatory part of oil storage products. Kingspan's experience and innovation has led to the creation of market leading brands which in no small way has helped to drive the demand for these products. In this product area Kingspan continues to develop new environmentally friendly solutions that have found favour not only in its traditional markets of Western and Central European countries, but also in the Nordic region. Many of these new products are being produced in Poland which has a very efficient production facility. It is likely that capacity will be increased in 2005 to meet the anticipated demand for its products. In the area of pollution control, this business has well established products that lead the market in the UK and Ireland in packaged sewage treatment plants. The applications range from single house to leisure and certain types of commercial applications. This product range, like the high specification storage solutions, enjoyed strong growth in the period, helped by environmental legislation in the various markets. Operating Margins The operating margin before goodwill amortisation was 10.1% compared to 9.4% in the same period last year and 10.1% for the full year 2003. The gross margin in the period was 29.2%, and was in line with the first half of last year but down 0.4% compared with 2003 as a whole. The two main raw material inputs to Group products, steel and chemicals, have been subject to increases in the period and are likely to undergo further increases in the second half. As this is an industry wide issue it is not expected to have any negative impact on Kingspan's relative competitiveness. Taking into account some degree of time lag, and subsequent impact on gross margin, these increases will be passed into the marketplace. However it is unlikely that these price increases will be passed on with a profit margin. Balance Sheet and Cash Flow Review Net debt at 30th June 2004 was €116.2 million, compared to €120.8 million at 31st December 2003. This is after capital investment of €28.4 million in the period. Capital investment for the year is expected to be approximately €60 million. Continued focus on good working capital management and strong operational cash flow resulted in a strong balance sheet at the period end. Interest was covered 15.4 times by profits before goodwill amortisation in the period compared to 13.2 times for the calendar year2003. Balance sheet gearing, being the relationship of net debt to shareholders' funds, was 40% at 30th June 2004 compared to 49 % at 31st December 2003. Board Changes There are plans to strengthen the Board with the appointment of an additional two non-Executive directors. The Board would expect to be in a position to make these announcements in the near future. Outlook The macro environment in which Kingspan operates has improved during the course of the current reporting period. This should continue to assist the Group achieve good volume growth going forward. Additionally, there is ever increasing pressure on architects and specifiers to reduce CO2 emissions, which can be best achieved by designing energy efficient buildings. This will impact favourably on sales of Kingspan's insulated panels and products in the UK and Irish markets. Central Europe should continue to perform well for insulated panels, supported by continued investment in manufacturing capacity and marketing expenditure to further enhance the well established Kingspan brand. While the market for raised access flooring in Europe remains dull, we are encouraged by the continued progress in the USA. The environmental containers business continues to grow geographically and will benefit from stringent environmental legislation. Going forward, the completion of the capital and product development expenditure in the structural and Off-Site business is expected to enhance the Group's prospects in this sector. Even though the Group is operating in an environment where there is upward pressure on raw material prices, markets are reasonably buoyant and with the current momentum the Group expects to see a satisfactory outcome for the year as a whole. Further information, contact: Donnchadh O'Neill Murray Consultants 35 Upper Mount Street Dublin, 2 Ireland Tel: + 353 (0) 1 4980300 GROUP PROFIT AND LOSS ACCOUNT 6 months 6 months Year ended ended ended 30.6.04 30.6.03 31.12.03 (Unaudited) (Unaudited) (Audited) €'000 €'000 €'000 Turnover 439,387 380,286 783,894 Cost of sales (311,284) (268,981) (551,542) --------- --------- -------- Gross profit 128,103 111,305 232,352 Distribution costs (28,034) (23,539) (48,990) Administrative expenses (55,748) (51,999) (103,972) --------- --------- -------- Operating Profit before Goodwill Amortisation 44,321 35,767 79,390 Goodwill amortisation (3,899) (3,985) (7,933) --------- --------- -------- Group operating profit 40,422 31,782 71,457 Interest payable and similar charges (3,322) (3,992) (6,802) Interest receivable and other income 438 491 786 --------- --------- -------- Profit on ordinary activities before 37,538 28,281 65,441 taxation Tax on profit on ordinary activities (8,041) (6,102) (13,959) --------- --------- -------- Profit on ordinary activities after 29,497 22,179 51,482 taxation Minority interest 19 (86) (74) --------- --------- -------- Profit attributable to ordinary 29,516 22,093 51,408 shareholders Ordinary dividends (5,630) (4,288) (11,896) --------- --------- -------- Profit retained for the period 23,886 17,805 39,512 ========= ========= ======== € cent € cent € cent Basic earnings per share 17.8 13.4 31.2 Diluted earnings per share 17.5 13.4 30.9 Basic earnings per share (before 20.2 15.8 36.0 goodwill) Diluted earnings per share (before 19.8 15.8 35.7 goodwill) Dividend per share 3.4 2.6 7.2 Interest cover (net before goodwill) 15.37 10.22 13.20 Dividend cover (before goodwill) 5.9 6.1 5.0 GROUP BALANCE SHEET 30.6.04 30.6.03 31.12.03 (Unaudited) (Unaudited) (Audited) €'000 €'000 €'000 FIXED ASSETS Tangible assets 198,695 169,701 176,140 Intangible assets 124,205 131,084 122,487 Financial assets 38 49 49 --------- --------- -------- 322,938 300,834 298,676 --------- --------- -------- CURRENT ASSETS Stocks 72,030 63,816 61,708 Trade and other debtors 230,061 199,456 175,957 Cash and term deposits 56,365 33,358 55,746 --------- --------- -------- 358,456 296,630 293,411 --------- --------- -------- CREDITORS (Amounts falling due within one year) Trade and other creditors 188,861 157,478 139,613 Bank and other borrowings 22,820 15,586 46,298 Deferred consideration 85 215 85 Dividends 5,630 4,288 7,608 --------- --------- -------- 217,396 177,567 193,604 --------- --------- -------- NET CURRENT ASSETS 141,060 119,063 99,807 --------- --------- -------- TOTAL ASSETS LESS CURRENT LIABILITIES 463,998 419,897 398,483 --------- --------- -------- CREDITORS (Amounts falling due after more than one year) Bank and other borrowings 145,805 155,819 126,116 Deferred consideration 3,825 4,212 4,067 --------- --------- -------- 149,630 160,031 130,183 --------- --------- -------- PROVISIONS FOR LIABILITIES AND CHARGES 23,305 16,728 17,605 --------- --------- -------- CAPITAL GRANTS 987 1,048 999 --------- --------- -------- 290,076 242,090 249,696 ========= ========= ======== CAPITAL AND RESERVES Called-up share capital 21,734 21,649 21,711 Share premium account 19,179 18,214 18,761 Revaluation reserve 891 891 891 Profit and loss account 263,851 218,258 239,965 Other reserves (16,824) (18,852) (32,896) --------- --------- -------- Shareholders' funds 288,831 240,160 248,432 --------- --------- -------- MINORITY INTERESTS 1,245 1,930 1,264 --------- --------- -------- --------- --------- -------- 290,076 242,090 249,696 ========= ========= ======== GROUP CASH FLOW STATEMENT 6 months 6 months Year ended ended ended 30.6.04 30.6.03 31.12.03 (Unaudited) (Unaudited) (Audited) €'000 €'000 €'000 Net cash inflow from operating 49,377 26,743 75,698 activities Returns on investments and servicing (3,288) (3,161) (6,503) of finance Taxation (4,663) (5,888) (8,909) Capital expenditure and financial (26,360) (16,893) (36,316) investment Acquisitions and disposals (1,245) (7,560) (7,484) Equity dividends paid (7,608) (26,034) (30,322) --------- --------- -------- Cash inflow/(outflow) before use of liquid 6,213 (32,793) (13,836) resources and financing Management of liquid resources (1,225) 20,708 3,400 Financing (7,642) (1,775) 1,103 --------- --------- -------- (Decrease) in cash in the period (2,654) (13,860) (9,333) ========= ========= ======== RECONCILIATION OF NET CASH FLOW TO 6 months 6 months Year MOVEMENT IN NET DEBT ended ended ended 30.6.04 30.6.03 31.12.03 (Unaudited) (Unaudited) (Audited) €'000 €'000 €'000 (Decrease) in cash in the period (2,654) (13,860) (9,333) Increase/(decrease) in liquid 1,225 (20,708) (3,400) resources Cash flow from movement in debt, lease finance and deferred 8,583 2,333 (441) consideration --------- --------- -------- Change in net debt resulting from cash 7,154 (32,235) (13,174) flows Change in net debt resulting from - (872) (892) acquisitions --------- --------- -------- 7,154 (33,107) (14,066) Translation adjustment (2,504) 7,939 10,552 --------- --------- -------- Movement in net debt in the period 4,650 (25,168) (3,514) Net debt at start of period (120,820) (117,306) (117,306) --------- --------- -------- Net debt at end of period (116,170) (142,474) (120,820) ========= ========= ======== STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 6 months 6 months Year ended ended ended 30.6.04 30.6.03 31.12.03 (Unaudited) (Unaudited) (Audited) €'000 €'000 €'000 Profit for financial period attributable to Group 29,516 22,093 51,408 shareholders Exchange adjustments 16,072 (13,567) (27,611) --------- --------- -------- Total gains and losses recognised since last 45,588 8,526 23,797 annual report ========= ========= ======== SUPPLEMENTARY INFORMATION 1 BASIS OF PREPARATION The 2004 interim results and summarised balance sheet are presented in Euro. Results and cash flows of foreign subsidiary undertakings have been translated into Euro at the average exchange rates for the period, and the related balance sheets have been translated at the rates of exchange ruling at the balance sheet date. The interim financial information has been prepared in accordance with applicable accounting and financial reporting standards and the accounting policies used are consistent with those set out on pages 42 to 43 of the Annual Report for the year ended 31st December 2003. The interim results for the half year to 30th June 2004 and 30th June 2003 are unaudited. The comparative figures for the year ended 31st December 2003 represent an abbreviated version of the Group's full accounts for that year which have been filed with the Registrar of Companies and on which the auditors, Grant Thornton, have issued an unqualified audit report. These interim results are available on the Group's website (www.kingspan.com). A printed copy will be sent by post to all registered shareholders. Copies ay also be obtained from the Company's Registrars: Computershare Services (Ireland) Limited, Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18. 2 EARNINGS PER SHARE 6 months 6 months Year ended ended ended 30.6.04 30.6.03 31.12.03 (Unaudited) (Unaudited) (Audited) €'000 €'000 €'000 Profit attributable to ordinary 29,516 22,093 51,408 shareholders --------- --------- -------- Number of Number of Number of shares shares shares ('000) ('000) ('000) Weighted average number of ordinary shares for the calculation of basic earnings per share 165,444 164,844 164,984 Dilutive effect of share options 3,318 386 1,425 --------- --------- -------- Weighted average number of ordinary shares for the calculation of diluted earnings per share 168,762 165,230 166,409 --------- --------- -------- € cent € cent € cent Basic earnings per share 17.8 13.4 31.2 --------- --------- -------- Diluted earnings per share 17.5 13.4 30.9 --------- --------- -------- 3 DIVIDEND An interim dividend at the rate of 3.4c per ordinary share (2003: 2.6c) is payable on 15th October 2004 to shareholders on the register at the close of business on 17th September 2004 4 TURNOVER 6 months 6 months Year ended ended ended 30.6.04 30.6.03 31.12.03 (Unaudited) (Unaudited) (Audited) The analysis by class of activity is as follows: €'000 €'000 €'000 Insulated panels 164,820 133,742 292,530 Raised access floors 60,736 63,903 115,681 Insulation products 93,723 73,888 155,768 Environmental containers 69,867 61,521 128,413 Building components 50,241 47,232 91,502 --------- --------- -------- 439,387 380,286 783,894 ========= ========= ======== The analysis by geographical area is as follows: Republic of Ireland 60,836 51,334 105,799 Britain and Northern Ireland 274,684 246,925 494,743 Mainland Europe 68,421 52,567 126,410 United States of America 28,268 21,157 36,825 Other 7,178 8,303 20,117 --------- --------- -------- 439,387 380,286 783,894 ========= ========= ======== 5 RECONCILIATION OF MOVEMENTS IN 6 months 6 months Year SHAREHOLDERS' FUNDS ended ended ended 30.6.04 30.6.03 31.12.03 (Unaudited) (Unaudited) (Audited) €'000 €'000 €'000 Profit for the financial period attributable to 29,516 22,093 51,408 Group shareholders Dividends (5,630) (4,288) (11,896) --------- --------- -------- 23,886 17,805 39,512 Exchange adjustment 16,072 (13,567) (27,611) New share capital subscribed 441 18 627 --------- --------- -------- Net addition to shareholders' funds 40,399 4,256 12,528 Opening shareholders' funds 248,432 235,904 235,904 --------- --------- -------- Closing shareholders' funds 288,831 240,160 248,432 ========= ========= ======== 6 RECONCILIATION OF OPERATING PROFIT TO 6 months 6 months Year NET CASH FLOW FROM OPERATING ACTIVITIES ended ended ended 30.6.04 30.6.03 31.12.03 (Unaudited) (Unaudited) (Audited) €'000 €'000 €'000 Operating profit 40,422 31,782 71,457 Depreciation charge 11,710 10,863 21,511 Amortisation of intangible assets 4,135 4,225 8,407 Profit on sale of tangible assets (49) (581) (426) Profit on sale of investments (3) - - Government grants amortised (54) (60) (102) (Increase) in stocks (6,877) (3,211) (4,685) (Increase) in debtors (45,363) (34,884) (17,749) Increase/(Decrease) in creditors 45,456 18,609 (2,715) --------- --------- -------- Net cash flow from operating 49,377 26,743 75,698 activities ========= ========= ======== 7 INTANGIBLE ASSETS 6 months 6 months Year ended ended ended 30.6.04 30.6.03 31.12.03 Goodwill At start of period 120,058 139,714 139,714 On acquisitions 901 2,818 4,375 Translation adjustment 4,933 (10,134) (16,098) Amortised in period (3,899) (3,985) (7,933) --------- --------- -------- At end of period 121,993 128,413 120,058 ========= ========= ======== Patents At start of period 2,429 2,931 2,931 Translation adjustment 19 (20) (28) Amortised in period (236) (240) (474) --------- --------- -------- At end of period 2,212 2,671 2,429 ========= ========= ======== Total intangible assets At start of period 122,487 142,645 142,645 On acquisitions 901 2,818 4,375 Translation adjustment 4,952 (10,154) (16,126) Amortised in period (4,135) (4,225) (8,407) --------- --------- -------- At end of period 124,205 131,084 122,487 ========= ========= ======== This information is provided by RNS The company news service from the London Stock Exchange
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