Half Yearly Report

RNS Number : 1259I

Plastics Capital PLC

07 December 2015

 

Plastics Capital plc

("Plastics Capital", the "Company" or the "Group")

Interim Results for the six months ended 30 September 2015

Plastics Capital (AIM: PLA) the niche plastics products manufacturer, announces the Company's unaudited interim results for the six months ended 30 September 2015, which are broadly in line with management expectations.

Financial highlights

	Six months ended 30 September 2015 £'000	Six months ended 30 September 2014 £'000	% Change
Revenue	24,489	16,537	+48.1%
EBITDA*	2,464	2,200	+12.0%
Profit before tax*	1,526	1,547	-1.4%
Earnings per share*+  (p)	4.0	4.6	-13.6%
Dividend per share (p)	1.46	1.33	+9.8%

* excluding amortisation, exceptional costs, unrealised foreign exchange translation and derivative gains / losses.

+ applying an expected tax charge of 8% and based on the weighted average number of shares in issue in the year.

Operational highlights

·     Revenue up 48%, driven by prior year acquisition and ongoing strong performance of Flexipol

·     At constant exchange rates and polymer prices:

o  EBITDA up 29%

o  Earnings per share up 7%

·     Flexipol now successfully integrated, performing strongly and starting to benefit from synergies and cross-selling opportunities across the Group

·     Bearings sales up 5% due to momentum from prior business wins and key account growth

·     Excellent new business wins in hydraulic hose mandrels, increasing market share and  compensating for softer industrial end markets

Commenting on these results, Faisal Rahmatallah, Executive Chairman, said:

"I am pleased to report excellent progress in our films and bearings businesses, where sales and profit growth has been good.  Order books in these business areas are strong and we anticipate a significantly improved performance in the second half year, which we believe will be further assisted by improving foreign exchange hedge rates and raw material prices.  The Board therefore expects the Group to continue to trade in line with expectations for the rest of the financial year."

 

Plastics Capital plc	Tel: [phone]
Faisal Rahmatallah, Executive Chairman Nick Ball, Finance Director
Cenkos Securities plc	Tel: [phone]
Mark Connelly Callum Davidson
Allenby Capital	Tel: [phone]
David Hart Katrina Perez
Walbrook PR Ltd	Tel: [phone]
Paul Cornelius Helen Cresswell	[e-mail]

Notes to Editor

Plastics Capital is a consolidator of plastics products manufacturers focused on proprietary products for niche markets.  The Group has five factories in the UK, one in Thailand, two in China and sales offices in the USA, Japan, China and India.  Approximately 40 per cent. of sales are exported to over 80 countries worldwide.  Production is concentrated in the UK where significant engineering know-how and automation underpins the Group's competitiveness.  The Group has approximately 450 employees.

Further information can be found on www.plasticscapital.com

 

Chairman's Statement

Financial Review

Following the acquisition of Flexipol, we have now reclassified the Group into two operating Divisions:

1.    Films; including Palagan and Flexipol

2.    Industrial; including BNL, Bell and C&T Matrix.

Palagan and Flexipol are complementary businesses operating substantially in the UK market for high strength film packaging whereas BNL, Bell and C&T Matrix each make and sell highly engineered plastics products on a global basis.

Films Division

The Films Division accounted for approximately 57% of Group sales in the period under review including the first full half-year contribution from Flexipol, which has performed ahead of our original expectations.  We have also commenced the process of identifying and implementing synergies between Palagan and Flexipol and anticipate this exercise to deliver over £0.5m of incremental annual operating profit from this division over the next 12-18 months as both cost savings and additional sales flow through.

Profitability in the half-year has been negatively affected by the increase in raw material prices following the substantial fall in polymer prices in the final quarter of FY14-15.  Rising raw material prices generally create a short term narrowing of margins as film selling prices are renegotiated.  Importantly, raw material prices have now stabilised as we move towards 2016.

Comparing H1 2015-16 with H1 2014-15 on a pro-forma basis for the Films Division (i.e. including Flexipol in the prior year):

·     Sales volume is up 2.0%

·     EBITDA is up 8.3% after adjusting for the increase in raw material prices.

Industrial Division

In the period under review, sales in the Industrial Division, which accounted for approximately 43% of Group sales, of which 93% are generated outside the UK, were similar to the same period last year.  Underlying profitability, after adjusting for foreign exchange, has also been similar to last year.  I believe that this is a satisfactory performance given the significant exposure to markets that have been very weak over the last 12 months, such as the oil & gas and mining sectors, and the emerging economies of Asia, Africa and South America.

Particularly encouraging has been the improvement in our bearings business, where sales are up 5% compared to the prior half year.  This has been partly due to prior period new project wins flowing through into increased production as well as the development of important key accounts in the swimming pool cleaner and poultry processing industries.  Our mandrel business has also performed well with little change on prior year sales due to new business wins offsetting softer end markets.  I believe that these will bring significant additional volume as and when the overall market recovers.

It is important to note that, following the acquisition of Flexipol in November 2014, we have increased our central overhead to enable us to continue to develop the enlarged business.  Our central team now includes a Divisional Director for the Films Division, a Group Strategy Implementation Manager and a Group Legal Director.  We also have a Regional Managing Director and Finance Director based in China.  The total cost increase over this period is approximately £0.5m annually, which has held back profit growth.  However, the Board believes that this core team is now of a size that can guide and manage the Group's development to significantly greater scale and that this represents an appropriate investment towards the future development of the Group.

Dividend

To reflect our confidence in the future of the business, the Company is pleased to announce that it intends to pay on 7 January 2016 an increased interim dividend of 1.46p (H1 2014-15: 1.33p) to all shareholders in respect of the six month period ended 30 September 2015.  This represents a 10% improvement on the prior year.  The record date for the dividend is 18 December 2015 and the associated ex-dividend date is 17 December 2015.

Growth

We have launched a five year plan with the target of doubling EBITDA over that period. This strategic goal links to the LTIP Growth Share awards announced on 2^nd October 2015 for the senior executive teams across the Group's subsidiaries.  Within the five year plan, we have a number of key initiatives that we believe will drive this growth.  These initiatives are continually monitored for progress and are reviewed at regular intervals by the Board.

In the Films Division, the most important initiatives in terms of impact are:

·     Expanding the sales of specialist patented products.  To enable full exploitation of products such as "Rip and Flow" and "Rip and Tear", 850 tonnes of additional capacity, which is roughly 7% of the Divisional total, has already been installed in the first half of the financial year for this purpose and a new sales person has been appointed.  The expected additional sales are already coming through.

·     Introduction of a new "ultra-high strength wide-width" range of films.  A new conversion line is being installed in H2 2015-16 which will, together with some innovative extrusion engineering, enable the new range to be produced.

·     Cross-selling.  Palagan and Flexipol have complementary product capabilities and there is significant potential to optimise margins and output across both businesses by cross-selling what each business does best.  Approximately £1m of business has been identified for transfer and the process of implementing this has started and is expected to take a few months.

 

In the Industrial Division, the major initiatives are:

·     Bringing already won Bearings business successfully into production. Our bearings business has extremely long project gestation periods, with up to 5 years between tool order and product sales at full run rate.  The current pipeline of business that is won but not yet into full production stands at £4.3m of annualised sales value, all of which should come through over the next five years.  This is an improvement of £0.8m over the position at year end.

·     Building on the investment made so far in China. Our sales teams in Shanghai and Shenzen have identified a number of bearings and mandrels opportunities in China and are close to a number of breakthroughs.  In addition, we have developed a catalogue range of injection moulded standard radial bearings that we believe will be particularly suitable for the Chinese market.  These are expected to enter production in H1 2016-17 and should give us a presence in an important part of the market that has been difficult to access to date.

·     Increasing the Mandrel business development resource. Our mandrel business has a highly successful business model based on technical expertise and a wide range of solutions for hose manufacturers - the list of potential prospects is substantial.  We have recently recruited additional sales and R&D resource in this business to enable us to deepen our competencies and to exploit this opportunity fully.

·     Forward integration in Matrix. There is an opportunity in our creasing matrix activities for profitable growth by getting closer to box-makers and die-makers in the packaging and print consumables industry by moving forward into consumables distribution.  We believe this would be best done through investments in our distributors, many of whom are looking for investment and succession.  We are currently exploring opportunities and meanwhile are establishing our own distribution activities in the UK, where growth has been strong since we recruited our key competitor's head of sales.

Obviously any programme of initiatives, such as those listed above, have risks associated to their achievement. We face the possibility of customer and/or supplier delays and unforeseen technical difficulties in some areas, notwithstanding the management processes we have put in place to rectify such occurrences.  Attrition (or customer losses) is also a factor that we have considered and made allowances for, but this allowance could be insufficient.  Finally, the most potent risk is what happens in the global economy. Our working assumption is for marginal growth (c.2-3%) over the five year period, but recent experience has shown that even this may be somewhat optimistic.

Acquisitions

We are very pleased with the progress made at Flexipol since its acquisition nearly 12 months ago.  The business has been fully integrated into our Group financial and management procedures.  We have appointed a Managing Director and Finance Director, promoted the Operations Manager to the Board and recruited two new sales people.  We have found the personnel at Flexipol to be highly motivated, enthusiastic and enterprising.  Co-operation between the Flexipol and Palagan operational and sales teams has been excellent and is leading to the achievement of the synergies referred to above.  Sales volumes and profitability have increased and potential for growth over the coming years has been confirmed.

As regards further acquisitions, a number of good opportunities have presented themselves in the last 3-6 months. We remain enthusiastic to add businesses that are complementary to our existing ones, and meet our other criteria in terms of size, profitability and cash flow.  We are hopeful that we can bring one or more to fruition over the next 12 months.

Outlook

We are seeing a significant improvement in our order books and anticipate improved financial performance in the second half due to the seasonality that now applies to the Group and as the foreign exchange and polymer price situation normalises.  We also expect the pipeline of new business to enter production at a more rapid rate in the Industrial division.  We anticipate that our five year plan and the associated management processes will continue to drive the business forward notwithstanding weakness in some of our end markets.  The Board therefore remains confident about the future growth of the Group.

Faisal Rahmatallah

Executive Chairman 

 

Plastics Capital plc

Consolidated Income Statement

for the six months ended 30 September 2015

		Before foreign exchange & exceptional items	Foreign exchange impact on derivative and loans	Exceptional items	Total		Before foreign exchange & exceptional items	Foreign exchange impact on derivatives and loans	Exceptional items	Total
		2015	2015	2015	2015		2014	2014	2014	2014
	Note	£'000	£'000	£'000	£'000		£'000	£'000	£'000	£'000
Revenue		24,489	-	-	24,489		16,532	-	-	16,532
Cost of sales		(16,827)	(142)	-	(16,969)		(10,894)	201	-	(10,693)
Gross profit		7,662	(142)	-	7,520		5,638	201	-	5,839
Distribution expenses		(1,280)	-	-	(1,280)		(1,056)	-	-	(1,056)
Administration expenses		(5,202)	-	(222)	(5,424)		(3,642)	-	(55)	(3,697)
Other income		15	-	-	15		8	-	-	8
Operating profit		1,195	(142)	(222)	831		948	201	(55)	1,094
Financial income	5	-	235	-	235		-	-	-	-
Finance expense	5	(305)	-	-	(305)		(202)	(366)	-	(568)
Net financing (costs) / income		(305)	235	-	(70)		(202)	(366)	-	(568)
Profit before tax		890	93	(222)	761		746	(165)	(55)	526
Tax	6	(127)	-	-	(127)		(159)	-	-	(159)
Profit for the period		763	93	(222)	634		587	(165)	(55)	367
Foreign exchange translation differences		(172)	-	-	(172)		15	-	-	15
Total comprehensive income		591	93	(222)	462		602	(165)	(55)	382
Earnings per share
Basic	8				1.8p					1.2p
Diluted	8				1.8p					1.2p

 

Plastics Capital plc

Consolidated Income Statement (continued)

for the year ended 31 March 2015

							Audited Before foreign exchange & exceptional items	Audited Foreign exchange impact on derivatives and loans	Audited Exceptional items	Audited Total
							2015	2015	2015	2015
	Note						£'000	£'000	£'000	£'000
Revenue							39,576	-	-	39,576
Cost of sales							(25,838)	242	-	(25,596)
Gross profit							13,738	242	-	13,980
Distribution expenses							(2,210)	-	-	(2,210)
Administration expenses							(9,141)	-	(1,130)	(10,271)
Other income							12	-	-	12
Operating profit							2,399	242	(1,130)	1,511
Financial income	5						-	-	-	-
Finance expense	5						(480)	(1,179)	-	(1,659)
Net financing costs							(480)	(1,179)	-	(1,659)
Profit/(loss) before tax							1,919	(937)	(1,130)	(148)
Tax	6						(102)	-	-	(102)
Profit/(loss) for the period							1,817	(937)	(1,130)	(250)
Foreign exchange translation differences							218	-	-	218
Total comprehensive income/(loss)							2,035	-	-	(32)
Earnings per share
Basic	8									(0.8) p
Diluted	8									(0.8)p

 

Plastics Capital plc

Consolidated Balance Sheets

		Unaudited As at 30 September 2015	Unaudited As at 30 September 2014	Audited As at 31 March 2015
		£000	£000	£000
Non-current assets
Property, plant and equipment		7,784	5,064	8,669
Intangible assets		23,851	20,551	24,404
		31,635	25,615	33,073
Current assets
Inventories		4,515	3,358	4,006
Trade and other receivables		11,539	7,962	11,139
Other financial assets		-	76	-
Cash and cash equivalents		3,991	2,396	4,437
		20,045	13,792	19,582
Total assets		51,680	39,407	52,655
Current liabilities
Interest-bearing loans and borrowings		5,798	4,232	5,143
Trade and other payables		8,665	5,333	8,788
Corporation tax liability		486	447	549
		14,949	10,012	14,480
Non-current liabilities
Interest-bearing loans and borrowings		10,057	6,180	10,694
Other financial liabilities		83	-	408
Deferred tax liabilities		724	350	724
		10,864	6,530	11,826
Total liabilities		25,813	16,542	26,306
Net assets		25,867	22,865	26,349
Equity attributable to equity holders of the parent
Share capital		353	302	353
Share premium		20,888	16,570	20,888
Reverse acquisition reserve		2,640	2,640	2,640
Translation reserve		462	431	634
Capital redemption reserve		(200)	(200)	(200)
Retained earnings		1,724	3,122	2,034
Total equity		25,867	22,865	26,349

Plastics Capital plc

Consolidated Cash Flow Statements

		Unaudited Six months ended 30 September 2015	Unaudited Six months ended 30 September 2014	Audited Year ended 31 March 2015
		£000	£000	£000
Profit / (loss) after tax for the period		634	367	(250)
Adjustments for:
Income tax adjustment		127	159	102
Depreciation, amortisation and impairment		1,411	1,093	2,616
Financial income		(235)	-	-
Financial expense		305	568	1,659
Gain on disposal of plant, property and equipment		-	-	13
Changes in working capital:
(Increase) / Decrease in trade and other receivables		(399)	249	53
(Increase) / Decrease in inventories		(509)	(92)	194
(Decrease) / Increase in trade and other payables		(123)	(1,028)	(423)
Cash generated from operations		1,211	1,316	3,964
Interest paid		(230)	(160)	(374)
Income tax paid		(190)	-	(254)
Net cash from operating activities		791	1,156	3,336
Cash flows from investing activities
Acquisition of subsidiary (net of cash acquired)		-	(122)	(8,847)
Acquisition of property, plant and equipment		(1,223)	(570)	(977)
Dividends received		14	8	12
Interest received		-	-	-
Proceeds from disposal of plant, property and equipment		1,400	-	23
Development expenditure capitalised		(125)	(125)	(250)
Net cash from investing activities		66	(809)	(10,039)
Cash flows from financing activities
Proceeds from the issue of share capital		-	-	4,736
Net proceeds from new loan		-	-	5,281
Change in borrowings		(1,543)	(481)	(1,700)
Dividends paid		(944)	(604)	(1,075)
Net cash from financing activities		(2,487)	(1,085)	7,242
Increase in cash and cash equivalents		(1,630)	(738)	539
Cash and cash equivalents at 1 April		4,437	3,134	3,134
Overdraft at 1 April		(3,908)	(3,144)	(3,144)
Cash and cash equivalents at 30 September and 31 March		(1,101)	(748)	529

Plastics Capital plc

Consolidated statement of changes in equity

	Share capital	Share premium	Translation reserve	Reverse acquisition reserve	Capital redemption reserve	Retained earnings	Total
	£000	£000	£000	£000	£000	£000	£000
Balance at 31 March 2014	302	16,570	416	2,640	(200)	3,359	23,087
Profit or loss	-	-	15	-	-	367	382
Dividends paid	-	-	-	-	-	(604)	(604)
Balance at 30 September 2014	302	16,570	431	2,640	(200)	3,122	22,865
Share issue	51	4,318	-	-	-	-	4,369
Profit or loss	-	-	203	-	-	(617)	(414)
Dividends paid	-	-	-	-	-	(471)	(471)
Balance at 31 March 2015	353	20,888	634	2,640	(200)	2,034	26,349
Profit or loss	-	-	(172)	-	-	634	462
Dividends paid	-	-	-	-	-	(944)	(944)
Balance at 30 September 2015	353	20,888	462	2,640	(200)	1,724	25,867

 

 

 

1              Basis of preparation and accounting policies

Basis of preparation

The interim financial information has been prepared on the basis of the recognition and measurement requirements of adopted IFRSs as at 30 September 2015 that are effective (or available for early adoption) as at 31 March 2016.  Based on these adopted IFRSs, the directors have applied the accounting policies, as set out below, which they expect to apply to the annual IFRS financial statements for the year ending 31 March 2016.

However, the adopted IFRSs that will be effective (or available for early adoption) in the annual financial statements for the period ending 31 March 2015 are still subject to change and to additional interpretations and therefore cannot be determined with certainty.  Accordingly, the accounting policies for that annual period will be determined finally only when the annual financial statements are prepared for the period ending 31 March 2016.

.

Accounting policies

The accounting policies applied to the Interim Results for six months ended 30 September 2015 are consistent with those of the Company's annual accounts for the year ended 31 March 2015.

Going concern

The Financial Reporting Council issued "Going Concern and Liquidity Risk: Guidance for Directors of UK Companies" in October 2009 and the Directors have considered this when preparing the financial statements.  These have been prepared on a going concern basis and the Directors have taken steps to ensure that they believe the going concern basis of preparation remains appropriate.

 

2              Reconciliation of financial highlights table to the consolidated income statement

		Unaudited Six months to 30 September 2015			Unaudited Six months to 30 September 2014	Change
		£000			£000	%
Revenue		24,489			16,532	48.1%
Gross profit		7,520			5,839	28.8%
Operating profit		831			1,094	-24.0%
Add back: Exceptional cost		222			55
Add back: Amortisation		703			559
Add back: Depreciation		708			492
EBITDA before exceptional costs		2,464			2,200	12.0%
Profit before tax		761			526	45.0%
Add back: Amortisation				703	559
Add back: Exceptional costs			222		55
Add back: Capitalised deal fee amortisation			75		42
Add back: Unrealised foreign exchange loss/(gain)			44		71
Add back: Unrealised derivative loss/(gain)			(279)		294
Profit before tax*			1,526		1,547	-1.4%
Taxation			(127)		(159)
Profit after tax*			1,398		1,388	0.8%
Basic adjusted EPS*+			4.1p		4.6p	-12.3%
Basic EPS			1.8p		1.2p	53.1%
Capital expenditure			1,223		570	114.6%
Net Debt			11,864		8,018	48.0%

* excluding amortisation, exceptional costs, unrealised foreign exchange translation and unrealised derivative gains/losses

+ applying an expected tax charge of 8% and based on the average number of shares in issue in the year

 

3              Operating segment information

The following summary describes the operations in each of the Group's reportable segments:

·     Films - includes industrial films

·     Industrial - includes hose mandrel, creasing matrix and plastic bearings

	Industrial	Films	Unallocated and reconciling items	Total
	Unaudited Six months to 30 September 2015	Unaudited Six months to 30 September 2015	Unaudited Six months to 30 September 2015	Unaudited Six months to 30 September 2015
	£000	£000	£000	£000
External sales*	10,503	13,984	-	24,487
Profit before tax**	(124)	223	662	761
Depreciation and amortisation	438	264	709	1,411
	_______	_______	_______	______
	Unaudited Six months to 30 September 2014	Unaudited Six months to 30 September 2014	Unaudited Six months to 30 September 2014	Unaudited Six months to 30 September 2014
	£000	£000	£000	£000
External sales*	10,532	6,000	-	16,532
Profit / (loss) before tax**	289	172	65	526
Depreciation and amortisation	430	55	566	1,051
	_______	_______	_______	_______
	Audited Year to 31 March 2015	Audited Year to 31 March 2015	Audited Year to 31 March 2015	Audited Year to 31 March 2015
	£000	£000	£000	£000
External sales*	20,934	18,642	-	39,576
Profit / (loss) before tax**	(107)	1,185	(1,226)	(148)
Depreciation and amortisation	898	283	1,433	2,614
	_______	_______	_______	_______
* All revenue is attributable to external customers, there are no transactions between operating segments
** Profit before tax for unallocated and reconciling items is analysed on Page 15.

 

3              Operating segment information (continued)

Reconciliation of reportable segment revenue

		Unaudited Six months to 30 September 2015 £000	Unaudited Six months to 30 September 2014 £000	Audited Year to 31 March 2015 £000
Films
High strength film packaging		13,984	6,000	18,642
Industrial
Packaging consumables		3,312	3,674	7,149
Plastics rotating parts		5,263	4,994	10,359
Hydraulic hose consumables		1,928	1,864	3,426
Turnover per consolidated income statement		24,487	16,532	39,576

Reconciliation of reportable segment profit

			Unaudited Six months to 30 September 2015 £000	Unaudited Six months to 30 September 2014 £000	Audited Year to 31 March 2015 £000
Total profit for reportable segments			99	461	1,078
Unallocated amounts:
Amortisation			(703)	(559)	(1,405)
Unrealised (losses)/gains on derivatives			235	(294)	(1,179)
Management charge income			2,125	1,475	3,225
FX hedge gain/(loss) on forward contracts			(142)	201	242
Plastics Capital Trading Ltd and Plastics Capital plc costs			(539)	(594)	(991)
Net interest costs			(122)	(160)	(354)
Deal fee amortisation			(75)	(42)	(106)
Exceptional costs			(195)	(55)	(719)
Other			78	93	61
Consolidated profit before income tax			761	526	(148)

 

4              Exceptional items

Administrative Expenses				Unaudited Six months to 30 September 2015 £000	Unaudited Six months to 30 September 2014 £000	Audited Year to 31 March 2015 £000
Company set up costs				-	-
Redundancy & recruitment costs				165	-	114
Acquisition and legal costs				-	55	909
Other				57	-	105
				222	55	1,130

5              Financial income and expenses

		Unaudited Six months to 30 September 2015 £000	Unaudited Six months to 30 September 2014 £000	Audited Year to 31 March 2015 £000
Financial expenses:
Bank interest		230	160	374
Amortisation of capitalised deal fees		75	42	106
Loss on derivatives used to manage interest rate risk		-	-	-
Financial expenses		305	202	480
Financial income and expenses included within foreign exchange:
Net foreign exchange gains / (losses)		(44)	(72)	(401)
Unrealised gains / (losses) on derivatives used to manage foreign exchange risk		279	(294)	(778)
Exceptional items		235	(366)	1,179

6              Taxation

The taxation charge is calculated by applying the Directors' best estimate of the annual tax rate for the profit for the period.

7              Dividends

The Directors recommend the payment of an interim dividend of 1.46p per share (30 September 2014: 1.33p).

8              Earnings per share

	Unaudited Six months to 30 September 2015	Unaudited Six months to 30 September 2014	Audited Year to 31 March 2015
	£000	£000	£000
Numerator
Profit / (loss) for the period	634	367	(250)
Denominator
Weighted average number of shares used in basic EPS	35,344,573	30,242,532	31,943,212
Weighted average number of shares used in diluted EPS	35,444,573	30,242,532	32,043,212
Basic earnings per share (total)	1.8p	1.2p	(0.8)p
Diluted earnings per share (total)	1.8p	1.2p	(0.8)p

9              Accounts

Copies of the interim accounts may be obtained from the Company Secretary at the Registered Office of the Company: London Heliport, Bridges Court Road, London, SW11 3BE.

 

END

 

 

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