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Interim Results 2016

22 November 2016

Scapa Group plc, a global supplier of bonding solutions and manufacturer of adhesive-based products for the Healthcare and Industrial markets, today announces its results for the period ended 30 September 2016.

Financial Highlights
- Revenue grew 13.5% to £135.4m (2015: £119.3m); 3.7% at constant exchange rates
- Trading profit* increased 27.0% to £12.7m (2015: £10.0m); 12.4% at constant exchange rates
- Trading profit* margins further improved to 9.4% (2015: 8.4%)
- Adjusted profit before tax** improved 24.7% to £12.1m (2015: £9.7m)
- Adjusted earnings per share*** increased 28.0% to 6.4p (2015: 5.0p)
- Basic earnings per share of 4.5p (2015: 1.4p)
- Net debt of £29.0m (March 2016: £2.6m) reflecting the acquisition of EuroMed for £28.3m

Operational Highlights
- Healthcare revenue increased 23.3% to £53.5m (2015: £43.4m); 11.9% at constant exchange rates
- Healthcare trading profit increased 16.9% to £7.6m; 5.6% growth at constant exchange rates
- Margins at 14.2% (2015: 15.0%) reflecting significant investment to support growth and integration costs related to EuroMed
- Healthcare acquisition of EuroMed on 23 May 2016; integrating well
- EuroMed and First Water significantly strengthen our innovation and development capabilities
- Industrial trading profit grew 49.0% to £7.6m; 33.3% at constant exchange rates
- Margins increased to 9.3% (2015: 6.7%), further improving the quality of the business and closer to double digit margin target 
- Swiss facility ceased production during October and will close by the end of the calendar year, on time and on budget
- Sale of Swiss land and building progressing well and proceeds should exceed initial estimates

Commenting on the results Chief Executive, Heejae Chae said:

“Scapa has delivered a strong first half performance with growth in revenue, trading profit and margins.  We continue to consistently deliver improving results in a volatile and uncertain environment.  We maintain a disciplined approach in executing our strategy and are excited about the opportunities that exist for the business.  The Board believes the Group will deliver full year results ahead of expectations, benefitting from both improved trading and currency.”

* Before amortisation of intangible assets, exceptional items, pension administration costs and finance charges
** Trading profit less interest payable on bank loans and overdrafts
*** Adjusted earnings per share is calculated by dividing the trading profit less cash interest less tax on operating activities by the weighted average number of ordinary shares in issue during the year

For further information:
Scapa Group plc Heejae Chae – Chief Executive - Tel: 0161 301 7430
Scapa Group plc Graham Hardcastle – Finance Director - Tel: 0161 301 7430
Numis Securities Limited - Mark Lander / Richard Thomas - Tel: 020 7260 1000 (Nominated Adviser/Joint Broker)
Berenberg - Chris Bowman Tel: 020 3207 7800 (Joint Broker)
Weber Shandwick Financial PR - Nick Oborne Tel: 0207 067 0000

For full press release and presentation see Reports and Presentations

Strategic priorities and business objectives
Scapa has delivered a strong first half performance with growth in revenue, trading profit and margins. We continue to consistently deliver improving results in a volatile and uncertain environment which affirms the robustness of our strategy.

We operate two distinct and separate businesses each with its own strategic goals and priorities. Healthcare – to become the strategic Turn-Key partner for our customers leveraging the trend of outsourcing in the Healthcare industry; and Industrial – to maximise the Return on Capital Employed (ROCE) through operational efficiencies and footprint consolidations as we continue to execute our self-help agenda.

We also continue to execute our acquisition strategy to supplement the organic growth. During the period we completed the acquisition of EuroMed, the hydrocolloid-based wound care solutions business based in Orangeburg, New York. The acquisition significantly enhances our innovation and development capabilities, which further strengthens our value chain and deepens our strategic engagement with our Healthcare customers. EuroMed has integrated well during the period and made a good contribution to the Healthcare growth for the period.

Following the UK referendum on EU membership on 23 June 2016, we have assessed the impact of the result on our business. The outcome of this referendum is not expected to have a material near-term impact on our business and we are well-placed to continue to grow our global business without significant disruption. The Group generates less than 10% of its revenues in the United Kingdom, with 50% of revenues being US Dollar based and 25% in Euros, so a weakened Sterling would be beneficial.

Group results
Group revenue for the period increased 13.5% to £135.4m (2015: £119.3m). Trading profit(1) for the period increased 27.0% to £12.7m (2015: £10.0m), increasing the margin to 9.4% (2015: 8.4%). During the period, Sterling has significantly depreciated against the US Dollar and Euro, our main trading currencies, which had a positive translational effect on the results. Adjusting for the effects of exchange rates, revenue increased 3.7% (2015: 4.0%) and trading profit increased 12.4% (2015: 16.3%).

Adjusted profit before tax(2) increased 24.7% to £12.1m (2015: £9.7m). Pre-tax profit, after exceptional items, increased to £8.5m (2015: £3.3m). Taxation charges for the period were £1.8m (2015: £1.2m), with the underlying effective tax rate*** for the period reducing to 20.7% (2015: 23.7%). The basic earnings per share was 4.5p (2015: 1.4p). When adjusted for exceptional items, pension administration costs, amortisation and non-cash interest, earnings per share was 6.4p (2015: 5.0p), an increase of 28.0%.

Markets

Healthcare

Six months ended 30 Sept 16 30 Sept 15
Revenue (£m) 53.5 43.4
Trading profit (£m) 7.6 6.5
Trading margin (%) 14.2% 15.0%

The strategy of our Healthcare business is to continue to be the strategic partner of choice for the world leading companies in advanced wound care, consumer wellness and medical devices. The EuroMed acquisition further strengthens our value proposition and significantly expands our portfolio of intellectual property. We continue to invest in our global platform, with FDA compliant global design control procedures and FDA validated computerised quality management systems meeting pharma standards. We have developed a regulatory and compliance capability that is now being offered as an outsourced service to our customers. The continued investment enables us to accelerate the growth of our new business pipeline, which is strong.

Revenue grew 23.3% to £53.5m (2015: £43.4m); at constant exchange the growth rate was 11.9%. Healthcare trading profit increased 16.9% to £7.6m (2015: £6.5m); at constant exchange the profit increased 5.6%. The trading margin at 14.2% (2015: 15.0%) reflected significant investment to support growth and integration costs related to EuroMed. We expect the full year margin to be maintained at the historical level, as we continue to drive our operating efficiency.

The integration of EuroMed, the US based Healthcare business acquired in May 2016, is on plan and we are seeing the benefits and opportunities of cross engagement through our customer base.  EuroMed revenue for the four months of ownership was £3.9m.

Industrial 

Six months ended 30 Sept 16 30 Sept 15
Revenue (£m) 81.9 75.9
Trading profit (£m) 7.6 5.1
Trading margin (%) 9.3% 6.7%

Our Industrial strategy to focus on maximising ROCE has enabled us to deliver strong results in a volatile and uncertain market environment. Revenue grew 7.9% to £81.9m (2015: £75.9m). Trading profit for the period was £7.6m (2015: £5.1m), an increase of 49.0% over the prior period with the trading margin increasing to 9.3% (2015: 6.7%). After adjusting for the effect of exchange rates, revenue declined by 1.1% and profit grew 33.3%, reflecting the improvement in operational efficiency and lower input costs.

The closure of our Rorschach site in Switzerland, which we announced in April 2015, is progressing in line with plan. The site ceased production during October and will close by the end of the calendar year after remediation and disposals. We remain confident in our forecasts that the closure will add an underlying £2.0m of trading profit per year to the Group, with £1.0m expected in the second half of 2016/17. Additionally, the auction process for the sale of the land is progressing well and post certain remediation we expect to generate proceeds above the initial estimates.

Exceptional items
The exceptional expenses in the period relate to the Company’s decision in July 2015 to close its Rorschach facility and the acquisition in May 2016 of EuroMed. The acquisition costs are those costs directly related to the purchase of EuroMed. The site closure costs are made up of retention payments made to certain key staff and a small additional impairment of fixed assets. Both items are reported separately to give a better understanding of the Company’s underlying performance.

Balance sheet
Net assets at 30 September 2016 totalled £80.9m (31 March 2016: £77.7m). The slight increase arises from improved retained earnings of £6.7m and positive foreign exchange movements of £9.8m offset by negative actuarial movements of £11.6m and share related items of £1.8m. The Group net debt balance was £29.0m (31 March 2016: £2.6m) after a net cash outflow of £26.4m in the period, principally reflecting the acquisition cost of EuroMed for £28.3m.

Pensions
The pension deficit increased to £38.0m (31 March 2016: £27.5m). The increase in the deficit is owing to the decrease in the interest rate used to discount the long-term liabilities; it fell significantly from 3.5% at March 2016 to 2.2% at September 2016. Cash payments of £2.2m (September 2015: £2.1m) and liability matching asset investment gains mitigated the effect of the change.

Cash resources
Net cash generated from operations was £11.2m (2015: £6.8m). Trading working capital increased by £0.1m (2015: £1.5m), owing to some additional inventory associated with transferring activities from Rorschach. Capital expenditure in the period was £4.6m (2015: £5.6m) down slightly from the prior year despite capital expenditure due to the transfer. Pension payments in excess of operating charge were £2.2m (2015: £2.1m) and represent the deficit repair payments and contributions to scheme expenses. Tax and interest outflows were £2.4m (2015: £2.2m), with the increase being mainly the interest on increased debt after the acquisition of EuroMed for £28.3m. After dividends of £2.6m (2015: £2.2m), closing net debt was £29.0m, less than 1x LTM EBITDA(4) (31 March 2016: £2.6m net debt).

Dividend
A final dividend for the year ended 31 March 2016 of 1.75p per share was paid on 19 August 2016 to all shareholders registered on 22 July 2016. In line with last year, the Board does not propose an interim dividend but intends to maintain a progressive dividend policy.

Principal risks and uncertainties
There are a number of potential risks and uncertainties which could have a material impact on the Group’s performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The Directors do not consider that these principal risks and uncertainties have changed since publication of the annual report for the year ended 31 March 2016.
 
Going concern
As stated in note 1 to these condensed financial statements, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing these condensed financial statements.

Summary and outlook
Scapa has delivered a strong first half performance with growth in revenue, trading profit and margins.  We continue to consistently deliver improving results in a volatile and uncertain environment.  We maintain a disciplined approach in executing our strategy and are excited about the opportunities that exist for the business.  The Board believes the Group will deliver full year results ahead of expectations, benefitting from both improved trading and currency.


J A S Wallace
Chairman

(1)
 Before amortisation of intangible assets, exceptional items, pension administration costs and finance charges.
(2) Trading profit less interest payable on bank loans and overdrafts.
(3) Adjusting operating profit and taxation for exceptional items, pension administration costs, amortisation and non-cash interest.
(4) As defined in Note 22 of the Annual Report.

For full press release and presentation see Reports and Presentations

 
   

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