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Preliminary Results 2017

23 May 2017

Scapa Group plc
Preliminary Results

Scapa Group plc (AIM: SCPA), a global supplier of bonding solutions and manufacturer of adhesive-based products for the healthcare and industrial markets, today announces its Preliminary Results for the year ended 31 March 2017.

Financial Highlights:

• Revenue grew 13.3% to £279.6m (2016: £246.7m); 1.7% at constant fx
• Trading profit* increased 37.1% to £29.2m (2016: £21.3m); 18.2% at constant fx
• Trading profit* margins further improved to 10.4% (2016: 8.6%)
• Adjusted earnings per share** increased 39.6% to 14.8p (2016: 10.6p)
• Basic earnings per share of 11.6p (2016: 4.1p)
• Net debt of £16.1m (March 2016: £2.6m) after paying US$35m (£28.3m) for the acquisition of EuroMed
• Final dividend increased 14.3% to 2.0p (2016: 1.75p)

Operational Highlights:

• Trading profit grew 66.4% to £17.8m; 45.9% at constant fx
• Margins increased to 10.4% (2016: 7.0%), reached strategic target of double-digit margin
• Swiss facility closed on time and on budget; delivered £1.0m profit benefit in H2 and expect to deliver an additional £1.0m in H1 of FY18
• Sale of Swiss land and building progressing and proceeds expected to exceed initial estimates
• Exiting Korean production

• Revenues increased 16.5% to £108.7m (2016: £93.3m); 5.0% at constant fx
• Trading profit increased 18.6% to £16.6m (2016: £14.0m); 4.4% growth at constant fx
• Full year margins at 15.3% (2016: 15.0%); H2 margin 16.3%
• Acquisition of EuroMed on 23 May 2016; fully integrated
• Three-year contracts renewed with two key OEMs
• £200m of revenue contracted

Commenting on the results Chief Executive, Heejae Chae said:

“We achieved some significant milestones during the year; Industrial delivered double-digit profit margins, Healthcare surpassed £100 million in revenue, and Scapa’s market capitalisation exceeded £500 million.  The financial accomplishments are the result of our relentless and uncompromising execution of the strategy.  Whilst much has been achieved, we believe that much more potential remains to be fulfilled in both Healthcare and Industrial.  We have set the goals for the next phase of our growth which we are confident that we can deliver. We continue to execute the strategy that we have outlined for both Healthcare and Industrial.  We have a team with a strong track record of delivery. The Group is well positioned to leverage the recent accomplishments and continue to make further progress in the year ahead.”

* Operating profit before amortisation of intangible assets, exceptional items and pension administration costs
** 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
Graham Hardcastle – Finance Director 

Numis Securities Limited Mark Lander, Richard Thomas Tel: 020 7260 1000
(Nominated Adviser/Joint Broker)

Berenberg (Joint Broker) Chris Bowman Tel: 020 3207 7800

Weber Shandwick Financial PR Nick Oborne Tel: 0207 067 0000

For full press release and presentation see Reports and Presentations
I am pleased to join Scapa at an important juncture in its journey that began with James Wallace, my predecessor. The evolution from an industrial tape company to a global adhesive technology-based company with two distinct businesses, each with an exciting strategy and outlook, has been impressive. During the past eight years, Scapa’s share price has risen from £0.095 in March 2009 to £4.00 in May 2017, generating over £600m of shareholder value. As I review the results and accomplishments of the Group, I am very impressed with the volume and pace of the activities. However, I am equally impressed with the vision and opportunities that still remain to fully achieve Scapa’s potential in both Healthcare and Industrial.

Great progress and potential
The Healthcare business has been transformed from a roll stock material supplier to market leader in turn-key solutions of adhesive based products. At an early stage we recognised the increasing trend towards outsourcing in our customers and positioned ourselves as the partner of choice to the leading global healthcare companies. Driven by pricing pressure and the need to accelerate time to market, our customers are looking for partners who not only provide materials and manufacturing but can provide turn-key solutions across their entire value chain, from product development to delivery of a finished product. Through continuous investment, including three successful acquisitions, the latest of which was EuroMed in May 2016, Scapa has built a comprehensive set of capabilities across the entire value chain. We have leveraged our unique proposition and developed strategic partnerships with global leaders such as Convatec and Johnson & Johnson. Today, we have long-term commercial agreements with our major healthcare customers that underpin £200m in revenue. We believe that the potential, driven by the fundamentals and dynamics of the healthcare market, is significant. The opportunities are demonstrated by the increasing pipeline of projects that we continue to build. Our challenge is to convert the projects into revenue through flawless execution. Equally, we must continue to develop additional capabilities, organically as well as through acquisitions, to further penetrate beyond the adhesive based value chain at our strategic customers. Our goal is to continue to accelerate the shift to higher value added business with Scapa’s innovation and IP that will deliver higher margin and stronger partnerships with our customers who are growing and significant.

The Industrial business continues to deliver impressive results through focus on Return on Capital Employed (ROCE) and operational efficiency. This year it achieved the long-term objective of double-digit trading profit margins. The pressure sensitive market is large, diverse and mature. Estimated at over US$30 billion, its growth reflects the GDP of the markets. We recognised that to deliver the double-digit profit growth we could not rely solely on revenue growth, particularly given the uncertain and endemic macro environment. As such we outlined a self-help agenda focused on operational efficiency and asset optimisation. Our methodical and exceptional operational execution enabled us to deliver on our goal. We have, along the way, accumulated capabilities and competencies that are yielding significant results. Moreover, they are allowing us to expand our potential. We have reset our profit margin target to mid-teens which compares to the market leaders. We believe we can achieve our new goal by continuing to execute our self-help agenda. Furthermore, we believe that we can achieve above-market growth through focus on specific markets where we have competitive advantage.

Performance and dividend
The continued focus on execution against a consistent strategy outlined above produced another record year for the Group. Group revenue increased 13.3% to £279.6m (2016: £246.7m) and trading profit increased 37.1% to £29.2m (2016: £21.3m), with strong trading helped by a currency translation tailwind. On a constant currency basis, revenue and trading profit grew 1.7% and 18.2% respectively. Group margins increased to 10.4% from 8.6%. Adjusted earnings per share increased 39.6% to 14.8p (2016: 10.6p) and basic earnings per share was 11.6p (2016: 4.1p).

This year has seen a further strengthening of the Balance Sheet, including continued actions to manage the legacy pension scheme deficit. The UK deficit increased slightly to £23.8m as a result of the reduction in the discount rate, and the total deficit of £31.4m, including a number of small overseas schemes, is now less than 1x the EBITDA of the business. EBITDA  comprises trading profit before depreciation.

The Group ended the year with net debt of £16.1m (2016: £2.6m), after the acquisition of EuroMed for US$35m (£28.3m) in May 2016. The business continues to focus on cash flow and working capital management.

Given the continuing progress and improved performance, the Board is proposing to increase the final and full year dividend by 14.3% to 2.0p (2016: 1.75p). Subject to approval of shareholders at the forthcoming Annual General Meeting the dividend will be paid on 18 August 2017 to shareholders on the register on 21 July 2017. The ex-dividend date is 20 July 2017.

As the Group continues to grow both organically and through acquisition, the Board recognises that a strong governance framework and good internal controls, supported by common values and culture, are critically important. The Board remains focused on ensuring its own effectiveness and that of the governance processes throughout the Group. An internal review of Board effectiveness was conducted in 2017.

Board change
I succeeded James Wallace as Chairman in March 2017 at the end of the fiscal year. James has been the Chairman of Scapa since October 2007 and during that time he oversaw much of the change, as a result of which Scapa is well positioned for a bright future. On behalf of the Board and all the employees at Scapa, I would like to thank James for his strong leadership during his ten years as Chairman, a period during which Scapa was transformed from a business with significant challenges into the strong, successful business it is today.

Since becoming Chairman, I have visited many of our sites and had the opportunity to meet our people. It is evident that Scapa’s recent success is a result of the skill and dedication of our employees who have embraced the business unit strategy and the cultural changes demanded in the Group. The Scapa Way and our Ten Guiding Principles are now well embedded in the Company culture, which gives a common value system to people from a range of diverse backgrounds and cultures. The Group continues to invest in its people through a variety of programmes and has been able to make a number of senior appointments this year from internal talent. On behalf of the Board, I would like to thank all the employees for their contribution to an excellent year.

It has been a year of significant progress and I am very positive about the further opportunities for the Group in both Healthcare and Industrial. Healthcare is well positioned in a growth market and has a window to take advantage of the outsourcing trend. Industrial will continue to drive increased ROCE, with further opportunities identified. I am confident in Scapa’s ability to continue to make progress and deliver further value to our shareholders.

L  C Pentz


During the year, the Group delivered on a number of the strategic milestones we have set for ourselves; we achieved double-digit profit margins in Industrial, and our Healthcare revenue has surpassed £100m. In addition we accomplished the audacious goal we set for ourselves four years ago; an internal goal of reaching £500m market capitalisation when it stood at less than £100m at the time. While we pause to reflect on the accomplishments, we are keenly aware that the real challenge is to maintain and surpass the past trajectory. We are confident that we can deliver the next set of milestones and goals as the opportunities and potential for both Healthcare and Industrial are still significant.

In Healthcare our strategy is to be the strategic turn-key partner of choice to our global Healthcare customers. We believe that by broadening our offerings and capabilities we can continue to build our market leading position in a growing and expanding market. In addition to the underlying growth in healthcare due to favourable demographics, we are also at the forefront of an accelerating outsourcing trend. As we review the growing pipeline of projects and potential acquisitions, we are confident that we can maintain double-digit growth in Healthcare, organically and through acquisition.

Industrial serves diverse markets and geographies and its revenue performance reflects the composite macro dynamics. We focus on key defensible markets where we have opportunity to gain market share in the US$30 billion pressure sensitive material market. Our strategy is to continue to deliver profit growth by focusing on the optimisation of our assets through relentless operational execution and achieve mid-teens profit margins, comparable to market leaders.

Our performance in 2016/17
The Group focus on execution against the consistent strategic objectives outlined above has helped Scapa to deliver record results once again in 2016/17. Group revenue increased 13.3% to £279.6m or 1.7% on a constant currency basis.

Healthcare revenue increased 16.5% to £108.7m or 5.0% at constant currency. We acquired EuroMed, a US-based hydrocolloid wound care solution company, in May 2016. Excluding ten months of EuroMed, the organic revenue increased 5.8%, or (4.6)% at constant currency. Healthcare growth was against a very strong comparator, 26.4% growth in 2016, driven by product launches of two of our customers and new pricing on a contract extension which we signed last year. We expect that, as we move further toward turn-key solutions, our revenue will be more volatile on a short-term basis driven by product launches and campaigns of our customers. However, we remain very confident of the outlook for the business and have seen a significant growth in the sales pipeline that is transitioning to higher value, higher margin turn-key products or components based on Scapa IP and innovation.

Healthcare profits increased 18.6% to £16.6m, or 4.4% at constant currency, improving margins to 15.3% as we improve efficiency and shift further to turn-key solutions. We expect that the higher margin achieved during the second half of the year can be maintained and, as we continue to focus on operational efficiencies and the revenue profile shifts more toward turn-key solutions, the margins should continue to improve further.

In May 2016, we completed the acquisition of EuroMed, the hydrocolloid wound care company based in Orangeburg, New York. With its intellectual properties and innovation portfolio, the acquisition significantly enhances our design and development capabilities, which further strengthens our value chain and deepens our strategic engagement with our Healthcare customers. EuroMed has integrated well, particularly after the backlog and cost base normalised post transaction. The second-half performed well both in revenue and profit, with second-half profits ahead of our initial expectations.

Industrial revenue increased 11.4% to £170.9m, or (0.3)% at constant currency. Cable performed well, driven by general improvement in the clean energy sector and a contract win in the US. The Construction segment also delivered above-market growth, including in France. The positives were offset by a decline in Auto and Specialty Products. Our strategy to focus on operating efficiencies and Return on Capital Employed (ROCE), enables us to deliver double-digit profit growth despite flat revenue. Industrial profits increased by 66.4% to £17.8m, 45.9% growth at constant currency, and margins were increased to 10.4% from 7.0%. The improvement in profit was driven by (i) operational efficiencies; (ii) lower input costs; and (iii) initial benefit from the closure of Rorschach. We expect that we will see an additional £1.0m profit improvement next year from the closure. Despite reaching the double-digit profit margin target we set for ourselves, we believe that there are still significant opportunities to further improve our Industrial margin by continuing to execute our strategy. We believe that we can deliver mid-teens profit margin through additional operational efficiencies and asset rationalisation.

Group trading profit increased to £29.2m, a growth of 37.1% or 18.2% at constant exchange rates, and margins increased to 10.4%. The Group benefited from a post-Brexit currency tailwind and the trading profit constant currency result was also well ahead of expectations for the year. Cash generation was strong, and we ended the year leveraged at 0.45 times EBITDA after paying US$35m for the acquisition of EuroMed.

Strategic progress during the year
At the start of the last financial year we identified a series of key goals and priorities for the year.

• Healthcare - Continue delivering profitable growth organically and through acquisitions. We will continue to strengthen our value chain and deepen our strategic engagement with our global customers - The commercial project pipeline has been improved in terms of the number, quality and range of projects under development. Scapa is well positioned to help our customers improve cost, supply chain efficiency and speed to market. With the successful acquisition and integration of EuroMed, Scapa has added to its IP portfolio and has further moved the business towards higher value-add turn-key products. First Water, acquired in 2015, performed strongly again this year. We have long-term commercial agreements with our major Healthcare customers that underpin £200m in revenue over the life of the contracts.

• Industrial - Further drive ROCE through optimisation of the asset base. Continue to focus on efficiency improvement and cost control. Focus on key markets where we can gain market share - Driving increased ROCE through optimisation of the asset base has been a key feature of the Scapa Industrial strategy. During the year the facility in Rorschach, Switzerland was closed and the majority of the production transferred to the existing facility in Valence, France. The project was completed on time and on budget, with minimal service interruption to customers, and has delivered on the commitment to generate £1.0m of profit improvement in the second half. We expect a further £1.0m of incremental savings in the first half of FY18. Our supply chain team and strong cost controls also contributed to the increase in margins, up from 7.0% last year to 10.4% in 2017.

• Acquisitions - Make further acquisitions to complement the current business or deliver a new strategic platform - EuroMed, a specialist producer of hydrocolloid products for advanced wound care and consumer healthcare products based in Orangeburg, New York, was acquired in May 2016 for US$35m and improves the range of technologies available to our customers. It has fitted seamlessly into the Scapa Healthcare Group and made a strong contribution to performance in the year.

• Financial - Continue to improve the Group’s pension and tax positions - The gross pension deficit at year end was £31.4m (2016: £27.5m) – well controlled despite the adverse movement in the discount rate during the period. The Group continues to explore ways to manage the deficit and has conducted a number of projects during the year, including offering flexible retirement options and pension increase exchange plans. The effective tax rate for 2017 was 20.0% (2016: 23.8%), reduced through a combination of strong UK trading and careful tax planning.

• Culture - Promote The Scapa Way by embedding our core values and continuing to pursue entrepreneurialism across all aspects of our business - After the efforts to promote The Scapa Way and the Ten Guiding Principles over recent years this is now very visible in the Group and continually reinforced. The Scapa Academy allows for efficient online training on a variety of subjects, including the Code of Conduct which reflects both Scapa values and legal compliance. The annual CEO Awards produced another excellent list of projects that have delivered significant value across the business.

2017/18 Strategic goals and priorities
Looking into the 2017/18 financial year, we believe that the strategies we have in place for our business units continue to give the right focus and will continue to deliver further value for our shareholders, and the continued emphasis and challenge within the business will be on execution against that strategy as the pace of projects accelerates:

• Healthcare: Continue delivering profitable growth organically and through acquisitions. We will continue to strengthen our value chain and deepen our strategic engagement with our global customers, and convert the increased project pipeline to revenue. Continue to shift further into turn-key solutions with Scapa’s IP and innovation
• Industrial: Further drive ROCE through optimisation of the asset base. We will continue to focus on efficiency improvement and cost control, and focus on key markets where we can gain market share. We will continue the path to industry average margins
• Make further acquisitions to complement the current business or deliver a new strategic platform
• Continue to improve the Group’s pension and tax positions, and review the Company’s banking facilities
• Continue to focus on talent development and succession planning to ensure that we have the right people embedded with our core values to further drive the growth of the business

We achieved some significant milestones during the year as a result of our relentless and uncompromising execution of the strategy. Whilst much has been achieved, we believe that much more potential remains to be fulfilled in both Healthcare and Industrial, and we have set the goals for the next phase of our growth, which we are confident we can deliver.

We continue to execute the strategy that we have outlined for both Healthcare and Industrial. We have a team with a strong track record of delivery. The Group is well positioned to leverage the recent accomplishments and continue to make further progress in the year ahead.


Scapa Healthcare continues to lead as a strategic outsource partner of choice, providing turn-key solutions into three target markets: Advanced Wound Care, Consumer Wellness and Medical Devices. Through innovation, expertise and alignment of core values, we support leading healthcare companies to face their growth challenges and deliver world class products to end-users. Our deep understanding of our customers and the healthcare markets we serve has enabled us to deliver another successful year of profitable growth. We continue to strive to become their strategic outsource partner of choice, and to invest and innovate to fulfil customer needs and solve their challenges.

Market trends and overview
Demand for products and services within the healthcare industry is ever-changing and complex. Global healthcare organisations and consumer brands are faced with pressure to efficiently deliver the highest quality products at the lowest possible price. There are two ways to achieve this: internally they can invest heavily in differentiating technologies and infrastructure while attempting to lower their cost of manufacturing, or they can find the right strategic outsource partner. Responding to these market demands, Scapa Healthcare has established itself as a trusted outsource partner for leading healthcare companies.

Globally, healthcare companies continue to focus on strengthening both their internal research and development, marketing and distribution channels while utilising outsource partners as a more efficient means of producing their products, improving supply chain efficiency, shortening development times and bringing products to market faster. As a result, demand for third party services has grown as brands seek to establish trusted strategic outsource partnerships with scale and unique abilities. Expectations and capabilities continue to evolve as outsource partners are required to deliver more than just high quality products. They are tasked with delivering a complete turn-key solution, including design, regulatory and development expertise that can take a product from its earliest concept through design and manufacturing, while maintaining strict quality, process, design and cost controls. This capability ultimately results in rapid speed to market to enhance the brand owner’s competitive position.

Both the healthcare market and leading healthcare companies continue to call for innovation that will streamline their development process. Scapa Healthcare’s innovation strategy seeks to build a robust pipeline of both research and development projects and new customer development projects to propel the business forward. Through our strategic development and acquisition strategy, Scapa Healthcare has positioned itself for growth as an innovative partner to existing and emerging healthcare companies around the world.

Last year’s acquisition of EuroMed, a leader in the development and manufacturing of hydrocolloid-based dressings, has added tremendous value to the Scapa Healthcare portfolio. The Orangeburg, NY site continues to deliver profitable growth with the introduction of hydrocolloids into Scapa Healthcare’s technology platforms. The new technology has leveraged synergies between both organisations’ client bases, engaging new development programmes at existing advanced wound care and consumer wellness customers. Hydrocolloids have also enabled Scapa Healthcare to become a stronger player within the health and beauty segment of the consumer wellness market.

Building on last year’s tremendous success, the 2015 acquisition of First Water Limited (based in Ramsbury, UK) continues to leverage its growing portfolio of hydrogel formulations. Scapa Healthcare has strengthened its partnerships with leading brands to develop next generation products and expand the technology into completely new markets such as over-the-counter wearable devices and dressings to stop the inception of wounds. These new developments have positioned Scapa Healthcare as an innovative and trusted partner with large consumer and wound care brands.

Ongoing development work to meet the growing spectrum of wearable medical device users led to a more comprehensive Scapa MEDIFIX® Long-term Wear Solutions range. Long-term Wear Solutions are designed to adhere a medical device to the skin for an extended period of time with the creation of custom material and design combinations based on clinical and user requirements. Market demands for longer-wearing adhesives resulted in two subsequent wear studies. Both studies demonstrated the importance of adhesive and substrate combinations and developed a solution lasting up to 16 days, two days longer than earlier studies.

Delivering Long-term Wear Solutions resulted in a separate sterilisation method study and white paper publication to evaluate adhesives minimally affected by e-Beam sterilisation. Before use, wearable medical devices must undergo sterilisation; e-Beam sterilisation is not detrimental to electronics and therefore is most commonly used. Our range of e-Beam stable extended wear adhesives enables us to deliver custom developments and scalable production across the rapidly growing wearables market for devices such as patient monitoring, insulin delivery and continuous glucose monitoring.

Strategy and Business Model
Scapa Healthcare continues to concentrate on being the strategic outsource partner of choice, providing turn-key solutions for current and future industry leaders in our three target markets: Advanced Wound Care, Consumer Wellness and Medical Devices.

Our strategy is to remain a business-to-business partner to global healthcare customers, supporting them in the design, development and launch of their new products into the healthcare market. Our team of experts and full turn-key capabilities allow us to quickly take a product from concept to market faster than many of our partners can do internally. Delivering rapid speed to market allows us to offer our partners a differentiated competitive advantage in the market-place. This enables us to build long-term trusted relationships, supported by multi-year contracts that provide visible and secure streams of income for the business.

To enhance our plan, we refined a comprehensive go-to-market strategy, targeting senior level engagement and outlining a strategic growth platform for the three key markets that we service. We will continue to establish a strong platform for growth with long-term contract renewals and increased strategic engagement with our customers. We actively aim to expand our technology and product portfolio, sales channels, manufacturing capabilities and capacity, and quality systems to remain a value-add partner to our customers and increase our share of the customers’ total spend. In order to do so, we must focus on the full supply chain and complete product processes from design and raw material selection, through converting and packaging, to sterilisation and logistics. We strive to be our customers’ strategic outsource partner of choice.

Delivering high quality products is at the heart of everything we do; it is the foundation of trust with our customers. We have dedicated global healthcare quality teams at each site, and all product development and production are subject to rigorous quality control measures. We continue to invest in quality systems, resources and manufacturing infrastructure to meet the highest industry standards.

This year we have made significant investments in capacity, quality and account management to better serve our customers. In order to deliver in the ever-changing healthcare market, we will continue to expand and strengthen our current capabilities and monitor any gaps in our value chain. We will invest through targeted acquisitions to support our growth strategy and deliver more value.

2016/17 performance
Scapa Healthcare made good progress this year, increasing revenue by 16.5%, or 5.0% at constant exchange rates. We saw continued success in obtaining long-term contract renewals and structured programmes with customers. Margins increased to 15.3% and trading profit growth was 18.6%, or 4.4% at constant exchange rates. With good visibility of revenue and a strong pipeline of projects, we have continued to invest in innovation and design, setting ourselves up for future growth.

Our turn-key value proposition continues to resonate with customers. As the Scapa Healthcare brand and reputation continues to grow, so does the pipeline of new development projects and opportunities. We are actively engaged with major healthcare companies across all of our business sectors and at every level of the value chain. We will continue to invest in the business, developing the tools, infrastructure and talent needed to deliver the world class service that leading global healthcare providers require from their outsource partners. We remain very positive about the future for Scapa Healthcare.


The Industrial business unit strategy is to drive improvements in Return on Capital Employed (ROCE) while focusing on servicing our customers in our chosen market segments; Automotive, Cable, Construction, Consumer and Specialty products. Our approach continues to deliver significant improvements in trading profit and margins, coupled with good revenue growth in specific areas against a difficult macro environment.

Market trends and overview
Our Engineered Products business continues to serve our Automotive and Cable markets with bespoke solutions. The commercial teams partner with customers and give technical assistance, to design-in tailored adhesive solutions, which meet the customers’ specific needs. We then follow the design-in work to the manufacturing locations where the product is used. We work within our global footprint, and with trusted partners, to provide products to customers in a timely manner.

In the Automotive segment, our core products are used in protection wraps for shipping and wire harnesses. We also have a unique specialty film business which serves the seat heating sub-segment. Our growth, particularly in Europe, with the Top 5, Tier 1 wire harness system manufacturers continues. In North America, our renewed focus has produced multiple contract wins at major Tier 1 suppliers for new platforms, with initial builds occurring in 2017. As we move beyond the protective and wire harness business we continue to see improved margins. Year-on-year growth continues in Europe and BRIC countries. New water-based low Volatile Organic Compound (VOC) products align with China’s demand for environmentally-friendly products and continue to provide growth opportunities. Automotive OEMs expect a global footprint with a local presence. Our key products have been localised to meet this requirement and strengthen our supply position.

Our Cable segment products are primarily used in protection against abrasion and water ingress for power transmission and fibre-optic communication lines. The products are highly sought after because of their reliability in the field. As we move beyond protection and look at fire retardant and anti-rodent products, we continue to expand our margins. Our success depends on the ability to win future contracts and we secured several large contracts with major European subsea and high-voltage cable manufacturers. Creation of a new narrow thickness water blocking foam tape, which minimises signal losses in fiber-optic cables, is creating further opportunities with core customers. Our water-blocking marine tapes continue to help our customers produce in a more cost-effective manner while meeting the high standards required in the subsea industry. Our growth in revenue, margin and profit extends to almost every area of the globe.

Our Commercial Products business serves the Construction, Consumer and Specialty markets with application-specific consumable solutions.

The Construction segment, the main driver for the Commercial Products business, is largely dependent on macro trends, is seasonal and is driven by short lead times. We focus on the spring and summer months to ensure we are in a position to support the spikes in demand. Our Construction segment clearly stood out as a high performer as it doubled GDP growth rates in both Europe and North America. Traditionally, our large range of products is used globally by contractors, professionals and do-it-yourself enthusiasts. We have been working to increase our presence with OEMs while maintaining our relationship with retailers and distributors. We have seen this strategy pay dividends in Europe and North America.

The Consumer segment is led by our key retail brands. In France, where we manufacture the Barnier® brand, the tape is used by professionals in the construction business throughout Europe. In Canada, where our market leading Renfrew Pro Tape™ is manufactured, the new ‘Feel the Game™’ tagline is positioned to allow the hockey playing consumer to know our top quality tape products will give them the puck control and game-time confidence to achieve their best performance on the ice.

Our Consumer business in Europe and North America had mixed results, with some good highlights. In the year of celebrating our Centenary, we believe Barnier’s 100 years in the market allows us an advantage in the professional usage arena. The global re-brand of our Renfrew Pro Tape™ portfolio to hockey players and retailers via online media has increased the pace of new retail partnership enquiries as well as greater interest in our new NHL branded hockey tape portfolio at the end user, retailer and professional team levels.

Our Specialty segment consists of a diverse portfolio of niche technologies and globally-dispersed clients which led to solid performance across top accounts and an understanding of the highest-value technologies and regions for future growth. Our Specialty team has leveraged several existing bonding and laminating technologies into new applications with industry-leading companies across the aerospace, technical packaging, white goods and military markets.

Our Commercial Products business saw significant growth in the top 20 accounts.

Strategy and Business Model
Our strategy is to continue improving ROCE through a business model where we continually review our asset base and expense structure. We will deliver complementary offerings within and across the Industrial segments, driven by combining the needs of our strategic partners with Scapa’s broad technical toolbox of chemistries, materials and global supply access. Our broad portfolio development across multiple markets leverages existing products, material and manufacturing knowledge into the hands of new and existing customers.

2016/17 performance
The Industrial performance exceeded expectations with regard to trading profit and margin. Our continued emphasis on improving return on assets, cost controls and engaging with our strategic partners lifted our performance. The business benefitted from the weakening of Sterling, the revenue growth of 11.4% being entirely because of currency. Revenue at constant currency declined by 0.3%, which included some business we chose not to continue after the closure of our Switzerland facility.

Trading profit is where we made the most impressive increase of 66.4%, and 45.9% at constant currency. Margins improved for the seventh year in a row to 10.4% as the business continued to improve its operational efficiency and supply chain. The closure of the Swiss business in the second half delivered the expected benefits, with minimal disruption to customers.

Whilst 2016/17 saw an increase in margins to 10.4%, we remain confident that there is further scope to improve the business through continued execution of the ROCE strategy and driving better asset utilisation. Further margin improvement will come from the full year impact of the Swiss closure, and other opportunities are under evaluation. Whilst conscious of the macro challenges, the business will continue to build on current strategic relationships for growth, by focusing on sales of our high-value technologies portfolio and connecting market needs with the unique functional properties which our products offer. The addition of our new Industrial focused website, and two new consumer branded websites, will allow new and existing customers a greater understanding of, and access to, Scapa’s broad product portfolio, market experience, technical expertise and application solutions. The addition of targeted market communications programmes, new prospect outreach campaigns and promotional initiatives will continue to drive momentum through increased customer and market awareness. We expect to continue to improve our performance by increasing our pipeline and focusing our efforts on improving returns.


This was another excellent year for Scapa, with the Group once again delivering a strong set of results. We have seen continued growth in revenue and profits and increased margins in both of the businesses in which we operate; Healthcare and Industrial. The dividend has again been increased, by 14.3%, supported by higher earnings and good cash generation.

Revenue and trading profits
Group revenue increased by 13.3% to £279.6m (2016: £246.7m); on a constant currency basis growth was 1.7%. Healthcare revenue was £108.7m (2016: £93.3m), an increase of 16.5% or 5.0% on a constant currency basis. Industrial revenue was £170.9m (2016: £153.4m), an increase of 11.4% or (0.3)% on a constant currency basis.

The Group delivered another record year for trading profit, which increased by 37.1% to £29.2m (2016: £21.3m) or 18.2% growth on a constant currency basis. Trading profit margin improved to 10.4% (2016: 8.6%). Healthcare contributed £16.6m (2016: £14.0m), growing the margin to 15.3% (2016: 15.0%). Industrial contributed trading profit of £17.8m (2016: £10.7m), a very strong growth of 66.4% or 45.9% on a constant currency basis. Industrial trading profit margin improved to 10.4% (2016: 7.0%), achieving the double-digit margin target.

Total Group operating profit was £23.8m (2016: £11.7m) after charging pension administration costs of £0.7m (2016: £0.7m), intangible amortisation costs of £3.7m (2016: £2.3m) and exceptional costs of £1.0m (2016: £6.6m). Trading profit continues to be adjusted for these items to give better clarity of the underlying performance of the Group.

Currency translation had a significant impact on both sales and profits in 2017 as a result of the weaker Sterling. In the year Sterling averaged US$1.32 (2016: US$1.50) and €1.20 (2016: €1.36). Currency translation increased sales compared to 2016 by £28.2m (11.4%) and trading profit by £3.4m (16.0%).

Exceptional items
Exceptional income in the period was £0.3m (2016: £2.1m) and related to a pension liability management exercise for the Group legacy UK defined benefit scheme that concluded in the period.

Exceptional costs in the period were £1.3m (2016: £8.7m). This comprised costs of £0.7m (2016: £5.1m) associated with the closure of our Swiss site, including asset write-offs and retention payments, along with acquisition-related costs of £0.6m as a result of the acquisition of EuroMed in May 2016.

In order to provide a clearer understanding of the performance of the Group, the above items, both income and expenses, have been separated out from trading results.

Alternative performance measures
Scapa uses alternative performance measures such as trading profit, adjusted earnings per share, trading profit margin, and free cash flow, together with current measures restated at constant exchange rates, to allow the users of the financial statements to gain a clearer understanding of the underlying performance of the business, allowing the impact of restructuring and reorganisation activities and acquisition costs to be identified separately.

Net finance costs and Group facilities
Net finance costs increased slightly to £2.0m (2016: £1.9m). Net cash interest payable increased to £1.2m (2016: £0.7m) following the acquisition of EuroMed and relates to the Group’s committed £60m revolving facility which matures in June 2018. During the year the Group drew down upon the uncommitted £20m accordion facility to increase the revolving credit facility from £40m to £60m to fund its acquisition strategy. Non-cash interest reduced to £0.8m (2016: £1.2m) and relates to the Group legacy defined benefit pension plans.

The Group’s tax charge of £4.2m (2016: £3.7m) includes a £5.6m charge (2016: £4.9m) on trading activities and a £1.4m credit (2016: £1.2m credit) on exceptional items.

The Group’s effective tax rate is a blend of the different national rates from the operating subsidiaries in the various countries in which we operate, applied to locally generated profits. Our tax arrangements are driven by commercial transactions, managed in a responsible manner based on compliance, transparency and co-operation with tax authorities.

We report an adjusted effective tax rate to give the best indication of the Group’s tax commitments. This tax rate is calculated on trading activities after the deduction of cash interest. The rate in the current year is 20.0% (2016: 23.8%), the same as the UK standard rate. Although the national rates applied to local profits are generally higher than the UK standard rate, the Group benefits from unrecognised tax losses in the UK along with sensible and compliant tax planning.

The Group’s cash tax payment in the year was £2.8m (2016: £3.0m) or 9.6% of trading profit. Cash tax remains below the effective tax rate as the Group continues to use the significant brought forward losses. As the Group continues to increase its profitability, we expect to see cash tax payments becoming more in line with the effective tax rate as brought forward losses in certain jurisdictions are used up.

Acquisition activity
The Group continues proactively to seek out complementary acquisitions to enhance the product and service offering to our customers.

On 23 May 2016, the Group acquired 100% of the share capital of EuroMed, a healthcare business specialising in hydrocolloid based wound care solutions, located in Orangeburg, New York, USA at a cost of US$35m (£28.3m). The company has innovative R&D capabilities that will further enhance and complement Scapa Healthcare’s existing resources, whilst broadening and strengthening our internal intellectual property and increasing the turn-key value proposition for Healthcare.

Earnings per share
Adjusted earnings per share improved by 39.6% to 14.8p (2016: 10.6p) and basic earnings per share was 11.6p (2016: 4.1p).

Cash flow and net debt

The Group continued to see healthy cash generation and closing net debt was £16.1m (2016: £2.6m) following the acquisition of EuroMed.

Net cash generated from operating activities before exceptional items was £32.7m (2016: £19.0m) which represented 112.0% of trading profit. Net cash interest paid was £1.2m (2016: £0.6m). Income tax paid was £2.8m (2016: £3.0m) resulting in a net cash generated from operating activities of £25.1m (2016: £12.9m). The site consolidation programme continues and accounts for a significant portion of the net capital expenditure of £8.3m (2016: £9.8m) with the completion of the closure of the Rorschach site this year and transfer of operations to Valence.

Net debt to EBITDA
The Group revolving credit facility of £40m commenced in January 2014 and was increased to £60m following the use of our £20m ‘accordion’ facility in May 2016 to support the acquisition of EuroMed. The current facility goes through to June 2018, so the Company will be reviewing and extending the banking facilities in H1 of 2017/18. Current availability of finance is good and we expect to be able to refinance on favourable terms.

At the year end net debt was £16.1m (2016: £2.6m). The ratio of net debt to EBITDA was 0.45 times, giving significant headroom against our facility covenant of 2.75 times. The Group continues to operate well within its banking covenants with significant headroom under each ratio at year end.

Dividends and capital allocation
The Board is recommending a 14.3% (2016: 16.7%) increase in the full year dividend with a final dividend of 2.0p (2016: 1.75p). This increased dividend balances both our cash performance in the period and our underlying confidence in our business with the need to support the future growth of the Group. Dividend cover (being the ratio of adjusted earnings per share to dividend per share) is 7.4 times (2016: 6.1 times). If approved at the Annual General Meeting the final dividend will be paid on 18 August 2017 to shareholders on the register on 21 July 2017.

Our objective is to maximise long-term shareholder returns through both organic growth and growth through acquisitions. We continue to adopt a cash allocation policy that allows for: continuing investment in capital projects that support growth; regular returns to shareholders from our free cash flow; acquisitions to supplement our existing portfolio of business; and an efficient Balance Sheet appropriate to the Company’s investment requirements.

Continued progress on post-retirement benefits
The Group has no open defined benefit schemes and the majority of the post-retirement benefit schemes for employees are defined contribution. The Group’s Balance Sheet carries pension deficits that relate to schemes that have been closed for many years, and some very small overseas leaving indemnities that are classed as defined benefit.

Over recent years we have been very active in trying to address the cost and volatility of the legacy pension deficits. This strategy has continued into the current year where we have continued to see good take-up of the Flexible Retirement Options (FRO) that is now embedded into the UK scheme. In addition, we have undertaken a Pension Increase Exchange (PIE) exercise whereby a number of pension members agreed to exchange future non-statutory pension increases for an immediate one-off increase in their current pension, resulting in a reduction in the scheme’s liabilities and mortality risk, and a past service credit to the P&L of £0.3m (2016: £Nil) which was treated as exceptional income.

During the year the fair value of the scheme assets grew by £19.0m whilst the total liabilities of the schemes grew by £22.9m, resulting in an overall increase in the deficit of £3.9m which was driven by the decrease in the rate used to discount the scheme liabilities to 2.45% (2016: 3.45%) due to market conditions. The scheme’s investment strategy includes a portfolio of assets that are matched to the duration of the member liabilities. This strategy hedges the deficit from changes in bond yields that affect the discount rate and is reflected in the asset and liability movements in the current year.

Overseas cash contributions were £0.9m (2016: £1.0m) and these contributions relate to leavers and not to a deficit repair schedule of payments. Pension administration expenses of £0.7m (2016: £0.7m) in relation to the pension schemes are reported through operating profit under IAS 19 (revised).

Scapa has other pension projects in the pipeline and will continue to execute projects that provide a good balance of member and Company benefits whilst looking to de-risk the scheme further. In 2012 we put in place a Central Asset Reserve (CAR) structure with the UK Trustee and continue to make contributions under this arrangement. In the year we made contributions of £3.7m (2016: £3.7m). The triennial pension scheme valuation date is 31 March 2017, but no changes to the current arrangements are expected. With a reasonable projection of investment returns, we have the intention of reaching a position where we can achieve buy-out of the pension scheme within the next ten years.

Shareholders’ funds
Shareholders’ funds increased by £22.7m to £100.4m (2016: £77.7m). Profit after tax increased to £17.6m (2016: £6.1m). The pension loss in the period was £6.9m (2016: £7.9m gain). Movements in equity that related to share issues, dividends and options reduced shareholders' funds by £0.7m (2016: £0.4m decrease). Currency movements on overseas asset values were favourable in the period £12.7m (2016: £2.5m). Tax items booked directly into reserves £Nil (2016: £0.2m decrease).

UK referendum on EU membership
As a global business with over 90% of the Group’s activities outside of the UK, Scapa’s trading is less likely to be affected by Brexit than many UK plcs, and current results are benefiting from the weaker Sterling. With so little information on the likely shape of future relationships between the UK, the EU and beyond, we are engaged in developing a deeper understanding of the implications of the changes as they emerge, in particular relating to customs and duties.

Risk management and the year ahead
Risk is managed closely and is spread across our businesses and managed to individual materiality. We have a Code of Conduct which is adopted internationally and reflects our ethical approach to business. The Board has considered all of the above factors in its review of going concern and has been able to conclude the review satisfactorily.

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