Interim Results 2018
Solid trading performance and three technology transfers completed
20 November 2018
Scapa Group Ltd (AIM: SCPA) today announces its results for the 6 months period ended 30 September 2018.
Group Financial Highlights:
- Revenue decreased 3.4% to £140.7m (2017: £145.6m); 1.2% reduction at constant fx
- Trading profit* increased 2.4% to £17.1m (2017: £16.7m); 6.2% constant fx
- Trading profit* margins further improved to 12.2% (2017: 11.5%)
- Adjusted earnings per share** remained constant at 8.3p (2017: 8.3p)
- Basic earnings per share of 4.3p (2017: 7.5p)
- Net debt of £5.2m (31 March 2018: £3.8m); excludes £31.4m paid on 1 October 2018 for acquisition
of the Systagenix manufacturing facility
- Pension deficit reduced to £9.8m (31 March 2018: £21.0m)
- Revenue increased 0.2% to £57.8m (2017: £57.7m); 3.4% constant fx
- Trading margins at 14.2% (2017: 16.1%) in line with H2 FY18 margin
- Trading profit decreased 11.8% to £8.2m (2017: £9.3m); 8.9% reduction at constant fx, reflecting
the incremental investment made to execute technology transfers
- Acquired in October 2018 the development and manufacturing assets of Systagenix from Acelity for
£31.4m and entered an exclusive five-year development and supply agreement for Systagenix advanced
wound care products to Acelity
- The three technology transfers completed in the last twelve months bring aggregate incremental
annualised revenue exceeding £40m
- Announced the closure of the facility in Dunstable, UK
- BioMed, acquired in March 2018, has enhanced Healthcare’s product portfolio and is performing
in line with expectations
- Previously announced technology transfers and new programmes anticipated to start to benefit
revenues in H2
- Revenue decreased 5.7% to £82.9m (2017: £87.9m); 4.2% reduction at constant fx
- Trading profit grew 8.9% to £11.0m (2017: £10.1m); 12.2% constant fx
- Margins increased to 13.3% (2017: 11.5%), on target to reach 15%
- Announced the closure of the facility in Liverpool, New York
- Revenue in India increased by 30.0% in local currency driven by consumer and automotive
- Integration of Markel is nearly complete, with synergy benefits anticipated to start in H2
Commenting on the results Chief Executive, Heejae Chae said:
“The first half has delivered a solid trading performance and continued good progress in the transformation
of Scapa from an industrial tape company to a group with two businesses that are global and market
leaders. The Industrial business is one of the leading global tape companies with strong profit margins and
cash flow. The Healthcare business is now a world leading strategic turn-key partner to major global
The acquisition, by way of a technology transfer, of the R&D and manufacturing assets of Systagenix and
the exclusive five-year development and supply agreement for Systagenix advanced wound care products
to Acelity is a milestone in Scapa’s development, completing our Healthcare journey from a roll stock
supplier to a fully integrated healthcare company with extensive technologies and capabilities in the
markets we serve. We have now completed three technology transfers in the last twelve months with
an aggregate annualised revenue exceeding £40m. We believe that further opportunities to partner
with our healthcare customers exist as the medical device sector undergoes disruption.
Whilst the macro environment remains challenging, we anticipate the profit for the year will be in line
with expectations, excluding the impact of the Systagenix healthcare transaction. This transformative
transaction is expected to be modestly earnings dilutive in the current year and materially accretive
from FY20 onwards.”
* Profit before tax, before net finance costs, 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 Ltd
Heejae Chae – Group Chief Executive
Oskar Zahn – Chief Financial Officer
Tel: 0161 301 7430
Numis Securities Limited
(Nominated Adviser/Joint Broker)
Mark Lander, Richard Thomas
Tel: 020 7260 1000
Berenberg (Joint Broker)
Tel: 020 3207 7800
Weber Shandwick Financial PR
Tel: 0207 067 0000
Scapa has delivered a solid first half performance, driven by revenue growth in Healthcare (up 3.4%
at constant currency) and continued margin improvement in Industrial. Group trading profit1 for the
period increased 2.4% to £17.1m (2017: £16.7m), increasing the overall Group trading margins to
12.2% (2017: 11.5%). Group revenue for the period decreased 3.4% to £140.7m (2017: £145.6m),
primarily reflecting adverse currency movements. Adjusting for the effects of exchange rates, revenue
decreased 1.2% (2017: 1.6%) and trading profit increased 6.2% (2017: 21.9%).
Operating profit for the period decreased to £10.5m (2017: £16.3m) and profit before tax decreased
to £9.7m (2017: £15.4m). Taxation charges for the period were £3.1m (2017: £3.9m), with the
underlying effective tax rate2 for the period at 23.0% (2017: 21.1%). The basic earnings per share
was 4.3p (2017: 7.5p). When adjusted for exceptional items, pension administration costs, amortisation
and non-cash interest, earnings per share was 8.3p (2017: 8.3p).
Exceptional items (note 4) in the period totalled £4.1m (2017: gain of £1.4m); £2.2m related to the
expected closure of the Dunstable UK manufacturing site and £1.9m for acquisition related costs for the
acquisition of Systagenix Wound Management Manufacturing Limited which completed on 1 October 2018.
The results include the impact of Markel Industries (acquired in August 2017) and BioMed Laboratories
(acquired in March 2018).
Strategic Priorities and Business Objectives
Scapa is organised into two business units serving the Healthcare and Industrial markets, primarily in
Europe and North America. Each business unit has a specific strategy that it follows:
- Healthcare continues to build its relationships with key market leading customers as the turn-key
partner of choice, as it leverages its know-how in development and manufacturing processes together
with materials expertise, in a market with favourable demographic and outsourcing trends. Healthcare
remains Scapa’s primary acquisition focus.
- Industrial has further opportunities to drive improved margins through consolidation and efficiency,
and is also focused on growth in selected areas where it has a competitive advantage.
Six months ended
Trading profit (£m)
Trading margin (%)
The strategy of our Healthcare business is to continue to be the trusted strategic turn-key partner
of choice for the world’s leading companies in advanced wound care, consumer wellness and
Scapa has evolved from a roll stock supplier to a manufacturer of turn-key products with full capabilities
all the way from design through manufacturing to distribution. The business expects to benefit from the
continued outsourcing trend and the favourable demographics in healthcare.
Revenue grew 0.2% to £57.8m (2017: £57.7m); at constant exchange rates the growth in revenue
improved to 3.4%. Healthcare trading profit decreased 11.8% to £8.2m (2017: £9.3m); at constant
exchange the profit decreased 8.9% mainly due to lower volumes as a result of the continuing soft
demand within the wound management market and some delays in new product roll-out as a result
of delays in customer driven launches; shipments of these products have commenced since the period
end. The division delivered trading margin at 14.2% (2017: 16.1%). Scapa anticipates that the
technology transfers and new programmes previously announced will start to benefit revenues during
the second half of the year and that, as the proportion of turn-key business increases over the medium
term, margins should improve to c.20%.
The acquisition in October 2018, by way of a technology transfer, of the R&D and manufacturing assets
of Systagenix and the exclusive five-year development and supply agreement for Systagenix advanced
wound care products to Acelity is a milestone in Scapa’s development, completing our Healthcare journey
from a roll stock supplier to a fully integrated healthcare company with extensive technologies and
capabilities in the markets we serve. The acquisition positions Scapa as one of the leading B2B
manufacturers of advanced wound care products in the world. The transaction is expected to be
modestly earnings dilutive in the current year and materially accretive from FY20 onwards.
We have now completed three technology transfers in the last twelve months with an aggregate annualised
revenue exceeding £40m. We believe that further opportunities to partner with our healthcare customers
exist as the medical device sector undergoes disruption.
The integration of BioMed Laboratories, acquired in March 2018, has proceeded to plan. BioMed has
enhanced Healthcare’s offering beyond the adhesive value chain into formulations, liquids, powders and
gels and enables us to address the ostomy segment of our customers as well as the OTC and health and
beauty aisles of our consumer product customers. We expect this acquisition to be earnings enhancing
in the current financial year.
Following a consultation process during September, the closure of the Dunstable UK manufacturing site
was announced in October; the closure of the site will generate operational efficiencies through the
consolidation of Healthcare’s manufacturing footprint. Likewise, construction of our new facility in
Knoxville, Tennessee, will complete by the end of the year, enabling us to integrate the site’s three
existing buildings into a single site of operation with significantly increased capacity.
Six months ended
Trading profit (£m)
Trading margin (%)
The strategy of our Industrial business to focus on maximising ROCE has enabled Scapa to continue
to deliver strong results despite the volatile market environment. Revenue decreased 5.7% to £82.9m
(2017: £87.9m), mainly the result of the new programme delays experienced by its customers. Trading
profit for the period was £11.0m (2017: £10.1m), an increase of 8.9% over the prior period with the
trading margin increasing to 13.3% (2017: 11.5%). After adjusting for the effect of exchange rates,
revenue decreased by 4.2% and trading profit increased 12.2%, reflecting the improvement in
operational efficiency as a result of our footprint consolidation.
Our small India operation continues to perform well, benefiting from the Chennai facility built last year.
Revenues grew by 30.0% in local currency, primarily driven by consumer and automotive markets.
The integration of Markel Industries, acquired in August last year, is nearly complete and we anticipate
that the synergy benefits will come through in the second half of the year. Following the exit from our
Korean factory and rationalisation of our Asian cost base last year, we announced in October the closure
of our manufacturing facility in Liverpool NY, reflecting continued delivery of our self-help agenda in
Net assets at 30 September 2018 increased by £19.5m to £138.4m (31 March 2018: £118.9m).
Positive movements included profit after tax of £6.6m, actuarial movements of £9.0m, foreign
exchange movements of £6.4m and tax items booked directly into reserves of £0.2m. Movements in
equity that related to share issues, dividends and options reduced shareholders’ funds by £2.7m.
The Group net debt balance was £5.2m (31 March 2018: £3.8m) reflecting the strong trading cash generation.
The pension deficit decreased to £9.8m (31 March 2018: £21.0m). This decrease in the deficit is partly
owing to gains achieved in the UK scheme following the Triennial valuation from 1 April 2017 that was
finalised within the period plus a modest improvement in the discount rate applied to the long-term liabilities
together with the regular company contribution.
Net cash generated from operations was £13.1m (2017: £14.0m) which increases to £13.4m (2017: £16.4m)
before exceptional items. Capital expenditure in the period was £4.5m (2017: £2.4m). Pension payments in
excess of operating charge were £2.6m (2017: £2.3m) and represent the deficit repair payments and
contributions to scheme expenses. Tax and interest outflows were £5.2m (2017: £2.8m), with the increase
being mainly tax associated with the prior year sale of the Swiss property. After dividends of £3.7m
(2017: £3.0m), closing net debt was £5.2m, less than 0.3x EBITDA3 (31 March 2018: £3.8m net debt).
Since the period end the Group has paid the £31.4m cash consideration for the acquisition of Systagenix.
A final dividend for the year ended 31 March 2018 of 2.4p per share was paid on 17 August 2018 to all
shareholders registered on 20 July 2018. 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 2018.
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 again delivered a solid first half performance with growth in trading profit and margins.
There are further significant opportunities for both business units to improve both sales and margin
performance through rigorous execution of the strategy, in both the short and longer term. The Board
remains confident of delivering its full year expectations and in the Company’s ability to drive shareholder
L C Pentz
20 November 2018
1 Profit before tax, before net finance costs, amortisation of intangible assets, exceptional items and pension administration costs
2 Adjusting operating profit and taxation for exceptional items, pension administration costs, amortisation and non-cash interest
3 Net debt to EBITDA comprises net debt divided by trading profit before depreciation for the six months ended 30 September 2018