TIDMPLA
RNS Number : 8428J
Plastics Capital PLC
03 July 2017
3rd July 2017
Plastics Capital plc
("Plastics Capital", the "Company" or the "Group")
Results for the year ended 31 March 2017
Plastics Capital plc (AIM: PLA), the niche plastics products
manufacturer, announces its audited results for the year ended 31
March 2017, which are in line with consensus market
expectations.
Financial highlights
Year ended Year ended
31 March 31 March
2017 2016 %
GBP000 GBP000 Change
-------------------------- ----------- ----------- ---------
Revenue 65,785 50,803 29.5%
-------------------------- ----------- ----------- ---------
EBITDA* 6,900 5,886 17.2%
-------------------------- ----------- ----------- ---------
Underlying Profit before
tax* 4,348 4,061 7.1%
-------------------------- ----------- ----------- ---------
Underlying EPS (p)*+ 11.5 10.8 6.5%
-------------------------- ----------- ----------- ---------
DPS (p) 1.46 4.40 -66.8%
-------------------------- ----------- ----------- ---------
* excluding amortisation, exceptional costs, unrealised foreign
exchange derivative gains / losses, and share-based incentive
scheme charges (see Notes 4&5).
+ applying an underlying tax charge of 6.5% and based on the
weighted average number of shares in issue in the year.
Financial highlights
-- Banking facilities increased and extended in July 2016
-- Significant increase in capital allocated towards investment in organic growth
Operational highlights
-- Strong like-for-like organic growth of 6.7% annually
-- Pipeline of business won and still to go into production up GBP0.7 million to GBP5.5 million
-- Excellent initial contribution from recently acquired Synpac
-- Record years for the Industrial Division and Flexipol
-- Programme of strategic change progressing well at Palagan
-- Stream of new products being launched
-- Strong free cash flow being reinvested into growth opportunities
-- GBP2.45 million invested in capacity expansion projects
-- 10% stake taken in CCM in USA with option to increase to 100%
Post year-end highlights
-- Placing to raise GBP3.54 million, net of expenses, completed in early June 2017
Commenting on these results, Faisal Rahmatallah, Chairman,
said:
"FY2017 has been a very good year for organic and acquisitive
growth. Our Industrial Division and Flexipol have had record years
for sales and profitability driven by excellent key account
management, product innovation and technical sales. In addition,
Synpac, acquired in July 2016, has performed in line with
expectations at the time of acquisition and has so far proved to be
an excellent addition to our Films Division in terms of technology
and customer reach. We expect that profits will benefit from the
change programme being implemented at Palagan and the expiry of
currency hedges taken out prior to Brexit.
We continue to have a number of exciting projects that we will
be investing in as the current financial year progresses. We
believe these initiatives will help us to deliver good growth over
the next few years and we anticipate another year of good
progress."
Plastics Capital plc Tel: 020 7978 0574
Faisal Rahmatallah, Chairman
Nick Ball, Finance Director
Cenkos Securities (Nomad Tel: 020 7397 8900
and Joint Broker)
Mark Connelly
Callum Davidson
Allenby Capital Limited Tel: 020 3002 2074
(Joint Broker)
David Hart
Katrina Perez
Notes to Editors
Plastics Capital is a niche manufacturer of specialist plastic
products. Applications for these products vary widely and examples
include:
-- Packaging for the food manufacturing and distribution - films, sacks and pouches
-- Steering columns and instrument control knobs in the
automotive industry - plastic ball bearings
-- Hydraulic and industrial rubber hose manufacture - various types of plastic mandrel
-- Cardboard box manufacture - plastic creasing matrices
Plastics Capital's business model is based on understanding
customers' problems in depth, and then developing and mass
producing proprietary, technical solutions for these problems.
The business operates through two divisions, Films and
Industrial, and has the majority of its production in six UK based
factories, with a further two factories in Asia. Approximately 45
per cent. of its GBP65 million sales are made outside the UK to
more than 80 countries.
Further information can be found on www.plasticscapital.com
Chairman's Statement
Review of FY2017
Financial Performance
FY2017 has been another year of strong revenue growth, with
acquisitive and organic growth both contributing significantly. On
the acquisitive side, we completed the acquisition of Synpac
Limited ("Synpac") in July 2016 and took minority stakes, with
options to acquire further control, in both Channel Creasing Matrix
Inc ("CCM") and Mito Srl ("Mito"); together all these added GBP8.8
million to revenues in the year under review. On the organic side,
we achieved 6.7% like-for-like growth over FY2016, which is within
the target range of 5-10% annual growth that we have set ourselves.
In addition, sterling devaluation has contributed 3.9% to sales in
the year.
In terms of organic growth, in the Industrial Division, we
achieved 16.5% year-on-year growth after adjusting for exchange
rates; 27.3% before adjusting for exchange rates.
(i) Our mandrel business achieved 40.2% revenue growth, much of which was due to new business.
(ii) Our bearings business enjoyed a 32% year-on-year increase
in sales before adjusting for exchange rates; a 20.5% increase
after adjusting for exchange rates. Again new business was the key
success factor.
(iii) Our matrix business increased sales 15.8% on the prior
year, after suffering a 7% reduction in the prior year. Some
rebuilding of stocks by our distributors contributed to this as did
increasing sales of related non-matrix products.
In the Films Division, we achieved 1.7% year-on-year organic
growth on a pro-forma basis. Flexipol was 5.9% up and Palagan 4.4%
behind the prior year. Exchange rates are not a significant factor
for the Films Division. Both businesses had very busy years for
different reasons. Flexipol installed and commissioned new
extrusion and conversion machinery; Flexipol also took management
responsibility for Synpac. Palagan, having lost some key accounts
at the end of FY2016, did well to maintain focus and not lose any
other key accounts during FY2017 as significant changes were made
to the management team, as well as to the production team, wage
structure and to internal IT systems.
Commodity raw material prices, which affect our Films Division
in the short term, were relatively steady during the year and have
not affected margins in the Films Division significantly. Prices
for engineering grade raw materials, which affect the Industrial
Division, have been relatively steady too. Gross margin on a
like-for-like basis has improved from 33.2% to 34.5% mainly due to
the operational gearing in our bearings and mandrels businesses,
both of which have grown strongly. In the Films Division, on a
like-for-like basis, there has been little change in gross margin,
although Flexipol has performed better in this respect than
Palagan. The change in business mix resulting from the acquisitions
now consolidated has had little impact on gross margin.
Administration and distribution costs increased 9.4% on a
like-for-like basis as we continue to add business development
resource and other costs to help future growth. Overall therefore,
EBITDA increased by 17% during the year; the majority of this
improvement resulted from the acquisitions and investments made in
the year. Like-for-like EBITDA growth was flat as good progress
made in the Industrial Division and at Flexipol was negated by a
year of rebuilding at Palagan.
Depreciation increased GBP0.3 million on the prior year
primarily because of increased capital expenditure during FY2017.
Interest costs have increased significantly due to a higher average
debt level and lending margin, but the tax charge remains low due
to capital allowances, low taxes in Thailand and the R&D tax
credit. As a result, underlying EPS increased by 0.7p or 6.5% over
the prior year.
"Adjusted" and "Underlying" means excluding amortisation,
exceptional costs, unrealised foreign exchange derivative and loan
gains / losses, and LTIP charges
"like-for-like" means comparison between years applying a
constant exchange rate and assuming no impact from acquisitions
"pro-forma" means comparison between years assuming no impact
from acquisitions
"EBITDA" is stated before LTIP charges and exceptional costs
Exceptional costs of GBP0.9 million were due to the transaction
costs associated with the acquisition of Synpac, the stakes in CCM
and Mito and the relocation of manufacturing facilities in
China.
Cash conversion, which is cash flow converted from EBITDA
excluding exceptional items, was down on the prior year from 40% to
15%. Higher capital expenditure, up from GBP2.2m million to GBP3.5
million was the main cause and reflects the need to expand capacity
and add capabilities in both our Divisions.
Working capital was 12.6% of sales at year end, down from 13.7%
in the prior year. Overall net debt at the end of the year was
GBP16.3 million and net debt leverage 2.3x, which was above the
range we target over the long run of 1.5-2x. Interest cover was
comfortable at 10.2x.
New Business Performance
Revenue from new business entering production over the last year
was GBP2.2 million up from GBP1.5 million in FY2016. We have seen
new business entering production in our bearings and specialist
sacks businesses in particular. Lost business in the year was low,
accounting for less than 1% of turnover, reflecting very high
levels of customer satisfaction and therefore retention across the
Group.
We have enjoyed our second successive year of project
conversions worth over GBP20 million of lifetime sales in our
bearings business. At this rate of sales we would expect this
business to grow at 15% annually over the next 3-4 years as all
this new business comes into production. The annual sales value of
new projects that have been converted but not yet reached full
production now amounts to GBP5.5 million; this pipeline is expected
to take three to four years to come through.
Acquisitions and Investments
Synpac was acquired in July 2016 for GBP3.1 million of which 10%
was deferred for 12 months. Sustainable EBITDA was estimated at the
time to be GBP0.6 million and this was slightly exceeded. Synpac is
based in Hessle, Yorkshire, and is a specialist converter of
barrier films into pouches and bags primarily for the food
industry. Barrier films confer properties to pouches, bags and
sacks that extend the life of the contents, which is a critical
factor in the food industry. Synpac has been integrated into the
Flexipol management structure and brings considerable opportunity
for our Films Division to grow into the area of specialist barrier
film products, where both Synpac and Flexipol have product
offerings that can be significantly expanded.
Consistent with our stated strategy of forward integrating in
the matrix business, we also made two small but strategically
important investments in distributors of die-making and box making
consumables and manufacturers of creasing matrix. The first in May
2016 was a 10% stake in CCM, based in West Virginia, USA. The
agreement signed gives us the right to acquire a further stake over
the next few years. CCM has performed steadily over the last 12
months achieving sales of US$7.2 million and EBITDA of US$0.4
million in FY2017 and we plan to increase our investment in this
business over the coming months. We have also taken a stake in
Mito, an Italian distributor of die-making and box making
consumables and manufacturers of creasing matrix. As reported in
May this year, as we are deemed to have significant control of both
CCM and Mito, the Board determined that these investments should be
accounted for as subsidiaries and therefore they have been
consolidated into the results for the Group in FY2017.
Banking
We refinanced in June 2016 with Barclays, who have been our
bankers for many years. This enabled us to finance the Synpac
acquisition in particular. We extended our facilities by three
years to June 2021 and increased them by GBP6 million to GBP20
million. The cost of borrowing averaged approximately 350bps over
LIBOR for the first year and will reduce as leverage decreases.
Capital Allocation
In a letter to shareholders last year I articulated four areas
requiring investment during FY2017, as follows:
-- Customer specific projects - BNL, our bearings business had
won two new projects requiring GBP1.25 million investment in
automatic assembly and injection moulding machines. The actual
expenditure on these two projects in the year was GBP0.75 million;
we decided not to implement auto-assembly on one of the projects
due to teething problems we have experienced with this sort of
equipment, instead using manual assembly which has proved very
effective in this case. Both projects are on track to deliver the
projected additional total sales of GBP2 million. We are hopeful
that they will lead to other significant projects for the same
customers.
-- Capacity expansion - Last year, we anticipated capacity
bottlenecks in three parts of our business and looked to invest in
each to overcome them. Firstly, Flexipol, as planned, increased its
extrusion capacity by about a third during the year. The
installation of the new extrusion machine was slightly delayed but
is fully operational and is producing to the quality and efficiency
that we anticipated. Secondly, Bell, our mandrel business, also
increased capacity by about a third during the year; and before the
year-end, we committed to a further 20% additional capacity which
is now being installed. Thirdly, in line with our projection, BNL
added injection moulding capacity in Thailand where an increasing
amount of its production is carried out as the business expands. In
total, we spent approximately GBP1.5 million on additional
non-customer specific capacity over the last year, which was 20%
more than we had forecast.
-- New product introduction - both Palagan and C&T Matrix
have developed new products to be introduced fully in FY2018.
Palagan has suffered some delays caused by its Italian machinery
supplier and so this is somewhat behind schedule. C&T has
progressed well with patent registration, tooling and testing
activity for an exciting new product for the die-making industry
called Kingpin. So far we have only spent GBP0.2 million of the
GBP0.6 million allocated to this area.
-- Corporate - as discussed above, we have implemented the
C&T forward integration strategy with investments made in CCM
and Mito. The cost to date of these investments was approximately
GBP0.7 million, as projected. We also spent GBP2.8 million on the
acquisition of Synpac increasing our debt to do so. We consider
this sort of outright acquisition too opportunistic and uncertain
in timing to be part of our explicit investment plans, but
nonetheless they are an important part of our capital allocation
strategy and contribute significantly towards the achievement of
our five year target. Fees associated with these transactions and
the bank refinancing amounted to an additional GBP0.7 5million.
In total, therefore we have spent approximately GBP6.7 million
in these investment areas compared to the GBP4 million estimated 12
months ago. We also spent GBP0.4 million to restructure and
relocate of Chinese operations. Finally we paid GBP1.1 million out
in dividends. All of this amounts to a total of GBP8.2 million and
was funded by free cash flow of GBP3.7 million and an increase in
net debt of GBP4.5 million.
Strategy & Growth
Turning now to the future, we can articulate some of the factors
guiding the future development of the Group. In early FY2016 we
launched a five year plan with the target of doubling EBITDA over
the subsequent five years. This strategic goal links to the LTIP
Growth Share awards announced on 2 October 2015 for the senior
executive teams across the Group's subsidiaries.
Within the five-year plan, we have a number of strategic
initiatives that we believe will drive this growth. These
initiatives are continuously monitored for progress and are
reviewed at regular intervals by the Board. As we move forward some
initiatives are completed, others evolve into new areas and
dynamically shift while others are brought forward, approved and
incorporated into our strategy. Whilst we set strategic plans, our
goal is to run the best business we possibly can and not to fall
into the trap of rigidly managing a strategic plan rather than a
dynamic business.
The most important initiatives within the latest plan in terms
of impact over the five year period are:
-- In our Films Division - expanding the sales of specialist
sacks, liners and pouches. We have an excellent range of products,
particularly at Flexipol, some of which are patented. There are
good opportunities to expand the range, service existing key
accounts more fully and penetrate new key accounts with these
products. Over the last two years, we have
o Added sales capacity at Flexipol and Palagan
o Added Synpac's range of barrier film pouches
o Added film extrusion and bag conversion capacity at
Flexipol
o Introduced some new product capabilities
Although some further investment will be needed, this initiative
has received considerable resources over the last two years and the
priority is now the achievement of sales growth supported by
efficient operational performance. This initiative is progressing
well. The target for this initiative is to add GBP6.5 million of
annual sales and GBP1.0 million of EBITDA in the period to
FY2020.
-- Developing new bearings projects with major OEMs and bringing
already won business successfully into production. Our bearings
business has long project gestation periods, with up to five 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 GBP5.0 million of annualised sales value, all of which
should come through over the next three to five years. This is an
improvement of GBP0.7 million compared to twelve months ago.
Further project opportunities with key accounts are in the pipeline
for conversion. The initiative is going well and hinges on good key
account management and development as well as clever design
engineering and technical support, activities that our bearings
business is increasingly effective at. The target for this
initiative is to add GBP7.0 million of annual sales and GBP1.5
million of EBITDA in the period to FY2020.
-- Developing new business in mandrels globally through the
provision of in-depth technical service and product customization.
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.
Over the last two years we have recruited additional sales and
R&D resource, and added capacity in this business to enable us
to deepen our competencies and to exploit this opportunity fully.
This initiative is also progressing well. We have achieved
considerable growth over the last 12 months through new customers,
particularly in North America. We need to continue to support this
business with further capacity, some of which needs to be in the
US. The target for this initiative is to add GBP1.5 million of
annual sales and GBP0.5 million of EBITDA in the period to
FY2020.
-- Forward integration and product range diversification 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 and by
producing a wider range of products and moving forward into
consumables distribution. This initiative is on track - we have
established direct distribution in the UK where we are market
leader, we have invested in CCM, a US matrix and consumables
business, and in Mito, a consumables distributor in Italy. We have
expanded our downstream activities in India, and we have taken
control of sales and distribution in the Shanghai region in China.
We also have a stream of new die-making and box-making products
being launched, some of which are patented. The target for this
initiative is to add GBP7 million of sales and GBP1 million of
EBITDA in the period to FY2020.
Obviously any programme of initiatives, such as those listed
above, has risks associated to their achievement. For example, we
routinely face the possibility of customer inflicted delays and
unforeseen technical difficulties, notwithstanding the management
processes we have put in place to avoid or mitigate such issues.
Attrition (i.e. customer losses) is also a factor that we have
considered and made allowances for, but this allowance could be
insufficient. Finally, the most unpredictable and impactful risk is
what happens in the global economy. Our working assumptions over
the long term are for slow growth (c.2-3% annually) and that
current exchange rates remain broadly unchanged. We believe that
both these assumptions are reasonable but they may prove to be
incorrect, particularly over short periods.
Notwithstanding these risks, we believe we are reasonably on
track with the initiatives and moving satisfactorily towards
achieving our targets.
Capital Allocation - Looking Ahead
The investment pipeline during FY2018 supports our growth
objective as can be set out under the same headings as above:
-- Customer specific projects - Our bearings business is
expected to invest at least GBP0.3 million during FY2018 in
moulding machines dedicated to certain new projects won in the home
appliance and automotive sectors over the last twelve months.
-- Capacity - We need to continue to add capacity for the
underlying general growth that is now evident at our bearings
business. Similarly, our mandrels business will require further
capacity, some in the USA, and some in the UK. We also will be
adding a new conversion machine for Flexipol to make relatively
simple products so freeing up capacity elsewhere for their most
specialist product range, which continues to grow. In total about
GBP1.5 million is earmarked for these areas during FY2018.
-- New Product Introduction - Further expenditure on tooling and
patent fees will most likely be necessary for Kingpin. Palagan's
new machinery to enable full production of the new products that it
has developed will also be received and paid for. New laboratory
equipment for the Films division to enable technical product
development in barrier films will also be acquired. Altogether
approximately GBP0.7 million is likely to be spent in these two
areas during FY2018.
-- Corporate - We plan to exercise our option to acquire a
further 39% stake in CCM in the near future for a cost of
approximately GBP1 million and to provide GBP0.2 million of
additional working capital on loan alongside similar funding from
CCM's 51% shareholders to assist the business to expand its
geographic reach. There will also be some restructuring of matrix
and mandrel manufacturing which may require another GBP0.2 million
of one-off costs. Whilst there are no immediate prospects of
acquisitions, given the number of opportunities we are evaluating
it would not be surprising if an infill acquisition were executed
during the year; however we cannot accurately predict the cost or
timing of this. Finally small deferred consideration payments are
due for Synpac and Mito, amounting to GBP0.4 million.
The total capital required, if all these expenditures come
through as anticipated, would be approximately GBP4.3 million.
Added to this, in FY2018 we expect a further GBP1.5 million of
replacement and/or efficiency improvement capital expenditure.
There other are potential projects in the pipeline and, possibly,
some infill acquisitions which may surface. Following the recent
equity issue, which raised circa GBP3.5 million for the Company,
and the suspension of dividend payments discussed below, we now
feel that we have sufficient financial flexibility to accommodate
expenditure for these contingencies.
Dividend
After offering a scrip alternative for the last two dividend
payments and having indicated that our growth opportunities
necessitated a material increase in re-investment, we have decided
that it makes sense to suspend dividend payments for at least the
next two scheduled payments (representing an approximate cash
saving of GBP1.7 million) and to conserve capital to facilitate
expansion and future profit growth. We will review this decision
regularly as we move forward.
Post year-end fundraising
As referred to above, on 26 May we announced that the Company
had conditionally raised GBP3.74 million (GBP3.54 million, net of
expenses) through the placing of 3,194,445 new ordinary shares at
117 pence per share, a discount of 4.5% to the prevailing price.
The net proceeds of the Placing, together with the cash saving from
the suspension of dividends referred to above, are to be applied
primarily towards funding the number of organic growth
opportunities outlined above and also in the proposed increase of
the Company's stake in CCM.
Outlook
Trading for FY2018 started marginally below expectations but it
is too early in the financial year to read much into this. We
remain focussed on implementing the key initiatives outlined above
as this will drive the long term growth of the Group and on
improving day-to-day operational performance. The momentum of the
Group as we finished FY2017 was strong and, if sustained, will
deliver a strong performance in FY2018.
The Board wishes to extend its sincere thanks to the Group's
employees, who have responded to new challenges extremely well. We
continue to be highly profitable and cash generative as a Group. We
look forward to another year of good progress in FY2018.
Faisal Rahmatallah
Chairman
Operational Review
2017 2016
GBP000 GBP000
Films Division
High strength film
packaging 33,214 29,518
Industrial Division
Plastic rotating parts 14,899 11,290
Hydraulic hose consumables 5,009 3,573
Packaging consumables 12,663 6,422
Turnover per consolidated income
statement 65,785 50,803
======= =======
Industrial Products
Bell Plastics ("Bell"), which manufactures hydraulic, industrial
and automotive hose mandrels and films, had a record year
benefitting from new business won in the prior year that developed
well and from a recovery in end markets, which are highly cyclical.
Three new key accounts were also converted during the year. Sales
grew by 40% on the prior year with significant progress made in the
development of US customers leading the way. Bell's strategy of
focussing on technical service and solution selling of a
comprehensive range of mandrels and lubricants for the hose market
continues to be successful.
Capacity for manufacturing mandrels was increased 30% during the
year and another 20% increase has been completed post year-end. We
have increased manufacturing floor area by 15% during the year by
leasing a small annex adjoining the site in Poole and will increase
manufacturing space by a further 30% in July 2017 by leasing
another adjoining unit. We have also enlarged and strengthened the
management team and focussed intensely on process improvements to
raise mandrel output from existing capacity.
To support the growth we are experiencing in the USA, we are
planning to install mandrel capacity into the manufacturing
facility at CCM in West Virginia. The lengthy delivery times for UK
shipments and the bespoke made-to-order nature of our mandrel
product range is such that we believe that this is the best way
forward to support our US customers. We aim to have this capacity
in place during Q3 FY2018.
BNL (UK) Limited ("BNL"), which manufactures plastic ball
bearings and related assemblies, saw sales improve by 32% relative
to the prior year before the effects of exchange rates, 16.5%
after. Some of this related to new projects coming through into
production and some was due to the development of better
relationships with certain key accounts. Growth was broadly based
across our markets in Europe, the USA and China; only Japan failed
to make strong headway. New business was boosted by a major success
in the home appliance sector from a major UK manufacturer. Overall,
new business won in the year is expected to reach a total of GBP20
million lifetime sales, which is the second year in succession we
have exceeded this benchmark.
A catalogue range of standard bearings was brought to market
during the year and although sales have so far been slow, we
believe that we will soon achieve good momentum with these products
in China and with our existing key accounts in applications where
we may not have been competitive previously. During the year, four
extra injection moulding machines were added, representing an
additional 12% of capacity. In addition, a new auto-assembly
machine for a Tier 1 automotive customer was installed. A
manufacturing strategy was developed and communicated through the
organisation focussed on long term productivity improvement.
We also saw continued improvement from R&D in the support
for the engineering design and sales function, helping to ensure
that BNL remains innovative and is recognised for technical
expertise in the design and application of plastic ball bearings.
Good progress has also been made during the year through the
Knowledge Transfer Partnership ("KTP") previously initiated with
Bradford University. This project will enable us to identify new
materials enabling the performance envelope of our ball bearings to
broaden. In particular higher loads, faster running speeds and
higher temperatures are all aspects of plastic bearings that
ideally would become feasible.
BNL's strategy continues to be to focus on major accounts and
projects in substantial growing application areas where injection
moulded plastic ball bearings have clear value-added advantages.
These applications include steering columns, instrument control
knobs, dishwashers, CCTV cameras, food conveyor systems and water
applications. The new business pipeline at BNL (projects already
won but not yet in production or not yet at full production rate)
has increased from GBP4.3 million at the end of FY2016 to GBP5.0
million at the end of FY2017. This business is expected to flow
through over the next three to four years. The pipeline of projects
which we are working on to convert remains strong.
C&T Matrix ("C&T"), which manufactures creasing matrix,
a consumable used by packaging manufacturers to crease cardboard,
in both the UK and in China, had a transformational year.
Operationally, after our investments in CCM and Mito, C&T now
has activities in the UK, USA, Italy, India and China.
Manufacturing of creasing matrix is carried out everywhere except
India, whilst sales and distribution of die-making and box-making
consumables is carried out in all these locations and in
approximately 80 countries around the world through distributors
with whom we have long term relationships.
We have continued to make excellent progress in the UK with our
direct sales strategy, having broken ties with our distributor
during the financial year. We have also continued to add other
consumables to our range so broadening our customer offering. In Q4
we relocated our Chinese factory from the outskirts of Beijing to
Tianjin, about two hours away. This move has gone well and will
result in lower costs in due course. We also expect to consolidate
US and Italian manufacturing activities to the UK during the course
of FY 2018, so reducing costs overall.
C&T has two exciting new products coming to the market
during FY2018. Both are injection moulded high volume consumables
and are designed to save time and cost in the box-making process.
Both products are patented and have been successfully tested. We
look forward to seeing what the market acceptance is for both.
C&T's future growth will be based on bolt-on acquisitions or
investments, the provision of outstanding technical service to
box-makers and through broadening the range of die-making and
die-cutting consumables made available to end users.
Industrial Film Packaging
Our Films Division had a mixed year with pro-forma sales up 1.5%
and EBITDA unchanged. Strong progress at Flexipol was negated by a
disappointing year at Palagan. Synpac, which was acquired during
the year, was integrated into Flexipol as the two businesses have
overlapping production capabilities and product ranges which can be
developed strongly through the Flexipol management team's guidance.
In particular, the businesses together have a much broader range of
barrier film capabilities that we believe may be harnessed
successfully for future development. Work on synergies between the
businesses achieved cost savings for the year attributable to the
Divisional structure amounted to approximately GBP0.4 million.
Flexipol Limited ("Flexipol") had another strong year with
revenue up 5.9% as additional extrusion capacity was increased by
about a third to enable further growth over the next five years.
The growth came mainly from the development of Flexipol's existing
key accounts whilst new accounts were gradually being developed.
New types of sacks were introduced at the beginning of the year
based on a new conversion line acquired in FY2016 and, after a few
teething problems, were successfully launched to the market.
One of the three owner-founders of the business left at the
beginning of the year and the management team was restructured and
strengthened through internal promotion. The new management team
also gradually took responsibility for Synpac after its acquisition
in July 2016 and integrated Synpac's functional activities into
Flexipol's, so that Synpac operates as a profit centre with its own
identity, but managed within Flexipol's structure. Joint
development of Flexipol and Synpac's range of barrier film pouches
and sacks is now a focus for the combined teams.
Synpac contributed in line with expectations following its
acquisition in July 2016; we had estimated sustainable EBITDA at
GBP0.6 million and this was slightly exceeded. We have inherited a
well-established and highly knowledgeable team at Synpac, all of
whom are enthusiastic to take Synpac forward. The business has an
extremely strong reputation for quality and service in its
marketplace, and our challenge is to build on this and develop
further sales in logical areas given the capabilities at Flexipol
that can be brought to bear.
A significant amount of groundwork has been done over the last
year targeting new accounts with Flexipol's broadened range of
product capabilities and I am pleased to report that this work is
bearing fruit. Three new key accounts were converted in the
financial year and the pipeline for further key account wins is
strong. With the additional capacity and product capabilities now
available at Flexipol, we believe the business is very well
positioned to maintain the excellent growth rate it has achieved in
the past.
Palagan Limited ("Palagan") had a disappointing year. After many
years of sales growth and steady EBITDA performance, a combination
of factors caused Palagan to falter. These were:
-- Four key accounts were lost at the end of the prior financial
year and although new business wins during the year will recover
the lost volume in due course, it did impact sales negatively
during FY2017.
-- Wage rates in the Dunstable area, where Palagan is located,
increased significantly towards the end of 2015 due to new
employers entering the area and we had to recalibrate wage rates
during the course of the year to stem staff turnover, which reached
unacceptable levels. This increase in costs can be considered
structural as it is unlikely that the local employment market will
change significantly in the foreseeable future.
-- Lower plant utilisation due to customer losses and a less
experienced workforce resulted in higher levels of scrap than have
been the norm at Palagan. This is something that the management
team should be able to improve as the workforce and new production
management team settle down.
-- A new management structure was introduced during the year
incorporating a new Production Director and a new Finance Director
and two new positions, a Technical Director and a Business
Development Manager. There have been significant one-off and
additional costs associated with these changes but it has
significantly increased the strength of the team at Palagan. We
believe that this investment in people will pay off over the next
year or two.
The team at Palagan are now focussed on getting the business
back onto a growth trajectory. In particular, they have introduced
some new products and restructured their sales process so that the
large number of smaller accounts at Palagan are handled by an
internal sales team, so freeing up the external salesforce to focus
on key accounts and new business.
We continue to work on synergies between Flexipol and Palagan;
cost synergies have gone well contributing approximately GBP0.4
million to EBITDA during the year and, although sales synergies
have been slow, we did finish the year with conversion of an
excellent opportunity with a combined sales value of approximately
GBP0.3 million.
Financial Review
2017 2016 Change
GBP000 GBP000 %
Revenue 65,785 50,803 29.5%
------------------------------- ------ ------ -------
Gross profit 21,129 16,871 25.2%
------------------------------- ------ ------ -------
Operating profit 3,303 1,858 77.8%
------------------------------- ------ ------ -------
Add back: Depreciation 1,720 1,448
Add back: Amortisation 805 1,819
Add back: LTIP charge 165 401
Add back: Exceptional
administrative costs 907 360
EBITDA before exceptional
costs 6,900 5,886 17.2%
------------------------------- ------ ------ -------
Profit before tax 766 1,098
Add back: Amortisation
of intangible assets 805 1,819
Add back: Amortisation
and write off of capitalised
deal fees 568 345
Add back: LTIP charge 165 401
Add back: Exceptional
costs 907 360
Add back: Unrealised foreign
exchange & derivative
losses 1,244 38
Less: Non-controlling
interests (107) -
Adjusted Profit before
tax* 4,348 4,061 7.1%
------------------------------- ------ ------ -------
Tax (charge) / credit (227) 124
Adjusted Profit after
tax* 4,121 4,185 (1.5%)
------------------------------- ------ ------ -------
Basic adjusted EPS*+ 11.5p 10.8p 6.5%
------------------------------- ------ ------ -------
Basic EPS 1.5p 3.5p (57.1%)
------------------------------- ------ ------ -------
Capital expenditure 3,499 2,275 53.8%
------------------------------- ------ ------ -------
Net debt 16,322 10,852 50.4%
------------------------------- ------ ------ -------
* excluding amortisation, exceptional costs, unrealised foreign
exchange translation and derivative losses and share-based
incentive scheme charges.
+ - applying an underlying tax charge of 6.5% (2016: underlying
tax charge of 6%) and based on the shares in issue in the year
Following the investments made in CCM (a 10% stake in May 2016)
and Mito (a 49% stake in December 2016), we have consolidated these
companies fully into the Group's FY2017's Income Statement and
Balance Sheet with an adjustment made through a Non-Controlling
Interest, so removing that part of the profit we do not own for CCM
and Mito. The conclusion reached by the Board is that both these
investments should be treated as subsidiaries as we exercise
significant control.
Revenue
Revenue for the year was GBP65.8 million which was an increase
of 29.5% from GBP50.8 million in FY2016. On a like-for-like basis
(i.e. adjusting for the Synpac acquisition and the investments in
CCM and Mito in the year and at constant exchange rates), revenue
increased by 6.7%.
Gross profit
Gross profit was GBP21.1 million (margin: 32.1%) in FY2017
against GBP16.9 million (margin: 33.3%) in FY2016. The gross profit
margin decreased primarily due to the impact of exchange rates in
the year. On a like-for-like basis, adjusting for acquisitions and
investments and at a constant exchange rate, the underlying gross
profit margin was 34.5% which is up 1.2% compared with last
year.
Exceptional costs
Exceptional costs incurred and included in administrative
expenses in the year predominately relate to:
-- costs associated with the acquisition of Synpac and the investments in CCM and Mito; and
-- costs associated with two factory relocations in China.
Profitability
EBITDA before LTIP charges and exceptional costs was GBP6.9
million which is 17.2% higher than in FY2016.
Profit before taxation (excluding amortisation, exceptional
costs, unrealised foreign exchange translation derivative losses
and share-based incentive scheme charges) of GBP4.3 million
compares with the prior year equivalent of GBP4.1 million, which is
an increase of 7.1%.
Taxation
The Group's tax charge for the year was GBP0.2 million which
compares with a tax credit of GBP0.1 million in FY2016.
Earnings per share
Basic earnings per share were 1.5p compared to 3.5p in FY2016.
This is based on the shares in issue of 35.5 million shares
(FY2015: 35.3 million shares). Adjusted earnings per share of 11.5p
increased from 10.8p in FY2016.
Capital expenditure
Capital expenditure was GBP3.5 million in FY2017 which compares
with GBP2.3 million in FY2016. This increase arose because
significant investment was made in the year to increase our
capacity and capabilities across the Group for future growth.
Specific capital expenditure in that year included:
-- additional capacity to the Films division through the installation of a new extrusion line;
-- adding new extrusion lines at Bell Plastics to meet increased
demands from existing and new customers; and
-- adding new injection moulding machines for a new bearings
project and further investment in tooling.
Cash flow
In the year, cash generated from operations amounted to GBP6.2
million (FY2016: GBP4.5 million).
Net debt
Net debt at the year-end of GBP16.3 million (FY2016: GBP10.9
million) increased during the year by GBP5.4 million as debt was
raised to finance the acquisition of Synpac and the investments in
CCM and Mito, along with raising asset finance for some specific
items of capital expenditure. As at 31 March 2017 our net debt
leverage was approximately 2.25x based on the current EBITDA of the
Group and interest cover was at 10.2x.
Consolidated Income Statement
for year ended 31 March 2017
Note 2017 2017 2017 2017 2016 2016 2016 2016
Foreign Foreign
Before exchange Before exchange
foreign impact foreign impact
exchange on exchange on
& derivatives & derivatives
exceptional and Exceptional exceptional and Exceptional
items loans items Total items loans items Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Revenue 65,785 - - 65,785 50,803 - - 50,803
Cost
of sales 3 (43,703) (953) - (44,656) (33,693) (239) - (33,932)
Gross
profit 22,082 (953) - 21,129 17,110 (239) - 16,871
Distribution
expenses (3,100) - - (3,100) (2,539) - - (2,539)
Administration
expenses 3 (13,852) - (907) (14,759) (12,168) - (360) (12,528)
Other
income 4 33 - - 33 54 - - 54
Operating
profit 5,163 (953) (907) 3,303 2,457 (239) (360) 1,858
4
Finance /
expense 5 (1,293) (1,244) - (2,537) (722) (38) - (760)
Net financing
costs (1,293) (1,244) - (2,537) (722) (38) - (760)
Profit/(loss)
before
tax 3,870 (2,197) (907) 766 1,735 (277) (360) 1,098
Tax
(charge)/credit (227) - - (227) 124 - - 124
Profit
for the
year 3,643 (2,197) (907) 539 1,859 (277) (360) 1,222
Attributable
to:
Equity
holders
of the
Parent 3,536 (2,197) (907) 432 1,859 (277) (360) 1,222
Non-controlling
interest 107 - - 107 - - - -
------------ ------------ ------------ --------- ------------ ------------ ------------ ---------
Profit
for the
year 3,643 (2,197) (907) 539 1,859 (277) (360) 1,222
Basic
earnings
per share
attributable
to equity
shareholders
of the
Company 7 1.5p 3.5p
Diluted
earnings
per share
attributable
to equity
shareholders
of the
Company 7 1.5p 3.4p
Consolidated Statement of Comprehensive Income
for year ended 31 March 2017
2017 2016
GBP000 GBP000
Profit for the year 539 1,222
Other comprehensive income
Items that may be reclassified
subsequently to profit or
loss:
Foreign currency translation
differences for foreign currency
operations 607 5
Total comprehensive income 1,146 1,227
Total recognised income and
expense for the year is attributable
to:
Equity holders of the parent 1,039 1,227
Non-controlling interest 107 -
Consolidated Statement of Changes in Shareholders' Equity
for year ended 31 March 2017
Reverse Capital
Share Share Translation acquisition redemption Retained
capital premium reserve reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 31 March 2015 353 20,888 634 2,640 (200) 2,034
26,349
Total recognised income and expense for the year - - 5 - - 1,222
1,227
Reserve correction - 63 - - 200 (263) -
Dividends paid - - - - - (1,460) (1,460)
LTIP charge - - - - - 401 401
Settlement of LTIP 2011 - - - - - (194) (194)
Balance at 31 March 2016 353 20,951 639 2,640 - 1,740 26,323
Reverse Total Non-
Share Share Translation acquisition Retained parent controlling
Total
capital premium reserve reserve earnings equity interest
equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 31 March 2016 353 20,951 639 2,640 1,740 26,323 -
26,323
Total recognised income and expense for the year - - 607 - 539
1,146 (107) 1,039
Elimination of non-controlling interest - - - - - - (182)
(182)
Issue of share capital 4 445 - - (449) - - -
Dividends paid - - - - (1,110) (1,110) - (1,110)
LTIP charge - - - - 165 165 - 165
Settlement of LTIP 2011 - - - - (394) (394) - (394)
Balance at 31 March 2017 357 21,396 1,246 2,640 491 26,130 (289)
25,841
Consolidated Balance Sheet
at 31 March 2017
Note 2017 2016
GBP000 GBP000
Non-current assets
Property, plant and
equipment 11,057 8,130
Intangible assets 26,376 22,796
37,433 30,926
Current assets
Inventories 6,657 4,783
Trade and other receivables 15,482 11,945
Cash and cash equivalents 4,914 5,488
27,053 22,216
Total assets 64,486 53,142
Current liabilities
Interest-bearing loans
and borrowings 6,199 8,067
Trade and other payables 14,502 9,315
Corporation tax liability 448 388
21,149 17,770
Non-current liabilities
Interest-bearing loans
and borrowings 15,037 8,273
Other financial liabilities 1,277 415
Deferred tax liabilities 1,182 361
17,496 9,049
Total liabilities 38,645 26,819
Net assets 25,841 26,323
Equity attributable to
equity holders of the
parent
Share capital 6 357 353
Share premium 21,396 20,951
Translation reserve 1,246 639
Reverse acquisition
reserve 2,640 2,640
Retained earnings 491 1,740
Total parent equity 26,130 26,323
Non-controlling interest (289) -
Total equity 25,841 26,323
Consolidated Cash Flow Statement
for year ended 31 March 2017
2017 2016
GBP000 GBP000
Profit after tax for the
year 539 1,222
Adjustments for:
Income tax charge/(credit) 227 (124)
Depreciation and amortisation 2,525 2,948
Financial expense 2,537 760
Gain on disposal of plant,
property and equipment (18) (74)
LTIP charge 165 401
Changes in working capital
(Increase) in trade and
other receivables (2,020) (806)
(Increase) in inventories (796) (777)
Increase in trade and other
payables 3,080 937
Cash generated from operations 6,239 4,487
Interest paid (725) (377)
Income tax paid (474) (275)
Net cash inflow from operating
activities 5,040 3,835
Cash flows from investing
activities
Acquisition of subsidiary
and fees (net of cash acquired) (4,095) (300)
Acquisition of property,
plant and equipment (3,499) (2,275)
Development expenditure
capitalised (539) (349)
Proceeds from disposal
of property, plant and
equipment 26 1,400
Dividend received 15 35
Net cash outflow from investing
activities (8,092) (1,489)
Cash flows from financing
activities
Proceeds from the issue - -
of share capital
Net proceeds from new loan 5,512 1,500
Repayment of borrowings
and fees (1,131) (2,731)
Dividends paid (1,110) (1,460)
Net cash inflow/(outflow)
from financing activities 3,271 (2,691)
Increase/(decrease) in
cash, cash equivalents
and overdrafts 219 (345)
Cash and cash equivalents
at 1 April 5,488 4,437
Overdraft at 1 April (5,304) (3,908)
Cash, cash equivalents
and overdrafts at 31 March 403 184
Notes
1 Financial information
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 March 2017 or
2016. Statutory accounts for 2016 have been delivered to the
Registrar of Companies, and those for 2017 will be delivered in due
course. The auditor has reported on those accounts; their reports
were (i) unqualified, (ii) did not include a reference to any
matters to which the auditors drew attention by way of emphasis
without qualifying their report and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006 in
respect of the accounts for 2017.
Going concern
The Financial Reporting Council issued "Guidance on the Going
Concern Basis of Accounting and Reporting on Solvency and Liquidity
Risks" 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.
The Directors have considered the position of the trading
companies in the Group to ensure that these companies are in a
position to meet their obligations as they fall due.
There are not believed to be any contingent liabilities which
could result in a significant impact on the business if they were
to crystallise.
Accounting estimates and judgements
The Company makes estimates and assumptions regarding the
future. Estimates and judgements are continually evaluated based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances. In the future, actual experience may differ from
these estimates and assumptions. The estimates and assumptions that
have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities or to the financial
statements in general within the next financial year are discussed
below:
Intangible assets
The Group recognises intangible assets (other than goodwill) on
acquisition and capitalise certain development costs as incurred.
Estimates are made in respect of useful lives affecting the
carrying value and amortisation charges in respect of these assets.
The valuation of intangible assets requires judgements to be made
in respect of valuation methods, discount rates, growth rates and
future cash flows and the cost of capital. Actual outcomes may
vary.
Goodwill
The Group is required to test, on an annual basis, whether
goodwill has suffered any impairment. Goodwill is assigned by the
Company to its cash-generating units, the allocation of which is a
judgement based on the knowledge of the business. The recoverable
amount is determined based on value in use calculations. The use of
this method requires the estimation of future cash flows, growth
rates and the choice of a discount rate based on knowledge of the
cost of capital in order to calculate the present value of the cash
flows. Actual outcomes may vary.
Inventory
The Company reviews the net realisable value of, and demand for,
its inventory on a regular basis to provide assurance that recorded
inventory is stated at the lower of cost or net realisable value.
Factors that could impact estimated demand and selling prices
include competitor actions, supplier prices and economic
trends.
Exceptional costs, foreign exchange costs and presentation of
the financial statements
The Group is required to make judgements in determining its
policy for the disclosure and presentation of exceptional costs and
foreign exchange costs. These judgements are made in order to
facilitate the understanding of the performance of the Group.
Notes (continued)
2 Accounting policies
Plastics Capital plc (the "Company") is a public company
incorporated in England and Wales, with subsidiary undertakings in
the UK, Italy, Japan, Thailand, India, China and the United States
of America.
The Group financial statements consolidate those of the Company
and its subsidiaries (together referred to as the "Group"). The
Group financial statements have been prepared and approved by the
directors in accordance with International Financial Reporting
Standards as adopted by the EU ("Adopted IFRSs"). The accounting
policies have been applied consistently to all periods presented in
these Group financial statements.
3 Exceptional items
Administrative expenses
2017 2016
GBP000 GBP000
Redundancy and restructuring
costs (i) 79 301
Professional and legal
costs (ii) 314 120
Release of contingent
consideration - (110)
Factory relocations
(iii) 395 -
Other 119 49
907 360
Exceptional costs incurred and included in administrative
expenses in the year relate to:
(i) redundancy and restructuring costs associated with the subsidiaries;
(ii) professional and legal costs associated with the
acquisition of Synpac, CCM and Mito; and
(iii) relocation of the two Chinese factories.
4 Finance expense (excluding foreign exchange)
2017 2016
GBP000 GBP000
Bank interest 725 377
Amortisation and write off
of capitalised fees 568 345
Financial expenses 1,293 722
5 Finance costs included within foreign exchange costs
2017 2016
GBP000 GBP000
Net foreign exchange loss 382 31
Unrealised losses on derivatives
used to manage foreign exchange
risk 862 7
1,244 38
Notes (continued)
6 Capital and reserves
Share capital
Ordinary shares of 1p each
In thousands of shares 2017 2016
In issue at 1 April 35,345 35,345
Shares issued during
the year 406 -
In issue at 31 March
- fully paid 35,751 35,345
2017 2016
GBP000 GBP000
Allotted, called up and fully
paid
35,750,706 (2016: 35,345,573)
ordinary shares of 1p each 357 353
357 353
The following describes the nature and purpose of each reserve
within owners' equity:
Reserve Description and purpose
Share premium Amount subscribed for share capital
in excess of nominal value
Retained earnings Cumulative net gains and losses recognised
in the consolidated income statement
Translation The translation reserve comprises
reserve all foreign exchange differences arising
from the translation of the financial
statements of foreign operations
Reverse acquisition Arises on the reverse acquisition
reserve accounting applied to the share for
share exchange of Plastics Capital
Trading Limited by the Company
Notes (continued)
7 Earnings per share
2017 2016
GBP000 GBP000
Numerator
Earnings used in basic
and diluted EPS
Profit for the year 539 1,222
Earnings used in adjusted EPS have been based
on the adjusted profit before tax as detailed
in the Financial Review section on page 10.
To this has been applied the actual corporation
tax charge to calculate the adjusted profit
after tax.
Denominator
Weighted average number
of shares used in basic
EPS * 34,957,994 34,463,255
Weighted average number
of shares used in diluted
EPS *+ 36,632,457 36,005,262
* - excludes shares held by Plastics Capital (Trustee) Limited
for the LTIP. Treasury shares are not counted under IAS33.
+ - includes effects of share option schemes
8 Annual General Meeting
It is intended that the Annual General Meeting ("AGM") will take
place at Plastics Capital, Room 1.1, London Heliport, Bridges Court
Road, London, SW11 3BE at 2.00pm on 1 August 2017. Notice of the
AGM will be sent to shareholders with the financial statements.
9 Post Balance Sheet Event
On 26 May 2017, Plastics Capital undertook a Placing to raise
GBP3.74 million, before expenses, by way of a Placing of 3,194,445
new Ordinary Shares at 117 pence per Placing Share. Following
Admission of the Placing Shares on 31 May 2017, the total number of
ordinary shares in issue was 38,945,151.
The net proceeds of the Placing, which amount to GBP3.54
million, will be applied, in part, towards the proposed increase of
the Company's stake in the CCM along with investing in other parts
of the Group in order to increase capacity to satisfy increasing
demand for the Group's products and thereby accelerate organic
growth.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SSDFAEFWSEDW
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