TIDMSCPA
RNS Number : 8948F
Scapa Group PLC
23 May 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 GBP279.6m (2016: GBP246.7m); 1.7% at constant fx
-- Trading profit* increased 37.1% to GBP29.2m (2016: GBP21.3m); 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 GBP16.1m (March 2016: GBP2.6m) after paying
US$35m (GBP28.3m) for the acquisition of EuroMed
-- Final dividend increased 14.3% to 2.0p (2016: 1.75p)
Operational Highlights:
Industrial
-- Trading profit grew 66.4% to GBP17.8m; 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
GBP1.0m profit benefit in H2 and expect to deliver an additional
GBP1.0m in H1 of FY18
-- Sale of Swiss land and building progressing and proceeds
expected to exceed initial estimates
-- Exiting Korean production
Healthcare
-- Revenues increased 16.5% to GBP108.7m (2016: GBP93.3m); 5.0% at constant fx
-- Trading profit increased 18.6% to GBP16.6m (2016: GBP14.0m); 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
-- GBP200m 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 GBP100 million in revenue, and Scapa's market
capitalisation exceeded GBP500 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
CHAIRMAN'S LETTER
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 GBP0.095 in March
2009 to GBP4.00 in May 2017, generating over GBP600m 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 GBP200m 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 GBP279.6m (2016: GBP246.7m) and trading
profit increased 37.1% to GBP29.2m (2016: GBP21.3m), 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 GBP23.8m as a result
of the reduction in the discount rate, and the total deficit of
GBP31.4m, 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 GBP16.1m (2016:
GBP2.6m), after the acquisition of EuroMed for US$35m (GBP28.3m) 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.
Governance
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.
People
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.
Outlook
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
Chairman
CHIEF EXECUTIVE'S STRATEGIC REVIEW
Overview
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 GBP100m. In addition we accomplished the
audacious goal we set for ourselves four years ago; an internal
goal of reaching GBP500m market capitalisation when it stood at
less than GBP100m 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
GBP279.6m or 1.7% on a constant currency basis.
Healthcare revenue increased 16.5% to GBP108.7m 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 GBP16.6m, 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 GBP170.9m, 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 GBP17.8m, 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 GBP1.0m
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 GBP29.2m, 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
GBP200m 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 GBP1.0m of profit improvement in the
second half. We expect a further GBP1.0m 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 GBP31.4m
(2016: GBP27.5m) - 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
Outlook
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.
BUSINESS REVIEW: HEALTHCARE
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(R) 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.
Outlook
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.
BUSINESS REVIEW: INDUSTRIAL
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(R) brand, the tape is used by
professionals in the construction business throughout Europe. In
Canada, where our market leading Renfrew Pro Tape(TM) is
manufactured, the new 'Feel the Game(TM)' 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(TM) 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.
Outlook
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.
FINANCE DIRECTOR'S REVIEW
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 GBP279.6m (2016: GBP246.7m);
on a constant currency basis growth was 1.7%. Healthcare revenue
was GBP108.7m (2016: GBP93.3m), an increase of 16.5% or 5.0% on a
constant currency basis. Industrial revenue was GBP170.9m (2016:
GBP153.4m), 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 GBP29.2m (2016: GBP21.3m) or 18.2%
growth on a constant currency basis. Trading profit margin improved
to 10.4% (2016: 8.6%). Healthcare contributed GBP16.6m (2016:
GBP14.0m), growing the margin to 15.3% (2016: 15.0%). Industrial
contributed trading profit of GBP17.8m (2016: GBP10.7m), 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 GBP23.8m (2016: GBP11.7m) after
charging pension administration costs of GBP0.7m (2016: GBP0.7m),
intangible amortisation costs of GBP3.7m (2016: GBP2.3m) and
exceptional costs of GBP1.0m (2016: GBP6.6m). Trading profit
continues to be adjusted for these items to give better clarity of
the underlying performance of the Group.
Currency
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 EUR1.20 (2016:
EUR1.36). Currency translation increased sales compared to 2016 by
GBP28.2m (11.4%) and trading profit by GBP3.4m (16.0%).
Exceptional items
Exceptional income in the period was GBP0.3m (2016: GBP2.1m) 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 GBP1.3m (2016: GBP8.7m).
This comprised costs of GBP0.7m (2016: GBP5.1m) associated with the
closure of our Swiss site, including asset write-offs and retention
payments, along with acquisition-related costs of GBP0.6m 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 GBP2.0m (2016: GBP1.9m).
Net cash interest payable increased to GBP1.2m (2016: GBP0.7m)
following the acquisition of EuroMed and relates to the Group's
committed GBP60m revolving facility which matures in June 2018.
During the year the Group drew down upon the uncommitted GBP20m
accordion facility to increase the revolving credit facility from
GBP40m to GBP60m to fund its acquisition strategy. Non-cash
interest reduced to GBP0.8m (2016: GBP1.2m) and relates to the
Group legacy defined benefit pension plans.
Taxation
The Group's tax charge of GBP4.2m (2016: GBP3.7m) includes a
GBP5.6m charge (2016: GBP4.9m) on trading activities and a GBP1.4m
credit (2016: GBP1.2m 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 GBP2.8m (2016:
GBP3.0m) 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 (GBP28.3m). 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 GBP16.1m (2016: GBP2.6m) following the acquisition of
EuroMed.
Net cash generated from operating activities before exceptional
items was GBP32.7m (2016: GBP19.0m) which represented 112.0% of
trading profit. Net cash interest paid was GBP1.2m (2016: GBP0.6m).
Income tax paid was GBP2.8m (2016: GBP3.0m) resulting in a net cash
generated from operating activities of GBP25.1m (2016: GBP12.9m).
The site consolidation programme continues and accounts for a
significant portion of the net capital expenditure of GBP8.3m
(2016: GBP9.8m) 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 GBP40m commenced in
January 2014 and was increased to GBP60m following the use of our
GBP20m '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 GBP16.1m (2016: GBP2.6m). 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 GBP0.3m (2016: GBPNil) which was treated as exceptional
income.
During the year the fair value of the scheme assets grew by
GBP19.0m whilst the total liabilities of the schemes grew by
GBP22.9m, resulting in an overall increase in the deficit of
GBP3.9m 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 GBP0.9m (2016: GBP1.0m) and
these contributions relate to leavers and not to a deficit repair
schedule of payments. Pension administration expenses of GBP0.7m
(2016: GBP0.7m) 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 GBP3.7m (2016:
GBP3.7m). 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 GBP22.7m to GBP100.4m (2016:
GBP77.7m). Profit after tax increased to GBP17.6m (2016: GBP6.1m).
The pension loss in the period was GBP6.9m (2016: GBP7.9m gain).
Movements in equity that related to share issues, dividends and
options reduced shareholders' funds by GBP0.7m (2016: GBP0.4m
decrease). Currency movements on overseas asset values were
favourable in the period GBP12.7m (2016: GBP2.5m). Tax items booked
directly into reserves GBPNil (2016: GBP0.2m 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.
Consolidated Income Statement
For the year ended 31 March 2017
Year ended Year ended
31 March 31 March
2017 2016
All on continuing operations note GBPm GBPm
----------------------------------------- ------ ---------- ----------
Revenue 2 279.6 246.7
Operating profit 2,4 23.8 11.7
----------------------------------------- ------ ---------- ----------
Trading profit* 29.2 21.3
----------------------------------------- ------ ---------- ----------
Amortisation of intangible assets (3.7) (2.3)
Exceptional items 5 (1.0) (6.6)
Pension administration costs (0.7) (0.7)
----------------------------------------- ------ ---------- ----------
Operating profit 23.8 11.7
----------------------------------------- ------ ---------- ----------
Finance costs 7 (2.0) (1.9)
----------------------------------------- ------ ---------- ----------
Profit on ordinary activities before tax 21.8 9.8
----------------------------------------- ------ ---------- ----------
Taxation charge 8 (4.2) (3.7)
----------------------------------------- ------ ---------- ----------
Profit for the year 17.6 6.1
----------------------------------------- ------ ---------- ----------
Weighted average number of shares 9 151.1 148.3
Basic earnings per share (p) 9 11.6 4.1
Diluted earnings per share (p) 9 11.1 3.9
Adjusted earnings per share (p)** 9 14.8 10.6
----------------------------------------- ------ ---------- ----------
* 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.
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2017
Year Year
ended ended
31 March 31 March
2017 2016
All on continuing operations note GBPm GBPm
-------------------------------------- ----- --------- ---------
Profit for the year 17.6 6.1
Items that may be reclassified
subsequently to profit and loss:
Exchange differences on translating
foreign operations 12.7 2.5
Actuarial (loss)/gain (6.9) 7.9
Items that will not be reclassified
subsequently to profit and loss:
Deferred tax on actuarial loss/(gain) - (0.2)
Other comprehensive income for
the year 5.8 10.2
--------------------------------------------- --------- ---------
Total comprehensive income for
the year 23.4 16.3
--------------------------------------------- --------- ---------
Consolidated Balance Sheet
As at 31 March 2017
31 March 31 March
2017 2016
note GBPm GBPm
--------------------------------------------- ---- -------- --------
Assets
Non-current assets
Goodwill 12 56.4 34.7
Intangible assets 13 6.6 3.4
Property, plant and equipment 14 49.3 46.1
Deferred tax asset 8 8.0 7.6
Other receivables 0.2 -
--------------------------------------------- ---- -------- --------
120.5 91.8
Current assets
Assets classified as held for sale 15 5.1 -
Inventory 16 30.7 27.1
Trade and other receivables 17 57.2 47.9
Current tax asset 1.4 0.6
Cash and cash equivalents 18 12.1 18.7
--------------------------------------------- ---- -------- --------
106.5 94.3
Liabilities
Current liabilities
Financial liabilities:
- Borrowings and other financial liabilities 20 (1.2) (1.0)
Trade and other payables 19 (52.0) (45.2)
Deferred consideration (0.1) (0.1)
Current tax liabilities (1.1) (0.2)
Provisions 21 (1.3) (3.9)
--------------------------------------------- ---- -------- --------
(55.7) (50.4)
Net current assets 50.8 43.9
Non-current liabilities
Financial liabilities:
- Borrowings and other financial liabilities 20 (27.0) (20.3)
Trade and other payables 19 (0.1) (0.2)
Deferred consideration - (0.1)
Deferred tax liabilities 8 (7.1) (6.4)
Non-current tax liabilities (2.9) (2.0)
Retirement benefit obligations (31.4) (27.5)
Provisions 21 (2.4) (1.5)
--------------------------------------------- ---- -------- --------
(70.9) (58.0)
--------------------------------------------- ---- -------- --------
Net assets 100.4 77.7
--------------------------------------------- ---- -------- --------
Shareholders' equity
Ordinary shares 7.6 7.5
Share premium 0.4 0.4
Retained earnings 59.2 49.3
Translation reserve 33.2 20.5
--------------------------------------------- ---- -------- --------
Total shareholders' equity 100.4 77.7
--------------------------------------------- ---- -------- --------
Consolidated Statement of Changes in Equity
For the year ended 31 March 2017
Share Share Translation Retained Total
capital premium reserves earnings equity
GBPm GBPm GBPm GBPm GBPm
Balance at 31 March 2015 7.4 0.4 18.0 36.0 61.8
--------------------------------- -------- -------- ----------- --------- -------
Employee share option scheme
- value of employee services - - - 1.8 1.8
Equity-settled share based
payments - - - (0.1) (0.1)
Dividends to shareholders - - - (2.2) (2.2)
Issue of shares 0.1 - - - 0.1
--------------------------------- -------- -------- ----------- --------- -------
0.1 - - (0.5) (0.4)
Currency translation differences - - 2.5 - 2.5
Actuarial gain on pension
schemes - - - 7.9 7.9
Deferred tax on actuarial
gain - - - (0.2) (0.2)
Net income recognised directly
in equity - - 2.5 7.7 10.2
Profit for the period - - - 6.1 6.1
--------------------------------- -------- -------- ----------- --------- -------
Total comprehensive income - - 2.5 13.8 16.3
--------------------------------- -------- -------- ----------- --------- -------
Balance at 31 March 2016 7.5 0.4 20.5 49.3 77.7
Employee share option scheme
- value of employee services - - - 1.9 1.9
Equity-settled share based
payments - - - (0.1) (0.1)
Dividends to shareholders - - - (2.6) (2.6)
Issue of shares 0.1 - - - 0.1
--------------------------------- -------- -------- ----------- --------- -------
0.1 - - (0.8) (0.7)
Currency translation differences - - 12.7 - 12.7
Actuarial loss on pension
schemes - - - (6.9) (6.9)
Net income recognised directly
in equity - - 12.7 (6.9) 5.8
Profit for the period - - - 17.6 17.6
--------------------------------- -------- -------- ----------- --------- -------
Total comprehensive income - - 12.7 10.7 23.4
--------------------------------- -------- -------- ----------- --------- -------
Balance at 31 March 2017 7.6 0.4 33.2 59.2 100.4
--------------------------------- -------- -------- ----------- --------- -------
Consolidated Cash Flow Statement
For the year ended 31 March 2017
Year Year
ended ended
31 March 31 March
2017 2016
All on continuing operations note GBPm GBPm
---------------------------------------- ---- --------- ---------
Cash flows from operating activities
Net cash flow from operations 22 29.1 16.5
---------------------------------------- ---- --------- ---------
Cash generated from operations
before exceptional items 22 32.7 19.0
Cash outflows from exceptional
items 22 (3.6) (2.5)
---------------------------------------- ---- --------- ---------
Net cash flow from operations 29.1 16.5
---------------------------------------- ---- --------- ---------
Net interest paid (1.2) (0.6)
Income tax paid (2.8) (3.0)
---------------------------------------- ---- --------- ---------
Net cash generated from operating
activities 25.1 12.9
---------------------------------------- ---- --------- ---------
Cash flows used in investing activities
Acquisition of subsidiary 11 (27.7) -
Purchase of property, plant and
equipment (8.3) (9.8)
Purchase of capitalised development
costs (0.1) -
Proceeds from sale of property,
plant and equipment - 0.1
---------------------------------------- ---- --------- ---------
Net cash used in investing activities (36.1) (9.7)
---------------------------------------- ---- --------- ---------
Cash flows generated from/(used
in) financing activities
Dividends (2.6) (2.2)
Increase in borrowings 33.4 5.7
Repayment of borrowings (27.5) (4.9)
---------------------------------------- ---- --------- ---------
Net cash generated from/(used in)
financing activities 3.3 (1.4)
---------------------------------------- ---- --------- ---------
Net (decrease)/increase in cash
and cash equivalents (7.7) 1.8
Cash and cash equivalents at beginning
of the year 18.7 16.7
Exchange gains on cash and cash
equivalents 1.1 0.2
---------------------------------------- ---- --------- ---------
Total cash and cash equivalents
at end of the year 18 12.1 18.7
---------------------------------------- ---- --------- ---------
Notes on the Accounts
1. Basis of preparation
These consolidated financial statements have been prepared in
accordance with the accounting policies set out in the annual
report for the year ended 31 March 2017. While the financial
information included in this preliminary announcement has been
prepared in accordance with the recognition and measurement
criteria of International Financial Reporting Standards (IFRSs), as
adopted for use in the EU, this announcement does not itself
contain sufficient information to comply with IFRSs. The Group
expects to publish full financial statements that comply with IFRSs
in June 2017.
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 March 2017 or
2016, but is derived from those accounts. Statutory accounts for
2016 have been delivered to the Registrar of Companies and those
for 2017 will be delivered following the Company's Annual General
Meeting. The auditor has reported on those accounts; their reports
were unqualified, did not draw attention to any matters by way of
emphasis without qualifying their report and did not contain
statements under s498(2) or (3) Companies Act 2006.
The financial statements have been prepared on the historical
cost basis of accounting except as disclosed in the accounting
policies set out in the annual report for the year ended 31 March
2017. The same accounting policies, presentations and methods of
computation are followed in the condensed set of financial
statements as applied in the Group's latest annual audited
financial statements. The annual financial statements of Scapa
Group plc are prepared in accordance with International Financial
Reporting Standards as adopted by the European Union.
2. Segmental reporting
Business unit segments
The Group operates two standalone business units: Healthcare and
Industrial, supported by a strategic Corporate function. All
inter-segment transactions are made on an arm's length basis.
The chief operating decision maker (CEO) relies primarily on
turnover and trading profit to assess the performance of the Group
and make decisions about resources to be allocated to each segment;
assets and liabilities are looked at geographically. Trading profit
is reconciled to operating profit on the face of the Income
Statement.
The Board reviews the performance of the business using
information presented at constant exchange rates. The prior year
results have been restated at constant currency as shown on the
following pages.
Segment results
The segment results for the year ended 31 March 2017 are as
follows:
Healthcare Industrial Head office Group
GBPm GBPm GBPm GBPm
--------------------------- ---------- ---------- ----------- -----
External revenue 108.7 170.9 - 279.6
---------------------------- ---------- ---------- ----------- -----
Trading profit/(loss) 16.6 17.8 (5.2) 29.2
Amortisation of intangible
assets (3.7) - - (3.7)
Exceptional items (0.6) (0.7) 0.3 (1.0)
Pension administration
costs - - (0.7) (0.7)
---------------------------- ---------- ---------- ----------- -----
Operating profit/(loss) 12.3 17.1 (5.6) 23.8
Net finance costs (2.0)
---------------------------- ---------- ---------- ----------- -----
Profit on ordinary
activities before tax 21.8
Tax charge (4.2)
---------------------------- ---------- ---------- ----------- -----
Profit for the year 17.6
---------------------------- ---------- ---------- ----------- -----
Revenue is allocated based on the country in which the order is
received. The revenue analysis based on the location of the
customer is as follows:
Europe N America Asia Other Group
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------ --------- ----- ----- -----
External revenue - 31 March 2017 109.1 139.4 14.1 17.0 279.6
--------------------------------- ------ --------- ----- ----- -----
External revenue - 31 March 2016 95.4 121.0 15.1 15.2 246.7
--------------------------------- ------ --------- ----- ----- -----
The revenue analysis based on the location where the sale
occurred is as follows:
Europe N America Asia Other Group
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------ --------- ----- ----- -----
External revenue - 31 March 2017 114.3 148.8 14.4 2.1 279.6
--------------------------------- ------ --------- ----- ----- -----
External revenue - 31 March 2016 101.9 129.3 14.0 1.5 246.7
--------------------------------- ------ --------- ----- ----- -----
There are no single customers with greater than 10% share of the
total Group revenue.
The segment results for the year ended 31 March 2016 are as
follows:
Healthcare Industrial Head office Group
GBPm GBPm GBPm GBPm
------------------------------------- ---------- ---------- ----------- -----
External revenue 93.3 153.4 - 246.7
-------------------------------------- ---------- ---------- ----------- -----
Trading profit/(loss) 14.0 10.7 (3.4) 21.3
Amortisation of intangible assets (2.3) - - (2.3)
Exceptional items (1.5) (4.6) (0.5) (6.6)
Pension administration costs - - (0.7) (0.7)
-------------------------------------- ---------- ---------- ----------- -----
Operating profit/(loss) 10.2 6.1 (4.6) 11.7
Net finance costs (1.9)
-------------------------------------- ---------- ---------- ----------- -----
Profit on ordinary activities before
tax 9.8
Tax charge (3.7)
-------------------------------------- ---------- ---------- ----------- -----
Profit for the year 6.1
-------------------------------------- ---------- ---------- ----------- -----
The Board reviews the performance of the business using
information presented at consistent exchange rates. The prior year
results have been restated using this year's exchange rates as
follows:
Healthcare Industrial Head office Group
GBPm GBPm GBPm GBPm
--------------------------------- ---------- ---------- ----------- -----
External revenue 93.3 153.4 - 246.7
Foreign exchange 10.2 18.0 - 28.2
---------------------------------- ---------- ---------- ----------- -----
Underlying external revenue 103.5 171.4 - 274.9
---------------------------------- ---------- ---------- ----------- -----
Trading profit/(loss) 14.0 10.7 (3.4) 21.3
Foreign exchange 1.9 1.5 - 3.4
---------------------------------- ---------- ---------- ----------- -----
Underlying trading profit/(loss) 15.9 12.2 (3.4) 24.7
---------------------------------- ---------- ---------- ----------- -----
3. Segment assets and liabilities
The chief operating decision maker does not review assets and
liabilities by business unit but by geographical area. The assets
and liabilities at 31 March 2017 and capital expenditure for the
year then ended can be analysed into geographical segments as
follows:
Europe N America Asia Head office Group
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------ --------- ----- ----------- ------
Non-current assets* 31.4 77.0 4.1 - 112.5
Inventory 12.3 15.8 2.6 - 30.7
Trade receivables - net 25.6 24.6 1.7 - 51.9
Trade payables (19.9) (10.8) (1.0) (0.6) (32.3)
Cash 4.2 4.9 2.3 0.7 12.1
Additions of property, plant and
equipment 4.6 3.3 0.2 0.2 8.3
--------------------------------- ------ --------- ----- ----------- ------
* Non-current assets excluding deferred tax assets
The assets and liabilities at 31 March 2016 and capital
expenditure for the year then ended were as follows:
Europe N America Asia Head office Group
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------ --------- ----- ----------- ------
Non-current assets* 34.2 46.4 3.6 - 84.2
Inventory 11.9 13.0 2.2 - 27.1
Trade receivables - net 22.1 20.0 1.2 - 43.3
Trade payables (19.8) (9.2) (0.5) (0.5) (30.0)
Cash 6.6 3.5 1.8 6.8 18.7
Additions of property, plant and
equipment 5.2 2.3 2.0 0.2 9.7
--------------------------------- ------ --------- ----- ----------- ------
* Non-current assets excluding deferred tax assets
Unallocated head office items relate to assets and liabilities
incurred in the normal course of business for the Parent
Company.
4. Operating profit
The operating profit for the year is stated after
(charging)/crediting:
2017 2016
GBPm GBPm
------------------------------------------------ ------- -------
Revenue 279.6 246.7
Materials and overheads (134.7) (121.5)
Factory costs (22.7) (19.3)
Outward freight costs (7.1) (6.4)
Directors' and employees' costs (71.0) (64.3)
Depreciation of tangible fixed assets;
- owned assets (6.1) (5.1)
- leased assets (0.1) (0.1)
Operating lease rentals;
- land and buildings (2.6) (2.2)
- plant, machinery and other (1.4) (1.1)
Repairs and maintenance costs (3.1) (2.7)
Research and development costs (3.7) (3.0)
Amortisation of government grants received - 0.1
Foreign exchange gains 1.1 0.1
Amortisation of other intangible assets (3.3) (2.0)
Amortisation of internally generated assets (0.4) (0.3)
Movement in inventory provision (0.1) 0.2
Impairment loss recognised in trade receivables (0.5) (1.1)
Exceptional items (1.0) (6.6)
Pension administration costs (0.7) (0.7)
------------------------------------------------ ------- -------
The analysis of auditor's remuneration is as follows:
2017 2016
GBP'000 GBP'000
------------------------------------- -------- --------
Audit fees - Parent Company 99 85
Audit fees - subsidiary undertakings 245 241
Taxation compliance services 29 29
Taxation advisory services 5 64
Other assurance services 1 1
Corporate finance services 193 142
------------------------------------- -------- --------
572 562
------------------------------------- -------- --------
Total audit fees were GBP344,000 (2016: GBP326,000). Total
non-audit fees payable to the auditor were GBP228,000 (2016:
GBP236,000).
5. Exceptional items
2017 2016
GBPm GBPm
---------------------------------------------- ----- -----
Operating income:
UK pension settlement gain - 0.6
US pension settlement gain - 1.0
Bellegarde land sale - 0.5
Past service credit 0.3 -
Operating expenses:
Site closure costs (0.5) (3.5)
Asset write offs and accelerated depreciation (0.2) (1.6)
Post-combination remuneration - (2.0)
Reorganisation costs - (1.2)
Abortive acquisition costs - (0.4)
Acquisition costs (0.6) -
---------------------------------------------- ----- -----
(1.0) (6.6)
---------------------------------------------- ----- -----
Exceptional operating income
GBP0.3m operating income relates to a past service credit on the
UK scheme following a pension increase exchange exercise carried
out during the year.
The prior year exceptional income related to pension projects in
the UK and US GBP1.6m. In the UK, the offer to a sub-set of members
to buy different benefits led to GBP10.8m of liabilities being
extinguished in exchange for assets valued at GBP10.2m. In the US,
a project offering lump sums to deferred members resulted in
GBP5.5m of liabilities being extinguished in exchange for assets
valued at GBP4.5m. The resulting gains of GBP1.6m have been
reported as an exceptional settlement gain, consistent with our
historical treatment of legacy defined benefit pension costs. In
addition the sale of land relating to a dormant site in Bellegarde
France was completed on 31 March 2016 resulting in GBP0.5m
income.
Exceptional operating expenses
The closure of the Rorschach site in Switzerland was announced
in April 2015 and subsequently provided for in the 2016 accounts.
However, certain costs have been incurred in the period that could
not be provided for previously: being retention payments made to
certain key members of staff of GBP0.5m and GBP0.2m impairment of
assets that continued to be used up until cessation of production
at the site. The acquisition costs are directly related to the
acquisition of EuroMed and are covered in note 11.
The prior year expenses that relate to the closure of the
Rorschach site include the impairment of the plant and machinery
down to its recoverable value, GBP1.5m and the then best estimate
of costs to close the site GBP3.4m The closure costs included all
the employee consultation costs, the remediation and building
strip-out costs, the legal costs associated with closing the site
and certain costs related to revalidating a number of products at
alternative sites, essential to ensure the continued production
within the Group. These estimates remain our best estimate and no
additional provisions have been made in the year. Also during the
prior year GBP2.0m was paid to the former owners of First Water
Limited relating to post combination remuneration based on the
performance of the business during 2015/16. The Group incurred
exceptional costs of GBP1.2m relating to a Group-wide
reorganisation and spent GBP0.4m on costs associated with potential
acquisitions. The purchases were aborted and the costs have been
separately disclosed.
6. Employee benefit expense
2017 2016
GBPm GBPm
----------------------------------------------------- ----- -----
Wages, salaries and other benefits 58.0 52.9
Social security costs 8.7 7.3
Share options granted to Directors and employees 1.9 1.8
Pension costs - defined contribution plans (note 25) 2.0 1.9
Pension costs - defined benefit plans (note 25) 0.4 0.4
----------------------------------------------------- ----- -----
71.0 64.3
Pension curtailments and service costs (note 5) (0.3) (1.6)
----------------------------------------------------- ----- -----
70.7 62.7
----------------------------------------------------- ----- -----
Average employee numbers 2017 2016
------------------------- ----- -----
Europe 656 686
North America 617 523
Asia 91 115
------------------------- ----- -----
1,364 1,324
------------------------- ----- -----
7. Net finance costs
2017 2016
GBPm GBPm
---------------------------------------------------------- ----- -----
Interest payable on bank loans and overdrafts (1.2) (0.7)
Expected return on pension scheme assets less interest on
scheme liabilities (note 25) (0.8) (1.2)
---------------------------------------------------------- ----- -----
Net finance costs (2.0) (1.9)
---------------------------------------------------------- ----- -----
8. Taxation
Income tax charge
2017 2016
GBPm GBPm
---------------------------------------------- ----- -----
Current tax:
Tax on trading activities - current year (4.2) (3.0)
Tax on trading activities - prior year 0.3 0.4
Tax on non-trading items - 0.2
---------------------------------------------- ----- -----
Total current tax (3.9) (2.4)
---------------------------------------------- ----- -----
Deferred tax:
Tax on trading activities - current year (1.2) (2.4)
Tax on trading activities - prior year (0.5) 0.1
Tax on non-trading items 1.4 1.0
Total deferred tax (0.3) (1.3)
---------------------------------------------- ----- -----
Tax charge on trading activities for the year (5.6) (4.9)
---------------------------------------------- ----- -----
Tax charge on non-trading items for the year 1.4 1.2
---------------------------------------------- ----- -----
Tax charge for the year (4.2) (3.7)
---------------------------------------------- ----- -----
The actual tax on the Group's profit before tax differs from the
theoretical amount using the UK corporation tax rate as
follows:
2017 2016
GBPm GBPm
-------------------------------------------------------------- ----- -----
Profit on ordinary activities before tax 21.8 9.8
-------------------------------------------------------------- ----- -----
Tax charge at 20% (2016: 20%) (4.4) (2.0)
Movements to unprovided deferred tax 2.8 0.6
Income not taxable and other deductions 0.3 0.2
Items not deductible for tax purposes and other taxable items (1.2) (1.3)
Effect of overseas tax rates being higher than UK tax rate (1.5) (1.7)
Adjustments in respect of prior years (0.2) 0.5
-------------------------------------------------------------- ----- -----
Actual tax charge for the year (4.2) (3.7)
-------------------------------------------------------------- ----- -----
The deferred tax balances included in these accounts are
attributable to the following:
2017 2016
GBPm GBPm
--------------------------------------- ----- -----
Deferred tax assets:
Losses 1.9 2.0
Provisions and other short-term timing
differences 3.8 3.7
Retirement benefit liabilities 4.3 3.8
--------------------------------------- ----- -----
10.0 9.5
--------------------------------------- ----- -----
Deferred tax liabilities:
Accelerated tax depreciation (3.0) (2.9)
Other short-term timing differences (0.4) (0.2)
Tax effect of intangibles (0.5) (0.6)
Provision for potential tax liability (5.2) (4.6)
--------------------------------------- ----- -----
(9.1) (8.3)
--------------------------------------- ----- -----
As required by IAS 12, deferred tax assets and liabilities may
only be offset where they arise in the same jurisdictions and are
therefore presented on the Balance Sheet as follows:
2017 2016
GBPm GBPm
-------------------------------------------------- ----- -----
Deferred tax assets as above 10.0 9.5
- Accelerated tax depreciation liabilities/assets
in different countries (2.0) (1.9)
-------------------------------------------------- ----- -----
Deferred tax asset on the Balance Sheet 8.0 7.6
-------------------------------------------------- ----- -----
Deferred tax liabilities as above (9.1) (8.3)
- Accelerated tax depreciation liabilities
in different countries 2.0 1.9
-------------------------------------------------- ----- -----
Deferred tax liability on the Balance Sheet (7.1) (6.4)
-------------------------------------------------- ----- -----
Deferred tax is only recognised to the extent that it will be
recoverable in future periods.
2017 2016
Movement in deferred tax GBPm GBPm
------------------------------- ----- -----
Beginning of the year 1.2 2.7
Income Statement charge (0.3) (1.3)
Deferred tax on actuarial gain - (0.2)
End of year 0.9 1.2
------------------------------- ----- -----
Tax assets amounting to GBP11.7m (2016: GBP11.8m) have not been
recognised due to the uncertainty over the utilisation of the
underlying tax losses in each jurisdiction.
Deferred tax items have not been recognised in respect of 2017 2016
the following items GBPm GBPm
---------------------------------------------------------- ----- -----
Accelerated capital allowances 3.2 3.6
Short term timing differences 1.1 1.0
Pensions 2.9 2.4
Tax losses 4.5 4.8
---------------------------------------------------------- ----- -----
Total 11.7 11.8
---------------------------------------------------------- ----- -----
9. Earnings per share
Basic
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue during the year.
Diluted
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all potentially dilutive ordinary shares 157,873,262
(2016: 157,296,423). Diluted earnings per share has been calculated
including share options in existence at 31 March 2017.
Adjusted
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.
2017 2016
------------------------------------------------------------------ ----- -----
Profit attributable to equity holders of the Company (GBPm) 17.6 6.1
Weighted average number of ordinary shares in issue (m) 151.1 148.3
Basic earnings per share (p) 11.6 4.1
Weighted average number of shares in issue, including potentially
dilutive shares (m) 157.9 157.3
Diluted earnings per share (p) 11.1 3.9
Adjusted earnings per share (p) 14.8 10.6
------------------------------------------------------------------ ----- -----
10. Dividend per share
A final dividend of 2.0p per share is proposed for the year
ended 31 March 2017 (2016: 1.75p). The proposed final dividend is
subject to approval by the shareholders and has not been included
as a liability in these financial statements.
11. Acquisition of subsidiary
On 23 May 2016 the Group acquired 100% of the share capital of
EuroMed Inc, obtaining control. EuroMed is a hydrocolloid-based
wound care solutions provider. The company is based in New York
State.
The Directors believe that the acquisition of EuroMed brings
multiple advantages to Scapa, including:
- proprietary and patented technology to broaden and strengthen
Scapa Healthcare's Turn-Key value proposition
- innovative R&D capabilities complementing Scapa Healthcare's existing resources
- expanded opportunities for growth in new markets and with new customers
- significant cross-selling opportunities across the customer base
- improved manufacturing infrastructure
- acceleration in Scapa Healthcare's growth
- the acquisition is expected to be earnings enhancing in the
first full year in the enlarged Group
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are as set out in the table
below:
Fair
Value
GBPm
------------------------------------------ ------
Net assets acquired
Separately identifiable intangible assets 6.5
Property, plant and machinery 1.9
Other assets 0.1
Inventory 2.1
Debtors, cash and equivalents 3.2
Trade and other payables (2.3)
------------------------------------------- ------
11.5
Goodwill 16.8
Total consideration 28.3
------------------------------------------- ------
Satisfied by cash 28.3
------------------------------------------- ------
Net cash outflow arising on acquisition:
------------------------------------------ ------
Cash consideration 28.3
------------------------------------------- ------
Less: cash and cash equivalent balance
acquired (0.6)
------------------------------------------- ------
27.7
------------------------------------------ ------
In addition to the above, the former owners of the business had
the opportunity to earn an additional US$7.0m (GBP GBP5.6m)
consideration based on the future performance of EuroMed. None of
the consideration has been recognised as the targets for payment
were not met. The goodwill of GBP16.8m arising from the acquisition
is expected to be deductible for income tax purposes in the US.
Acquisition-related costs (included within exceptionals) amount to
GBP0.6m.
EuroMed Inc contributed GBP10.3m of revenue and GBP1.1m to Group
profit between the date of acquisition and 31 March 2017. If the
acquisition of EuroMed Inc had been completed on the first day of
the financial year, Group revenues for the period would have been
GBP281.2m and Group trading profit would have been GBP29.4m.
12. Goodwill
2017 2016
GBPm GBPm
---------------------------------------- ------ ------
Cost
1 April 57.7 56.3
Additions 16.8 -
Exchange differences 8.4 1.4
---------------------------------------- ------ ------
31 March 82.9 57.7
---------------------------------------- ------ ------
Accumulated amortisation and impairment
1 April (23.0) (22.4)
Exchange differences (3.5) (0.6)
---------------------------------------- ------ ------
31 March (26.5) (23.0)
---------------------------------------- ------ ------
Net book value at 31 March 56.4 34.7
---------------------------------------- ------ ------
Goodwill relates to the Acutek Medical operation GBP15.4m (2016:
GBP13.4m), Webtec GBP16.8m (2016: GBP14.6m), First Water Limited
GBP6.7m (2016: GBP6.7m) and EuroMed GBP17.5m (2016: GBPNil).
The carrying value of the Group's goodwill is not subject to
annual amortisation and was tested for impairment at March 2017.
The recoverable amount has been determined on a value in use basis
on each cash-generating unit using the management approved
12--month forecasts for each cash-generating unit. The base
12-month projection is inflated by 3.0% - 10.0% up to year 5, which
management believes does not exceed the long-term average growth
rate for the industry, and then is subject to a 1% growth and costs
inflation through to year 20, with a terminal value calculated on a
perpetuity basis.
These cash flows are discounted at a pre-tax discount rate of
10.0% (2016: 10.0%) and adjusted for specific risk factors that
take into account the sensitivities of the projection. The Group
has conducted a sensitivity analysis on the impairment test. If the
assumed growth rate was reduced to 0%, the recoverable amount of
all cash-generating units individually would remain greater than
their carrying values. An increase in the pre-tax discount rate to
14.0% would result in positive headroom remaining, compared to the
carrying value of goodwill for each cash-generating unit.
13. Other intangible assets
Customer
Patents lists Technology
and development Customer and sales and
costs relationships pipeline know-how Total
GBPm GBPm GBPm GBPm GBPm
-------------------------- ---------------- -------------- ---------- ---------- ------
Cost
1 April 2015 1.2 5.1 2.4 0.9 9.6
Exchange differences - - 0.1 - 0.1
Additions 0.2 - - - 0.2
-------------------------- ---------------- -------------- ---------- ---------- ------
31 March 2016 and
1 April 2016 1.4 5.1 2.5 0.9 9.9
Exchange differences 0.1 0.7 0.4 0.1 1.3
Additions 0.1 - - - 0.1
Acquisition of subsidiary 3.1 3.1 - 0.3 6.5
-------------------------- ---------------- -------------- ---------- ---------- ------
31 March 2017 4.7 8.9 2.9 1.3 17.8
-------------------------- ---------------- -------------- ---------- ---------- ------
Amortisation
1 April 2015 - (2.5) (1.2) (0.3) (4.0)
Exchange differences - (0.1) (0.1) - (0.2)
Charge for the year (0.3) (1.2) (0.6) (0.2) (2.3)
-------------------------- ---------------- -------------- ---------- ---------- ------
31 March 2016 and
1 April 2016 (0.3) (3.8) (1.9) (0.5) (6.5)
-------------------------- ---------------- -------------- ---------- ---------- ------
Exchange differences - (0.6) (0.3) (0.1) (1.0)
Charge for the year (1.0) (1.8) (0.6) (0.3) (3.7)
-------------------------- ---------------- -------------- ---------- ---------- ------
31 March 2017 (1.3) (6.2) (2.8) (0.9) (11.2)
-------------------------- ---------------- -------------- ---------- ---------- ------
Carrying amount
31 March 2017 3.4 2.7 0.1 0.4 6.6
-------------------------- ---------------- -------------- ---------- ---------- ------
31 March 2016 1.1 1.3 0.6 0.4 3.4
-------------------------- ---------------- -------------- ---------- ---------- ------
Remaining useful
economic life (years) 2-3 1-2 0-1 2-4
-------------------------- ---------------- -------------- ---------- ---------- ------
The brought forward intangible assets relate to the acquisition
of First Water Limited in 2015 and Webtec in 2011. No value has
been assigned to brand names, as Scapa companies are contract
manufacturers and inherent brand value resides with customers
rather than the manufacturer.
14. Property, plant and equipment
Freehold
land Long Plant Furniture, Assets
and leasehold and fittings IT under
buildings buildings machinery and equipment systems construction Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ---------- ---------- ---------- -------------- -------- ------------- -------
Cost
1 April 2015 18.4 7.9 92.3 5.1 18.0 4.7 146.4
Exchange differences 0.9 - 2.5 0.1 0.1 0.1 3.7
Additions 3.7 0.1 2.4 0.2 0.2 3.1 9.7
Disposals (1.3) - (5.7) (1.4) - - (8.4)
Transfers - - 5.6 0.2 0.3 (6.1) -
------------------------- ---------- ---------- ---------- -------------- -------- ------------- -------
31 March 2016
and 1 April 2016 21.7 8.0 97.1 4.2 18.6 1.8 151.4
------------------------- ---------- ---------- ---------- -------------- -------- ------------- -------
Exchange differences 3.0 0.2 9.6 0.4 0.8 0.1 14.1
Additions 0.5 0.6 4.5 0.6 0.3 1.8 8.3
Acquisition of
subsidiary - - 1.6 - 0.2 0.1 1.9
Transfer to assets
held for sale (10.8) - - - - - (10.8)
Disposals - (0.1) (0.4) (0.2) (0.1) - (0.8)
Transfers 0.4 - 1.8 - - (2.2) -
------------------------- ---------- ---------- ---------- -------------- -------- ------------- -------
31 March 2017 14.8 8.7 114.2 5.0 19.8 1.6 164.1
------------------------- ---------- ---------- ---------- -------------- -------- ------------- -------
Accumulated depreciation
1 April 2015 (9.5) (4.3) (69.1) (4.4) (17.1) - (104.4)
Exchange differences (0.3) - (1.9) (0.1) (0.1) - (2.4)
Depreciation (0.7) (0.2) (3.7) (0.2) (0.4) - (5.2)
Impairment - - (1.5) (0.1) - - (1.6)
Disposals 1.3 - 5.6 1.4 - - 8.3
------------------------- ---------- ---------- ---------- -------------- -------- ------------- -------
31 March 2016
and 1 April 2016 (9.2) (4.5) (70.6) (3.4) (17.6) - (105.3)
------------------------- ---------- ---------- ---------- -------------- -------- ------------- -------
Exchange differences (1.3) (0.1) (6.9) (0.4) (0.7) - (9.4)
Depreciation (0.8) (0.2) (4.5) (0.2) (0.5) - (6.2)
Transfer to assets
held for sale 5.7 - - - - - 5.7
Impairment - - (0.4) - - - (0.4)
Disposals - 0.1 0.4 0.2 0.1 - 0.8
------------------------- ---------- ---------- ---------- -------------- -------- ------------- -------
31 March 2017 (5.6) (4.7) (82.0) (3.8) (18.7) - (114.8)
------------------------- ---------- ---------- ---------- -------------- -------- ------------- -------
Carrying amount
------------------------- ---------- ---------- ---------- -------------- -------- ------------- -------
31 March 2017 9.2 4.0 32.2 1.2 1.1 1.6 49.3
------------------------- ---------- ---------- ---------- -------------- -------- ------------- -------
31 March 2016 12.5 3.5 26.5 0.8 1.0 1.8 46.1
------------------------- ---------- ---------- ---------- -------------- -------- ------------- -------
The Group has not revalued any item of property, plant and
equipment. Impairment of property, plant and equipment of GBP0.4m
(2016: GBP1.6m) relates to the closure of the Rorschach site in
Switzerland. The Group has also transferred GBP5.1m into assets
held for sale following the closure of the Switzerland site this
year. These assets include land and buildings and we expect the
sale of these assets to proceed in the coming year. Land of GBP1.1m
is not depreciated.
Assets held under finance leases, capitalised and included in
property, plant and equipment are as follows:
2017 2016
GBPm GBPm
------------------------- ----- -----
Cost 0.6 0.6
Accumulated depreciation (0.4) (0.3)
------------------------- ----- -----
Net book amount 0.2 0.3
------------------------- ----- -----
During the year ending March 2017 there were no events or
changes in circumstance that would indicate the carrying value of
property, plant and equipment may not be recoverable.
15. Assets classified as held for sale
2017 2016
Assets classified as held for sale GBPm GBPm
----------------------------------- ----- -----
Rorschach land and buildings cost 10.8 -
Rorschach buildings depreciation (5.7) -
Carrying value at 31 March 5.1 -
----------------------------------- ----- -----
The Rorschach land and buildings have been transferred in the
period from property, plant and equipment (note 14). Land of
GBP0.5m is not depreciated.
16. Inventory
2017 2016
GBPm GBPm
----------------- ----- -----
Raw materials 11.5 10.1
Work in progress 7.7 7.4
Finished goods 11.4 9.6
----------------- ----- -----
30.6 27.1
----------------- ----- -----
The material and overhead element of inventory recognised as an
expense and included in the Income Statement amounted to GBP134.7m
(2016: GBP121.5m).
There is no material difference between the Balance Sheet value
and the fair value less costs to sell.
17. Trade and other receivables
2017 2016
GBPm GBPm
---------------------------------- ----- -----
Amounts due within one year:
Trade receivables 54.7 45.6
Less: provisions for impairment (2.8) (2.3)
---------------------------------- ----- -----
Trade receivables - net 51.9 43.3
Other debtors 1.9 1.7
Prepayments and accrued income 3.4 2.9
---------------------------------- ----- -----
Total amounts due within one year 57.2 47.9
---------------------------------- ----- -----
The carrying amounts of these receivables are denominated in the
following currencies:
2017 2016
GBPm GBPm
---------------- ----- -----
Pounds Sterling 6.2 5.2
US Dollars 25.7 20.5
Euros 19.1 17.7
Other 6.2 4.5
---------------- ----- -----
57.2 47.9
---------------- ----- -----
At the year end, the following trade receivables balances were
overdue but not impaired:
2017 2016
GBPm GBPm
------------------ ----- -----
Less than 1 month - 0.4
------------------ ----- -----
Overdue analysis includes impact of foreign exchange movements.
Historically customer default is low. The credit quality of the
year end receivables balance is considered high. The Group stopped
credit insuring its debts during the prior year.
The movement in the impairment provision for trade receivables
is as follows:
2017 2016
GBPm GBPm
------------------------------------ ----- -----
Opening provision at 1 April 2016 2.3 1.3
Exchange differences 0.2 -
Charge for the year 0.5 1.1
Receivables written off in the year (0.2) (0.1)
------------------------------------ ----- -----
Closing provision at 31 March 2017 2.8 2.3
------------------------------------ ----- -----
Included in the impairment provision are individually impaired
trade receivables with a gross balance of GBP2.8m (2016: GBP2.3m).
The impairment recognised represents the difference between the
carrying amount of these trade receivables and the present value of
the expected proceeds.
Ageing of impaired trade receivables:
2017 2016
GBPm GBPm
---------------------- ----- -----
Greater than 3 months 2.8 2.3
---------------------- ----- -----
18. Cash and cash equivalents
Cash and bank overdrafts include the following for the purposes
of the Cash Flow Statement:
2017 2016
GBPm GBPm
-------------------------- ----- -----
Cash and cash equivalents 12.1 18.7
-------------------------- ----- -----
19. Trade and other payables
2017 2016
GBPm GBPm
-------------------------------------- ----- -----
Trade payables and trade accruals 32.3 30.0
Other taxes and social security 6.4 4.5
Other creditors 13.3 10.7
-------------------------------------- ----- -----
52.0 45.2
-------------------------------------- ----- -----
Amounts due after more than one year:
Other creditors 0.1 0.2
-------------------------------------- ----- -----
The carrying amounts of these payables are denominated in the
following currencies:
2017 2016
GBPm GBPm
----------------------------- ----- -----
Amounts due within one year:
Pounds Sterling 12.8 10.4
US Dollars 16.3 13.3
Euros 18.3 17.6
Other 4.6 3.9
----------------------------- ----- -----
52.0 45.2
----------------------------- ----- -----
2017 2016
GBPm GBPm
Amounts due after more than one year:
US Dollars - 0.1
Euros 0.1 0.1
-------------------------------------- ----- -----
0.1 0.2
-------------------------------------- ----- -----
Trade payables principally comprise amounts outstanding for
trade purchases and ongoing costs. The average credit period taken
for trade purchases is 75 days (2016: 78 days), stated using the
non-labour element of cost of goods sold. The Group has financial
risk management policies in place to ensure that all payables are
paid within the pre-agreed credit terms.
20. Borrowings
2017 2016
GBPm GBPm
-------------------------------------- ----- -----
Amounts due within one year:
Finance leases 0.1 0.2
Other loans 1.1 0.8
-------------------------------------- ----- -----
1.2 1.0
-------------------------------------- ----- -----
Amounts due after more than one year:
Bank loan 26.9 20.2
Finance leases 0.1 0.1
-------------------------------------- ----- -----
27.0 20.3
-------------------------------------- ----- -----
Total borrowings 28.2 21.3
-------------------------------------- ----- -----
In January 2014 the Group entered into a committed
multi-currency facility with a club of three UK banks. The
principal features of the facility are:
1. the initial committed value of the facility was GBP40m
2. an accordion of GBP20m
3. it is unsecured
4. it is repayable in June 2018
5. the interest payable on drawings under the loan is based on
inter-bank interest plus a sliding scale margin determined by the
Group's leverage; the margin is currently 1.5%
6. the facility has two covenants - the ratio of EBITDA to
interest paid must be above 4:1, and the ratio of EBITDA to net
debt must be less than 2.75, reducing to 2.5 over time
As part of the acquisition of EuroMed in May 2016, the Group
drew down on the committed accordion facility of GBP20m therefore
resulting in an overall committed facility of GBP60m, which is
repayable in June 2018.
The carrying value of borrowings is approximate to their fair
value. The effective interest rates at the Balance Sheet date were
as follows:
%
------------------------------------------ ----
31 March 2017 - Bank loans and overdrafts 2.4%
31 March 2016 - Bank loans and overdrafts 2.1%
------------------------------------------ ----
The carrying amounts of the Group's borrowings are denominated
in the following currencies:
2017 2016
GBPm GBPm
---------------- ----- -----
Pounds Sterling 4.0 11.6
US Dollars 24.2 9.7
---------------- ----- -----
28.2 21.3
---------------- ----- -----
The total borrowings figure is presented net of unamortised debt
issue costs of GBP0.3m (2016: GBP0.3m).
Movements in forward currency contracts used to hedge against
the exposure to exchange differences due to the timing of cash
flows are taken through the Income Statement as it is not Group
policy to hedge account for these instruments. At 31 March 2017
there were no assets or liabilities recognised in the Balance Sheet
relating to the fair values of forward foreign exchange contracts
in place (2016: GBPNil) (see note 22).
The Group has the following undrawn borrowing facilities:
2017 2016
GBPm GBPm
---------------------- ----- -----
Bank loan (committed) 32.9 39.5
Overdrafts 1.0 1.0
---------------------- ----- -----
21. Provisions
Reorganisation
and leasehold Environmental Total
commitments GBPm GBPm
At 1 April 2016 5.0 0.4 5.4
Exchange differences 0.2 - 0.2
Additions in the year 1.1 0.2 1.3
Release in the year (0.4) (0.1) (0.5)
Utilised in the year (2.6) (0.1) (2.7)
------------------------ -------------- ------------- -----
At 31 March 2017 3.3 0.4 3.7
------------------------ -------------- ------------- -----
Analysis of provisions:
Current 1.0 0.3 1.3
Non-current 2.3 0.1 2.4
------------------------ -------------- ------------- -----
At 31 March 2017 3.3 0.4 3.7
------------------------ -------------- ------------- -----
Reorganisation
and leasehold Environmental Total
commitments GBPm GBPm
At 1 April 2015 1.7 0.7 2.4
Exchange differences 0.2 - 0.2
Additions in the year 4.9 0.1 5.0
Release in the year - (0.3) (0.3)
Utilised in the year (1.8) (0.1) (1.9)
------------------------ -------------- ------------- -----
At 31 March 2016 5.0 0.4 5.4
------------------------ -------------- ------------- -----
Analysis of provisions:
Current 3.5 0.4 3.9
Non-current 1.5 - 1.5
------------------------ -------------- ------------- -----
At 31 March 2016 5.0 0.4 5.4
------------------------ -------------- ------------- -----
- Reorganisation and leasehold commitments
The GBP3.3m (2016: GBP5.0m) reorganisation provision relates to
dilapidations for leasehold property of GBP2.5m (2016: GBP1.8m) and
GBP0.1m (2016: GBP0.3m) in relation to reorganisation costs. There
is also a GBP0.7m provision relating to the closure of the
Rorschach site which is expected to be fully utilised during the
coming year.
- Environmental provisions
Environmental provisions relate to expected costs required to
clean up environmental contamination of a number of sites in Europe
of GBP0.4m (2016: GBP0.4m). The Group expects the majority of the
spend against the environmental provisions to be incurred over the
next four years.
22. Reconciliation of operating profit to operating cash flow, and reconciliation of net cash
Year ended Year ended
31 March 31 March
2017 2016
All on continuing operations GBPm GBPm
-------------------------------------------------------------------- ---------- ----------
Operating profit 23.8 11.7
Adjustments for:
Depreciation and amortisation 9.9 7.5
Exceptional pension settlement (0.3) (1.6)
Impairment of tangible fixed assets 0.4 1.6
Pensions payments in excess of charge (4.3) (4.4)
Share options charge 1.9 1.8
Grant income released - (0.1)
Changes in working capital:
-------------------------------------------------------------------- ---------- ----------
Inventories 1.3 (1.7)
Trade debtors (1.6) 0.9
Trade creditors (1.4) (0.4)
-------------------------------------------------------------------- ---------- ----------
Changes in trading working capital (1.7) (1.2)
Other debtors (0.7) (1.1)
Other creditors 2.1 (0.4)
Deferred consideration (0.1) (0.1)
Net movement in environmental provisions - (0.3)
Net movement in reorganisation provisions and leasehold commitments (0.2) 0.2
Net movement in other provisions (1.7) 2.9
-------------------------------------------------------------------- ---------- ----------
Cash generated from operations 29.1 16.5
-------------------------------------------------------------------- ---------- ----------
Cash generated from operations before exceptional items 32.7 19.0
Cash outflows from exceptional items (3.6) (2.5)
-------------------------------------------------------------------- ---------- ----------
Cash generated from operations 29.1 16.5
-------------------------------------------------------------------- ---------- ----------
Analysis of cash and cash equivalents and borrowings
At 1 At 31
April Cash Exchange March
2016 flow movement 2017
GBPm GBPm GBPm GBPm
------------------------------------ ------ ------ --------- ------
Cash and cash equivalents 18.7 (7.7) 1.1 12.1
------------------------------------ ------ ------ --------- ------
Borrowings within one year (1.0) - (0.2) (1.2)
Borrowings after more than one year (20.3) (5.9) (0.8) (27.0)
------------------------------------ ------ ------ --------- ------
Total borrowings (21.3) (5.9) (1.0) (28.2)
------------------------------------ ------ ------ --------- ------
Total (2.6) (13.6) 0.1 (16.1)
------------------------------------ ------ ------ --------- ------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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