RPC GROUP PLC. Half year results for the six months ended 30 September 2016

Transcription

1 RPC GROUP PLC 30 November 2016 Half year results for the six months ended 30 September 2016 RPC Group Plc, the international plastic products design and engineering company, announces its half year results for the six months ended 30 September Key Financial Highlights September 2016 September 2015 Increase Revenue ( m) 1, % Adjusted EBITDA ( m) % Adjusted operating profit ( m) % Return on sales % 10.3% 80bps Adjusted profit before tax ( m) % Adjusted basic earnings per share 2,3 30.7p 21.2p 45% Free cash flow ( m) % RONOA % 21.7% 270bps Statutory Profit before tax ( m) % Net profit ( m) % Net cash from operating activities ( m) % Basic earnings per share p 10.4p 57% Interim dividend per share 3 6.5p 4.8p 35% 1 Adjusted EBITDA, adjusted operating profit and return on sales are before restructuring, impairment charges, other exceptional and nonunderlying items and amortisation of acquired intangibles, and adjusted profit before tax is before non-underlying finance costs. 2 Adjusted basic earnings per share is adjusted operating profit after interest and tax, excluding non-underlying finance costs and tax adjustments, divided by the weighted average number of shares in issue during the year. 3 Comparative restated for rights issue. 4 Free cash flow is cash generated from operations less net capital expenditure, net interest and tax, adjusted to exclude exceptional cash flows and non-cash provision movements. 5 Comparative restated to include acquisitions on pro forma basis. Key developments: Revenue, profit and cash flow reached record levels driven by the successful implementation of the Vision 2020 growth strategy; Revenues grew 53% reflecting the contribution from recent acquisitions and c.3% underlying organic growth; Return on sales improved to 11.1% (2015: 10.3%); Adjusted operating profit of 136.3m with the adjusted EPS improving by 45% to 30.7p; Strong cash generation with free cash flow at 118m (2015: 57m); Significant acquisition (BPI) made during the period, with four further acquisitions completed after the half year;

2 GCS organisational integration completed and BPI s integration well advanced. Overall acquisition related steady state cost synergy forecast increased from 92m to at least 100m per annum; Interim dividend of 6.5p up 35%. Commenting on the results, Pim Vervaat, Chief Executive, said: I am very pleased with the overall business performance in the first half year, leading to record profitability levels with solid underlying organic growth and strong cash conversion. Both the GCS and BPI acquisitions, whose integration is well advanced, have performed well with additional cost synergies identified. As we successfully execute our stated Vision 2020 strategy, further attractive opportunities to grow the Group present themselves as the pace of consolidation in the industry accelerates. Good opportunities exist for higher added value organic growth whilst at the same time consolidating certain market positions. The second half year has started well. For further information: RPC Group Plc FTI Consulting Pim Vervaat, Chief Executive Richard Mountain Simon Kesterton, Group Finance Director Nick Hasell This interim announcement contains forward-looking statements, which have been made by the directors in good faith based on the information available to them up to the time of the approval of this report and such information should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying such forward-looking information. 2

3 INTERIM MANAGEMENT REPORT Business Operations RPC is a leading plastic products design and engineering company for packaging and selected nonpackaging markets, with 28 innovation centres and over 150 operations in 31 countries, and employs more than 20,000 people. The Group develops and manufactures a diverse range of products for a wide variety of customers, including many household names, and enjoys strong market positions in many of the end-markets it serves and the geographical areas in which it operates. It uses a wide range of polymer conversion technologies in both rigid and flexible plastics manufacture, and is now one of the largest plastic converters in Europe, combining the development of innovative packaging and technical solutions for its customers with unparalleled levels of service and support. The business is organised and managed according to product and market characteristics, and is split into two segments, Packaging and Non-packaging. The Packaging business serves the Food, Non-food, Personal Care, Beverage and Healthcare markets. The Non-packaging businesses design and manufacture moulds, plastic products and technical components for other markets. The Group is organised into six divisions servicing both the packaging and non-packaging markets, with the larger divisions operating a cluster structure to preserve autonomy in particular markets or product groups. The divisions are RPC Superfos, RPC Bramlage, RPC Promens, RPC Bebo, RPC Ace and RPC bpi group. Each division operates across a wide geographical area for reasons of customer proximity, local market demand and manufacturing resource, with the RPC Ace business operations based in China. Strategy There are four core elements to the Group s Vision 2020 Focused Growth Strategy, which are: focused organic growth in selected markets; selective consolidation in the European plastic packaging market through targeted acquisitions to strengthen and extend market positions; creating a meaningful presence outside Europe where growth rates in GDP are considerably higher; and pursuing added value opportunities in non-packaging markets. The Group has made excellent further progress in the period in implementing all elements of this strategy as the pace of industry consolidation accelerates. Focused organic growth The Group achieved further underlying growth during the half year, with overall like-for-like sales improving by 3%. Activity levels increased year on year in both packaging and non-packaging segments with underlying growth ahead of the GDP growth rates in the main geographical areas served by the businesses. Innovation continues to be a key driver of growth, with over 50% of the 81m investment made in the period in property, plant and equipment being attributed to growth-related projects. Following the most recent acquisitions, the Group now has 28 design centres of excellence and the Group s innovation capabilities were again recognised through winning several awards in both product innovation, including the RPC UK design team being highly commended at the 2016 Packaging Awards, and also recognised in process improvement through awards such as for the IML-T tubs and lids in thermoforming (Society of Plastic Engineers). The Group was also awarded the Best Industrial Goods, Services and Automobiles PLC at the 2016 UK Stock Market Awards. Good investment opportunities for growth in innovative products exist alongside pursuing a margin enhancement strategy in selected more commoditised market segments. 3

4 INTERIM MANAGEMENT REPORT Selective consolidation in the European packaging market through targeted acquisitions In 2015/16, the Group made four acquisitions in the European packaging market, including the major acquisition of Global Closure Systems (GCS) completed in March A leading innovative global manufacturer of plastic closures and dispensing systems, GCS complements RPC s existing product offering in packaging and extends the Group s product reach and capabilities. With 21 manufacturing sites and 2 mould-shops this acquisition further strengthened the Group s presence in mainland Europe. In August 2016 the Group made a further significant European-based acquisition, British Polythene Industries PLC (BPI). A leading manufacturer and supplier of polythene films for a diverse range of end markets, BPI provides the Group with an established flexibles platform with strong market positions in Europe and globally in agricultural films. Head quartered in Glasgow, with 19 sites of which 14 are in the UK, it gives entry to another adjacent polymer market, increasing the range of polymer conversion technologies within the Group and providing excellent opportunities for further consolidation and growth. Since the half year and in line with our stated strategy, the Group has continued to exploit consolidation opportunities in Europe with three further acquisitions completed. These were: Sanders Polyfilms, a specialist manufacturer of high yield collation shrink film, consolidating one of the UK market segments. Total sales are 23m with sites in the UK and Romania. The business will be integrated into the new RPC bpi division; Jagtenberg Plastics, a well invested manufacturer of blow moulded products for the packaging and non-packaging markets with sites in the Netherlands and Germany and total sales of 22m. This business will extend the geographical reach of the industrial packaging business; Plastiape, with three operations in Italy and Poland and sales of 60m, will strengthen the Group s position in the healthcare market particularly in medical devices. Combined with RPC s existing healthcare business, Plastiape will establish a platform for future organic and acquisitive growth. Creating a meaningful presence outside Europe Building on its strong platform in China, following the acquisition of Ace in 2014, the Group continues to increase its presence outside Europe through recent acquisitions and organic growth. The acquisition of Promens in 2015 provided the Group with packaging and non-packaging operations in Canada, Russia, Tunisia and China. In addition the acquisition of GCS in 2016 added operations in Mexico, China, Thailand and the Philippines. BPI, which was acquired during the half year, has added a further two sites in Canada, serving North America with agricultural sheet. The Group has also increased its presence in the USA having acquired the GCS operation at Libertyville, Illinois and by adding capacity to its operation at Winchester, Virginia, resulting in growth in sales in the food and personal care markets in North America. During the half year the Group also made good progress in developing its own manufacturing capability in Brazil, with the intention of supplying a major customer in the second half of the financial year with locally produced product to support a recent launch into South America. Sales outside Europe increased 72% to 174m representing over 14% of total sales, and over time will provide the Group with further opportunities to sell its innovative packaging and non-packaging product ranges to these markets. The return on sales outside Europe in the first half year was 17%, well above the Group s average of 11%. The Group will complete shortly on the acquisition of an Australian business, Synergy Packaging, a manufacturer of PET containers to the beauty, cosmetics, pharmaceutical and food markets. Based in Melbourne, with a turnover of A$17m (c. 10m), this small but profitable business provides RPC with an entry point into the Australasian market. 4

5 INTERIM MANAGEMENT REPORT The total enterprise value of the four acquisitions after the half year is 155m, representing an underlying EBITDA multiple (forecast current year) of c.7.8x (pre synergies). Pursuing added value opportunities in non-packaging markets The mould-making business in RPC Ace division showed good growth during the period, reflecting recent developments in new mould technology, and sales of electroplated products also increased following investments in the new electroplating line at Zhuhai, China. The materials handling and specialty vehicles businesses acquired through the Promens acquisition continue to perform strongly making enhanced returns with these businesses trading well under RPC s ownership. This includes the recent reorganisation of the fish crate Sæplast business to focus operations in Europe and the Americas, and the restructuring and investment activities at the specialty vehicles and automotive businesses at Hockenheim, Zevenaar and Rongu, all of which have seen improved returns. The Strata Products acquisition in 2015 is performing well and the recent acquisition of Jagtenberg is expected to increase the Group s leading position in the horticultural market. Business Integration BPI Operating in the flexibles and films market in different product and market segments and using complementary plastic conversion technologies, BPI operates as a standalone division (RPC bpi group) within the Group and as a consequence the integration effort is relatively lower than that of the last two major acquisitions (GCS and Promens). Acquired on 1 August 2016, good progress had been made by the end of half year in removing the PLC cost base and duplicated corporate overheads, and work on securing the procurement synergies is well underway. A review of the organisational structure of the whole business has taken place and already been implemented, reducing the number of business units from 9 to 4, resulting in a market focused organisation facilitating increased cross selling opportunities and better asset utilisation. A review of the manufacturing footprint is also underway. GCS The integration of GCS, which was acquired on 29 March 2016, is largely complete, with the business operations integrated within the RPC Bramlage division and duplicated functions in the GCS Paris head office removed. Realisation of the purchasing synergies is nearing completion and work has commenced in optimising underperforming businesses and in identifying opportunities to consolidate excess capacity within the combined Group. In this context consultation with the workforce in Halstead has started about the relocation of this business. Promens The organisational integration of the former Promens division into the wider RPC structure was completed last year. In terms of realising the cost synergies, a further 3 sites were closed (Blyes, L Aigle, Kerkrade) during the period and other consolidation and optimisation projects in RPC Promens (Theessen, Gent, Kutenholz, Hockenheim) and RPC Bramlage (Pulheim, Marolles) are well advanced. The site at Old Dalby (RPC Superfos) was also closed, with its business transferred to Oakham. 5

6 INTERIM MANAGEMENT REPORT Acquisition related cost synergies The cost of the combined GCS and Promens integration programmes were estimated at 170m at March 2016, with the benefits associated with the overall optimisation of the cost base being 80m. During the period total programme costs, which were charged to exceptional integration and restructuring costs, amounted to 26m and at the end of the half year the total costs of the programme to date were 104m. Steady state cumulative benefits increased to 56m p.a. during the half year. For BPI the initial estimate of pre-tax synergies was 10m per annum fully realisable within the first two full years with additional c. 3m benefit from lower depreciation plus an additional one-off working capital synergy of c. 10m. Expected one-off cash costs to deliver the synergies are estimated at 5m. During the period the BPI programme costs, which were charged to exceptional integration and restructuring costs, amounted to 1m. The overall estimate for steady state cost synergies related to the Promens / GCS / BPI acquisitions increased from 92m (which included the 10m for BPI) to at least 100m per annum. The overall exceptional costs for the synergy realisation programme are now estimated at 180m with the associated cash costs unchanged at 110m. Business Review The Group produced strong results in the first half of the year. The weakening of sterling following the EU referendum enhanced profits, producing a translation benefit in the half year of 12m to adjusted operating profit 1 and polymer price movements generated a tailwind of 3m compared with last year. After taking account of these effects and the contribution of recent acquisitions, the increase in adjusted operating profit resulting from synergy realisation, organic growth and business improvement more than offset inflationary increases to the Group s cost base. Revenues grew 53% to 1,226m due to the acquired businesses (BPI and the 2015/16 acquisitions) as well as growth in both packaging and non-packaging products, which were up 3% overall on a like-forlike basis. Adjusted EBITDA 1 was 198.5m (2015: 120.2m) and adjusted operating profit of 136.3m increased by 53.5m (65%), with return on sales at 11.1% (2015: 10.3%) and RONOA at 24.4% (2015 restated: 21.7%), both measures showing significant growth and comfortably ahead of the Vision 2020 minimum performance metrics. ROCE at 15% remained at a robust level. The Group incurred 32.7m (2015: 29.7m) of restructuring costs, impairments and other exceptional items in the first half year, mainly relating to the acquisition and integration costs in respect of BPI, GCS and Promens. The Group continued to invest in growth and efficiency projects, with a cash outflow of 81m of capital expenditure in the period. Cash generation improved reflecting the impact of the recent acquisitions with 151m (2015: 74m) net cash from operating activities and free cash flow 2 of 118m (2015: 57m). Working capital as a percentage of sales was 6.1% (2015: 6.3%). The Group retains a strong balance sheet with net debt of 833m representing a 1.9x EBITDA multiple, and it had total finance facilities of 1,573m at 30 September Adjusted EBITDA is defined as EBITDA before restructuring, impairment charges, other exceptional and non-underlying items and amortisation of acquired intangibles. 2 Free cash flow is cash generated from operations less net capital expenditure, net interest and tax, adjusted to exclude exceptional cash flows and non-cash provision movements. 6

7 INTERIM MANAGEMENT REPORT Packaging 30 September September 2015 Increase Sales ( m) 1, % Adjusted operating profit ( m) % Return on sales 10.3% 9.7% 60bps Return on net operating assets 23.9% 23.3% 60bps The Packaging business serves diverse end-markets with innovative solutions, and includes the closures business of GCS and the films and flexibles packaging business of BPI. While acquisitions contributed 331m to top line growth, after taking account of the effect of passing through polymer price reductions and translation impacts, like-for-like revenue growth of 3% was achieved during the period. Return on sales and RONOA showed further improvement. The strongest growth rates were in food and non-food packaging, with new product development and geographical expansion supporting this growth. Beverage sales increased, with a strong caps and closure sales from GCS but as expected growth in single-serve beverage sales slowed temporarily due to dual sourcing in Europe and customer ownership disruption. In food packaging further growth was secured through the extension of products manufactured in PET, the supply of barrier products such as SuperLock and through the development of innovative products and packaging solutions. An example was RPC Superfos bespoke dessert packaging solution for Finnish dairy producer Valio, which was awarded a WorldStar 2016, the pre-eminent international packaging award organised by the World Packaging Organisation (WPO). The RPC Design team won the Rigid Plastic Pack of the year award for the Peardrop chilled soup container it designed for a leading supermarket at the 2016 UK Packaging Awards, further testament to the innovation and development of the packaging business within RPC. In addition a major investment commenced at the RPC Promens Hefei operation to automate production in its high volume facility supplying blow moulded bottles to a major international customer. Both GCS and BPI delivered strong sales over their post-acquisition period, with demand higher than expected. The rigid plastic packaging market is forecast to grow at above GDP over the next 4 years which will continue to present opportunities for the Packaging business to continue to grow organically both inside and outside Europe, through innovation and continuing to launch turnkey projects from its extended platforms in the Americas and the Far East. Non-packaging 30 September September 2015 Increase Sales ( m) % Adjusted operating profit ( m) % Return on sales 16.0% 13.3% 270bps Return on net operating assets 30.7% 25.5% 520bps The Non-packaging businesses of the Group comprise the RPC Ace division, RPC Promens Roto and RPC Bramlage Vehicle Engineering, and the other non-packaging businesses within the divisions. The 7

8 INTERIM MANAGEMENT REPORT impact of acquisitions is largely attributable to the impact of Strata Products, which was acquired in November 2015, and with sales increasing by c.3% on a like-for-like basis. The RPC Ace division, comprising seven sites in China, operates a world class mould design and manufacturing capability, supplying complex moulds to both internal and external customers and provides the Group with an Asian precision engineering platform for manufacturing high added value coengineered injection moulded products. It serves, alongside packaging markets, medical, lifestyle, power and automotive end markets. The business traded ahead of expectations during the period, with higher sales and profits generated, particularly in automotive components, having secured new contracts with several major western vehicle manufactures, and in mould tool sales. With the slowdown in GDP growth in China abating and the renminbi depreciating slightly against the major currencies, Ace is well poised to benefit from the improved economic environment. A third electroplating line was installed at the Zhuhai site during the period, facilitating the growth in demand for electroplating and spray painting for automotive and other products. RPC Promens Vehicles and RPC Bramlage Vehicle Engineering, which manufacture plastic parts for trucks and specialty vehicles from sites in the Netherlands, Estonia, Germany and the Czech Republic, also performed well with increases in sales volumes and profits over the period, and additional orders for longer term sales secured. The cost base of the operations has been optimised and further expansion investment is planned. RPC Promens Sæplast, serving the fish and agricultural industries, continued to focus on its markets in Europe and the Americas, with its operation at Ahmedabad (India) sold in the period. Non-financial key performance indicators RPC has three main non-financial key performance indicators, which provide perspectives on the Group s progress in improving its contribution to the environment and employee welfare. 30 September September 2015 Non-financial KPIs: Electricity usage per tonne (kwh/t) 1,980 2,007 Water usage per tonne (L/T) Reportable accident frequency rate Reportable accident frequency rate (RAFR) is defined as the number of accidents resulting in more than three days off work, excluding accidents where an employee is travelling to or from work, divided by the average number of employees, multiplied by the constant 100,000. The Group s health & safety performance realised a step change as the reportable accident frequency rate decreased significantly compared with last year, following continued focus on Health & Safety across the Group, and in particular the concerted efforts made to bring the former Promens sites up to the RPC standard. A programme of assessment and review is underway for the GCS and BPI acquired sites. The Group continues to find ways to improve its efficient usage of electricity and water, with electricity usage per tonne showing further progress during the period. 8

9 INTERIM MANAGEMENT REPORT Financial Review The financial review of the business is based on underlying business performance, excluding exceptional and non-underlying items which include the amortisation of acquired intangible assets, other nonunderlying expenses, the fair value changes of unhedged derivatives and the unwinding of the discount on deferred and contingent consideration including related foreign exchange impacts. Acquisitions On 1 August 2016 the Group completed the acquisition of BPI for a cash consideration of 133.7m in addition to issuing 16,505,511 shares to BPI shareholders. The provisional goodwill on acquisition amounted to 202.1m after fair value adjustments, and the trading results of the business after the acquisition date are included in the Group results. Condensed consolidated income statement Sales in the first half of 2016/17 increased by 53% to 1,226.1m (2015: 799.8m), with underlying organic growth of c.3% and recent acquisitions (GCS, Strata, JP Plast, BPI) accounting for most of this increase. This was further supported by the translation effect of a weaker pound ( 1.22 v 1.39) which increased sales by 105m compared with the corresponding period last year. This was offset by the impact of polymer price reductions passed on to customers through sales price reductions. Adjusted EBITDA was 198.5m (2015: 120.2m) and adjusted operating profit was 136.3m (2015: 82.8m), an increase of 53.5m (65%). The effect of the weaker pound was to increase profit by 12m in comparison to the prior year. The polymer headwind variance of c. 3m compared to last year also improved margins. The prior year saw polymer prices rising steadily from February to June 2015 reaching record levels. The increased costs could only be passed on to customers with a time lag, but the volatility in the half year was more subdued giving rise to a margin benefit when comparing the two periods. Further profitability improvements included the impact of acquisitions ( 29m) over the period, synergies realised of 12m (ahead of schedule) from the Promens and GCS integrations, general sales growth and other business improvements offsetting inflationary pressures. Exceptional items for the period amounted to 32.7m (2015: 29.7m), comprising Promens and GCS integration and restructuring costs of 20.4m, other restructuring and closure costs of 0.5m, deferred remuneration of 3.8m relating to Ace and Strata Products shareholders who have been retained in the business, transaction costs relating to acquisitions of 6.8m, and other exceptional items of 1.2m, including 0.9m of start-up costs for a project in Brazil. The main elements of the Promens integration costs relate to redundancies and restructuring costs to close the Kerkrade (Netherlands), Blyes and L Aigle (both France) and Old Dalby (UK) sites. The cost of the GCS integration primarily relates to the closure of the Paris head office. Other non-underlying items include amortisation costs of acquired intangibles of 11.0m (2015: 5.0m) and other expenses of 0.4m (2015: 0.3m). Net interest payable increased from 7.3m to 11.1m due to the higher average net debt levels over the period due to acquisitions. The remaining increases in net finance charges related to non-underlying finance charges including the unwinding of the discount on the deferred and contingent consideration for the Ace acquisition. The adjusted profit before tax 1 increased from 75.8m to 125.5m largely as a result of the improvement in adjusted operating profit. The adjusted tax rate was 23.5% (2015: 24.0%), resulting in an adjusted profit after tax of 96.0m (2015: 57.6m) and adjusted basic earnings per share 2 of 30.7p (2015 restated: 21.2p). 1 Adjusted profit before tax is defined as operating profit before restructuring, impairment charges and other exceptional items, amortisation of acquired intangibles and other non-underlying expenses, and excluding non-underlying finance costs. 2 Adjusted basic earnings per share is adjusted operating profit after interest, excluding non-underlying finance costs, and tax adjustments, divided by the weighted average number of shares in issue during the period. 9

10 INTERIM MANAGEMENT REPORT The Group s overall tax charge was 21.5m (2015: 12.2m) resulting in a reported tax rate of 29.7% reflecting an adjusted effective rate of 23.5% and a 15.1% tax credit on exceptional and non-underlying charges, as tax relief is not available on a significant proportion of these costs. The profit after tax was 51.0m (2015: 28.3m), the increase being mainly due to the higher operating profit. Basic earnings per share was 16.3p (2015 restated: 10.4p). Condensed consolidated balance sheet and cash flow statement The balance sheet includes the net assets of the BPI business which was acquired during the period. The carrying value of property, plant and equipment increased due to assets acquired with BPI of 117.7m and capital additions of 84.1m ahead of depreciation of 58.9m. The increase was furthered by the exchange rate impact of the weakened pound on translation. Over 50% of capital investment during the period related to growth projects. Working capital (the sum of inventories, trade and other receivables and trade and other payables) increased to 172.1m (2015: 101.1m) representing 6.1% as a percentage of sales for the half year (annualised) (2015: 6.3%). The long-term employee benefit liabilities at the half year increased from 150.3m in March 2016 to 300.9m. This increase was mostly attributable to pension liabilities of 94.2m acquired as part of the purchase of BPI, combined with a significant increase in liabilities due to effect of a further reduction in the discount rate assumptions. Deferred and contingent consideration of 64.0m relates to previous acquisitions, including the expected contingent consideration earned during the period by shareholders of Ace who are working within the business. The final instalment of the deferred consideration relating to the Helioplast acquisition (now RPC Balkans) was paid during the period. Capital and reserves increased in the period by 303.3m, the net profit for the period of 51.0m, net movements from the issue of shares and purchase of shares for share-based arrangements of 231.0m, and foreign exchange movements on translation and other related changes of 101.5m offsetting pension related net actuarial losses of 39.4m and dividends paid of 40.8m. Further details are shown in the Condensed consolidated statement of changes in equity which is included in the financial statements. Net cash from operating activities (after tax and interest) was 151.2m compared with 74.4m in the same period in 2015, mainly due to the higher EBITDA from acquisitions made in 2015/16. The net cash outflow from investing activities of 219.1m (2015: 48.6m) includes 133.7m to acquire the BPI business, 3.9m of deferred consideration payments and 80.5m of capital expenditure. Net debt, which includes the fair value of the cross currency swaps used to transform the US private placement (USPP) funding, increased from 744m at 31 March 2016 to 833m at 30 September Average net debt for the first half year was 807m (2015: 485m). Gearing stands at 70% and leverage (net debt to EBITDA ratio) is at

11 INTERIM MANAGEMENT REPORT Financial key performance indicators (KPIs) The Group s main financial KPIs focus on return on investment, business profitability and cash generation. 30 September 30 September Return on net operating assets % 21.7% Return on sales % 10.3% Free cash flow m 57.0m Return on capital employed % 15.5% Cash conversion 5 107% 82% 1 RONOA is adjusted operating profit (annualised for half year reporting) divided by the average of opening and closing property, plant and equipment and working capital for the year concerned. Comparatives restated to include acquisitions on a pro forma basis. 2 ROS is adjusted operating profit divided by sales revenue. 3 Free cash flow is cash generated from operations less net capital expenditure, net interest and tax, adjusted to exclude exceptional cash flows and non-cash provision movements. 4 ROCE is adjusted operating profit (annualised for half year reporting), divided by the average of opening and closing shareholders equity, after adjusting for net retirement benefit obligations, assets held for sale and net borrowings for the year concerned. 5 Cash conversion is the ratio of free cash flow before interest and tax paid, to adjusted operating profit. The key measures of the Group s financial performance, which are measured on a continuing basis, are its return on net operating assets (RONOA) and return on sales (ROS). The de-minimis hurdles agreed by the Board are for the Group to exceed 20% RONOA and 8% ROS. ROCE is targeted to remain well above the Group s weighted average cost of capital. Free cash flow more than doubled reflecting the cash generation from the acquisitions and cash conversion increased. Principal Risks and Uncertainties RPC is subject to a number of risks, both external and internal, some of which could have a serious impact on the performance of its business. These include polymer price volatility and availability, mitigated by the pass through of price changes to customers and reducing dependence on a few suppliers; dependency on key customers, reduced by joint investment in product and technological development and business interruption and the loss of essential supplies, managed by ensuring alternative sources of supply are available, the capability of manufacturing from other sites where loss of supply is localised, and maintenance of protocols and procedures to ensure business continuity should a major incident occur. The Board regularly considers the principal risks that the Group faces and how to reduce their potential impact. The key risks to which the Group is exposed have not changed significantly over the first half of the financial year. Further information concerning the principal risks faced by the Group can be found in the Group s annual report and accounts for the year ended 31 March EU Referendum On the 23 June 2016 the UK voted to leave the EU resulting in uncertain future trading arrangements between the UK and the rest of the world, and falling expectations for UK GDP in the short to medium term. RPC is relatively well placed to deal with this as c. 75% of its products are manufactured outside of the UK and its remaining businesses can generally withstand periods of economic volatility due to their robust market positions in relatively defensive end-markets. 11

12 INTERIM MANAGEMENT REPORT Weaker sterling following the referendum has so far had a positive effect on the Group s reported earnings but a negative impact on its debt and pension liabilities. The additional borrowing facilities obtained in the period were denominated in euros so headroom on borrowing facilities have not been significantly impacted. Since the Brexit announcement sterling has depreciated by 12% against the euro and 11% against the US dollar and the impact on adjusted operating profit at the half year was to increase the adjusted operating profit reported in sterling by 12m, and to increase consolidated net assets reported in sterling by c. 100m. If current sterling exchange rates were broadly to prevail for the remainder of the financial year, assuming no material deterioration in end markets, a one cent movement on the US dollar would impact the Group s adjusted operating profit by approximately 0.1m and a one cent movement on the euro by approximately 1.2m. Going Concern The Group has considerable financial resources together with long-standing commercial arrangements with a number of customers, suppliers and funding providers across different geographical regions. It had total finance facilities of approximately 1,573m at 30 September 2016 with headroom of 680m. The facilities are mainly unsecured and comprised a revolving credit facility (RCF) of up to 770m, together with an uncommitted accordion facility of 100m, with seven major UK and European banks maturing in 2020, an RCF of 450m with five major banks expiring 2019, USPP notes of $216m and 60m maturing in 2018 and 2021, a bilateral term loan of 60m with a major UK bank, mortgages of 13m, finance leases and other credit and overdraft arrangements. The Group s forecasts and projections show that it is able to operate within the level of its current external funding facilities and that it has adequate resources to continue in operational existence for the foreseeable future. For this reason, the going concern basis has been adopted in preparing the financial statements. Dividend The Board has declared an interim dividend of 6.5p per share (2015 restated: 4.8p) and is in line with the Group s progressive dividend policy which has been in place since RPC s flotation in This will be paid on 27 January 2017 to ordinary shareholders on the register at 30 December Given the recent growth in dividends paid and increase in number of shares in issue, the Group is evaluating a capital reorganisation to create further distributable reserves to enable the Group to continue its progressive dividend policy. This change in the capital structure will be a focus of work in the second half of the financial year. Outlook As we successfully execute our stated Vision 2020 strategy, further attractive opportunities to grow the Group present themselves as the pace of consolidation in the industry accelerates. Good opportunities exist for higher added value organic growth whilst at the same time consolidating certain market positions. The second half year has started well. 12

13 INTERIM MANAGEMENT REPORT Responsibility Statement of the Directors in Respect of the Half Year Financial Report We confirm that to the best of our knowledge: the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; and the interim management report includes a fair review of the information required by: (a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and (b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last annual report that could do so. BY ORDER OF THE BOARD J R P Pike Chairman P R M Vervaat Chief Executive 30 November November

14 INDEPENDENT REVIEW REPORT TO RPC GROUP PLC Report on the condensed set of financial statements Our conclusion We have reviewed RPC Group Plc's condensed financial statements (the "interim financial statements") in the half year financial report of RPC Group Plc for the 6 month period ended 30 September Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom s Financial Conduct Authority. What we have reviewed The interim financial statements comprise: the condensed consolidated balance sheet as at 30 September 2016; the condensed consolidated income statement and condensed consolidated statement of comprehensive income for the period then ended; the condensed consolidated cash flow statement for the period then ended; the condensed consolidated statement of changes in equity for the period then ended; and the explanatory notes to the interim financial statements. The interim financial statements included in the half year financial report have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom s Financial Conduct Authority. As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. Responsibilities for the condensed financial statements and the review Our responsibilities and those of the directors The half year financial report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half year financial report 2016 in accordance with the Disclosure Rules and Transparency Rules of the United Kingdom s Financial Conduct Authority. Our responsibility is to express a conclusion to the company on the interim financial statements in the half year financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Rules and Transparency Rules of the United Kingdom s Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 14

15 INDEPENDENT REVIEW REPORT TO RPC GROUP PLC What a review of condensed set of financial statements involves We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. We have read the other information contained in the half year financial report 2016 and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements. PricewaterhouseCoopers LLP Chartered Accountants Birmingham 30 November 2016 a) The maintenance and integrity of the RPC Group Plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website. b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 15

16 Condensed consolidated income statement 12 months to 30 September September March 2016 (unaudited) (unaudited) (audited) Adjusted Nonunderlying (note 4) Total Adjusted Nonunderlying (note 4) Total Adjusted Nonunderlying (note 4) Total Notes m m m m m m m m m Revenue 3 1, , , ,642.4 Operating costs (1,089.8) (44.1) (1,133.9) (717.0) (35.0) (752.0) (1,468.1) (79.1) (1,547.2) Operating profit (44.1) (35.0) (79.1) 95.2 Financial income Financial expenses (15.8) (8.9) (24.7) (12.8) (0.3) (13.1) (18.6) (6.7) (25.3) Net financing costs 5 (11.1) (8.9) (20.0) (7.3) (0.3) (7.6) (14.3) (5.9) (20.2) Share of investment accounted for under the equity method Profit before taxation (53.0) (35.3) (85.0) 75.6 Taxation 6 (29.5) 8.0 (21.5) (18.2) 6.0 (12.2) (38.5) 17.8 (20.7) Total profit attributable to equity shareholders 96.0 (45.0) (29.3) (67.2) 54.9 Earnings per share 30 September September months to 31 March 2016 (unaudited) (unaudited) (audited) Adjusted Total Adjusted Total Adjusted Total Basic p 10.4p 19.4p Diluted p 10.4p 19.3p Adjusted basic p 21.2p 43.3p Adjusted diluted p 21.1p 43.0p 16

17 Condensed consolidated statement of comprehensive income 12 months to 30 September 30 September 31 March (unaudited) (unaudited) (audited) m m m Notes Profit for the period Items that will not be reclassified subsequently to profit and loss Actuarial (losses)/gains on defined benefit schemes 10 (48.9) Deferred tax on actuarial losses/(gains) 9.5 (3.4) (2.7) (39.4) Items that may be reclassified subsequently to profit and loss Foreign exchange translation differences (4.0) 61.6 Effective portion of movement on fair value of interest rate swaps Deferred tax liability on effective portion of movement on fair value of interest rate swaps (0.6) (1.1) (2.0) Amounts recycled to profit and loss (7.7) 3.4 (1.9) Amounts recycled to balance sheet - - (4.0) Movements in swaps designated as net investment hedges (10.3) (0.4) (10.1) Other comprehensive expenses, net of tax Total comprehensive income for the period, attributable to equity shareholders

18 Condensed consolidated balance sheet 30 September 30 September 31 March (unaudited) (unaudited) (audited) Notes m m m Non-current assets Goodwill 9 1, Other intangible assets Property, plant and equipment 9 1, Investments accounted for under the equity method Derivative financial instruments Deferred tax assets Total non-current assets 2, , ,984.4 Current assets Inventories Trade and other receivables Cash and cash equivalents Assets held for sale Total current assets 1, Current liabilities Bank loans and overdrafts (110.8) (38.0) (111.0) Trade and other payables (693.4) (404.8) (531.5) Current tax liabilities (39.8) (19.6) (34.7) Deferred and contingent consideration 11 - (13.7) (4.2) Provisions and other financial liabilities 12 (61.5) (18.7) (58.6) Derivative financial instruments - (1.6) (0.2) Total current liabilities (905.5) (496.4) (740.2) Net current assets Total assets less current liabilities 2, , ,050.6 Non-current liabilities Bank loans and other borrowings (934.6) (546.9) (794.2) Employee benefits 10 (300.9) (92.1) (150.3) Deferred tax liabilities (143.5) (64.2) (117.0) Deferred and contingent consideration 11 (64.0) (54.7) (53.2) Provisions and other financial liabilities 12 (42.3) (38.7) (41.7) Derivative financial instruments (1.1) (1.0) (0.3) Total non-current liabilities (1,486.4) (797.6) (1,156.7) Net assets 1, Equity Called up share capital Share premium Merger reserve Capital redemption reserve Cash flow hedging reserve 4.4 (1.1) 1.8 Cumulative translation differences reserve Retained earnings Total equity attributable to equity shareholders 1, Non-controlling interest Total equity 1, The half year financial report was approved by the Board of Directors on 30 November 2016 and was signed on its behalf by: J R P Pike, Chairman S J Kesterton, Group Finance Director 18

19 Condensed consolidated cash flow statement 12 months to 30 September 30 September 31 March (unaudited) (unaudited) (audited) Notes m m m Cash flows from operating activities Adjusted operating profit Adjustments for: Amortisation of intangible assets Depreciation Adjusted EBITDA Share-based payment expense (Gain)/loss on disposal of property,plant and equipment (0.2) (0.3) 0.1 Movement in provisions and financial liabilities (20.1) (10.5) (15.4) Movement in working capital 29.3 (4.0) 0.2 Adjusted operating cash flows Payment in respect of non-underlying items (27.7) (16.0) (50.3) Other non-cash items (2.6) (4.8) (7.4) Cash generated by operations Taxes paid (18.1) (3.9) (13.6) Interest paid (9.7) (7.8) (17.2) Net cash from operating activities Cash flows from investing activities Interest received Proceeds on disposal of property, plant and equipment Acquisition of property, plant and equipment (80.5) (48.7) (101.1) Acquisition of intangible assets (1.7) (1.8) (3.4) Acquisition of businesses (137.6) (4.8) (528.5) Proceeds on disposal of businesses Net cash flows from investing activities (219.1) (48.6) (623.9) Cash flows from financing activities Dividends paid 8 (40.8) (27.7) (40.8) Purchase of own shares 14 (3.1) (2.0) (3.0) Proceeds from the issue of share capital Net proceeds of borrowings Net cash flows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Effect of foreign exchange rate changes Cash and cash equivalents at end of period Cash and cash equivalents comprise: Cash at bank Bank overdrafts (40.9) (28.5) (43.9)