HALF YEAR FINANCIAL REPORT RPC THE ESSENTIAL INGREDIENT

Transcription

1 HALF YEAR FINANCIAL REPORT 2017 RPC THE ESSENTIAL INGREDIENT

2 RPC THE ESSENTIAL INGREDIENT RPC is a leading plastic product design and engineering company that works across a broad range of carefully selected industries from food to technical components, healthcare to industrial. RPC is a global business with 194 operating sites in 34 countries that are well placed to support customers on a local, national and international basis, as well as providing multi-site security of supply. Our devolved structure of specialist operations means we have expertise in all five of the major conversion technologies allowing us to get close to our customers, understand their needs, and produce innovative products that add value. We continue to grow and deliver returns to our shareholders through the successful application of our strategy. For more information go to:

3 KEY HIGHLIGHTS FINANCIAL HIGHLIGHTS: 3Revenue 3 growth of 53% to 1,876m reflecting the contribution from acquisitions, organic growth, polymer price tailwinds and translation benefits from foreign exchange movements 3Adjusted 3 operating profit increase of 58% to 214.7m with adjusted EPS up 27% to 36.4p 3Return 3 on sales increase of 30 basis points to 11.4% 3Strong 3 cash generation; statutory net cash from operating activities increase of 62% to 245.4m, and free cash flow up 45% to 171.7m 3RONOA 3 expansion of 320 basis points to 28.0% reflecting acquisition synergy realisation and profitability improvements 3ROCE 3 increase of 30 basis points to 15.1%; remains well ahead of weighted average cost of capital 3Interim 3 dividend of 7.8p up 28% representing the 25th year of consecutive growth STRATEGIC HIGHLIGHTS: 3European 3 synergy programme on track for completion in the current financial year with exceptional costs significantly lower in the half and overall implementation costs lower than expected 3Letica 3 integration well advanced; successful completion of Astrapak acquisition (announced in FY 17) 3More 3 than 20% of revenues now generated outside of Europe 3Healthy 3 innovation pipeline; one additional innovation centre added taking the total to 32 worldwide 3Share 3 buyback scheme implemented to deliver further shareholder value; 12.4m of capital deployed in the period Key Financial Highlights September 2017 September 2016 Growth as reported Growth at constant exchange Revenue () 1,876 1,226 53% 45% Adjusted EBITDA () % 40% Adjusted operating profit () % 47% Return on sales % 11.1% 30bps 20bps Adjusted profit before tax () % 48% Adjusted basic earnings per share 2,3 36.4p 28.6p 27% 19% Free cash flow () % RONOA % 24.8% 320bps ROCE % 14.8% 30bps Statutory Profit before tax () % Net profit () % Net cash flow from operating activities () % Basic earnings per share p 15.2p 94% Interim dividend per share 3 7.8p 6.1p 28% 1 Adjusted EBITDA, adjusted operating profit and return on sales are before restructuring, impairment charges, other exceptional and non-underlying 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 period. 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-underlying cash provision movements. 5 RONOA is adjusted operating profit for continuing operations (annualised for half year reporting), divided by the average of opening and closing property, plant and equipment and working capital for the period concerned. Comparatives restated to include all acquisitions on a pro forma basis. 6 ROCE is adjusted operating profit for continuing operations (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, acquisition intangibles and net borrowings for the period concerned. 01

4 INTERIM MANAGEMENT REPORT RESULTS SUMMARY The Group delivered another strong set of results in the first half of the year, with key financial measures at record levels. The Vision 2020: Focused Growth Strategy continued to deliver substantially improved profits and cash generation, which benefited from BPI, ESE and Letica, the larger acquisitions in 2016/17. The integration activities of Promens, GCS and BPI are largely complete and the synergy realisation continues. The focus during the first half of the year has been on growing the existing businesses and exploiting opportunities provided by the recent acquisitions of Letica in North America and Astrapak in South Africa. Revenues in the first half of the year grew by 53% to 1,876m, with strong growth in both packaging and nonpackaging products. This was driven by the contribution from acquisitions announced or completed in the previous financial year, underlying organic growth of c. 2%, polymer price tailwinds and translation benefits from foreign exchange movements. At constant exchange rates reported revenues grew by 45%. Group margins and profitability levels, both before and after exceptional items, improved significantly compared with last year due to the contribution of acquisitions, the realisation of synergies, organic growth, lower exceptional costs and a foreign exchange benefit from the further weakening of sterling against the major currencies, which more than offset a modest polymer headwind. Adjusted EBITDA grew 49% to 296.1m and adjusted operating profit increased 58% to 214.7m. At constant exchange rates adjusted EBITDA and adjusted operating profit grew by 40% and 47% respectively, while return on sales increased 30 basis points (bps) to 11.4% or 20 bps on a constant currency basis. Benefiting from synergy realisation and improved profitability, RONOA (return on net operating assets) expanded 320 bps to 28.0% and ROCE, at 15.1%, grew 30 bps compared with the same period last year and remains well ahead of the Group s weighted average cost of capital. Exceptional costs were significantly lower at 6.5m (2016: 32.7m) including the receipt of 11.0m for an insurance claim, reflecting the nearing of completion of the acquisition integration programmes. Statutory profit before tax grew by 129% on the same period last year to 166.2m. Investment in growth and efficiency projects continued, with capital expenditure of 109.1m (2016: 80.5m) in the period of which c.50% was spent on growth projects. The Group saw excellent cash flow development in the first half reflecting the positive contribution of the recent acquisitions, synergy realisation and lower exceptional costs. Statutory net cash from operating activities was up 62% to 245.4m, and free cash flow up 45% to 171.7m. Adjusted cash conversion remains strong at 99% (2016: 107%). Working capital as a percentage of sales improved to 5.5% (2016: 6.1%). The Group retains a strong balance sheet with net debt of 1,070m (March 2017: 1,049m) representing a pro forma 1.8x EBITDA multiple (March 2017:1.8x). Total finance facilities of 2,227m were available as at 30 September THE PLASTIC PACKAGING MARKET The global plastic packaging market is forecast to grow at an annual average rate of 3.7% over the next five years (source: Smithers Pira 2017), outpacing growth in other packaging materials and, at $288bn, accounting for 34.5% of the global packaging market. This superior growth rate is benefiting from numerous structural growth drivers including a rising and ageing population, an increasing number of smaller and single person households in developed economies, busier lifestyles and demand for convenience packaging, increasing income in emerging markets and the growing importance of lightweighting, sustainability and the circular economy. By geography Asia is expected to continue to lead the growth in plastic packaging, with forecast average annual growth of 5% in each of the next five years compared with forecast average annual rates of 2.8% and 2.0% for Europe and North America respectively. RPC Group is well placed to benefit from these structural growth drivers and, by operating in a large number of product and market niches, is able to benefit from a portfolio effect when macro and market conditions change with growth in certain regions and sectors offsetting any slowdown in others. STRATEGY Against this backdrop, the Group continues to deliver its Vision 2020: Focused Growth Strategy, which comprises: 33 Continued organic growth based on innovation 33 Selective consolidation of the European market through targeted acquisitions 33 Creating a meaningful presence outside Europe, where growth rates are considerably higher 33 Pursuing added value opportunities in nonpackaging markets. In the first half of the year the Group focused on delivering the announced synergy realisation programme, demonstrating the contribution of the newly acquired businesses while continuing to drive organic growth, margin improvement, return on capital and cash flow generation. RPC GROUP PLC HALF YEAR FINANCIAL REPORT

5 FOCUSED ORGANIC GROWTH Organic growth was c.2% over the period and benefited from improved activity levels in both Packaging and Nonpackaging, although this was tempered by certain adverse natural events and fewer trading days. By end-market Food and Personal Care packaging and Technical Components were notably strong. By geography Europe traded well and organic growth of 23% in China was particularly impressive, while trading in the US was mixed and included a headwind from the hurricanes later in the period. As a result of the latter Letica organic growth was negative in the first half of the year; positive organic growth at Letica has returned to date during Q3. Investment in innovation and growth for both product design and process engineering continues to drive a healthy pipeline and the Group remains confident of continuing to grow through the cycle ahead of GDP. Over 50% of the 109m capital expenditure made in the period was attributable to growth-related projects, such as new sports cap lines, further capacity at the Zhuhai electroplating operation (China) and a new coffee capsule line at Bebo Plastik (Germany). During the period good progress was made in marketing WaveGrip, a patented multipack beverage solution, supported by collaboration between RPC bpi group and Letica. Following the completion of the Astrapak acquisition the Group now has 32 design centres of excellence worldwide, and further investment opportunities for growth through the development of innovative products are being targeted. In more commoditised market segments organic growth is driven by the Group s margin enhancement strategy, which seeks to drive both profitability and cash generation by price discipline while maximising production utilisation and efficiency. SELECTIVE CONSOLIDATION IN THE EUROPEAN PACKAGING MARKET THROUGH TARGETED ACQUISITIONS The scale of the opportunity to consolidate the European markets remains significant and participation in this industry consolidation is a core part of the Group s long term growth strategy. However, while the Group continues to be well-placed to capitalise on this opportunity, during the period the Group announced that it did not anticipate making any significant acquisitions or incurring further acquisition-related exceptional costs for the current financial year over and above those it had already announced. Instead it focused on enhancing the performance of the 2016/17 acquired businesses and completing the related restructuring activities of the major previous year acquisitions, including Promens, GCS and BPI. The Sanders Polyfilm (flexibles), Jagtenberg (industrial containers) and Plastiape (pharmaceuticals) businesses had already been fully integrated into the RPC bpi group, RPC Promens and RPC Bramlage divisions respectively by the end of the 2016/17 financial year. These are all performing well and are improving profitability through the benefit of polymer purchasing synergies and by enhancing the trading position of the divisions that have integrated them. CREATING A MEANINGFUL PRESENCE OUTSIDE EUROPE The Group has continued to increase its global footprint through organic growth and through the completion of the Astrapak acquisition in June Astrapak is a leading South African manufacturer of rigid plastic packaging products and components with a broad product offering across injection moulding, blow moulding and thermoforming technology platforms. The commitment to acquire the business was announced in December The company is a mini-rpc serving customers in sub-saharan Africa with industrial and consumer products. Its manufacturing footprint comprises nine facilities in South Africa, employing approximately 1,500 people and for the year ended 28 February 2016 the company achieved revenues of ZAR 1.4 billion ( 80m). The acquisition provided RPC with a strategic opportunity to acquire a rigid plastic packaging group of scale, with well-established market positions in a new territory with attractive medium to long-term growth prospects. The business has already been integrated into the Group by the RPC Superfos division and, although the recent softening of the South African economy has tempered the growth of the business in the short-term, further opportunities to develop and grow the business using technology and market contacts within the RPC Group have already been identified. Overall, revenue outside of Europe increased by 129% to 398.6m compared with the same period last year with Letica and Ace key contributors, and now represents 21% of total sales. On a constant currency basis revenue outside of Europe increased by 115%. PURSUING ADDED VALUE OPPORTUNITIES IN NON-PACKAGING MARKETS Further progress has been made in expanding the Group s propositions in non-packaging markets, where the focus is on niche products and markets where higher added value products deliver strong returns, and the Group s scale in polymer purchasing creates further competitive advantage. Good growth has been achieved in China, where the Ace business is benefiting from new and existing contracts with 03

6 INTERIM MANAGEMENT REPORT continued vehicle manufacturers and the rebuild and upgrade of the Zhuhai manufacturing plant. Elsewhere the Strata Products acquisition and the materials handling and specialty vehicles businesses acquired through the Promens acquisition continue to perform well under RPC s ownership. ESE World, which was acquired in January 2017 and is a leading design and engineering company in temporary waste storage solutions, was a material contributor to the segment. Overall, revenue in the Non-packaging segment increased 67% to 284.2m, including organic growth of 3%, and adjusted operating profit grew by 36%. On a constant currency basis revenue grew by 56%. BUSINESS INTEGRATION RPC has a proven track record of successfully and efficiently combining organisations following acquisition, with good integration capability across the organisation and the ability to retain the best of acquired businesses. Corporate functions are aligned through the head office team, with strengthened and enhanced governance, tax, IT, treasury, legal, management and financial reporting. Group purchasing performs a coordinating role and is active in extracting purchasing synergies and in strengthening internal resources post acquisition. From an operational perspective, key management are retained and business strategy enhanced by providing, as a member of the RPC Group, access to a wider product range and customer base. Where the business operates in an adjacent sector, it forms a new strategic business unit (SBU) in one of the seven divisions; if in an overlapping business it is integrated into one or more of the existing SBUs. Typically organisational integration will be completed within six months of acquisition completion, with the realisation of related synergies, including restructuring activities, to integrate both acquired businesses and existing RPC sites taking longer to occur. Recent larger acquisitions have included Letica in the USA (March 2017), BPI (August 2016) and GCS (March 2016). The BPI and GCS businesses were European based, and together with the Promens acquisition (February 2015), their integration into the Group formed part of a synergy realisation programme which is nearing completion. LETICA As a well-established and independent business, the integration effort required for Letica has been relatively minimal. Cost savings and synergies are in progress and are still expected at c. $17m per annum realised over two years. Operating as a standalone business within the RPC Superfos division, the existing Letica management have been retained and are incentivised to deliver growth and additional cost savings through a two year earn-out structure. PROMENS, GCS AND BPI Promens, GCS and BPI were individually significant acquisitions, providing combined sales of c. 1,725m and 82 manufacturing sites to the Group within a 30 month period. The businesses required varying degrees of integration effort to maximise synergy realisation. This was achieved through a combination of purchasing savings, elimination of cost duplication, business optimisation initiatives and the rationalisation of operations with existing facilities. It also resulted in the creation of two new divisions and 11 SBUs, transforming the operational capacity of the Group. This European acquisition integration programme is now coming to an end and over this period 22 locations will have been closed, including four head offices and two operations in progress for closure when acquired, and over 300 production lines relocated to other businesses. The final phase of the Promens integration plan is nearing completion. As planned, during the period the French site restructurings at La Roche, Geovreisset and Marolles were completed and the already announced Nordic restructuring, resulting in the closure of Bjaeverskov (Denmark), commenced. The consolidation of the Manuplastics (UK) operation into the M&H facilities at the former Promens site at Ellough was confirmed in November 2017 and the related costs and sale proceeds of the manufacturing site are expected in the second half of the year, as planned. The integration of the GCS acquisition into the Bramlage and M&H divisions was completed during 2016/17, with related restructuring activities already announced spilling over into the current financial year. These comprised the closure of the Torres site in Spain, the restructuring of the US business at Libertyville, the closure of the Halstead business in the UK with redistribution of business to other RPC sites and the majority of the outstanding costs relating to the Paris head office closure. RPC GROUP PLC HALF YEAR FINANCIAL REPORT

7 BPI operates as a standalone division. During the period the final post acquisition optimisation of the manufacturing footprint was completed, with site closures at Sevenoaks and Portadown executed and additional restructuring at the Worcester site well advanced. All remaining elements of these integration programmes will be substantially complete by 31 March ACQUISITION RELATED COST SYNERGIES The cost of the combined Promens, GCS, BPI integration programmes were estimated at 190m at March 2017, however these are now expected to be 185m with cash costs, previously estimated at 120m, now expected to reduce to 110m. The total steady state benefits associated with the overall optimisation of the cost base remain at least 105m per annum. During the period total programme costs, which were charged to exceptional integration and restructuring costs, amounted to 10.3m. As expected, steady state cumulative benefits increased to 84m per annum during the half year. OPERATIONAL REVIEW PACKAGING 30 September September 2016 Change Change constant exchange Sales () 1, , % 43% Adjusted operating profit () % 52% Return on sales 11.2% 10.3% 90bps 70bps Return on net operating assets 28.0% 23.3% 470bps The Packaging business serves diverse end-markets with innovative packaging solutions, both in rigid form and flexibles, through a range of plastic conversion processes including injection moulding, blow moulding, thermoforming and blown film extrusion. Sales grew 51% to 1,591.5m (43% on a constant currency basis) and, after taking account of acquisitions (net of disposed business) which contributed a net 447m of sales (including increases of 24m on foreign exchange and 9m for polymer pricing level impact), foreign exchange translation impacts of 53m and polymer price increases of 17m, grew by c.1% on a like-for-like basis. Adjusted operating profit increased by 63% to 177.5m (52% on a constant currency basis) and on a like-for-like basis increased by 28% reflecting the impact of cost reductions through integration activities and mix improvements through a selective margin enhancement strategy. Return on sales and RONOA all showed further improvement reflecting the above. The strongest growth rates were in the Food and Personal Care packaging end-markets, with new product development and geographical expansion supporting this growth. Nonfood packaging saw modest growth and Beverage and Healthcare sales remained relatively flat during the period. 05

8 INTERIM MANAGEMENT REPORT continued End-Market Sales H1 2017/18 Like-for-like growth Performance Food 565 c.3% The market for food packaging continues to be driven by shelf-life enhancing solutions, the need for portion control and minimising food waste. Food packaging sales grew with the development of innovative packaging solutions for convenience foods. There was good growth in Agricultural films, Dairy products and also in Confectionery with major new contracts won. Demand for Spreads, in which RPC has a strong market position, showed some further decline but improvement is expected as the price of substitutes (butter) increases. Non-food 378 c.1% There has been growth in industrial packaging across all divisions with specific focus on margin enhancement rather than volume growth. New bespoke packaging and nicotine delivery systems for the Tobacco sector have offset ongoing market softness in surface coatings where demand in the UK and the USA was relatively soft. Personal Care 230 c.2% Sales of Personal Care products (including cosmetics) improved during the period, with contract wins in Europe and increased sales in China. Globalisation and innovation continue to drive demand, with good growth opportunities existing in Asia and North America. Beverage 268 Flat Beverage sales overall were flat. There was good growth in closures including an increase in sports caps sales, growth from new lightweighted caps (CSD lite) developed for a major multinational and growth in wines and spirits tamper proof closures. These offset lower sales in single serve coffee capsules which have slowed due to the impact of customer dual sourcing in Europe and demand in the USA levelling off as their market matures. However, overall demand for single serve beverage systems is expected to continue in other markets and with other products. The Group is already developing growth opportunities in this area, including patented flexibles solutions (such as WaveGrip) and new closure projects. Healthcare 82 Flat Sales in inhaler and medical devices were static over the period with new product launches later than envisaged. The creation of the new Pharmaceutical cluster following the acquisition of Plastiape in 2016, has provided a greater focus on higher added value products, enhancing returns on sales. The increase in capacity means RPC is well positioned to grow this business. In addition there was a further 69m of Technical Component sales (mostly moulds) by businesses which are reported in the Packaging segment. The rigid plastic packaging market is forecast to grow at above GDP over the next five years which will continue to NON-PACKAGING 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, the Far East and now sub-saharan Africa. 30 September September 2016 Change Change constant exchange Sales () % 56% Adjusted operating profit () % 29% Return on sales 13.1% 16.0% (290)bps (280)bps Return on net operating assets 32.4% 36.7% (430)bps RPC GROUP PLC HALF YEAR FINANCIAL REPORT

9 The Non-packaging businesses of the Group cover many different product and market combinations which are all linked by innovation, application of technical knowledge and consumption of polymer and comprise the RPC Ace division together with RPC Promens Roto, Strata Products, ESE and RPC Bramlage Vehicles SBUs. Non-packaging sales grew by 67% (56% on a constant currency basis). Acquisitions, largely ESE, which was acquired in January 2017, contributed a net 93m to sales (including a 6m increase on foreign exchange). After taking account of further foreign exchange translation gains of 12m, sales on a like-for-like basis increased by c.3%. Adjusted operating profit increased 36%, or 29% on a constant currency basis, with the return on sales decline reflecting the change in sales mix following the ESE acquisition and start-up costs associated with new contract awards in the Ace division and Bramlage Vehicles. On a like-for-like basis adjusted operating profit grew by 4%. The RPC Ace division, based in China, operates a world class mould design and manufacturing capability, supplying complex moulds to both internal and external customers. It provides the Group with an Asian precision engineering platform for manufacturing high added value co-engineered injection moulded products and serves, alongside packaging markets, medical, lifestyle, power and automotive endmarkets. With Chinese GDP increasing in excess of 6.5%, the business continues to grow at an attractive rate and is benefiting from existing and new contracts with major vehicle manufacturers and mould tool sales, which continue to concentrate on complex and technologically advanced tool designs. Elsewhere, new contracts for Lifestyle products were secured and, following the recent rebuild and upgrade, a fourth electroplating line is being considered for the Zhuhai site, facilitating further growth in sales of electroplating and spray painting for specialist automotive and other products. RPC Promens Roto and RPC Bramlage Vehicles, which manufacture plastic parts for trucks and specialty vehicles from sites in the Netherlands, France, Estonia, Germany and the Czech Republic, continue to perform well with sales volumes and profits generally increasing over the period, but with some operations suffering higher costs in adapting to the higher activity levels. Optimisation programmes as part of the integration process were finalised during the period. RPC Promens Roto business, which includes Sæplast serving the fish and agricultural industries, continued to trade well as it refocuses on the European and American markets, but were slightly lower than last year. Strata Products continued to trade well, and ESE, acquired in January 2017, was a material contributor to this segment. These non-packaging products are attributed to the Technical Components end-market, with sales of 69m from the Packaging segment also being reported in this end-market. The latter comprised mainly mould sales which are typically project based and were lower compared with the previous year, reducing the overall growth of Technical Components to 1%. NON-FINANCIAL KEY PERFORMANCE INDICATORS RPC has three main non-financial key performance indicators, which provide perspectives on employee welfare and the Group s progress in improving its contribution to the environment. 30 September September 2016 Reportable accident frequency rate Electricity usage per tonne (kwh/t) 1,288 1,980 Water usage per tonne (L/T) 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 continued to improve as the reportable accident frequency rate decreased compared with last year following continued focus on health & safety across the Group. The Group continues to make stringent efforts to improve its efficient usage of electricity and water. The significant improvement across the Group reflects the impact of including the BPI businesses in the reported figures for the period to 30 September 2017, as the utilisation of both electricity and water in relation to polymer tonnes converted is considerably lower due to the nature of the blown film extrusion process. Excluding the impact of BPI, electricity usage per tonne increased slightly but water usage reduced as recycling initiatives, including closed loop cooling systems introduced to manufacturing sites across the Group, continue. 07

10 INTERIM MANAGEMENT REPORT continued OUTLOOK Trading was encouraging in the first half with record profitability levels and strong cash generation. The rationalisation of our European manufacturing footprint with 22 locations closing is now nearing completion with the benefits being realised as anticipated. The Letica integration is going well with the expected cost savings on track. Looking forward, the Group continues to target innovation based growth leveraging its global footprint and will participate in the ongoing consolidation of the plastic packaging markets, albeit with no significant acquisitions anticipated in the remainder of this financial year. The second half of the year has started well. FINANCIAL REVIEW The Group produced a strong set of financial results for the first half of 2017/18, with growth in the business achieved both organically and through acquisitions. Group revenues at 1,876m were 53% ahead of the same period last year, adjusted operating profit at 214.7m rose by 58% and free cash flow increased by 45% to 171.7m. Statutory operating profit at 182.3m was 98% ahead of last year and statutory net cash from operating activities at 245.4m increased by 62%. 30 September September 2016 Revenue 1, ,226.1 Adjusted operating profit Exceptional items (6.5) (32.7) Other non-underlying items (25.9) (11.4) Operating profit Net interest costs (16.0) (11.1) Non-underlying finance items (0.6) (8.9) Net financing costs (16.6) (20.0) Share of investment Profit before tax Tax (44.1) (21.5) Profit after tax Adjusted EPS 36.4p 28.6p Basic EPS 29.5p 15.2p Net debt 1, ACQUISITIONS On 19 June 2017 the Group completed the acquisition of Astrapak for a cash consideration of 65.7m, funded from existing financing facilities. The provisional goodwill on acquisition amounted to 26.6m after fair value adjustments and the trading results of the business after the acquisition date are included in the Group results. Transaction fees and integration costs of acquisitions are charged to the income statement as Exceptional costs. RPC GROUP PLC HALF YEAR FINANCIAL REPORT

11 CONDENSED CONSOLIDATED INCOME STATEMENT REVENUE AND OPERATING PROFIT Sales in the first half of 2017/18 increased by 53% (45% on a constant currency basis) to 1,875.7m (2016: 1,226.1m). The acquisition referred to above and the full year impact of the acquisitions made in 2016/17 after taking account of disposed business, net of polymer pass through and foreign exchange impacts, contributed 540m of this increase in sales. After taking account of 65m of foreign currency translation effects (mainly the euro which strengthened from 1.22 to 1.14) and the impact of net sales price increases from rising polymer prices passed on to customers of 17m, sales grew by 28m representing c. 2% on an organic basis. Adjusted operating profit (before restructuring costs, impairment and other exceptional and non-underlying items) increased by 58% (47% on a constant currency basis) to 214.7m (2016: 136.3m), with net acquisitions contributing 49m of prior year profit to this increase. The net favourable translation impact of the weakened pound gave a gain of 10m, partially offset by a polymer price headwind variance having an adverse effect of 1m. The Promens/ GCS/BPI integration programme and Letica synergies to date contributed an additional 13m. The remaining 29m improvement was generated from the impact of volume, margin and general business improvements and the Group s ability to align contractual terms, offset by inflationary cost increases experienced throughout the Group, estimated at 21m. Return on sales rose from 11.1% to 11.4% as a consequence of these improvements Statutory operating profit at 182.3m was 98% higher than the previous year and is stated after the net exceptional costs and non-underlying items described in more detail below. FOREIGN EXCHANGE Sterling continued to weaken against the major currencies, mainly due to the continued uncertainty of the timing and conditions of Brexit. This had a positive impact on the financial results of the Group on translation as 76% of sales revenues are reported in non-sterling currencies. The impact of this was to increase adjusted operating profit by 13m, adjusted EPS by 2.4p and net assets by 4.5m. The major currency movements which impact the results were: 30 September September 2016 Average to Euro USD $ Closing to Euro USD $ IMPACT OF POLYMER PRICES Polymer resin is a major raw material cost for the business, representing around one third of adjusted costs in the year. As a global commodity its price can vary with supply and demand, and as is typical in the industry, RPC has arrangements with its customers to pass on polymer price changes and hedge against price volatility. These changes are passed on through multiple methods, many of which are contractual and can be triggered based on absolute, relative or time based mechanisms. Where no contract exists, prices can often be changed at short notice. As there is a time lag in passing on price adjustments to the customer, typically around 3 months, this can have a negative or positive impact on operating profit depending on whether prices are increasing or reducing. During the first half polymer prices were relatively stable overall, with modest increases in Euro & GBP at the end of the period. Larger increases were encountered in the USA at the end of the period due to the disruptive effect of hurricanes on the supply chain. 09

12 INTERIM MANAGEMENT REPORT continued EXCEPTIONAL COSTS AND NON-UNDERLYING ITEMS The financial review of the business above focuses on underlying business performance, which excludes exceptional and other non-underlying items. The separate reporting of exceptional and non-underlying items helps facilitate comparison with prior periods and assess trends in financial performance which are not impacted by one-off costs or credits which are exceptional or derive from nonrecurring events. Exceptional items are one-time costs or credits which include acquisition costs, costs of business integration and investments to extract synergies, restructuring and closure costs including related asset impairments and losses during the closure period, gains or losses on the disposal of businesses and property, remuneration charged on deferred consideration and one-off tax items arising, and any other gains or losses, which, in the management s judgement, because of their nature, size or infrequency, could distort an assessment of underlying business performance. Other non-underlying items include the amortisation of acquired intangible assets, the fair value changes of unhedged derivatives and the unwinding of the discount on deferred and contingent consideration, including related tax and foreign exchange impacts. Exceptional and other non-underlying items for the year charged against operating profit amounted to 32.4m (2016: 44.1m). These are mostly the result of acquisitions and can be broken down into a number of categories. Acquisition, integration and restructuring related costs amounted to 16.3m (2016: 27.7m) which were considerably lower than in the same period last year, and also significantly lower than in the second half of last year. Acquisition transaction costs of 2.1m are the direct external costs associated with making an acquisition. They are primarily financial, legal, tax, environmental, anti-bribery and corruption due diligence plus representation and warranty insurance and other advisor fees. These are substantially lower than last year due to low acquisition activity levels. Integration costs of 10.3m (2016: 20.4m) are the onetime costs incurred to deliver synergies from the acquired businesses. The Group substantially completed the integration of the Promens sites during the year, and the total cost of the combined GCS, BPI and Promens integration programmes are now estimated at 185m with associated cash costs also expected to be lower at 110m. The benefits associated with the overall optimisation of the cost base are still projected to be at least 105m. Cumulative project costs were 140.1m at the end of the period, and were 10.3m in the period reflecting the lower level of integration activity as the programme comes to its conclusion. Additional benefits arising in the period amounted to 13m. In addition there were other acquisition, restructuring and closure costs of 3.9m which were not part of the Promens, GCS and BPI programme. Remuneration and deferred consideration charges amounted to a net 1.1m (2016: 3.8m). These arise where an earn-out is part of an acquisition and the selling owner / management are retained within the business or there is a change in the expected level of payment. During the period, there was a remuneration charge of 12.6m and a credit of 11.5m, the latter primarily driven by the assumed payout in relation to the acquisition of Ace being lowered from 50% to 40%. The Ace arrangement is a four year earn-out which requires a four year EBITDA compound annual growth rate of 15.6% to payout in full. Experience indicates it is unlikely to be paid in full at the current accrual rate. In addition the Letica earn-out percentage was adjusted to 40%, reflecting the expected business performance that will be delivered over the two year earn-out period. Insurance proceeds relating to the replacement of capital equipment amounted to 11.0m. These were confirmed and received in the period and relate to the fire that occurred at the RPC Promens site at Eke, Belgium, in December As a consequence of this one-off event, these have been reported as exceptional income. The other non-underlying items fall into three categories. Amortisation of acquired intangibles arises as a consequence of acquisition accounting, as on acquisition all assets and liabilities, tangible and intangible, are revalued at fair value, with the relevant amount of consideration paid for the business allocated to each asset. Intangibles take the form of intellectual property, brands, know-how and customer contacts. RPC amortises these amounts over 5-10 years. This charge for the period ended September 2017 was 25.3m (2016: 11.0m). Non-underlying finance costs include interest associated with closed defined benefit pension funds of 2.8m (2016: 2.1m) and implied interest on deferred and contingent consideration associated with earn-outs, including exchange impacts being a credit of 1.9m (2016: debit 6.8m). The tax effect of the above adjustments are also taken into account. RPC GROUP PLC HALF YEAR FINANCIAL REPORT

13 INTEREST AND TAX Net financing costs at 16.6m were lower than the prior year (2016: 20.0m), due to the increase in net interest payable on borrowings of 16.0m (2016: 11.1m), which increased over the period due to the acquisitions made, more than offset by a decrease in non-underlying finance costs as indicated above. Adjusted profit before tax increased from 125.5m to 199.2m mainly as a result of the improvement in adjusted operating profit. The effective tax rate on underlying activities for the Group is affected by the geographic mix of profits and the tax rates of the territories in which the Group operates. Other factors which can impact the effective tax rate include: assessment and recognition of deferred tax on losses, provisions for uncertain tax positions, local tax incentives (including research and development tax credits), tax reforms as well as foreign exchange movements. The tax rate on the adjusted profit before tax for the Group increased to 24.5% (2016: 23.5%) for the period due to acquisitions in higher tax rate territories. This resulted in an adjusted profit after tax of 150.4m (2016: 96.0m) and the adjusted basic earnings per share was 36.4p (2016 restated: 28.6p). The Group s overall taxation charge was 44.1m (2016: 21.5m) resulting in a reported tax rate of 26.5% (2016: 29.7%), reflecting an adjusted effective rate of tax of 24.5% (2016: 23.5%) and a 14.2% tax credit (2016: 15.1%) on exceptional and non-underlying charges, as tax relief is not available on a proportion of these costs. NET PROFIT, EARNINGS PER SHARE AND DIVIDENDS Reported profit after tax was 122.1m (2016: 51.0m), an increase of 139% on the previous year. This led to a basic earnings per share of 29.5p (2016 restated: 15.2p), nearly doubling the performance in the prior year. In line with the Group s progressive dividend policy of targeting a dividend cover of 2.5x adjusted earnings through the cycle, an interim dividend of 7.8p (2016 restated: 6.1p) has been recommended, which is a 28% increase on the previous year. All prior year earnings and dividend per share figures have been restated to reflect the bonus element of the rights issue in the prior year. CONSOLIDATED BALANCE SHEET AND CONSOLIDATED CASH FLOW STATEMENT The balance sheet of the Group was strengthened by the acquisition made in the period. Goodwill increased by 23.3m as a consequence of the acquisition and after taking account of exchange impacts. Other intangible assets decreased by net 28.9m and comprises mainly customer relationships, technology and brands capitalised on acquisition and new product development expenditure, net of amortisation charges. Property, plant and equipment increased by 62.8m; capital additions were 107.6m, which was 28.2m (26%) ahead of depreciation charged in the period, due to continued investment. The 30.2m (March 2017: 37.0m) of derivative financial instruments largely comprise the mark-to-market value of euro currency swaps taken out in 2011 to hedge the US dollar borrowings from the US Private Placement (USPP). The weakening of the euro against the US dollar has served to decrease the value of these in the year. Working capital (the sum of inventories, trade and other receivables and trade and other payables) was 207.7m, which was 5.5% of sales (annualised) compared with 220.3m at the year end, 6.2% of sales. The Group had a net deferred tax liability of 123.2m (March 2017 restated: 116.7m). Deferred tax assets of 114.0m (March 2017 restated: 116.5m) represent the future tax benefit from settling net pension liabilities, the recognition of tax losses and other temporary differences which are expected to offset tax due on future income streams. The deferred tax liabilities of 237.2m (March 2017 restated: 233.2m) relate in the main to fixed asset and intangible asset temporary differences. The net current tax liability increased from 39.3m to 53.8m as a result of current year tax charges on profits and tax liabilities from acquisitions which were offset by payments made to tax authorities in the period. Included in the current tax liabilities are uncertain tax provisions, which although individually are not material in amount, represent a number of tax risks across a variety of jurisdictions including liabilities inherited on recent acquisitions. There were no significant movements in these during the period. 11

14 INTERIM MANAGEMENT REPORT continued The long-term employee benefit liabilities reduced from 256.0m at the prior year end to 240.7m, mainly due to actuarial gains of 13.6m primarily due to higher discount rates on retired benefit obligations. Total provisions and other liabilities decreased to 84.5m (March 2017: 112.9m), with the provisions arising on acquisition in the period offset by utilisations. The utilisations include out of market contract provisions from acquired businesses committed prior to acquisition, which are generally utilised within 18 months of the acquisition date. Capital and reserves increased in the period by 42.3m, with the net profit for the period of 122.1m, the favourable exchange movements on translation, net share issues, pension related net actuarial gains and share-based payments from employee share schemes being offset by dividends paid of 73.9m and unfavourable net fair value movements on derivatives. Further details are shown in the Consolidated statement of changes in equity which is included in the financial statements. CASH FLOW Cash flow performance was strong with free cash flow at 171.7m, 45% ahead of last year (2016: 118.2m). Net cash from operating activities (after tax and interest on a statutory basis) was 245.4m compared with 151.2m for the same period in 2016, with higher cash generated from operations (after exceptional cash flows) of 285.9m, mainly due to the higher EBITDA. Working capital inflows of 25.4m benefited from seasonality in agricultural businesses and a continued focus on working capital management. This performance also includes further capital investments which were 29.7m ahead of depreciation for the year. Net debt, which includes the fair value of the cross currency swaps that will be used to repay the USPP funding, increased by 21.3m and at the end of the period stood at 1,070.4m (March 2017: 1,049.1m). Net cash from operating activities, which is after interest and tax payments of 40.5m (2016: 27.8m), was utilised for, among other things, acquisitions in the year of 77.8m (including debt acquired of 12.1m), purchasing property, plant and equipment of 109.1m, and for paying dividends of 73.9m. Included in net cash from operating activities (and excluded from free cash flow) were net payments of 8.5m relating to exceptional and non-underlying cash outflows, nonunderlying cash provision movements of 16.7m, exchange rate movements of 17.3m and other movements in provisions and financial instruments of 21.0m. In addition, 12.4m was used to fund share buybacks in the period. Gearing remained at 57% (March 2017: 57%) and reported pro forma leverage (net debt to EBITDA ratio) was 1.8. The average net debt during the period was 1,189m (year ended March 2017: 934m). CAPITAL ALLOCATION AND FUNDING To drive shareholder value, RPC has a capital allocation framework that takes account of investment in product innovation, organic growth initiatives, selective strategic and bolt-on acquisitions and returns to shareholders underpinned by a strong balance sheet. The Group has a progressive dividend policy of targeting a dividend cover of two and half times adjusted earnings through the cycle and is in its 25th year of consecutive dividend growth. In addition RPC continually assesses share buyback opportunities in the context of the Group s overall financial position and leverage guidance, and other available opportunities to deploy capital. On 19 July 2017 the Group announced an inaugural share buyback programme of up to 100m over a period of up to 12 months, as the then share price undervalued the Group s performance and future prospects. By the end of the half year 1.38m shares had been acquired under the programme for a total consideration of 12.4m, and as at 24 November 2017 this had increased to 2.26m shares for a total consideration of 20.5m. As at 30 September 2017 the Group had total finance facilities of 2,227m with an amount of 1,077m undrawn after taking account of bank guarantees and other adjustments. The facilities are mainly unsecured and comprise revolving credit facilities (RCFs) of up to 870m with eight banks maturing in 2020 and 450m with five banks maturing in 2019, USPP notes of $216m and 60m issued to 17 US life assurance companies maturing in 2018 and 2021, a term loan of $750m with seven banks maturing in 2018 (with the option to extend to 2020), mortgages of 13m, finance leases of 23m and other uncommitted credit and overdraft arrangements. The Group does not actively use asset based finance or factoring arrangements as a means of raising additional finance. The USPP notes noted above were a debut issue raised in the USPP market in 2011, providing the Group with seven year and ten year dated borrowings. The Group has a NAIC-2 credit rating by the US National Association of Insurance Commissioners. RPC GROUP PLC HALF YEAR FINANCIAL REPORT

15 FINANCIAL KEY PERFORMANCE INDICATORS (KPIS) The Group s main financial KPIs focus on return on investment, business profitability and cash generation. 30 September September 2016 Return on net operating assets % 24.8% Return on sales % 11.1% Free cash flow m 118.2m Return on capital employed % 14.8% Adjusted operating cash flow conversion 5 99% 107% 1 RONOA is adjusted operating profit for continuing operations (annualised for half year reporting) divided by the average of opening and closing property, plant and equipment and working capital for the period concerned. Comparatives restated to include all 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 nonunderlying cash provision movements. 4 ROCE is adjusted operating profit for continuing operations (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, acquisition intangibles and net borrowings for the period concerned. 5 Adjusted operating cash flow 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 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 increased by 45% reflecting the impact of recent acquisitions, synergy realisation and lower exceptional costs. TECHNICAL GUIDANCE 2017/18 The Group is providing the following update to its technical guidance for 2017/18: Category Guidance 2017/18 Capex c. 230m Depreciation c. 175m Non-underlying cash provision utilisations c. 30m Underlying tax rate c. 24.5% Interest c. 34m FX sensitivity: 1c move changes EBIT by c. 1.8m $1c move changes EBIT by c. 0.4m Progressive dividend policy Non-underlying costs Acquisition related expenditure Deferred consideration on earn-outs Promens/GCS/BPI integration costs Other integration and exceptional items Minor Amortisation acquired intangibles c. 50m Other non-underlying items Non-underlying finance costs: Cover targeted to be 2.5 x across the cycle External cost on acquisition activity Ace: 40% c. 3m Letica: 40% c. 20m Income statement c. 21.5m ( 25m) with c. 43m ( 50m) cash Minor Pension scheme interest c. 8m Interest on earn-outs immaterial FX on earn-outs dependent on FX rate movements 13