Financial Report on the Financial Performance of Kingspan PLC

Kingspan is an Irish Public Limited Company with its global head quarters in County Cavan. They have revenue of €3.7 billion (2017), and an operating income of €377.5 million (2017). Kingspan have over 13,000 employees globally. This report will take a brief look a Kingspan’s company profile. It will focus on the company financial reporting show a financial analysis of the 2017 audited accounts, including financial ratios. This report will examine how the company is currently financed and look at possible future financing option and investment sources that might be available to the company and look at what effect, if any, these will impact the current financial systems.

Kingspan – Company background

Kingspan was founded in the 1960’s by Eugene Murtagh, existing chairman of the company, Kingspan manufactures insulation materials and building envelope solutions for the construction industry. The company was floated on the stock exchange in 1989 with a company value of €20 Million Irish punts. The company now trades in over 70 countries globally. It has quickly grown to be one of Irelands top ten companies with a turn over of €3.7 million.

Even with Brexit looming just around the corner, this hasn’t affected the share price of the company , Peter Hamiltion of the Irish Times writes(29/3/19) “Brexit uncertainty failed to trouble the Republic’s share index with Kingspan shares advancing 2.13% to a value of €41.26” .

Kingspan – Recent developments

In very recent news Building materials group Kingspan has made an offer to Belgian company Recticel to purchase its entire insulation and flexible foams divisions for a total consideration of €700m.( RTE Tuesday, 16 Apr 2019 17:59)

Kingspan said the offer is made subject to approval by the board of Recticel.

In a brief statement, Kingspan said that is the deal goes ahead, it has agreed an exclusive back to back deal with a third party for the disposal of all of the flexible foams businesses. A spokesperson for the company stated that

“There can be no certainty that the offer to the board of Recticel will result in an agreement being concluded or, if concluded, receiving regulatory approvals,”

It said that a further announcement will be made if and when appropriate.

Recticel’s core portfolio is organised around four divisions – flexible foams, insulation, bedding and automotive.

Europe accounts for around 93% of its net sales, while it also sells in the US and Asia.

The deal would tighten Kingspan’s grip on the European insulation market, where Recticel’s unit has manufacturing facilities in Belgium, France, Britain and Slovenia.

Kingspan generates around a fifth of its sales in Britain, although that reliance has been falling as it diversified further into Europe.

The flexible foams business made up 41% of Recticel’s €1.5 billion of annual sales in 2017, with the insulation unit contributing 18%. The remainder was made up from its bedding and automotive units.

Kingspan has spent just over €1 billion on a number of acquisitions over the last two years, mainly building up a presence in North, Central and South America.

Acquisitions contributed 17% to Kingspan’s sales growth last year, when it recorded record annual revenues of €4.4 billion.

Recent purchases including Spain’s Synthesia group and Balex Metal, a Polish based manufacturer of insulated products, helped push the contribution from mainland Europe to almost half of all sales.

1.0  Profitability

 Note all Financial information used in this report is taken directly from the 2017 audited accounts of Kingspan plc.

 

Profit margin is a percentage measurement of profit that expresses the amount a company earns per euro of sales. If a company makes more money per sale, it has a higher profit margin.

Gross profit margin and net profit margin, on the other hand, are two separate profitability ratios used to assess a company’s financial stability and overall health.

Gross Profit Margin

Gross profit margin is a measure of profitability that shows the percentage of revenue that exceeds the cost of goods sold. It illustrates how successful a company’s executive management team is in generating revenue from the costs involved in producing their products and services. In short, the higher the number, the more efficient management is in generating profit for every euro of labour cost involved.

The gross profit margin is calculated by taking total revenue minus the cost of goods sold and dividing the difference by total revenue. The gross margin result is typically multiplied by 100 to show the figure as a percentage. The cost of goods sold is the amount it costs a company to produce the goods or services that it sells.

Operating Profit Margin differs from Net Profit Margin as a measure of a company’s ability to be profitable. The difference is that the one is based entirley on its operations by excluding the financing and all the associated costs like interest payments and taxes.

Operating profit is calculated by subtracting all COGS, depreciation and amortization, and all relevant operating expenses from total revenues. Operating expenses include a company’s expenses beyond direct production costs – such things as salaries and benefits, rent and related overhead expenses, research and development costs, etc. The operating profit margin calculation is the percentage of operating profit derived from total revenue. For example, a 10% operating profit margin is equal to €0.10 operating profit for every €1 of revenue.

A company’s operating profit margin is indicative of how well it is managed because operating expenses such as salaries, rent, and equipment leases are variable costs, rather than fixed expenses. A company may have little control over direct production costs such as the cost of raw materials required to produce the company’s products, but the company’s management has a great deal of discretion in areas such as how much they choose to spend on building rent / rates, office equipment, and staffing required to run the business. Therefore, a company’s operating profit margin is usually seen as a best indicator of the strength of a company’s management team, as compared to gross or net profit margin.

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3.  Return on Capital Employed – R.O.C.E.

Return on capital employed (ROCE) is a financial ratio that measures a company’s profitability and the efficiency with which its capital is used. This ratio measures how well a company is generating profits from its capital. The ROCE ratio is considered an important profitability ratio and is used often by investors when screening for suitable investment candidates.

Capital Employed  Earnings Before Interest and Tax   (EBIT)

= Total assets − Current liabilities

3. Return on Capital employed	Kingspan Group
Return on Capital Employed
2017	Operating Profit	€362.40	x100	14.79	%
	L.T.C.E. (Total Assets – Current Liabilities)	€2,449.50
	Operating Profit	€328.40	x100	14.67	%
2016	L.T.C.E. (Total Assets – Current Liabilities)	€2,238.90

Efficiency Ratios

Efficiency ratios measure of a business’s ability to utilize its assets and liabilities to generate sales. When using assets, efficiency ratios compare an aggregated set of assets to sales or the cost of goods sold. For liabilities, the main efficiency ratio compares payables to total purchases from suppliers

A Debtor Days – Kingspan Group

Debtor Days		Formula				Calculation
Debtor Days		Trade Receivables		x365		675.9	365	67.26	Days
2017		Sales Revenue				3668.1
Debtor Days		Trade Receivables		x365		601.9	365	70.68	Days
2016		Sales Revenue				3108.5

The Debtor Days ratio shows the average number of days your customers are taking to pay you what they owe. As the formula show its calculated by dividing debtors(trade Receivables) by average daily sales(Sales Revenue).  You can see by the spreadsheet above Kingspan Reduced its Debtor Days in 2017  from 70.68 days to 67.25.

Debtor days vary in length depending on the company, smaller businesses temd to have shorter debtor days . Longer debtor days effects cash flow If you have  long payment terms, it means that you will have to use more credit to pay for your companies business expenses etc.

Businesses that has a shorter period for debtor days tend to do better because their cash flow is stronger. Less purchases need to be bought on credit this is also a more cost effective method of payment, as there are no interest charges.

All outstanding invoices that a business have are only finalised when the payment hits your bank account.

B Creditor Days

Creditor  days number is a similar ratio of  debtor days (a above) and it gives an insight into whether a business is utilizing a facility credit available to it. Creditor days estimates the average time it takes a business to pays any outstanding  debts with their suppliers. You can see from the spread sheet below that Kingspan group became a little more efficient paying its Creditors in 2017 with Creditors days Down to 90 Days compared to 98.5 Days in 2016.

Kingspan group

Creditor Days		Formula				Calculation
Debtor Days		Trade Payables		x365		645.2	365	90	Days
2017		Cost of Sales				2615.4
Debtor Days		Trade Payables		x365		585.2	365	98.5	Days
2016		Cost of Sales				2168.3

Liquidity

Liquidity is a measure of how easily a business can exchange an asset for money.

A liquidity ratio assesses whether a business have sufficient cash or assets that they can convert to cash in order to pay its debts when they are due to be paid. The figure required to calculate this are in the balance sheet.

Current Ratio = Current Assets / Current Labilities.

Current Ratios Kingspan Group
2017	Current Assets	€1,299.70		1.65	:1
	Current Liabilities	€786.10
	Current Assets	€1,197.80		1.56	:1
2016	Current Liabilities	€765.70

Acid Test Ratio

The Acid Test Ratio is a more realistic view on how Liquid a business is , although a business have property and fixed assets that can be sold , these however could take a time to equate to sales  the Acid test ratio considers that stock or inventories are not money and forecast are just that, forecast  and predictions. The Formula to calculate this Ratio are Current Assets – Inventories  Current Liabilities.

Acid Test Ratio – Kingspan Group
2017	Current Assets- Inventories	€852.60		1.08	:1
	Current Liabilities	€786.10
2016	Current Assets- Inventories	€832.30		1.09	:1
	Current Liabilities	€765.70

There is a small variation in the ratio year on year which reads well for investors as this show company stability. A rule of thumb is that a quick ratio greater than 1.0 means that a Kingspan are sufficiently able to met all its short term obligations.

EARNINGS PER SHARE

Earnings per share increased for Kingspan shareholder over the 12 months with the Basic earnings per share rising from €14.38 to €15.90 and the diluted  basic share earnings increasing from €14.16 to €15.73. It is evidence of Kingspan’s growth and profitability. These figures should please shareholders and highlight to future investors the benefits in investing in Kingspan.

The Calculations of Earnings per share are based on the following – Kingspan Group
				2017	2018
				€ m’s	€ m’s
Profit to Ordinary share Holders				284.3	255.4
				Number of Shares(‘000’s)
				2017	2016
Weighted average number of ordinary shares for				178,854	177637
the calculation of B.E.P.S.
Diluted effect of share options				1856	2677
Weighted Average number of Ordinary shares				180,710	180,314
for the calculation of  diluted earnings per share

 The Table Below shows how the Earnings per share Ratios were carried out

EARNINGS PER SHARE RATIO – Kingspan Group
Basic Earnings Per Share			2017		2016
E .P.S.    =	Earnings Available to Ordinary Shareholders		€159.24		€143.78
	Number of Ordinary Shares
Diluted Earnings Per Share			2017		2016
E .P.S.     =	Earnings Available to Ordinary Shareholders		€159.24		€143.78
	Number of Ordinary Shares

Adjusted basic earnings reflects the profit is accountable for ordinary shareholders after taking out the effect of Tax and non trading items and kingspan’s intangle amortisation charge.

Kingspan Financing

The Kingspan group funds itself through a combination of Debt and equity. The debt is funded through syndicated and bilateral bank facilities and private loan notes. The principle debt facility is a half a billion revolving credit facility, which is underdrawn at the end of the year. This matures in June 2022. At the end of Dec 2017 Kingspan group committed bilateral bank facilities were €50 million , none of whichwas drawn down. Private placement loan notes if just over 6 years including a recent prive placement of 175 million completed on on the 8^th December 2017. This was drawn in Jan 18.

The Kingspan group had significant available undrawn facilities and cash balances which, in aggregate, were circa 900 million euro at the year end 2017 these provide appropriate financial space for and development funding. €440 of this is doing to be used in the purchase of Synthesia and Balex, the acquisition detailed above.

 

Net debt

Net debt increased by Net debt increased by 36.00 during 2017 to €463.9 mIllion

€427.9 Million in 2016.

The Net debt is analysed below:

Movement in Nett Debt – Kingspan
	2017	2016
	€M’s	€M’s
Free Cashflow	198.5	206.6
Acquisitions	-168.2	-254.4
Share Issues	0.2	3.2
Rep Repurchase of shares	-1.5	-1.3
Dividends paid	-61.7	-48.4
Cashflow movement	-32.7	-94.3
Exchange movements on translation	-3.3	-5.6
Increase in nett Debt	-36	-99.9
Net debt at the start of the Year	-427.9	-328
Net debt at the End of the Year	-463.9	-427.9

Gearing Ratios

Gearing ratios are a way to let shareholders compare equity to company debt in different ways in order to assess the company’s amount of leverage and financial stability.

Gearing shows how a company’s day to day operation costs are  funded using debt versus the funding received from shareholders as equity.

Gearing ratios are a great comparative tool to see how one business is performing against another .

Gearing Ratios – Kingspan
		2017		2016
Debt to equity	Total Liabilities	1667.6	52%	1806.8	60%
	Total Assets	3235.6		3004.6
Equity ratio	Equity	1568	48%	1471.5	49%
	Assets	3235.6		3004.6

4.

Capital structure and Group financing

 

Kingspan funds itself through a combination of equity and dept. The Debt is funded through syndicated and bilateral bank facilities and private loan notes. ( Kingspan.ie) The Main bank debt facility is €500 million revolving credit facility, which is underdrawn at the end of the fiscal year , this matures in June 2022. At 31st December 2017, Kingspan groups committed bilateral bank facilities were €50 million , none of these monies were drawn down. Other sources of funding include private placement loans totalling €633.2 Million. The maturity on these loans these are 6 and a half years, including a new private placement of €175 million completed in December 2017. This money was drawn I January of 2018.

The Group had vast amount of available undrawn facilities and cash balances which combined were approx. €900 million at the year end 2017, this allows for great scope for operational needs and funding for developments.

Future Developments funding initiatives, of the €900 million of undrawn facilities an estimated €440 million is ear marked to help complete the acquisition of Synthesia Group and Balex Group.

Synthesia gives Kingspan a leading position in insulated boards and panels and gives the Group a stronger standing in central and south America.

The acquisition of Balex a polish based insulated panel manufacturer, this will see further growth in the European market

Financial Review

This Financial Review provides an overview of the Groups financial performance for the year ended December 2017 and Kingspan Group’s financial position at the date.

Overview of Results

There was a Revenue increase from the previous year (2016) up 18% to €3.67 Billion (€3.11 bn 2016) and trading profit increased by 10.7% to €3.77.5 Million(€340.9 Million). Basic EPS for the year was 150.9 cent an increase of 10.6% on the same time last year (143.8 cent).

The Groups sales and trading profit growth by division are set out below:

SALES

	SALES
	UNDERLYING	CURRENCY	ACQUISITION	TOTALS
Insulated Panels	12%	-2%	7%	17%
Insulation Boards	15%	-3%	–	12%
Light and Air	1%	-1%	170%	170%
Environmental	2%	-5%	14%	11%
Access Floors	4%	-4%	1%	1%
Group	11%	-2%	9%	18%

	TRADING PROFIT
	UNDERLYING	CURRENCY	ACQUISITION	TOTALS
Insulated Panels	-1%	-2%	7%	4%
Insulation Boards	20%	-4%	–	16%
Light and Air	75%	-1%	237%	311%
Environmental	35%	-5%	13%	43%
Access Floors	-1%	-4%	–	-5%
Group	6%	-3%	9%	12%

The Groups trading profit measure is earnings before interest tax, amortisation of intangible and non-trading items:

 

 

 

 

Net Debt

Net Debt increased by 36.0 million during 2017 to €427.9 million.

This is analysed in the table below.

Movement in Net Debt		2017	2016
		€Million’s	€Million’s
Free Cashflow		€198.50	€206.60
Acquisitions		€168.20	€254.40
Share Issues		€0.20	€3.20
Repurchase of Shares		€1.50	€1.30
Dividends paid		€61.70	€48.40
Cashflow movement		€32.70	€94.30
Exchange movements of translation		€3.30	€5.60
Increase in nett Debt		€36.00	€99.90
Net  Debt at the start of the year		€427.90	€328.00
Net debt at the end of the year		€463.90	€427.90

 

Key financial covenants

The Majority of Kingspan Groups borrowings are subject to financial covenants calculated in accordance with lenders facility agreements:

Maximum nett debt to EBITDA ratio of 3.5 times; and a min EBITDA to net interest coverage of 4 times.

The 2017 performance against these covenants in the current year is set out below

		2017	2016
	Covenant	Times	Times
Net debt / EBITDA	Maximum 3.5	1.05	1.06
EBITDA/Net interest	Minimum	27.8	28.3

Share Price and market capitalisation

Company Shares traded in the range of €25.80 to €37.00 during the year 2017. The share price at the 31 December was €36.41( Dec 16 €25.80) giving a market capitalisation at that time of

Kingspan Group PLC
Group Condensed Income statement
for the year ended 31st December 2017
	2017	2016
	€M’s	€M’s
REVENUE	€3,668.10	€3,108.50
Cost of sales	€2,615.40	€2,168.30
GROSS PROFIT	€1,052.70	€940.20
Operating Costs, ex intangible amortisation	€675.20	€599.30
TRADING PROFIT	€377.50	€340.90
Intangible amortisation	€15.70	€12.60
Non Trading items	€0.60	€0.00
OPERATING PROFIT	€362.40	€328.30
Finance expense	€16.40	€14.40
Finance income	€0.50	€0.10
PROFIT FOR THE YEAR BEFORE INCOME TAX	€346.50	€314.00
Income tax expense	€60.60	€58.50
NET PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS	€285.90	€255.50
Attributable to owners of Kingspan Group PLC	€284.30	€255.40
Attributable to non-controlling interests	€1.60	€0.10
	€285.90	€255.50
ERNINGS PER SHARE FOR THE YEAR
Basic	159.0c	143.8 c
Diluted	157.3c	141.6c

Overall Conclusions

Kingspan Group are a market leader in the in the insulation and building envelope solutions, some key financial Highlights from this report.

• Revenue up 18% to €3.7 billion
• Trading Profit up 11% to €377.5 million
• Acquisitions contributed to 9% to sales growth and 8% to trading Profit growth in the year. Financial dividend per share of26.0 cent. Total dividend for the year up 10% to 37cent
• Year net debt of €463.9 Million, nett debt to EBITDA of 1.05x

Kingspan group are operating well , with positive  expansion plans and acquisitions of over €600 seeing the company expand globally into south America and taking a strong foothold into the European market. Light and Air sales of over €200 million in its first years trading was further proof that the global expansion plan is very successful.

However with the future un certainty with Brexit and the slow down in the construction industry in the UK as a direct result of this contingency plans will need to be made in the event of a hard Brexit, as this could have a effect on the impost and export of materials to and from the UK.

In conclusion Kingspan continue to be a profitable company and a global leader in the insulation market, expansion into south American and western and central Europe are a positive move. The Company is financially very liquid and are profits are increasing year on year. Kingspan are a very strong performing global company .

All financial Information obtained was taken from

Kingspan Group plc Annual Report Statements 2017 and 2016 (Anon., n.d.)

References

• Anon., n.d. [Online]
  Available at: http://www.top1000.ie/kingspan
• Anon., n.d. [Online]
  Available at: https://www.irishtimes.com/business/markets/brexit-uncertainty-fails-to-dent-irish-stocks-1.3843353
• Anon., n.d. [Online]
  Available at: https://www.rte.ie/news/business/2019/0416/1042891-kingspan-recticel-deal/
• Anon., n.d. [Online]
  Available at: https://annualreport.kingspan.com/2017/