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 KINGSPAN GROUP PLC

HALF-YEARLY FINANCIAL REPORT

for the period ended 30 June 2020

KINGSPAN GROUP PLC

RESULTS FOR THE HALF YEAR 30 JUNE 2020

Kingspan, the global leader in high performance insulation and building envelope solutions, issues its half-yearly financial report for the six-month period ended 30 June 2020.

Financial Highlights:

· Revenue down 8% to €2.1bn, (underlying, down 13%).

· Trading profit down 13% to €200.1m, (underlying, down 16%).

· Group trading margin of 9.7%, a decrease of 60bps versus the same period in 2019.

· Acquisitions contributed 6% to sales growth and 4% to trading profit growth in the period.

· Net debt of €437.9m (H1 2019: €734.3m). Net debt to EBITDA of 0.79x (H1 2019: 1.31x).

· Basic EPS down 14.9 % to 79.8 cent (H1 2019: 93.8 cent).

· A more than three-fold increase in free cashflow to €260.4m (H1 2019: €80.6m).

· Interim dividend nil (H1 2019: 13.0 cent per share). Medium term dividend and shareholder returns policy under review.

· ROCE of 16.9 % (H1 2019: 17.1%).

Operational Highlights:

· Resilient performance overall in times without parallel.

· Insulated Panels sales decrease of 8%. Good recovery in key markets particularly in Europe in more recent months. UK slower to recover with Americas softer recently. Continued progress on QuadCore™ adoption and Bacacier acquisition integrating well.

· Insulation Boards sales decrease of 18%. Positive Kooltherm® performance. UK and Ireland experiencing more prolonged disruption than Mainland European and North American markets. Australasia relatively resilient.

· Light & Air sales growth of 20%. Another milestone marked in the period with the acquisition of Colt Group significantly adding to the scale and breadth of the category and service offering.

· Water & Energy sales decrease of 10% with solid rainwater harvesting and wastewater activity.

· Data & Flooring sales growth of 6% with strong data centre activity driving this trend.

Summary Financials:

*Operating profit before amortisation of intangibles

** Operating profit before amortisation of intangibles divided by total revenue

Gene Murtagh, Chief Executive of Kingspan commented:

"Kingspan has delivered a resilient first half result in a period of unparalleled challenges. Performance has varied substantially from region to region depending on the severity and length of Government restrictions, and been helped by our rapid introduction of cost containment measures.

With over €1bn in cash and undrawn facilities we are well placed to come through the crisis in a strong position. In 2020 we have completed or agreed terms on three major acquisitions of businesses with revenue totalling over €400m, and we also continue our organic expansion, with new facilities being developed in locations including Brazil, Russia, and Sweden.

We have decided it is prudent not to pay an interim dividend and our shareholder returns policy is under review. We expect that the economic environment will remain weak, with confidence for businesses to make investment decisions curtailed. On a more positive note, policy makers are more focussed on ensuring buildings are more energy efficient, which is a supportive long-term trend."

For further information contact:

Business Review

The first half of 2020 has been an experience different to any that we have encountered in the past. Whilst sales activity was relatively weak in the early months, order intake had improved encouragingly, pointing towards a potentially strong second quarter. From mid-March revenue suffered markedly, down over 30% at the extreme in April. May trading was also challenging, however order intake began to improve and June trading turned out particularly strong helped by pent-up demand. The result for the half overall was revenue down 8% to €2.07bn and trading profit down 13% to €200m. Rapid and effective cost containment across the Group, along with the resolve and commitment of our people were fundamental in protecting the business during the critical months and enabling the recovery that followed.

Globally the picture varied hugely as governments and societies responded differently to the crisis. In Europe, France shut down abruptly at the end of March but recovered well through late May and June. Germany and much of Central Europe continued largely uninterrupted. Spain, the UK and Ireland imposed the most severe and long-lasting restrictions in relative terms with the resulting curtailment in demand still prevailing. US activity performed well throughout, although order intake has eased back notably in recent weeks. Canada meanwhile experienced a brutal decrease in revenue and Brazil performed relatively well.

In the Middle East, activity suffered significantly whilst in India our business was effectively closed for a couple of months, and current trading remains slow. Australasia has been generally resilient throughout.

During April we completed the Light & Air acquisition of Colt, a leading provider of daylighting and smoke management systems with a significant presence in Germany, the Netherlands, and the UK, with annual revenue of approximately €200m. Early in the second half we have signed an agreement to acquire Terasteel, a PIR Insulated Panel manufacturer based in Romania, with revenue in the region of €120m. Since then, we have agreed to acquire Trimo, a producer of mineral fibre Insulated Panels and Façades based in Slovenia and with revenues of just over €100m. Both are subject to regulatory approval processes that are currently underway.

Insulated Panels

(1) Comprising underlying -12%, currency impact -1% and acquisitions +5%

Order intake globally across our Insulated Panel product group was down 7% by volume in the first six months, having started the year ahead. The backlog by volume was ahead by 8% pointing towards strong near-term deliveries, assuming markets are open and receptive. The order intake picture varied by region, and although still recently strong in Germany, France, the Benelux and Brazil, other key markets such as the UK and North America have weakened. This would indicate lower revenue in those regions towards the latter end of 2020. Overall, Quadcore™ represented 12% of insulated panels sales revenue in the period (H1 2019: 8%). 

During the first half the US performed exceptionally well for Kingspan as the business traded largely uninterrupted, as was also the case in Brazil supported by our new facility close to Sao Paulo. Canada on the other hand took more extreme lockdown measures and as a result trading was significantly behind the same period in 2019, and sharply so in the second quarter.

In Europe the response also varied with Germany largely unaffected, France recovered well after effective closure in April, with the Benelux performing steadily. Central & Eastern Europe was a little behind but very robust in Poland throughout the period. The UK has been disappointing, and Ireland performed weaker than any of our regions not just in Europe, but globally.

Australasia deliveries did ease back somewhat albeit performed robustly all things considered and order intake in the region has been strong.

Insulation Boards

(1) Comprising underlying -18%

Unsurprisingly the pattern of sales at the Insulation Board businesses mapped a similar path to that of Insulated Panels. Of note was the strong performance in Western European markets, the Nordics and Australasia all of which delivered revenue ahead of the first half of 2019. Some of this reflected share gains from synthetic mineral fibre, as well as the varying government approaches to the crisis. The Netherlands, Germany and Denmark were positive stand-outs during the period.

In the UK, where construction activity was severely impacted, revenue was down significantly. This has improved in recent months although is still trailing prior year. In Ireland, revenue virtually halted for April and much of May and has since rebounded strongly.

Our North American business delivered growth as all product categories progressed, and growth has resumed in Australasia taking share from traditional materials. In the Middle East activity was heavily impacted by shutdowns but has since begun to recover.

Light & Air 

(1) Comprising underlying -9% and acquisitions +29%

The Light & Air business performed robustly through the turbulence of the first half. Like for like revenue was negatively impacted, particularly in the teeth of the crisis during April and May. Before and since then the underlying operation grew encouragingly in France and Germany although has been more challenged in the US by strong prior year comparatives.

The Colt acquisition, which completed in April, is being integrated on plan despite the obvious hurdles, and has performed well since acquisition. The coming six months will focus on full regional integration of this business as well as the ongoing assessment of further inorganic opportunities in Europe and beyond.

Water & Energy

(1) Comprising underlying -10%, currency impact -2% and acquisitions +2%

This business also suffered at a revenue level in the UK and Ireland due to lockdown measures. Cost containment in these regions was particularly effective in delivering a strong trading profit, which we expect to continue through the second half.

The hot water offering was particularly weak in the UK as both newbuild and house renovations ground to a halt for a time. Water treatment was steady most prominently in the Nordics and Western Europe, and the rainwater harvesting business in Australia delivered a strong outcome in the circumstances.

Data & Flooring

(1) Comprising underlying -9%, currency impact +1% and acquisitions +14%

The performance of the Data & Flooring activities of the Group was positive in the first half in the key regions of the US, Western Europe and Australia although the UK was weaker.

The growing 'Data' dimension to this business has been the key driver of its robust delivery in recent years, and again growth was achieved by the expanding product set aimed at the data warehousing opportunity. We expect that dynamic to continue for the foreseeable future.

Meanwhile in Germany, the WeGo acquisition (now rebranded as Kingspan Access Floors), has been seamlessly integrated and is performing ahead of plan.

Organic Expansion

With the longer term in our sights, we continued to push ahead, insofar as was practical with broadening our footprint globally. Insulated Panels in the Americas is moving ahead with its facility in Pennsylvania, and in Brazil we have broken ground on a fifth facility, this time in the south of the country.

In Europe, the Joris Ide business is at the early stages of adding a second production line to its German facility. At Bacacier in France, plans are evolving to create a 'Group' hub with the manufacture of Insulated Panels, Insulation and Profiles which, when complete in early 2022, will be a showcase facility. In Russia, we are investing in a second plant south of Moscow to complement our existing St. Petersburg presence.

In Sweden, the development of our greenfield Kooltherm® facility is well underway, albeit delayed due to recent restrictions. Demand is growing fast in the Nordic regions as advanced insulation continues to displace traditional synthetic mineral fibre and this new plant will play a key role in continuing that momentum.

Planet Passionate

This ground-breaking initiative launched last December and covering the next decade of our commitments on Energy, Carbon, Circularity and Water is already delivering notable results. Under these four banners (see table below), goals have been set across twelve sub-categories, linked into each business unit across the world. At this stage there are many active projects either being implemented or under consideration. At the full year results next February we intend to demonstrate the progress achieved in year one.

Innovation

Development of QuadCore™ 2.0 has continued at pace with the aim of launching in the UK and Ireland initially. We anticipate having product ready to start the lengthy certification process by quarter two next year. It is a performance focused evolution which will deliver advancement across all four 'Quads'.

Both the PowerPanel® (fully integrated solar PV) and AlphaCore® projects have suffered some timetable disruption due to being heavily reliant on co-operation with our international partners. Progress has now resumed and we plan to have a launchable Insulated Solar PV Panel by quarter two next year.

Two versions of AlphaCore® are being developed presently, one with high thermal performance as well as a medium performance alternative. We expect to place orders for the manufacturing assets required to produce the products at scale by early 2021.

Financial Review

Overview of results

Group revenue decreased by 8% to €2,072.7m (H1 2019: €2,243.1m) and trading profit decreased by 13% to €200.1m (H1 2019: €230.4m). This represents a 7% decrease in sales and a 12% decrease in trading profit on a constant currency basis. The Group's trading margin decreased by 60bps to 9.7% (H1 2019: 10.3%) primarily reflecting the divisional mix of earnings and the negative operating leverage associated with enforced plant shutdowns for a period. The amortisation charge in respect of intangibles was €10.9m compared to €11.0m in the first half of 2019. Group operating profit after amortisation fell 14% to €189.2m (H1 2019: €219.4m). Profit after tax was €147.5m compared to €173.2m in the first half of 2019, driven in the main by the decrease in trading profit. Basic EPS for the period was 79.8 cent, representing a decrease of 14.9% on the first half of 2019 (H1 2019: 93.8 cent).

The Group's underlying sales and trading profit performance by division is set out below:

The Group's trading profit measure is earnings before interest, tax and amortisation of intangibles:

Finance costs (net)

Finance costs for the period were higher than the same period last year at €11.7m (H1 2019: €10.5m). Finance costs include a non-cash charge of €0.4m (H1 2019: €0.1m) relating to the Group's defined benefit pension schemes. Of this €0.3m relates to a scheme assumed on acquisition during the period. Lease interest of €2.0m was recorded during the period (H1 2019: €1.8m). A net non-cash credit of €0.1m was recorded in respect of swaps on the Group's USD private placement notes (H1 2019: credit of €0.3m). The Group's net interest expense on borrowings (bank and loan notes) in the first half of 2020 was €9.2m compared to €8.2m in the same period in 2019. The increased net interest charge reflects interest paid on drawings on bank facilities, which were drawn as a contingency measure in March, and lower interest income on cash balances.

Free cashflow

*Earnings before finance costs, income taxes, depreciation, amortisation and the impact of IFRS 16. Calculation is set out in Alternative Performance Measures at the end of the statement

**Excludes working capital on acquisition but includes working capital movements since that point

Working capital at 30 June 2020 was €479.2m (31 December 2019: €582.8m), a decrease of €103.6m in the period. The typical seasonal build in the first half of the year was not a feature of H1 2020 given the extended shutdown in many of the Group's end markets and an associated reduction in working capital. The average working capital to sales percentage was 11.6% compared with 13.1% in H1 2019. Working capital management and cash generation has been a relentless area of focus over recent months, reflected in the lower working capital percentage. We expect working capital levels to normalise in the third quarter as activity levels pick up.

Net Debt

Net debt decreased by €195.3m during the first half of the year to €437.9m (31 December 2019: €633.2m) bolstered by strong free cashflow. The movement in debt is analysed in the table below:

*Adjustment reflects the inclusion of deferred consideration in 2018 net debt, which was settled in cash in April 2019

Retirement benefits

The primary method of pension provision for current employees is by way of defined contribution arrangements. The Group has three legacy defined benefit schemes in the UK which are closed to new members and to future accrual. The most significant of these, a net liability of €19.7m (€9.8m at point of acquisition) was assumed on the acquisition of Colt Group during the period. This scheme is also closed to future accrual. In addition, the Group assumed a number of defined benefit pension liabilities in Mainland Europe through acquisitions completed in recent years. The net aggregate pension liability in respect of all schemes and obligations was €34.4m at 30 June 2020 (30 June 2019: €12.8m).

Taxation

The tax charge for the first half of the year was €30.0m (H1 2019: €35.7m) which represents an effective tax rate of 16.9% on profit before tax (H1 2019: 17.1%). The decrease in the effective rate reflects the global mix of earnings year on year. Taxation payments of €14.9m were lower than in the first half of 2019 (€45.6m) due to deferred payment programs in place in a number of jurisdictions in response to the crisis. These will normalise in the second half.

Acquisitions

The Group incurred €42.0m on acquisitions during the period. Of this, €36.9m was incurred on Colt Group with a further €5.1m on other acquisitions. In addition to the cash consideration for Colt the Group assumed a net pension liability of €9.8m.

Dividend

The Board took the decision to cancel the proposed final 2019 dividend due for payment in May 2020 in light of the uncertain backdrop. This preserved €60.6m of cash in the business in the first half. In light of the ongoing, delicate nature of end markets an interim dividend has not been declared implying there will be no cash outflow for dividends during 2020. Furthermore, the dividend and shareholder returns policy is under review, and the outcome will be announced with our 2020 full year results.

Capital structure and Group financing

The Group funds itself through a combination of equity and debt. Debt is funded through a combination of syndicated bank facilities and private placement loan notes. The principal syndicated facility is a revolving credit facility of €451m with a committed term to June 2022. This is supplemented by an additional revolving credit facility of €300m with a committed term to June 2022. There were no drawings on either facility at period end. In February 2020 the Group arranged an additional bi-lateral term 'Green Loan' for €50m which matures in 2025. Green finance is expected to become a more prominent part of the Group's debt structure in future years.

In addition, as part of the Group's longer-term capital structure, the Group has total private placement loan notes of €842m (H1 2019: €839m) which have a weighted average maturity of 4 years (H1 2019: 5 years).

The weighted average maturity of all debt facilities is 3.8 years (H1 2019: 4.8 years).

As well as ongoing free cashflow generation, the Group has significant available undrawn facilities and cash which provide appropriate headroom for operational requirements and development funding. Total available headroom was €1,182m at 30 June 2020 (H1 2019: €888.6m).

Related party transactions

Apart from the dividend cancellation, there were no changes in related party transactions from the 2019 Annual Report that could have a material impact on the financial position or performance of the Group in the first half of the year.

Principal risks & uncertainties

Details of the principal risks and uncertainties facing the Group can be found in the 2019 Annual Report. These risks, namely volatility in the macro environment, failure to innovate, product failure, business interruption (including IT continuity and climate change), credit risks and credit control, employee development and retention, fraud and cybercrime, acquisition and integration of new businesses, health & safety, and laws & regulations remain the most likely to affect the Group in the second half of the current year. The Group actively manages these and all other risks through its control and risk management processes. The risk agenda and outlook has been significantly tested in recent months and the Group's processes and business model has withstood these uncertainties well. We will continue to actively assess changes in the external environment on events which could change our risk assessment and profile.

Looking Ahead

Accurate predictions are impossible at present. What appears certain is that general confidence will have suffered and investment decisions across many sectors will be curtailed through 2021. Conversely, sectors such as data, technology, next generation automotive and online logistics could be buoyed up as consumer behaviour evolves. More broadly, governments and policy makers worldwide are becoming more purposeful about a move towards lower emissions and ensuring buildings of all types become dramatically more efficient. Kingspan's exposure to these end markets has grown markedly in recent years.

All things considered, and despite the much anticipated near-term stimulus initiatives across the globe, we expect the general economic environment to be tougher than it was pre-crisis. Whatever situation unfolds Kingspan remains well poised, agile and funded to play our part.

2020 Statement of Directors Responsibilities

for the 6 month period ended 30 June 2020

The Directors are responsible for preparing the half-yearly financial report in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, as amended, (the "Transparency Regulations") and the Transparency Rules of the Central Bank of Ireland.

Each of the Directors confirm that to the best of their knowledge:

1) the condensed set of consolidated financial statements included within the half-yearly financial report of Kingspan Group Plc for the six months ended 30 June 2020 (the "interim financial information") which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows and the related explanatory notes, have been presented and prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU, the Transparency Directive and Transparency Rules of the Central Bank of Ireland;

2) the interim financial information presented, as required by the Transparency Regulations, includes:

a. a fair review of the important events that have occurred during the first 6 months of the financial year, and their impact on the condensed set of consolidated financial statements;

b. a description of the principal risks and uncertainties for the remaining 6 months of the financial year;

c. a fair review of related parties' transactions that have taken place in the first 6 months of the current financial year and that have materially affected the financial position or the performance of the enterprise during that period; and

d. any changes in the related parties' transactions described in the last annual report that could have a material effect on the financial position or performance of the enterprise in the first 6 months of the current financial year.

The directors of Kingspan Group plc, and their functions, are listed in the 2019 Annual Report.

On behalf of the Board

Kingspan Group plc

Condensed consolidated income statement (unaudited)

for the 6 month period ended 30 June 2020

Kingspan Group plc

Condensed consolidated statement of comprehensive income (unaudited)

for the 6 month period ended 30 June 2020

Kingspan Group plc

Condensed consolidated statement of financial position

as at 30 June 2020

Kingspan Group plc

Notes

forming part of the financial statements

1 Reporting entity

Kingspan Group plc ("the Company") is a public limited company registered and domiciled in Ireland.

The Company and its subsidiaries (together referred to as "the Group") are primarily involved in the manufacture of high performance insulation and building envelope solutions.

The financial information presented in the half-yearly report does not represent full statutory accounts. Full statutory accounts for the year ended 31 December 2019 prepared in accordance with IFRS, as adopted by the EU, upon which the auditors have given an unqualified audit report, are available on the Group's website (www.kingspan.com).

2 Basis of preparation

This half-yearly financial report is unaudited and has not been reviewed by the Company's auditor with regard to the Financial Reporting Council's International Standard on Review Engagements (UK and Ireland) 2410.

(a) Statement of compliance

These condensed consolidated interim financial statements ("the Interim Financial Statements") have been prepared in accordance with IAS 34 Interim Financial Reporting and do not include all of the information required for full annual financial statements.

The Interim Financial Statements were approved by the Board of Directors on 21 August 2020.

(b) Significant accounting policies

The significant accounting policies applied by the Group in the Interim Financial Statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2019.

The following amendments to standards and interpretations are effective for the Group from 1 January 2020 and do not have a material effect on the results or financial position of the Group:

The following standard amendment was issued in May 2020 effective for annual reporting periods beginning on or after 1 June 2020 with earlier application permitted and is not expected to have a material effect on the results or financial position of the Group:

The following standard is not yet effective and is not expected to have a material effect on the results or financial position of the Group:

(c) Estimates and judgements

The preparation of Interim Financial Statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates.

In preparing the Interim Financial Statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2019.

The Interim Financial Statements are available on the Group's website (www.kingspan.com).

 (d) Going concern

The directors have reviewed forecasts and projected cash flows for a period of not less than 12 months from the date of these Interim Financial Statements, and considered its net debt position, available committed banking facilities and other relevant information including the economic conditions currently affecting the building environment generally. On the basis of this review, the directors have concluded that there are no material uncertainties that would cast significant doubt over the Group's ability to continue as a going concern. For this reason, the directors consider it appropriate to adopt the going concern basis in preparing the financial statements.

3 Reporting currency

The Interim Financial Statements are presented in Euro which is the functional currency of the Company and presentation currency of the Group.

Results and cash flows of foreign subsidiary undertakings have been translated into Euro at the average exchange rates for the period, as these approximate the exchange rates at the dates of the transactions. The related assets and liabilities have been translated at the closing rates of exchange applicable at the end of the reporting period.

The following significant exchange rates were applied during the period:

4 Operating segments

The Group has the following five reportable segments: