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 KINGSPAN GROUP PLC

HALF-YEARLY FINANCIAL REPORT

for the period ended 30 June 2022

KINGSPAN GROUP PLC

RESULTS FOR THE HALF YEAR 30 JUNE 2022

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 2022.

Financial Highlights:

Operational Highlights:

Summary Financials:

1 Net debt pre-IFRS16

2 Operating profit before amortisation of intangibles and non trading item

3 Operating profit before amortisation of intangibles and non trading item divided by total revenue

4 Net debt to EBITDA ratio is pre-IFRS16 per banking covenants

5 Earnings before finance costs, income taxes, depreciation, amortisation and non trading item.

Gene Murtagh, Chief Executive of Kingspan commented:

"Despite a challenging trading environment Kingspan delivered record half year results, with revenues over €4bn for the first time. We have been able to navigate large input cost increases with only modest margin impact.

We invested €522m in new businesses and capex in the period, including significant progress executing on our strategy of developing a new business division focussed on roofing and waterproofing solutions. We also continue our organic expansion plans, with the intention to build 25 new production lines in the next 5 years, including our plans to invest €200m in a new Building Technology Campus in Ukraine.

Looking forwards we retain the outlook flagged in our June trading update but are confident in the long term demand for the energy efficient solutions we deliver. Whilst inflationary pressures have eased in recent months, the context of energy supply constraints over the winter months in Europe will be something we will be closely monitoring."

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Business Review

The first half of 2022 was a period of remarkable contrast. The Group delivered a record trading performance with revenue and trading profit ahead by 42% and 32%. The momentum in deliveries across most of the business was solid although the opposite was the case on inbound orders particularly in the second quarter. The last two years have been characterised by untypical ups and downs in order placement with raw material pricing playing a part in these gyrations. As a consequence it is difficult to draw conclusions from movements month to month with the pattern over a longer period more reflective of trend. In that context global insulated panels order intake volume for the 6 month period to 30 June 2022 was precisely 50% of the total intake for the full year 2021.

Revenue for the six months exceeded €4bn for the first time, with EBITDA and trading profit reaching €512.2m and €434.2m respectively. Kingspan's exposure to high growth end markets and applications and a concerted worldwide move towards a more energy conscious future built environment all played a role in driving this outcome. Extraordinary levels of price inflation also had a meaningful influence as we passed on an unprecedented level of raw material increases received during 2021. Whilst the process has been broadly delivered, certain pockets of activity across the Group experienced a lag in the recovery effort. The raw material backdrop has become less hostile in recent months. It remains to be seen how this plays out particularly in a context of likely energy supply constraints in Europe in the months ahead. 

Planet Passionate

Building upon the progress achieved during 2021, the first half of this year has again seen further advances in our global programme.

In 2021, we announced revised 1.5⁰C aligned science-based targets bringing them in line with our Planet Passionate programme goals to reduce Scope 1, 2 and 3 greenhouse gas (GHG) emissions. The Group is committed to reducing absolute Scope 1 and 2 GHG emissions by 90% by 2030 from a 2020 base year. We have also pledged to reduce absolute Scope 3 GHG emissions by 42% within the same timeframe. We will also be implementing a €70 per tonne internal carbon charge from 2023 which will galvanise full alignment across the organisation.

Expansion

In the first six months we invested a total of €522m across acquisitions, the purchase of a minority interest and capex, the largest of which was Troldtekt, a natural acoustic insulation producer based in Denmark. This marks our first significant step into the 'natural insulation' category, an area in which we expect to make further advances in the foreseeable future. In June 2022 we completed the acquisition of Derbigum in our new Roofing + Waterproofing platform. The acquisition of Ondura Group is expected to complete shortly and when combined with the Derbigum business will take the annual run rate revenues of our wholly owned Roofing + Waterproofing activities to approximately €500m. Since period end, we acquired a strategic minority stake of 24% in Nordic Waterproofing.

Last year we entered the district heating market with the acquisition of Logstor with operations in the Nordics and Poland. We have been very pleased with progress to date and our excitement about its future prospects continues to grow. Full year 2022 order intake is heading for approximately €500m, ahead of prior year by over 50%.

Organically, within the next five years, we have internal requirements for more than 25 new production lines worldwide. Included in this is our recently announced intention to invest €200m on a Building Technology Campus in Ukraine to meet demand in the wider Central and Eastern European region. The site search is nearing completion and a full design of the complex is currently in preparation.

Innovation

PowerPanel™ has been launched in Britain and in Ireland where the initial interest has been encouraging. The team has had active engagement on projects that will generate over 75 MW of power (approximately €75m), with 5 MW already installed and operational. RooftricityTM, our funded solution, has also been launched in the same markets and is expected to catalyse increased momentum in the refurbishment category offering a complete solar-embedded re-roof, with no capital outlay for the building owner.

QuadCoreTM 2.0 is also progressing and in a coldstore application, the product reached a 120 minute fire rating, a significant advancement which will in many cases match if not exceed the performance of synthetic mineral fibre cored products. QuadCoreTM sales volume grew by 63% globally in the first half.

We have also developed QuadCoreTM LEC (lower embodied carbon) in collaboration with our suppliers. This is a prime example of how our Planet Passionate agenda is translating into market leading, sustainable products. QuadCoreTM LEC will have c.50% less embodied carbon, contain upwards of 45% recycled content and will launch in Q4 this year. The lower embodied carbon project ultimately envisages a 80% lower embodied carbon product within the next five years.

Furthermore, projects are underway to achieve an 'A' classification for Optim-R® and 'B' classification for key Kooltherm® applications. AlphaCore® will launch, with UK initial scale production, in Q1 2023. Significant progress is also being made on entering the 'natural' insulation category.

Insulated Panels

(1) Comprising underlying +32%, currency +4% and acquisitions +3%. Like-for-like volume -3%.

Revenue generation was very buoyant in the period reflecting solid volume and strong pricing. Margins were also strong reflecting effective cost recovery of inflated raw materials and ongoing advancement of QuadCoreTM.

The Americas had a good performance overall with encouraging activity levels as we look towards the second half of the year. Our new facility in Pennsylvania opened in May with plans underway for an additional line in the region. Europe overall has been mixed with intake levels in the second quarter under some pressure although activity pipelines appear solid.

Insulation

(1) Comprising underlying +16%, currency +3% and acquisitions +50%. Like-for-like volume -6%.

Revenue was significantly ahead of the same period last year, up by 69%. A significant transition and advancement is underway in the division with technical insulation now representing approximately 35% of the portfolio. The addressable market for technical insulation is vast and includes district heating and applications in acoustic, ducting and piping. Since its acquisition in June 2021, Logstor, focused on district heating, has made significant progress and order intake for 2022 is anticipated to be approximately €500m, over 50% ahead of prior year. Building insulation margins particularly in Britain and France decreased in the period due to a lag in recovery of raw material inflation, although reported margins in 2021 were abnormally strong. Margins have improved in more recent months. Volumes overall were weaker in the period due to generally high inventories in the distribution channel at the turn of the year. Pro-forma volumes, assuming acquisitions were owned for the full period, were down 1% in the half year. Business in North America and Australasia continues to trend positively.

Light + Air 

(1) Comprising underlying +17%, currency +2% and acquisitions +18%.

It's been another period of progress with solid volume and pricing reflecting margins and intake improving over prior year. This will be further evident in the second half which is typically the more significant trading period.

Water + Energy

(1) Comprising underlying +8%, currency impact +2% and acquisitions +6%.

The division grew revenues principally on raw material led pricing although there was a lag in recovery particularly in the first quarter. Water applications continue to demonstrate structurally positive trends and is an area of increasing opportunity.

Data + Flooring

(1) Comprising underlying +23% and currency impact +7%.

The division had a strong first half due largely to buoyant datacentre activity and this is expected to continue for the foreseeable future. Our innovations in recent years in industry leading datacentre solutions has positioned us well to capitalise on those opportunities.

Financial Review

Overview of results

Group revenue increased by 42% to €4,153.4m (H1 2021: €2,920.1m) and trading profit increased by 32% to €434.2m (H1 2021: €328.9m). This represents a 39% increase in sales and a 28% increase in trading profit on a constant currency basis. The Group's trading margin decreased by 80bps to 10.5% (H1 2021: 11.3%) primarily reflecting a lag in the recovery of raw material inflation and an abnormally high margin in Insulation in the prior period. The amortisation charge in respect of intangibles was €12.9m compared to €12.4m in the first half of 2021. Group operating profit after amortisation increased by 28% to €405.2m (H1 2021: €316.5m). Profit after tax was €319.9m compared to €246.7m in the first half of 2021, driven in the main by the increase in trading profit. Basic EPS for the period was 170.6 cent, representing an increase of 29% on the first half of 2021 (H1 2021: 132.4 cent).

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

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

Finance costs (net)

Finance costs for the period were lower than the same period last year at €17.6m (H1 2021: €19.3m). Finance costs include a non-cash charge of €0.1m (H1 2021: €0.2m) relating to the Group's defined benefit pension schemes. Lease interest of €2.3m was recorded during the period (H1 2021: €1.8m). The Group's net interest expense on borrowings (bank and loan notes) in the first half of 2022 was €15.2m compared to €17.2m in the same period in 2021. This decrease was due mainly to the repayment in August 2021 of a higher coupon 2011 private placement loan note.

Free cashflow

*Earnings before finance costs, income taxes, depreciation, amortisation and non trading item. 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 on 30 June 2022 was €1,307.2m (31 December 2021: €977.8m), an increase of €329.4m (€261.8m excl. acquisitions) in the period. The increase was driven by the increased level of year on year trading, with the Group investing in working capital to support the significant increase in sales as well as higher levels of inventory year on year. The average working capital to sales percentage was 14.5% compared with 9.7% in H1 2021. The working capital percentage in H1 2021 was unusually low reflecting very high levels of activity coupled with lower inventory days due to a lack of availability of certain raw materials. Since quarter four 2021 we have carried higher levels of inventory than is typical reflecting longer delivery lead times and supply chain constraints. We expect the working capital to sales ratio to reduce during the second half of 2022.

Net Debt

Net debt increased by €450.5m during the first half of the year to €1,206.6m (31 December 2021: €756.1m). The movement in debt is analysed in the table below:

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. In addition, the Group has a number of smaller defined benefit pension liabilities in Mainland Europe. The net aggregate pension liability in respect of all schemes and obligations was €15.8m at 30 June 2022 (31 December 2021: €28.0m).

Non trading item

The Group recorded a non trading charge of €16.1m (H1 2021: €nil) in the period in respect of the Group's net loss on the complete divestment of its Russian operations.

Taxation

The tax charge for the first half of the year was €67.7m (H1 2021: €50.5m) which represents an effective tax rate of 17.5% on profit before tax (H1 2021: 17.0%). The effective tax rate reflects the geographic mix of earnings year on year.

Acquisitions

The Group incurred €350.8m on acquisitions during the period. Of this, €220.5m was incurred on Troldtekt, €96.7m was incurred on Derbigum and an aggregate amount of €33.6m invested in other acquisitions.

The Group also made a payment of €36.6m to acquire the remaining 15% of shares in Bacacier which were held by a non-controlling interest.

Dividend

The Board has declared an interim dividend of 25.6 cent (H1 2021: 19.9 cent) payable on 7 October 2022 to shareholders on the register on the record date of 9 September 2022. This is in line with the previously announced revised shareholder returns policy.

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 green revolving credit facility of €700m entered into in May 2021 with a committed term to May 2026. There were no drawings on this facility at period end.

In addition, as part of the Group's longer-term capital structure, the Group has total private placement loan notes of €1,392m (H1 2021: €1,538m) which have a weighted average maturity of 5.8 years (H1 2021: 6.2 years).

During the period, the Group arranged two new acquisition related financing facilities with an aggregate value of €800m. At period end, there was €150m drawn on one of these facilities and the other facility remained undrawn.

The weighted average maturity of all debt facilities is 4.3 years (H1 2021: 5.8 years).

As well as ongoing free cashflow generation, the Group has significant available undrawn committed facilities and cash which provide appropriate headroom for operational requirements and development funding. Total available headroom was €1,743m at 30 June 2022 (H1 2021: €1,631m).

Related party transactions

There were no changes in related party transactions from the 2021 Annual Report that could have a material effect 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 2021 Annual Report. These risks, namely volatility in the macro environment, failure to innovate, product failure, business interruption (including IT continuity), climate change, credit risks and credit control, employee development and retention, fraud and cybercrime, acquisition and integration of new businesses, health & safety, and laws and 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. We will continue to actively assess changes in the external environment on events which could change our risk assessment and profile.

Board Changes

The Board of Kingspan is pleased to announce the appointment of Senan Murphy as a Non-Executive Director with effect from 1 October 2022. Senan was formerly the Group Finance Director and an executive director of CRH plc., and was previously Chief Operating Officer at Bank of Ireland Group, and Chief Financial Officer at Airtricity. He has over 30 years' experience in international business across multiple industries including building materials, renewable energy, financial services and banking.

Looking Ahead

We live at a time when climate, energy, social and economic challenges are escalating almost everywhere. Clearly, the answers are not straightforward although they do exist. The homes we live in, the buildings we work in and how we move around all hold the key. Radically more efficient solutions to each of these challenges exist and are gaining momentum, although to date progress has been too slow. The impending pinch points on a number of fronts should harden the global resolve to accelerate this transition.

In the more immediate term, the building economy is likely to contract in many parts of the world which leaves our sentiment similar to that expressed in our last trading update. Whilst we have seen softer order intake patterns in recent months, quotation activity generally remains solid. Our portfolio is growing and evolving with new business streams added, and we remain unrelenting in our longer term purpose to deliver an effective transition to a materially less consumptive, and lower emissions built environment.

2022 Statement of Directors Responsibilities

for the 6 month period ended 30 June 2022

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:

The directors of Kingspan Group plc, and their functions, are listed in the 2021 Annual Report.

On behalf of the Board

Kingspan Group plc

Condensed consolidated income statement (unaudited)

for the 6 month period ended 30 June 2022

Kingspan Group plc

Condensed consolidated statement of comprehensive income (unaudited)

for the 6 month period ended 30 June 2022

Kingspan Group plc

Condensed consolidated statement of financial position

as at 30 June 2022