KGP.L Regulatory News (KGP)

15 May 2008 07:00



Kingspan Group Plc

AGM and Interim Management Statement

15 May 2008

Kingspan Group plc, the leading manufacturer of a range of sustainable products for the construction industry, in advance of its Annual General Meeting which is being held today at 11.00 am in Dublin, now issues its first Interim Management Statement for the period from 1 January 2008 to the date of this announcement in accordance with the reporting requirements of the EU Transparency Directive, 

Kingspan achieved record growth and profitability last year. However as widely flagged, economic conditions continue to tighten and predictably trading in the first four months of 2008 has been more challenging than in recent times. Both the UK and Ireland have continued to slow particularly in new residential construction. The low rise commercial sector has also been slowing, albeit to a lesser extent. Office construction remained strong in these markets, as well as in North America. The economic backdrop in Mainland Europe was steady throughout the period and Central & Eastern Europe experienced growth once again.

Across the Group, sales revenue has been at a similar level to that achieved in 2007, at constant exchange rates. Insulated Panels is flat overall, with a 17% decline in the UK and Ireland broadly offset by strong growth in Central & Eastern Europe and other markets. Insulation Boards have achieved a modest increase, with a drop in the Irish market of 8% offset by continuing growth in Britain and continental Europe. Whilst Structural Products is flat year on year, Offsite has been weak and is down 15%, reflecting the significant downturn in new residential construction in Ireland. Environmental sales increased 13% due to acquisitions last year but are broadly flat on a like for like basis, whilst Access Floors is up 20% and remains strong. The effect of exchange rate movements between the US dollar and the euro, and between sterling and the euro, has resulted in a decline in sales revenue of approximately 6%.

Notwithstanding a satisfactory top line, the geographical mix of sales and the effect of translation of profits due to currency weaknesses have both had an adverse effect on profitability. In addition raw material costs, primarily steel, are escalating at present and whilst the Group anticipates recovering these inputs, there is likely to be a lag, the impact of which is expected to result in continued margin pressure over the remainder of the year. 

Kingspan's order intake and pipeline activity tend to serve as a reasonable barometer of anticipated demand for up to six months forward. Orders for Insulated Panels in the UK and Ireland are down around 16% year to date, but are well up in Central & Eastern Europe. The Offsite residential sector order intake is down considerably, by and in large reflecting the drop in new housing starts in Ireland, and Access Floors is up marginally on 2007. The shorter order lead-times in Insulation and Environmental do not provide longer term visibility. 

Overheads have and continue to be reduced throughout the business to reflect the tightening environment. Measures include some plant closures and headcount reductions in the UK and Irish Offsite businesses.

The Group continues to roll out its investment programme in new technology and geographic expansion, in anticipation of the medium to long term structural and regulatory driven growth in its Insulation Panel and Board businesses. In the second quarter a new Insulated Panel line and a new Insulation Board line will both be commissioned in the UK, followed by a new Insulated Panel line in the Czech Republic around mid year. Progress is also being made on new capacity in Canada, Poland and the Netherlands, all of which will come on stream in mid 2009. This investment programme is facilitated by the robustness of our balance sheet and cash flow generation through the period. 

The Group remains confident that the reductions in operating costs and the investment in capital leave it well placed to respond favorably to a future upturn in the economic environment. In the meantime, however, the Board's view of the outlook for 2008 as a whole is unchanged from its statement of 3 March 2008, that an appreciable year on year reduction in earnings is likely for 2008.

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