Rpc Group Regulatory News (RPC)

RPC GROUP PLC

Full year results for the year ended 31 March 2018

RPC Group Plc, a leading global plastic products design and engineering company, announces its results for the year ended 31 March 2018.

Financial highlights:

§ Revenue growth of 36% to £3,748m driven by acquisitions and organic growth of 2.8%

§ Adjusted operating profit increase of 38% to £425.0m with adjusted basic EPS up 16% to 72.0p

§ Statutory operating profit increase of 85% to £355.7m with statutory basic EPS up 66% to 61.6p

§ Robust cash generation with net cash flows from operating activities increase of 40% to £386.7m

§ RONOA expansion of 150 basis points to 27.2% with ROCE at 14.8% (2016/17: 15.2%)

§ Final dividend of 20.2p giving a full year dividend of 28.0p, representing an increase of 17% on last year and the 25th year of consecutive dividend growth

Strategic highlights:

§ Capital investment to deliver continuing pipeline of growth opportunities 

§ Major European synergy programme substantially completed

§ Market position in flexibles strengthened by the Nordfolien acquisition (completed post year end)

§ Position outside Europe has been significantly enhanced

§ Active portfolio management: non-core businesses with a total revenue of £209m identified for disposal

I am pleased with the progress made since launch of the Vision 2020 strategy five years ago with record profitability levels achieved this year on a significantly enlarged business whilst establishing a global footprint. I am excited by the many opportunities for the business to further develop both organically and through acquisitions. With our unique global network of design and engineering centres, the Group is well placed to benefit from the development opportunities driven by recent sustainability and e-commerce trends. We target through the cycle underlying organic growth ahead of GDP and to improve the adjusted operating profit of the core businesses, including the contribution from the recent Nordfolien acquisition, by at least £50m by the financial year ending March 2021. At the same time, within the overall capital allocation framework, the Group will continue to assess value-adding acquisition opportunities which meet our strict acquisition criteria. The new financial year has started in-line with management expectations.

Notes

1 The directors have adopted various Alternative Performance Measures (APMs), as those not defined or specified under International Financial Reporting Standards (IFRS). The directors believe that these APMs assist in providing additional useful information on the underlying trends, performance and position of the Group. APMs are used by the directors and management for performance analysis, planning, reporting and incentive setting purposes and have remained consistent with the prior year. APMs should be considered in addition to, and are not intended to be a superior to, or a substitute for, IFRS measurements. The APMs that the Group has used this year are contained in this announcement, with further details on pages 39 to 42.

2 The comparative RONOA has been restated from 26.0% to 25.7% following inclusion of the effects from Q4 2016/17 acquisitions and the pro forma results of the 2017/18 acquisition.

3 A glossary of terms used in this announcement can be found on page 42.

There will be a call for analysts and investors at 9am. The dial in details are:

Forward looking statements

This announcement contains forward-looking statements, which have been made by the directors in good faith based on the information available to them up to the time of the approval of this announcement and such information should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying such forward-looking information. The Group undertakes no obligation to update these forward-looking statements and nothing in this announcement should be construed as a profit forecast. Past performance is no guide to future performance and persons needing advice should consult an independent financial advisor.

Nothing in this announcement shall constitute, in any jurisdiction, an offer or solicitation to sell or purchase any securities or other financial instruments, nor shall it constitute a recommendation or advice in respect of any securities or other financial instruments or any other matter.

About RPC

RPC is a leading global plastic product design and engineering company that works responsibly across a broad range of carefully selected industries from food to technical components, healthcare and industrial.

RPC is a global business with 189 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 decentralised structure of specialist operations reflects the industry structure and we have expertise in all five of the major polymer conversion processes allowing us to get close to our customers, understand their needs, and produce innovative, sustainable products that add value. As part of this, we are committed to actively working with our customers, as well as external organisations, to reduce the carbon footprint and environmental impact of our products across the supply chain.

Key to this are our people. An unrelenting focus on Health & Safety, our comprehensive training programmes and an inclusive collaborative and entrepreneurial environment all contribute to ensuring that we attract the next generation of plastics experts to maintain our focus on technical and design innovation.

We continue to grow and deliver returns to our shareholders through the successful application of our strategy.

For further information and to subscribe to our mailing list please visit: www.rpc-group.com

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CHAIRMAN'S REPORT

I am pleased to report another successful year of growth by the Group and continued financial, strategic and operational progress. The responsible use and disposal of plastics received an increasing amount of attention during the year, and recyclability and reusability have become key design criteria for our customers. RPC is committed to working with its customers to improve the environmental sustainability of products and, through its focus on innovation, coupled with in-house recycling facilities, it is well positioned to do so.

Financial overview

Revenue grew 36% to £3,748m, adjusted operating profit increased 38% to £425.0m while adjusted basic earnings per share rose 16% to 72.0p. Cash generation was robust, with net cash flows from operating activities of £386.7m, up 40% compared with the previous year. Net profit attributable to equity shareholders for the year was £253.4m (2016/17: £132.0m) and basic earnings per share was 61.6p (2016/17: 37.1p), reflecting the significant decrease in adjusting items in the year and the full year effect of acquisitions in 2016/17.

At 14.8%, Return on capital employed (ROCE) remained strong although reduced marginally by 40 basis points (bps), primarily due to the full year effect of Letica. Return on net operating assets (RONOA), a key internal operating measure and indicator of asset quality, increased 150bps to 27.2%.

Strategy

The Group has continued to deliver its Vision 2020 strategy, which targets a balanced portfolio of cash generating and growth markets, and draws on the strength of both customer and supplier relationships. The strategy combines a focus on organic and acquisitive growth, with pursuing opportunities in the non-packaging markets and building the Group's exposure to attractive markets outside of Europe.

In the year, organic revenue growth of 2.8% remained ahead of GDP (weighted for territories where RPC operates). In the five years since the start of the current strategy, organic revenue growth has outperformed relevant GDP growth by more than 100 basis points (bps).

Reflecting the scale and pace of strategic progress in 2016/17, the focus in 2017/18 was on investing in the existing business to support future growth, while integrating acquired businesses and realising synergies. I am pleased to report that the major European integration programme, consisting of the GCS, Promens and BPI acquisitions, is now substantially complete, with the anticipated annualised synergy run-rate achieved at a lower cost than expected. Towards the end of the financial year, the Group announced the €75m acquisition of Nordfolien, which completed after the year end.

The position of the Group outside Europe was significantly strengthened with the acquisitions of Letica and Astrapak whilst growing the turnover in China organically by 26%. Revenues outside Europe of £831m (2016/17: £384m) now represents 22% of the Group.

The Group continues to increase its presence in the polymer-consuming, high growth technical components market. ESE World, a leading European provider of temporary waste storage systems, performed well in the first year of ownership and is well placed to make further progress as demand for enhanced waste management to avoid litter and plastic leakage into the environment accelerates.

The Group regularly reviews its portfolio of businesses with the aim of remaining relevant to industry and market dynamics by focusing on higher added-value plastic solutions that can be recycled or reused. After the year end, a number of non-core businesses were confirmed for disposal during 2018/19.

Board

Martin Towers, who joined the Company in 2009 as an independent non-executive director, will step down from the Board at the Annual General Meeting in July. During his time at RPC, Martin has served as Chairman of the Audit Committee and Senior Independent Director, and on behalf of the Board, I would like to thank him for his commitment and significant contribution to the success of the Company.

In September 2017, the Board was delighted to welcome Kevin Thompson as an independent non-executive director and, from January 2018, as Chairman of the Audit Committee. Kevin is currently Group Finance Director at Halma Plc.

I am pleased to say that Lynn Drummond, the current Chair of the Remuneration Committee, will take over the role of Senior Independent Director, subject to her re-election, following the Annual General Meeting. This change will mean that we will need to appoint an additional independent non-executive director to join the Board who will be able to take over Lynn's current responsibilities for remuneration as the Company heads into a full review of the Remuneration Policy in the autumn. It is envisaged that this process will be started as soon as possible in order to provide sufficient time for a new independent non-executive director to work alongside Lynn in the initial stages of this process.

Corporate governance and responsibility

The Board is responsible for ensuring that the Group operates in accordance with all relevant governance and legal requirements. The last year has seen a large number of changes from regulatory bodies and the government that have remained firmly on the agenda for discussion and this will remain the case as many of these proposals are implemented over the coming year.

The Remuneration Committee's review of performance measures used in RPC Group's incentive schemes, launched in response to investor concerns, has been completed with a number of changes being made.

The key features of the new approach include the addition of ROCE in the performance share plan (alongside total shareholder return and earnings per share), and the removal of the RONOA moderator. Free cash flow and RONOA will be additive measures in the annual bonus plan (ABP) (alongside adjusted profit before interest and tax). There will be no moderators in the ABP.

The use of these combined measures will ensure management is consistently focused on delivering results and driving shareholder value for the medium and long-term.

People

Our people are our most important asset and we put their Health & Safety at the centre of everything we do. This approach, and providing opportunities for development across the business, will ensure that they find RPC a rewarding place to further their careers, and that we will continue to attract a diverse range of experts for the future.

On behalf of the Board, I would like to thank our loyal and hardworking employees who have contributed to yet another year of progress and look forward to their continued support and involvement in the future.

Capital allocation and dividends

The Board maintains a disciplined approach to capital and continuously reviews capital allocation priorities with the aim of maximising shareholder value and returns.

During the year, further capital was deployed to support the organic growth strategy and position the business for future growth. The Board considers the dividend to be an important component of shareholder returns and is recommending a final dividend of 20.2p, taking the total dividend for the year to 28.0p, an increase of 17% and representing the 25th year of consecutive growth. Share buybacks are considered relative to the attractiveness of alternative uses of capital. In July 2017, the Board announced a buyback of up to £100m of shares and at the year-end £83m had been spent acquiring 9.6m shares. In what was a quieter year for acquisitions, the addition of Astrapak was completed for an enterprise value of £80m.

Looking ahead

RPC Group is a strategically strong and well-managed business and, as a leading design and engineering company, has the scale, innovative capabilities and ambition coupled with the financial strength to exploit unprecedented market opportunities. RPC has a strong track record of working with customers to develop environmentally-responsible plastic products and is uniquely placed to contribute to a sustainable future for plastics and to deliver further growth and returns to shareholders. I look forward to the year ahead and to reporting on the continued progress and growth of the Group.

Jamie Pike

Chairman

OPERATING REVIEW

Results summary

The Group delivered a good set of results, with record profitability levels, robust cash generation and solid organic growth. Synergy realisation continued and the majority of the remaining spend associated with the major European integration programme was substantially completed. The acquisition of Astrapak was completed in the first half and in the second half, the Group announced the acquisition of Nordfolien which completed in April 2018.

Revenue grew by 36% to £3,748m, with strong growth in both the packaging and non-packaging segments, and included organic growth of 2.8%. Revenue was further driven by the contribution of acquisitions announced or completed in the previous financial year and at constant exchange rates grew 33%.

Adjusted EBITDA grew 34% to £590.3m and adjusted operating profit increased 38% to £425.0m due to the contribution of acquisitions and business improvement benefits (including the realisation of synergies partly offset by a £6m increase in central costs to support the enlarged business) more than offsetting cost inflation. Return on sales increased 10bps to 11.3%. At constant exchange rates adjusted EBITDA and adjusted operating profit grew by 30% and 34% respectively.

RONOA expanded 150 bps to 27.2%, benefiting from synergy realisation and improved profitability. ROCE, at 14.8%, remains well ahead of the Group's weighted average cost of capital, with the slight dilution of 40bps primarily reflecting the inclusion of the first full year of Letica trading within the Group's result.

Adjusting items included within profit before tax were significantly lower at £72.8m (2016/17: £131.4m), and primarily consisted of £50.7m (2016/17: £31.0m) non-cash amortisation of intangible assets that arise on acquisition and the remaining integration costs associated with the Promens, GCS and BPI acquisitions. Reflecting the significant reduction in adjusting items, statutory profit before tax grew by 105% to £316.6m.

Cash flow generation was robust, with net cash flows from operating activities up 40% to £386.7m. Free cash flow was also solid at £229.2m (2016/17: £239.0m), though lower than the prior year due to the non-repeatability of working capital related cash synergies realised during the prior year and investments in capital expenditure and working capital to drive growth. These investments resulted in an adjusted operating cash conversion of 77% (2016/17: 95%).

The Group retains a strong balance sheet with net debt of £1,139m (2016/17: £1,049m) representing a pro forma 2.0x EBITDA multiple (2016/17:1.9x) on a basis consistent with banking covenants. Total undrawn finance facilities of £1,004m (2016/17: £974m) were available as at 31 March 2018 and the Group has full access to funds held having no restricted cash balances.

Market backdrop

Recent industry reports forecast the global plastic packaging market to grow at an annual average rate of 3.7% between 2017 and 2022*, taking a 1.4%pts share from other packaging materials and, at £344bn accounting for around one third of the global packaging market by 2022. By region, Asia is forecast to lead the growth as its economies continue to develop, while Europe, where RPC generates 78% of its revenue, is forecast to grow at an annual average rate of 2.8% including 2.1% in Western Europe. Demand for plastic packaging in more mature geographies will be driven by factors including a rise in single-person households, e commerce, demand for light weight packaging reducing transport costs and emissions, barrier technology leading to savings in food waste, and recyclability.

*Smithers Pira 2017

Plastics in the spotlight

During the year, the recyclability, reusability and responsible disposal of plastic products came into greater focus with the announcement of a 25 Year Environment Plan in the UK and, at the end of May 2018, the launch of a draft Directive on Single use Plastics by the EU Commission. RPC does not manufacture any of the items that will be restricted under the proposed EU directive, and is proactively working with the policy makers and industry bodies to best achieve their wider goals.

Following the acquisitions of BPI and ESE World, RPC is able to 'close the loop' by collecting agricultural films and used products and then using in-house recycling facilities to manufacture new films and by collecting and recycling disused bins into new bins. Through ESE World the Group is also leading in storage and collection systems for sorted waste.

The Group continues to manufacture products that incorporate polymer resin from recycled sources and during the year, a pilot scheme tested the feasibility of establishing a closed loop recycling solution for used plastic paint containers, whereby disused containers are collected and recycled into new bins.

In response to increasing customer requests to demonstrate the recyclability of their products, a proprietary 'circular design tool' was developed by RPC in line with RecyClass criteria which also allows the measurement and demonstration of improved recyclability post redesign.

Other initiatives in the year included ongoing research into incorporating biobased polymers and compostable materials in plastic products, and the launch of a skincare range for men incorporating over 50% sugarcane in the packaging while retaining full recyclability.

Overall, RPC remains uniquely placed to benefit from the market growth trends and to work with customers at the design stage and throughout the product lifecycle to improve the recyclability and reusability of their products and contribute to a sustainable future for plastic.

Vision 2020: Focused Growth Strategy

Against this backdrop, the Group continued to deliver its Vision 2020: Focused Growth Strategy, which comprises:

· Continuing focus on organic growth

· Selective consolidation in Europe

· Creating a meaningful presence outside Europe

· Pursuing added value opportunities in non-packaging markets

Underpinning this strategy is a centralised approach to purchasing polymer that allows the Group to benefit from its combined scale as well as a flexibility to purchase many different grades. The Group now purchases 1,100kt on an annualised basis across over 1,000 different grades of polymer. A strong balance sheet and a disciplined approach to capital allocation that prioritises investing in organic and acquisitive growth and sustaining a progressive dividend policy, complements the overall strategy (see the Financial review for details). Once again, the strategy has delivered another successful year of growth for the Group.

Active portfolio management

RPC conducts ongoing reviews of its business portfolio. In doing so, the Group has improved its exposure to added-value products including plastic products that can be more easily recycled or reused, and overall quality of earnings.

Following the most recent review businesses equating to £209m turnover have been identified for disposal and this has been approved by the Board subsequent to the year end. These businesses are smaller strategic business units of larger entities acquired over the last four years and are typically either sub-scale in the markets in which they operate or operate outside of RPC's core competencies in plastic packaging and technical components.

Continuing focus on organic growth

Organic revenue growth was 2.8% in the year and included growth of over 4% in the second half. The annual average organic revenue growth since the launch of Vision 2020 is 2.9%, well ahead of comparable weighted GDP growth of 1.9%.

Organic revenue growth was achieved in both the packaging and non-packaging segments and was delivered despite four fewer trading days in the year and the impact of certain adverse natural events in the first half. All end-markets delivered organic growth except beverage, where the coffee capsules market remained soft. Towards the end of the year, the outlook for beverage improved and the Group's coffee capsules plant in Brazil is now fully operational.

By geography, China was notably strong, with organic revenue growth of 26% in the year, while organic revenue growth in the US was hindered by the impact of hurricanes in the first half.

Innovation and investment

RPC has an attractive portfolio of innovative and proprietary products and, following the completion of the Nordfolien acquisition following the year end, has 33 design centres.

Significant capital investment was made during the year positioning the Group for continued growth. Purchase of property, plant and equipment of £241.4m (2016/17: £175.2m) included spend of 53% on growth and efficiency projects, and represented 6.4% of revenue and 1.5x depreciation.

The roll out of production lines for the patented CSD Lite and sports cap closures continued in the second half albeit with some customer delays in the US. Other projects included the addition of further electroplating capacity in China and investment in an innovative, patented trigger spray which is expected to provide good cross-selling opportunities given its compatibility with many RPC existing products.

Elsewhere, following marketing in the first half, a number of applicator machines for the WaveGrip film solution have been ordered. WaveGrip is a multipack beverage solution supported by both BPI and Letica. The pipeline for further growth remains strong.

After the year end, plans for a further production facility in Shanghai were approved. The project will expand the capacity in China for higher added-value products. The first phase of the expansion is expected to cost around £35m and will commence production in c.12 months.

Selective consolidation in Europe

In July 2017, the Group announced that it did not anticipate making any significant acquisitions, or incurring further acquisition related exceptional costs (now referred to as adjusting items) in the financial year ending 31 March 2018. Instead, the Group focused on delivering the announced synergy realisation programme.

Accordingly, further acquisitions announced in the year were limited to the recently completed acquisition of Nordfolien for an enterprise value of €75m. Nordfolien is a leading player in the design and manufacture of higher added value polythene films for both industrial and consumer packaging markets. It will contribute to the Group's future growth while affording the opportunity to realise an attractive level of cost synergies, without incurring material adjusting items. In addition to a small in-house recycling facility, Nordfolien has spare capacity that can be used to grow the bpi indupac business without requiring additional investment. The Nordfolien deal was completed following the year end.

There continues to be a good pipeline of further acquisition opportunities in this consolidating industry which will be assessed against the Group's strict acquisition criteria.

Creating a meaningful presence outside Europe

Reaching £831m (2016/17: £384m), Group revenue outside of Europe grew 116% with Letica and Ace key contributors. On a constant currency basis, revenue outside of Europe grew by 118%.

The Ace Hefei site, which focuses on personal care packaging, became fully operational in year, as did the start-up plant in Brazil, whilst the completion and integration of the Astrapak acquisition also enhanced RPC Group's presence outside of Europe.

Astrapak is a leading South African manufacturer of rigid plastic packaging products and components with a broad offering across injection moulding, blow moulding and thermoforming technology platforms. The company is a 'mini-RPC' serving customers in sub-Saharan Africa with industrial and consumer products; it 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.

Although the softening of the South African economy during the year tempered the performance of the business, relationships with global customers are already showing positive benefits and there are opportunities to share technology expertise across the Group.

Pursuing added value opportunities in non-packaging markets

Revenue in the non-packaging segment grew by 54% to £589m, including by 50% on a constant currency basis and 7.3% organically. Adjusted operating profit grew by 23%.

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 a further competitive advantage.

The Ace business benefited from the start of production with vehicle manufacturers albeit with some launch costs associated with new business wins impacting on margins. The rebuild and upgrade of the Zhuhai manufacturing plant in the first half also effected margins, although leaves the business well placed for future growth.

ESE World, which was acquired in January 2017, performed well in the first full year of ownership, with a strong pipeline of opportunities driven by the need to enhance waste management to increase recycling and avoid litter and plastic leakage into the environment.

Business integration

RPC has a proven track record of successfully and efficiently combining organisations following acquisition, with good integration capability across the organisation enhanced by a decentralised operating structure, cross-functional integration teams and, in many cases, by retaining key management.

Letica/Astrapak

As a well-established and independent business, the integration effort required for Letica has been relatively minimal. Letica management has been retained and are incentivised to deliver growth and additional cost savings through a two-year earn-out period. Preparations for their succession following the earn-out period are ongoing.

Astrapak management has been retained and work is ongoing to transfer design and engineering expertise to South Africa. Post year-end, a small design and moulding business was acquired to support the development towards higher added value products.

Promens/GCS/BPI

Promens, GCS and BPI were individually significant acquisitions, providing combined revenue 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, which was achieved through a combination of purchasing savings, elimination of cost duplication, business optimisation initiatives and the rationalisation of operations within existing facilities.

The integration programme is substantially complete, with the French site restructurings, the closure of Bjæverskov (Denmark) and the consolidation and sale of the Manuplastics (UK) operation into the remaining M&H facilities all finalised at the start of the 2018/19 financial year. Proceeds from the sale of the Manuplastics manufacturing site were received just after the year end and are expected to largely offset remaining cash costs under the programme of £6.5m, which relate to restructuring provisions at sites recently closed.

In total, 22 locations have closed (including four head offices and two operations in progress for closure when acquired) and over 300 production lines have been relocated. However, cost inefficiencies remain in the current footprint and there are ongoing opportunities for cost improvements.

Acquisition related restructuring and cost synergies

At €187m, the total cost of the major European integration programme was lower than originally anticipated, with cash costs of €100m also lower than expected. These costs are included within adjusting items.

As at the end of the financial year, synergies from this programme have reached €95m, leaving the Group on track to achieve its stated target of €105m by the end of the 2018/19 financial year and which equates to c.6% of the acquired business revenues.

The cost of realising the Letica synergies was minimal and the Group continues to expect that the synergies resulting from the acquisition of Nordfolien will be achieved without incurring material adjusting items.

Acquisition criteria and pipeline

The opportunity to consolidate the European market remains both significant and highly attractive, and RPC has the scale, innovation capabilities, and ambition to continue to exploit this. RPC maintains disciplined acquisition criteria, which include:

· Strategic fit

· Strength of incumbent management

· Financial track record

· Financial criteria including quantifiable cost and cash synergies; impact on return of capital employed, return on sales, return on net operating assets; and earnings accretion

In line with these, the Group has continued to build and maintain links with potential targets and is supported by a strong balance sheet with significant headroom in its debt facilities.

Operational review

Packaging

The Packaging segment serves an attractive, diverse range of end-markets encompassing both growth and defensive characteristics including the e-commerce market, where the Group is particularly well placed with its unique network of design and engineering centres. Included in this business are both rigid and flexible plastic packaging and a range of polymer conversion processes including injection moulding, blow moulding, thermoforming and, following the acquisition of BPI in August 2016, blown film extrusion.

Revenue grew 34% to £3,159m (31% on a constant currency basis), and was driven by the full year contributions from BPI, Letica and other acquisitions net of disposed businesses, and organic revenue growth of 2%. Adjusted operating profit increased 42% to £349.0m and by 38% on a constant currency basis. A return on sales increase of 60bps to 11.0% included the benefits of further cost synergy realisation as well as mix improvements, partially offset by a full year contribution from the BPI business (which typically has a lower return on sales profile as well as lower capital intensity) and higher central costs following the enlarged scale of the Group.

In addition there was a further £143m of Technical Component revenue from businesses which are reported in the Packaging segment.

Non-packaging

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. Market drivers include ongoing demand for lightweighting, for example, in the automotive and large vehicles industries where components traditionally made out of metal are being replaced with plastic alternatives. In the market for temporary waste solutions, key drivers include the need to enhance integrated waste management to avoid litter and plastic leakage into the environment, and broader waste solutions including underground bins and containers for hazardous chemicals.

Revenue grew 54% to £589m (50% on a constant currency basis) aided by a full year contribution from ESE World and foreign exchange. Organic revenue growth of 7.3% was driven by strong growth in demand for higher added-value automotive components and Ace moulds.

Adjusted operating profit increased 23%, or 20% on a constant currency basis, with a decline in return on sales reflecting the change in revenue mix following the ESE World acquisition, start-up costs associated with new automotive contract awards in the Ace and the injection moulded automotive business and an increase in central costs. RONOA declined by 450bps reflecting the reduction in return on sales and investment in new facilities to support automotive contract wins and continued growth.

ESE World performed well in the first full year of ownership with notable success in high end systems in Scandinavia and in the export of four wheel temporary waste solutions.

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.

The electricity and water usage per tonne improved during the year as the Group is investing in environmentally friendly efficiencies. Electricity usage improvement largely reflects the impact of new acquisitions, mainly a full year impact of BPI and Letica whose average consumption is well below the rest of the Group. Excluding the impact of the new acquisitions the Group has seen a small improvement. It is pleasing to note that the reportable accident frequency rate continues to improve to better than industry average levels. Further improvements are being targeted.

1 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.

Outlook

I am pleased with the progress made since launch of the Vision 2020 strategy five years ago with record profitability levels achieved this year on a significantly enlarged business whilst establishing a global footprint. I am excited by the many opportunities for the business to further develop both organically and through acquisitions. With our unique global network of design and engineering centres, the Group is well placed to benefit from the development opportunities driven by recent sustainability and e-commerce trends. We target through the cycle underlying organic growth ahead of GDP and to improve the adjusted operating profit of the core businesses, including the contribution from the recent Nordfolien acquisition, by at least £50m by the financial year ending March 2021. At the same time, within the overall capital allocation framework, the Group will continue to assess value-adding acquisition opportunities which meet our strict acquisition criteria. The new financial year has started in-line with management expectations.

Pim Vervaat

Chief Executive

FINANCIAL REVIEW

The Group performed well during the year ended 31 March 2018, with organic revenue growth of 2.8%, 4.0% in the second half of the year and benefiting from a full year contribution from acquisitions completed in the previous year. Group adjusted operating profit and return on sales also increased although free cash flow decreased by 4% to £229.2m reflecting an investment in capital expenditure and in working capital to position the Group for continued growth.

On a statutory basis, operating profit grew by 85% to £355.7m and net cash flows from operating activities increased by 40% to £386.7m.

The Consolidated income statement and Consolidated cash flow statement are shown on pages 23 and 26 respectively.

Foreign exchange

Currency had a positive impact on the Group's reported results. The favourable exchange rate variance for revenue and adjusted operating profit was principally due to the weakening of sterling against the euro. Sterling strengthened slightly against the US dollar during the year, particularly in the second half.

Impact of polymer prices

Polymer resin is the 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 RPC has arrangements with many of its customers to pass on polymer price changes which serves as a hedge against price volatility. As there is a time lag in passing on polymer price adjustments to the customer, typically around three months, this can have a negative or positive impact on revenue and adjusted operating profit depending on whether prices are increasing or reducing. During the first half of the year, polymer prices were relatively stable overall, with modest increases in euro and sterling at the end of the period. Larger increases were encountered in the USA at the end of the first half due to the disruptive effect of hurricanes on the supply chain. In the second half of the year, there was a steady increase in euro, sterling and US dollar indices, leading to a further headwind in the second half.

Overall, there was an adjusted operating profit headwind of £9m in the year. This compares to a £3m headwind at the end of 2017 which has resulted in a negative pass-through variance of £6m impacting adjusted operating profit.

Revenue

The increase in revenue is shown below impacted by a favourable change in polymer pricing, effects from foreign currency translation and a full year contribution from acquisitions made in the previous year, net of disposals. At £99.3m, organic growth was 2.8%.

Operating profit

The increase in adjusted operating profit is shown below:

Adjusted operating profit benefited from foreign currency translation, contribution from acquisitions net of disposals and business improvement, offset by polymer price headwinds and general cost inflation.

Return on sales increased 10bps to 11.3%, with the positive impact of further cost synergies realised in the year partially offset by start-up costs relating to new contract wins in the automotive sector and a full year contribution from bpi group, which has a structurally lower return on sales.

The following table shows a reconciliation of adjusted operating profit to operating profit:

Adjusting items

Adjusting items replace the previously disclosed exceptional costs and non-underlying items and comprise the following within operating costs:

Acquisition, integration and related restructuring costs:

Acquisition transaction costs of £3.9m (2016/17: £18.9m) are the direct external costs associated with making an acquisition. They are primarily financial, legal, tax, environmental, due diligence, plus representation and warranty insurance and other advisor fees. These are substantially lower than last year due to lower acquisition activity.

Major integration programme costs of £23.8m (2016/17: £56.1m) are the residual costs incurred to deliver synergies from the combined Promens, GCS and BPI integration programmes. This brings the total cost of this programme to €187m with €87m of working capital synergies, proceeds on asset sales and asset write-downs meaning that the cash costs were €100m. During the year an additional €27m of synergies relating to this programme were realised, taking the total to €95m and realising the total run-rate of synergies associated with this programme, €105m, with a full effect of the run-rate expected in 2018/19.

Other restructuring costs of £11.2m (2016/17: £6.4m) include costs related to the integration of other acquisitions including ESE World and Plastiape, costs in respect of the restructure of the Belgian footprint following the fire at Eke, Belgium and fees related to aborted acquisitions.

The movement on post-acquisition remuneration and contingent consideration amounted to a net credit of £11.5m (2016/17: net credit of £11.2m). These movements arise where an earn-out arrangement is part of an acquisition and the selling owner/management is retained within the business (post-acquisition remuneration) and/or there is a change in the expected level of payment (post-acquisition remuneration and contingent consideration). The net £11.5m credit consists of a remuneration charge of £9.2m and a favourable reassessment of earn-out liabilities of £20.7m. This write back reflects the current view of the final payments that will be made primarily in respect of the Ace and Letica acquisitions. Other earn-out obligations are less significant.

Amortisation of acquired intangible assets of £50.7m (2016/17: £31.0m) reflects a full year of acquisitions made in the previous financial year and arises as a consequence of acquisition accounting. Intangible assets take the form of intellectual property, brands, know-how and customer contacts. RPC amortises these amounts over 5-10 years.

Other adjusting items: 

These total £8.8m of income (2016/17: £4.3m charge) and are predominantly insurance proceeds relating to the replacement of capital equipment following the Eke fire in December 2016 received in the year of £11.0m, offset by a charge of £2.2m of other adjusting items.

Interest

Net financing costs before adjusting items of £36.3m compared to £22.8m in the previous year reflecting a full year impact from the incremental borrowings drawn in 2016/17 and a higher interest rate on the term loan put in place at the time of the Letica acquisition. The intention remains to refinance this $750m term loan which, as is customary with bridge financing, increases in cost over time.

Profit before tax

Adjusted profit before tax (being profit before tax and excluding adjusting items included in operating profit and net financing costs) was £389.4m (2016/17: £286.1m). The growth of 36% reflects the 38% increase in adjusted operating profit partly offset by an increase in net financing costs. Statutory profit before tax was £316.6m (2016/17: £154.7m).

Taxation

The Group's tax strategy is to comply with relevant laws and regulations in the countries in which it operates and is aligned with its corporate governance framework. The Group's tax strategy has been approved by the Board and is published on the RPC Group Plc website within the Corporate Responsibility section.

The effective tax rate on underlying activities for the Group varies based on a number of factors. Key drivers are the profit mix and tax rates of the territories in which the Group operates. Other factors that 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) and foreign exchange movements. The tax rate on adjusted profit before tax for the Group increased to 23.8% (2016/17: 22.8%), mainly due to changes in the geographic mix of profits and recent acquisitions in higher tax rate countries.

The Group's overall taxation charge was £62.8m (2016/17: £22.7m) resulting in a reported tax rate of 19.8% (2016/17: 14.7%). The reported tax rate is low mainly as a result of one-off deferred tax credits of £12.9m following the recent US Tax Reforms and tax relief on certain adjusting items. The 2016/17 reported tax rate was lower mainly as a result of an adjusting tax credit item of £19.2m relating to future taxable profit being available to access historic tax losses following restructuring in the year.

Earnings per share

Adjusted basic earnings per share increased by 9.8p to 72.0p primarily reflecting growth in adjusted operating profit although partially offset by the full year impact of incremental shares issued at the time of the Letica and bpi group acquisitions. During the year, the share repurchase added 0.5p to earnings per share.

The weighted average number of shares increased from 355.5m in 2017 to 411.5m for 2018.

Dividends

The Group has a progressive dividend policy of targeting a dividend cover of two and a half times adjusted earnings through the cycle and this is its 25th consecutive year of dividend growth.

A final dividend of 20.2p has been recommended, making a total for the year of 28.0p (2016/17: 24.0p), which is a 17% increase over the previous year.

Acquisitions

On 19 June 2017 the Group completed the acquisition of Astrapak for cash consideration of £65.7m, funded from existing financing facilities. The provisional goodwill on acquisition amounted to £26.6m.

During the year, the Group announced the acquisition of Nordfolien GmbH for an enterprise value of €75m. Following the receipt of clearance from both the Polish and German competition authorities, the acquisition completed after the year-end. Some transaction fees associated with this acquisition occurred during the financial year 2017/18.

Non-core assets

Following a strategic review a small number of businesses with revenue totalling £209m and adjusted operating profit of £10.8m have been identified as non-core and subsequent to the year end the Board has approved these for disposal. Due to the size and nature of this rationalisation it is likely that results for these non-core businesses will be classified as discontinued operations in 2018/19.

Cash flow and net debt

Net cash flows from operating activities (after tax and interest on a statutory basis) was robust with an inflow of £386.7m an increase of £110.2m or 40% compared to the previous year. The growth rate in excess of that for revenue and adjusted operating profit reflects reductions in payments in respect of adjusting items, offset by a working capital outflow and higher interest and tax payments.

Adjusted operating cash conversion (being the ratio of free cash flow before interest and tax to adjusted operating profit) was 77% (2016/17: 95%).

Free cash flow declined by £9.8m to £229.2m reflecting a working capital outflow of £22.1m primarily for inventory building ahead of the key European selling season between April and September in the agricultural business, investment in contingency stocks for growth and investment in net capital expenditure both for maintaining the business and growth and efficiency totalling £242.2m (2016/17: £175.7m). The investment in property, plant and equipment of £241.4m (2016/17: £175.2m) represented 1.5x depreciation (2016/17: 1.3x) and 6.4% sales.

Net debt, which includes the fair value of cross currency interest rate swaps that will be used to repay the USPP funding and foreign currency forwards used for managing the exchange rate risk on the term loan, increased by only £90.1m and at the year-end stood at £1,139.2m (2016/17: £1,049.1m). This increase was despite; £189.2m returned to shareholders, comprising £105.8m in dividends to equity shareholders (2016/17: £62.1m) and shares repurchased under a share buy-back programme of £83.4m, and £65.2m for the acquisition of businesses.

Gearing was 59% (2016/17: 58%) and covenanted pro forma leverage (net debt to EBITDA) was 2.0x, well within the external banking covenants of 3.5x.

The £14m (2016/17: £84m) movement in other relates to movements in provisions and liabilities, partially offset by exchange rate movements and other share-based transactions.

Balance sheet

The Group's Consolidated balance sheet is shown on page 25. The key movements are discussed below:

During the year, property, plant and equipment increased by £92.7m and included fixed asset additions of £243.2m.

Goodwill declined by £3.5m and reflects an increase following the acquisition of Astrapak, offset by exchange rate movements.

Also included within non-current assets are:

· Derivative financial instruments of £7.2m (2016/17: £39.0m) which 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, as well as a proportion of the instruments now being current

· Deferred tax of £108.9m (2016/17: £115.7m) as discussed below.

· Other intangible assets of £324.2m (2016/17: £376.7m). These decreased by a net £52.5m and comprise mainly customer relationships, technology and brands capitalised on acquisition and new product development expenditure, net of amortisation charges

Working capital (the sum of inventories, trade and other receivables and trade and other payables) was £239.7m, which was 6.4% of sales compared with £212.8m at the end of 2017 (restated for hindsight fair value adjustments), 6.1% of pro forma sales.

The long-term employee benefit liabilities reduced from £256.0m to £196.9m, mainly due to actuarial gains of £54.4m as a result of strong asset returns and updated assumptions on mortality.

Total provisions and other liabilities including contingent consideration decreased to £90.6m (2016/17: £160.6m). Included in this is a reduction in contingent consideration relating to Ace and Letica, utilisation of provisions including out of market contract provisions from acquired businesses and termination and restructuring provisions as the major European integration programme has been completed. Out of market contract provisions are generally utilised within 12 months of the acquisition date. 

Assets held for sale of £6.3m as at 31 March 2018 relate to the Group's Manuplastics and Blyes sites which have been closed. Proceeds from the Manuplastics sale were received after the year end.

The net current tax liability increased to £50.9m (2016/17: £39.3m) as a result of current year tax charges on profits and recent acquisitions which were offset by payments made to tax authorities in the year. 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.

The Group had a net deferred tax liability of £110.2m (2016/17: £114.7m restated). Deferred tax assets of £108.9m (2016/17: £115.7m restated) represent the future tax benefit from settling net pension liabilities and the recognition of tax losses which are expected to offset tax due on future income streams, the decrease mainly relating to a reduction in deferred tax assets on employee benefits as a result of the reduction in pension deficits and other temporary differences. The deferred tax liabilities of £219.1m (2016/17: £230.4m restated) relate in the main to fixed asset and intangible asset temporary differences, decreasing primarily due to the revaluation of US related deferred tax liabilities following the enactment of the US Tax Cuts and Jobs Act.

Equity shareholder funds increased by £94.7m in the year, with statutory net profit attributable to equity shareholders for the year of £253.4m, pension related net actuarial gains, share-based payments from employee share schemes and share issues being offset by dividends paid of £105.8m, share repurchase of £83.4m, unfavourable foreign currency translation movements and unfavourable net fair value movements on derivatives used for hedging. Further details are shown in the Consolidated statement of changes in equity which is included in the financial statements.

Capital allocation and funding

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.

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 Group continued to generate cash while larger acquisition opportunities did not exist and the then share price was considered to undervalue the Group's performance and future prospects. By the end of the year, 9.6m shares had been acquired under the programme for a total consideration of £83.4m, and as at 5 June 2018 this had increased to 11.2m shares for a total consideration of £95.2m.

As at 31 March 2018, the Group had total finance facilities of £2,178m with an amount of £1,004m 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), finance leases of £20m, mortgages of £9m and other uncommitted credit and overdraft arrangements.

During the year, in anticipation of re-financing elements of its capital structure and funding resources, the Group announced that it had obtained an investment grade rating of Baa3 (Stable outlook) from Moody's Investors Service and a rating of BB+ (Positive outlook) from S&P Global Ratings.

The Group does not have any restricted cash and does not actively promote the use of asset based finance or factoring arrangements as a means of raising additional finance.

Financial key performance indicators (KPIs)

The Group's main financial KPIs focus on return on investment, business profitability and cash generation.

* The comparative RONOA has been restated from 26.0% to 25.7% following inclusion of the effects from Q4 2016/17 acquisitions and the pro forma results of the 2017/18 acquisition

Key measures of the Group's financial performance are its RONOA and Return on sales (ROS). De-minimis hurdles agreed by the Board are for the Group to exceed 20% RONOA and 8% adjusted ROS. ROCE is targeted to remain well above the Group's weighted average cost of capital.

Technical guidance 2018/19

The Group is providing the following update to its technical guidance for 2018/19:

Simon Kesterton

Group Finance Director

Consolidated income statement

for the year ended 31 March 2018

Consolidated statement of comprehensive income

for the year ended 31 March 2018

Consolidated balance sheet 

at 31 March 2018

*Restated for hindsight review of prior year acquisitions as required by IFRS 3, see note 16 for further details.

Consolidated cash flow statement

for the year ended 31 March 2018

Consolidated statement of changes in equity

for the year ended 31 March 2018

NOTES TO THE PRELIMINARY ANNOUNCEMENT

1. General information

The financial information for the year ended 31 March 2018 contained in this announcement was approved by the Board on 6 June 2018.

This announcement does not constitute statutory accounts of the Company within the meaning of Section 435 of the Companies Act 2006, but is derived from those accounts, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU (Adopted IFRS).

Statutory accounts for the year ended 31 March 2017 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 March 2018 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The auditors have reported on those accounts. Their reports were not qualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

2. Accounting policies

This information has been prepared under the historical cost method except where other measurement bases are required to be applied under IFRS, using all standards and interpretations required for financial periods beginning 1 April 2017. No standards or interpretations have been adopted before the required implementation date.

In the preparation of the financial statements, comparative amounts have been restated to reflect the finalisation of the provisional acquisition accounting for BPI, Letica, ESE World, Plastiape, Jagtenberg, Synergy, Sanders, Amber Plastics and Shenzen Howyecen Automotive Electronic Company and hindsight adjustments have been made as a result. These adjustments have been reflected in the comparative balance sheet, further details of which can be seen in note 16.

3. Operating Segments

The information reported to the Group's Board of Directors, considered to be the Group's chief operating decision maker for the purpose of resource allocation and assessment of segment performance are reported under two segments. The Group's operating segments have been derived from the structure which formed the basis of monthly management reporting. There has been aggregation of the Group's divisions or strategic business units, where there are further operational differences, into the Packaging segment due to certain common characteristics. This aggregation has been determined based on market of operation (mostly European), manufacturing or production techniques, the nature of products, profit margins earned and inputs into the production cycle. Typically as packaging customers are global B2B and served by multiple operating segments they are considered to be similar for the purposes of segment reporting. The remaining divisions, or where appropriate strategic business units, have been aggregated into the Non-packaging segment.

Segment revenues and results

The accounting policies of the reportable segments are the same as the Group's accounting policies. Segment profit represents the profit earned by each segment with an allocation of central items. Pricing of inter-segment revenue is on an arm's length basis.

The following is an analysis of the Group's revenue and results by reportable segment:

All assets and liabilities within segment net operating assets (NOA) exclude the impact of any revaluation adjustments which are reported centrally as unallocated NOA.

Geographical information

The Group's revenue and non-current assets (other than financial instruments and deferred tax assets) are divided into the following geographical areas:

2018

2017 (restated)

Revenues from external customers have been identified on the basis of origin and non-current assets on their physical location.

4. Adjusting items

Acquisition costs include transactional expenses relating to the acquisition of Astrapak, which completed in June 2017, and Nordfolien, which completed after the year end.

The major integration programme of integrating the Promens, GCS and BPI businesses into the RPC organisation is now complete, with the £23.8m incurred in the year being the final costs.

Other restructuring costs include expenses related to the integration of other acquisitions including ESE World and Plastiape, costs in respect of the restructure of the Belgian footprint following the fire at Eke, Belgium and fees related to aborted acquisitions.

The Group continues to accrue post-acquisition remuneration due to former shareholders of Ace, Letica, Innocan, Synergy, Amber Plastics and Strata Products who must remain as employees of the Group for the duration of the earn-out period to qualify for payment. This year a further write back to contingent amounts of £20.7m has been made to reflect the current view of the final payment that will be made in respect of the Ace and Letica acquisitions.

Insurance proceeds have been recognised and received for the Eke fire.

Adjusting finance costs are described in note 5. Adjusting taxation includes the impact of the US Tax Reforms of £12.9m and the tax effect of other adjusting items.

5. Net financing costs

Adjusting financing costs of £3.5m comprise defined benefit pension interest charges of £5.7m offset by income of £2.1m relating to the unwind of discount on deferred and contingent consideration including related exchange impacts and £0.1m gain on unhedged financial instruments.

6. Taxation