TIDMSCPA
RNS Number : 6222Z
Scapa Group PLC
21 May 2019
21 May 2019
LEI No. 213800QIPVTK5ES5UU36
Scapa Group plc
Preliminary Results
Scapa Group plc (AIM: SCPA) today announces its Preliminary
Results for the year ended 31 March 2019.
Group Financial Highlights:
-- Delivered record revenue and trading profit(1)
-- Revenue grew 7.0% to GBP311.8m (2018: GBP291.5m); 6.9% on a constant currency basis(2)
-- Trading profit(1) increased 10.7% to GBP38.2m (2018:
GBP34.5m); 10.1% on a constant currency basis(2)
-- Adjusted earnings per share(3) increased 3.8% to 18.9p (2018: 18.2p)
-- Basic earnings per share of 5.3p (2018: 15.4p); reflecting
business reorganisation and site closures
-- Adjusted net debt(4) of GBP43.7m (2018: GBP3.8m) is after the acquisition of the Systagenix manufacturing facility for a cash consideration of GBP34.0m and includes the one-off stock build of GBP2.9m for the Dunstable and Knoxville site moves
-- Pension deficit significantly reduced to GBP8.4m (2018: GBP21.0m)
-- Final dividend increased 20.8% to 2.9p (2018: 2.4p)
Group Operational Highlights:
-- Investment in Board and executive leadership teams with key
appointments, including Oskar Zahn as Chief Financial Officer, Joe
Doherty as an Executive Director and Healthcare President, Sevan
Demirdogen as an Executive Director and President &
Vice-President, and Juliet Thompson as a Non-Executive Director
-- Heejae Chae intends to step down as Group Chief Executive
(announced today - see separate press release)
Divisional Highlights
Healthcare:
-- Revenue increased 25.3% to GBP141.3m (2018: GBP112.8m); 24.4%
on a constant currency basis(2) .
-- On a continuing basis(5) revenue increased 22.1% to GBP137.7m
(2018: GBP112.8m); 21.2% on a constant currency basis(2) . This
includes the benefit of the BioMed and Systagenix acquisitions
-- Trading profit(1) of GBP20.9m (2018: GBP17.4m) is 20.1%
higher and on a continuing basis(5) is GBP17.3m (2018:
GBP17.4m)
-- Organic trading profit margins increased to 16.0% (2018: 15.2%)
-- Established two Healthcare Centres of Excellence:
- Integration of the R&D and manufacturing assets of
Systagenix progressing well ahead of expectations in Gargrave,
UK
- Completed investment programme in purpose-built site in
Knoxville, US
-- Invested in expanding BioMed capabilities to enhance Scapa's
value proposition beyond adhesives to meet customer/market
demand
Industrial:
-- Revenue of GBP170.5m (2018: GBP178.7m) was 4.6% lower due to
adverse macro conditions; 4.3% lower on a constant currency
basis(2)
-- Trading profit(1) of GBP22.3m (2018: GBP22.5m) and organic
trading profit margins increased to 13.1% (2018: 12.6%).
-- Industrial business on track to 15.0% trading profit margin target
-- Continued to focus on Return on Capital Employed (ROCE);
cost-to-serve optimisation delivered
-- Asia grew 8.4% predominantly in India; opened a new
manufacturing site in Chennai, India, to support the fast-growing
Consumer and Automotive markets
Commenting on the results Chief Executive, Heejae Chae said:
"FY 2019 was a transformational year when Scapa took definitive
steps to cement a leading position in Healthcare. We have delivered
a record profit and crossed the GBP300m revenue milestone for the
first time. The acquisition, by way of a technology transfer of the
R&D and manufacturing assets of Systagenix, advances our
offering across the continuum of the Healthcare value chain and
validates our strategy. Our Industrial business is now a truly
global business that is highly profitable and cash-generative. As
we enter the next phase of growth, we have refreshed and
strengthened our Leadership Team, which positions us well to meet
the increasing demands of our customers. I am confident that we
have the right strategy and capabilities in place to continue to
deliver."
(1) Trading Profit is before exceptional items, acquisition
costs, amortisation of intangible assets and legacy pension costs
(see Note 5)
(2) Prior year results translated at current year's average
exchange rates
(3) Adjusted earnings per share is calculated by dividing the
trading profit less cash interest less tax on operating activities
by the weighted average number of ordinary shares in issue during
the year
(4) Adjusted net debt excludes temporary finance lease for
Knoxville site
(5) Excluding IFRS 15 provision release. A contract liability
provision was created as a result of the acquisition of Systagenix
in line with the requirements of IFRS 15 and this is excluded on a
'continuing' basis as it represents a non-cash item. This provision
will be released on a straight-line basis over a five-year period,
in line with the exclusive supply contract
For further information:
Scapa Group plc Heejae Chae - Group Chief Tel: 0161 301
Executive 7430
Oskar Zahn - Chief Financial
Officer
Numis Securities Limited Mark Lander, Richard Thomas Tel: 020 7260
(Nominated Adviser/Joint 1000
Broker)
------------------------------- --------------
Berenberg (Joint Broker) Chris Bowman, Toby Flaux Tel: 020 3207
7800
------------------------------- --------------
FTI Consulting (Media Relations) Brett Pollard, Victoria Foster Tel: 020 3727
Mitchell 1000
------------------------------- --------------
About Scapa Group plc
Scapa Group plc is a diversified Healthcare and Industrial
company focused on bringing best-in-class innovation, design and
manufacturing solutions to its customers.
Healthcare
Scapa Healthcare is the trusted strategic partner of choice for
the world's leading companies in Advanced Wound Care, Consumer
Wellness and Medical Device Fixation. We partner with the top
global MedTech companies to develop and manufacture innovative skin
friendly medical device fixation and topical solutions, from
inception through to market delivery, from our state-of-the-art
facilities.
For further information, please visit
www.scapahealthcare.com
Industrial
Scapa Industrial is a global supplier of bonding solutions and
manufacturer of adhesive-based products which offer meaningful
value in industrial applications due to their lightweight,
easy-to-apply properties. We are recognised for our unparalleled
range of products, including adhesive tapes, films and foams, and
we can engineer custom designs for even the most unique
applications.
For further information, please visit
www.scapaindustrial.com
Chairman's Statement
Dear shareholder
FY2019 has been a transformative year for the Group as we
reached milestones in both revenue and trading profit. We have
strengthened our position, expanded our business and built a strong
platform for growth. The acquisition in October 2018, by way of
technology transfer, of the R&D and manufacturing assets of
Systagenix and the exclusive five-year development and supply
agreement for Systagenix advanced wound care products completes our
Healthcare journey from a roll stock supplier to a fully integrated
healthcare company with extensive technologies and capabilities in
the markets we serve. The Industrial business is now one of the
best-in-class in the US$30bn pressure sensitive market with a
global footprint, broad technologies and a portfolio of
market-leading customers. We now have two balanced businesses with
tremendous potential.
Performance and dividend
Statutory Group revenue increased 7.0% to GBP311.8m (2018:
GBP291.5m) and revenue on a continuing basis(1) increased 5.7% to
GBP308.2m (2018: GBP291.5m). Trading profit increased 10.7% to
GBP38.2m (2018: GBP34.5m) and on a continuing basis was GBP34.6m
(2018: GBP34.5m). On a constant currency basis(2) , revenue on a
continuing basis grew 5.6% and trading profits declined 0.3%. On an
organic basis trading profit margins improved to 12.5% (2018:
11.8%). Adjusted earnings per share increased 3.8% to 18.9p (2018:
18.2p) and basic earnings per share was 5.3p (2018: 15.4p); the
reduction in statutory profit is largely as a result of several
business reorganisation and site closure projects. We have seen a
further strengthening of the balance sheet including continued
actions to manage the legacy pension scheme. The Group ended the
year with an adjusted net debt of GBP43.7m(3) (2018: GBP3.8m) after
the acquisition of Systagenix for a cash consideration of GBP34.0m
and the one-off stock build of GBP2.9m for the Dunstable and
Knoxville site moves.
The Board is proposing to increase the final and full year
dividend by 20.8% to 2.9p. Subject to shareholder approval at the
Annual General Meeting the dividend will be paid on 23 August 2019
to shareholders on the register on 26 July 2019. The ex-dividend
date is 25 July 2019.
Our culture
Throughout our journey, the consistency has been our
entrepreneurial culture. Despite the cultural and geographic
diversity of the Group, we believe the common thread that binds us
is the sense of ownership and taking the right decisions to create
value. Five years ago, we codified the culture of principled
entrepreneurship in The Scapa Way and our Ten Guiding
Principles.
Governance
The Board recognises that a strong governance framework,
internal controls, values and culture firmly embedded across the
organisation are vitally important and, as such, the Board remains
focused on ensuring its own effectiveness and that of the
governance processes throughout the Group. An external review of
the Board's effectiveness was conducted in 2019.
Board changes
During the year, we have made some changes to the structure and
makeup of the Board to reflect our strategy and ambition. Graham
Hardcastle, the Group Finance Director, and Martin Sawkins, a
Non-Executive Director and Chairman of the Remuneration Committee,
retired from the Board. On behalf of the Board I would like to
thank Graham and Martin for their contributions. Oskar Zahn joined
the Board in October 2018 and was appointed Chief Financial
Officer. Oskar brings a breadth of knowledge and experience in
various industry sectors and will be a great benefit to the Group
as it pursues its strategy for growth. Juliet Thompson joined the
Board in January 2019 as a Non-Executive Director. Juliet is
Chairman of the Remuneration Committee and a member of the Board's
Audit and Risk and Nomination Committees. Juliet has spent over 20
years actively involved in the life sciences sector working as an
investment banker and strategic adviser to healthcare companies in
Europe.
Also in January 2019, we expanded our Board with Joe Doherty and
Sevan Demirdogen joining as Executive Directors. Joe joined the
Board as an Executive Director and the Company as Healthcare
President. Joe's most recent role was President of Olympus Surgical
Technologies America responsible for its strategic marketing,
development and manufacturing. Prior to this, Joe spent 24 years
with Johnson & Johnson in a number of senior roles including
R&D.
Sevan joined the Board as an Executive Director and is the
President & Executive Vice-President. Sevan joined Scapa in
April 2018 from Illinois Tool Works (ITW) where he held various
senior roles since 1982. During the last ten years Sevan was the
Group President of ITW Stokvis.
Outlook
We reached a milestone of GBP300m in revenue and delivered a
record trading profit. In Industrial, we continue to focus on
margin improvement and cash generation to support future growth. In
Healthcare, the technology transfer of Systagenix's R&D and
manufacturing capabilities from a strategic customer was a
transformative transaction. It has enhanced the foundation of our
Healthcare strategy and provides the capabilities to deliver
long-term sustainable growth as we continue to expand our offering
across the complete value chain.
I remain confident of Scapa's ability to deliver increased
returns to our shareholders.
L C Pentz
Chairman
21 May 2019
1 Excluding IFRS 15 provision release. A contract liability
provision was created as a result of the acquisition of Systagenix
in line with the requirements of IFRS15 and this is excluded on a
'continuing' basis as it represents a non-cash item. This provision
will be released on a straight-line basis over a five-year period,
in line with the exclusive supply contract
2 Prior year results translated at current year's average exchange rates
3 Excluding temporary finance lease for Knoxville site
Chief Executive's Strategic Review
Dear shareholder
During the past ten years, we have consistently set ourselves
ambitious financial and strategic challenges and have delivered. In
FY2019, we have met our commitments once again. The Group crossed
the GBP300m revenue threshold and delivered record trading profits.
We completed the acquisition of Systagenix by the way of a
technology transfer; the transaction delivered not only the scale
in Healthcare but the final leg of our value chain that will enable
us to complete our transition from contract manufacturer to
turn-key solution provider. Moreover, it validates our strategy to
partner with our MedTech customers who are undergoing strategic
realignment in an industry that is undergoing a period of
significant change. It is now evident that there is a significant
trend of MedTech companies focusing on their core competence and
shifting to an asset-light strategy. Scapa, as a first mover and
long- standing partner of our customers, is well positioned to
benefit.
The Industrial business is fast approaching the profit margin
target we have set ourselves. The self-help journey that began at
negative profit has become a highly profitable and cash-generative
Industrial business. The optimisation of our business portfolio has
also delivered a defensible business with significantly reduced
volatility. During the past ten years, despite the cyclical
fluctuation of our Industrial markets, including the current
downturn, we have been able to defend our topline while improving
our margins through aggressive cost-out measures. As one of the
largest and few companies with a global footprint, Scapa Industrial
is ideally positioned to grow in a US$30bn pressure sensitive
material market. Our focus on key segments where we have
competitive positions and technologies should enable us to grow as
we shift our focus towards growth. We now have two balanced
businesses with clear strategic roadmaps with significant
potential.
Performance
Statutory Group revenue increased 7.0% to GBP311.8m (2018:
GBP291.5m) and revenue on a continuing basis increased 5.7% to
GBP308.2m (2018: GBP291.5m). Trading profit increased 10.7% to
GBP38.2m (2018: GBP34.5m) and on a continuing basis was GBP34.6m
(2018: GBP34.5m). On a constant currency basis, revenue on a
continuing basis grew 5.6% whilst trading profits declined 0.3%.
Trading profit margins on a continuing basis were 11.2% (2018:
11.8%); on an organic basis they improved to 12.5%. Basic earnings
per share was 5.3p (2018: 15.4p); the reduction in statutory profit
is largely as a result of several business reorganisation and site
closure projects.
Healthcare revenue of GBP141.3m (2018: GBP112.8m) on a statutory
basis is an increase of 25.3%. On a continuing basis revenue
increased 22.1% to GBP137.7m (2018: GBP112.8m). This included the
impact of the BioMed and Systagenix acquisitions. Organic revenues
on a constant currency basis are 4.3% less than prior year caused
by temporary delays in product launches, the knock-on effect of
operational issues experienced by some of our key customers, and
the impact of the shutdown of a third party steriliser in the UK.
Systagenix has performed very well in the first six months
following the acquisition, delivering higher revenues and
accelerating the cost-out programme. Healthcare trading profit of
GBP20.9m (2018: GBP17.4m) was 20.1% higher and on a continuing
basis was GBP17.3m (2018: GBP17.4m). Organic trading profit on a
constant currency basis is flat at GBP17.4m.
Industrial revenue of GBP170.5m (2018: GBP178.7m) was 4.6% less
due to the adverse macro conditions. Organic revenue on a constant
currency basis was 5.1% less than prior year. Industrial trading
profit of GBP22.3m (2018: GBP22.5m) was 0.9% lower. The trading
profit margin improved 4.0% to 13.1% (2018: 12.6%), with good
progress to the medium-term target of 15.0%. Excluding the impact
of Markel, the trading profit margins improved 5.6% to 13.3%.
Markets
The Healthcare markets in which we participate are Advanced
Wound Care, Consumer Wellness and Medical Device Fixation which
broadly fall under MedTech. The MedTech market is growing around 4%
after double-digit growth in the first few years of the 2000s.
There are many reasons for the slowdown including the pressure to
reduce healthcare costs, the rise of General Practice Officers, the
increase in competition, accelerated innovations and the shift to a
value-based reimbursement system. As such, the healthcare industry
as a whole is undergoing significant change. It means that many of
our customers need to readjust their strategic framework. Many are
reconsidering their integrated model and shifting toward an
asset-light strategy and looking to external partners to fill the
gap in development, supply chain and manufacturing. Given our track
record of operational excellence and reliability, Scapa is ideally
positioned to become their partner of choice. To date, our focus
has been on consumable and disposable adhesive-based products.
However, our acquisition of BioMed further expands our addressable
markets into topical products which is significant.
The Industrial US$30bn pressure sensitive material market is
global, diverse and fragmented. The technology prevails across a
wide range of markets and applications. Scapa's strategy has been
to focus on selected markets where we have competitive technologies
or positions. Our target markets are: Construction, Consumer,
Cable, Automotive and Specialty. In the Construction and Consumer
markets, which are primarily business to consumer (B2C), we
leverage our strong brand recognition as well as a broad product
portfolio to meet the evolving need of the markets. These segments
continue to require safer, temperature-resistant bonding solutions
that are both compatible with next-generation materials and comply
with increasingly stringent regulatory codes. To remain
competitive, our customers require increasingly accelerated new
product development, product availability and regional support. The
Cable, Automotive and Specialty markets are primarily business to
business (B2B) dealing with major global OEMs. The products are
designed into an application based on specific technical
requirements. The customers require significant technical and
global support. Despite our size relative to the overall market,
Scapa is one of largest and few companies with a global footprint
to support the OEMs.
Strategy
At the core of our Healthcare strategy is a portfolio of
customers who are global leaders in their categories. Our long
partnerships and knowledge of our customers give us a unique
understanding of their needs. We have leveraged our leadership in
adhesive technology to expand our value proposition both in
products and services, and expanded into liquids, powders and gels
through the acquisition of BioMed in March 2018. Driven by macro
and structural changes in the MedTech market, many of our customers
are evaluating their supply chain strategy including innovation. We
are seeing increasing evidence that many of our customers will rely
on their trusted partners to accelerate their strategic transition
to focus on their core competences and outsource. We believe that
Scapa is well placed to play across the full outsourced
spectrum:
-- driving innovation through our R&D teams;
-- leveraging our manufacturing know-how;
-- shortening development and launch timelines for new products; and
-- providing uncompromising focus on quality and regulatory expertise.
Our growth opportunities beyond the organic market growth are:
i) significant opportunities for further technology transfers with
our customers; ii) acquisition of additional technologies beyond
adhesives and topical products; and iii) NPDs leveraging our
technology transfer platforms in our new regional centres of
excellence as customers look to accelerate their innovation cycle
which will also improve our margin profile.
In Industrial our self-help strategy continues to deliver
improvement in margin and return on capital employed. As we
optimise our portfolio we see a number of opportunities in the
niche markets where we have a competitive advantage. We are one of
the few global players in a pressure sensitive material market with
the broadest portfolio of adhesive technologies. We are focused on
five key segments where we have unique value proposition. We
participate in the Automotive segment primarily through our wire
harness products where we see further opportunities from increased
demand for technologies to support electric vehicles. In
Construction, we have European and US franchises with strong brands
and established distribution networks of builder merchants and
distributors. In Europe, France in particular, we trade under the
Barnier(R) brand which is synonymous with PVC tapes. In North
America we trade under Polyflex(TM) which is a market leader in
polyethylene tapes. We are also a leader in the Cable market where
our water blocking products are sold to leading cable companies. In
addition, we have a portfolio of products under Specialty Products
including our Renfrew Pro(TM) Hockey Tape which is used by every
professional hockey team in North America, and in Consumer we have
been setting the standard for specialised consumer tapes for
decades by leveraging our technical expertise and experience.
Progress
We have transformed a European Industrial tape company into a
Group with two balanced businesses that are global and market
leaders. We have built an exciting healthcare platform that started
as a PowerPoint presentation. Our Industrial business is now a
truly global business that is highly profitable and cash
generative.
I believe that the next phase of Scapa's journey will be equally
exciting and rewarding. We have a clear strategic blueprint for
both Healthcare and Industrial. More importantly, the foundations
are in place. Our strategy has always been based on the people and
our entrepreneurial culture which has enabled us to adapt to the
many changes and challenges we face. The Scapa Way and our Ten
Guiding Principles ensure that we will continue to focus on value
creation underpinned by integrity and compliance. As we enter the
next phase, we have refreshed and strengthened our Leadership Team.
We have the right people in the right place with the right
experiences. I am confident that we will continue to meet the
challenge.
Operational review - Healthcare
Overview
Scapa Healthcare continues to lead as a trusted strategic
outsource partner of choice, providing turn-key solutions into
three target markets: Advanced Wound Care, Consumer Wellness and
Medical Device Fixation.
Through innovation, expertise and alignment of our core values,
we support leading healthcare companies through their growth
challenges by developing and manufacturing innovative skin friendly
fixation devices and topical skin care solutions. Our deep
understanding of the markets we serve and our strategic
relationship with our customers enabled us to deliver another year
of profitable growth.
We have continued to invest in the business and find innovative
solutions to strengthen our position as our customers' preferred
outsource partner.
Performance
Healthcare revenue of GBP141.3m (2018: GBP112.8m) on a statutory
basis is an increase of 25.3%. On a continuing basis revenue
increased 22.1% to GBP137.7m (2018: GBP112.8m). This includes the
impact of the BioMed and Systagenix acquisitions. Organic revenues
on a constant currency basis are 4.3% less than prior year caused
by delays in product launches, the knock-on effect of operational
issues experienced by some of our key customers, and the impact of
the shutdown of a third party steriliser in the UK. Systagenix has
performed very well in the first six months following the
acquisition, delivering higher revenues and accelerating the
cost-out programme. Healthcare trading profit of GBP20.9m (2018:
GBP17.4m) is 20.1% higher and on a continuing basis is GBP17.3m
(2018: GBP17.4m). Organic trading profit on a constant currency
basis is flat at GBP17.4m.
Markets
The demand for innovation from leading brands and the need to
streamline their development processes have increased substantially
over the last few years. Scapa Healthcare's innovation strategy
seeks to build a robust pipeline of research and development
programmes, as well as new customer development projects. Through
its strategic development and acquisition strategy, Scapa
Healthcare has positioned itself for growth as an innovative
partner to existing and emerging healthcare companies around the
world.
Scapa Healthcare made significant investments in expanding
BioMed Laboratories' capabilities to enhance our value proposition
beyond skin adhesives and to deliver on the increased demand for
topical skin care solutions with Advanced Wound Care, Ostomy and
Consumer companies. The complementary topical solutions platform
has resonated well with Scapa Healthcare's existing customers and
created opportunities to innovate and diversify their product
portfolio.
Ongoing work to develop market-driven technologies continues to
be part of Scapa Healthcare's innovation strategy. In 2018 Scapa
Healthcare introduced a new generation of hydrocolloid adhesives.
The technology offers unique performance characteristics for
ostomy, device fixation and advanced wound care applications.
Leveraging BioMed's unique custom formulation capabilities, Scapa
Healthcare launched two private label topical skin care products
with a unique blend of antioxidants and natural ingredients. The
proprietary products are suitable for professional and consumer
skin care applications.
Strategy
Scapa Healthcare will continue to focus on being a strategic
outsource partner of choice for current and future industry leaders
in Advanced Wound Care, Consumer Wellness and Medical Device
Fixation. As global medical device companies increasingly rely on
trusted partners across a wide range of services, we believe we are
well positioned to benefit from this increasing trend towards
outsourcing in the healthcare sector.
Our strategy is to become our customers' de facto product
development and manufacturing arm. We will remain a business to
business partner that supports customers in the design,
manufacturing and distribution of new medical devices and topical
skin care products into the healthcare markets we serve.
Our team of dedicated experts and full turn-key capabilities
allow us to provide finished products, which enable us to rapidly
take a product from concept to market faster than many of our
partners can do internally. Our ability to innovate and deliver
differentiated finished products to market faster gives our
partners a sustainable competitive advantage versus their
competitors. This establishes long-term partnerships, supported by
multi-year contracts that provide visible and secure streams of
income for the business.
Our technology transfer strategy further strengthens our
partnerships as we seek to acquire technologies or assets from
customers to enable them to more efficiently focus on their core
business. This strategy allows us to secure exclusive agreements
with customers with the intent of revitalising their product lines
through innovation and operational optimisation to simplify their
supply chain. As our business evolves, we continue to focus on
optimising capabilities across the business unit to deliver on
customer and shareholder expectations.
Building on our acquisition strategy, the technology transfer of
the Gargrave, UK, site was our third and largest signed so far.
This transfer elevated Scapa Healthcare's strategic partnership
with one of the largest global Advanced Wound Care companies. In
addition to the acquisition of the manufacturing operations,
sterilisation services, R&D and regulatory support functions
and a multi-year supply agreement, we are committed to supporting
their innovation strategy through mutual collaboration with their
research and development team.
To enhance our plan, we will continue to establish a strong
platform for growth with long-term contract renewals and increased
strategic engagement with our customers. We actively aim to expand
our technology and product portfolio, sales channels, manufacturing
capabilities and capacity and quality and regulatory services to
remain a value-add partner to our customers and increase our share
of the customers' total spend. In order to do so, we must focus on
the full supply chain and complete product processes from design
and raw material selection, through converting and packaging, to
sterilisation and logistics. We strive to be our customers'
strategic outsource partner of choice.
Delivering high-quality products is at the heart of everything
we do; it is the foundation of trust with our customers. We have
dedicated global healthcare quality teams at each site, and all
product development and production processes are subject to
rigorous quality control measures.
This year we have made significant investments in capacity and
the organisation to deliver on our growth strategy. The new
Knoxville, Tennessee, site has been completed on time and within
budget. The site is equipped with additional compounding and
packaging capabilities and analytical laboratory services to
support our US customers. Likewise, the site at Gargrave, UK,
houses comprehensive manufacturing capabilities and services that
are now available to our European customers.
We continue to execute on the implementation of our technology
transfers to ensure a continual stream of revenue for future years
while focusing on footprint optimisation and operational
efficiencies to maximise the expectations of our customers and
shareholders.
In order to deliver in the ever-changing healthcare industry, we
will continue to expand and strengthen our current capabilities and
monitor any gaps in the value chain. We will invest through
targeted acquisitions to support our growth strategy and deliver
more value.
Operational review - Industrial
Overview
The Industrial business unit continues on its journey of
improving shareholder return. Despite lower revenues due to strong
end market headwinds, particularly in Automotive and European Cable
markets, the Industrial business ended the year with trading profit
essentially in line with prior year. Trading profit margins
improved by 4.0% reaching 13.1% towards its goal of achieving 15.0%
trading profit margin. Improvement of trading profit margin was
achieved through favourable product mix, optimising the operational
footprint and leveraging existing overheads.
Performance
Industrial revenue of GBP170.5m (2018: GBP178.7m) was 4.6% less
due to adverse macro conditions. Organic revenue on a constant
currency basis was 5.1% less than prior year. Industrial trading
profit of GBP22.3m (2018: GBP22.5m) was 0.9% lower. The trading
profit margin improved 4.0% to 13.1% (2018: 12.6%), with good
progress towards the medium-term target of 15.0%. Excluding the
impact of Markel, the trading profit margins improved 5.6% to
13.3%.
Markets
The key markets we serve delivered mixed results this year.
While most saw overall macro growth, the sub-segments where we lead
were heavily impacted by infrastructure spend delays, fluctuating
weather and regional slowdowns from trade volatility and
uncertainty. Parallel to these conditions, all markets also
presented new requirements in product performance and heightened
regulatory standards.
We recognised these challenges and opportunities early in the
year and adjusted our sales and development initiatives to minimise
the overall impact while continuing to deliver profit expectations.
Further leveraging our efforts from 2018, product development and
existing product portfolios focused on efficiently delivering
against these evolving market requirements. Our overall range was
further rationalised, eliminating lower-value product groups, while
selectively adding new technologies across each of our flagship
products, brands and segments.
Our Engineered Products businesses, consisting of Automotive,
Cable and Specialty, delivered new business across all regions and
customers.
In Automotive we were OEM approved and began product shipments
to support 20 new passenger car models in North America, Europe and
China. We also saw increased demand for technologies to support
electric vehicle (EV) and artificial intelligence formats,
successfully qualifying multiple materials into several EV
platforms. Our 2018/19 efforts, combined with our pipeline and
market regionalisation trends, have driven our investment in new
PVC coating in India.
Cable, despite overall market challenges in delayed
infrastructure spend in our high-voltage/subsea sector, saw
successful material qualification at new locations in all strategic
accounts. Our North American business, dominated by our water
blocking technologies for fibre optic cable, continued to grow in
line with our customers as a result of market broadband expansions
and 5G implementation. In Europe we significantly progressed
integration of our market-leading European Construction Products
Regulation (CPR) product range across all key accounts and our
efforts on next-generation water blocking hybrid technology have
put us at the forefront of market-changing DC high-voltage cable
design. Looking forward, we are starting to see increased activity
from all major accounts and will continue to benefit from continued
market consolidation and our current levels of strategic
engagement.
The Specialty Products segment was a regional highlight as we
saw a resurgence in Europe with our niche materials for printing
and graphics, textile, athletic and industrial manufacture. This
business benefited from both strong manufacturing demand and the
focused launch of several higher-value solutions. The performance
and flexibility of this portfolio also enabled expansion into
adjacent sectors and regions with new business gained in North
America (printing and graphics), white goods, aerospace and
high-end electrical applications.
Our Commercial Products businesses - Construction and Consumer -
were impacted by regional conditions delaying new builds and
minimising remediation and restoration requirements for our
flagship products in the first half of the year. The second half
saw stronger demand in North America and also benefited from the
launch of two complementary products in our market-leading
Polyflex(TM) polyethylene tape range.
Finally, our Asian business continues to leverage favourable
macro trends as our line of masking and PVC products continues to
expand with our customers. As with all of our businesses, we will
continue to leverage these strategic relationships to further grow
our business.
Strategy
Building on our ongoing commercial strategy to concentrate on
core markets with differentiated application solutions has enabled
the Industrial business to gain market share with our key
customers. Our commercial team is poised to gain additional market
share at our key customers through a focused strategy to introduce
additional products and technologies that are not currently in
their portfolio. In addition, we have started an initiative to
pursue cross-selling opportunities in adjacent markets and with
prospects that are similar to our current core customers. Both of
these strategies, coupled with our new product development
projects, will enable our commercial teams to introduce new
application solutions for ever-changing customer requirements.
Our operational excellence team continues to optimise and
improve manufacturing processes and quality standards. Significant
investments were made to improve our operational capabilities
throughout our European and North American sites. The recently
established converting and distribution facility in Chennai, India,
will be expanded to include a state-of-the-art PVC coating line,
along with the establishment of a new distribution centre located
in New Delhi.
We will continue to focus on enhancing our commercial and
operational capabilities to further improve market share gains as
well as trading profit and margin results.
Chief Financial Officer's review
It was another impressive year for the business with record
trading results. The Healthcare business completed a transformative
technology transfer in the UK providing a centre of excellence for
Europe, alongside the ongoing move into a new purpose-built
facility in Knoxville as our North American centre of excellence
for Healthcare. The Industrial business continued its journey
towards the medium-term margin target of 15.0%, despite some
challenges with the integration of the Markel acquisition from
August 2017, and continued to focus on cash generation and margin
improvement to fund further growth for the Group.
The dividend has once again been increased by 20.8% to 2.9p,
supported by our confidence in the sustainability of this growth
and our expectations of continued cash generation.
Revenue and profits
The financial results have been prepared under IFRS and the
Group's accounting policies.
Statutory Group revenue increased 7.0% to GBP311.8m (2018:
GBP291.5m) and revenue on a constant currency basis grew to
6.9%.
Healthcare revenue of GBP141.3m (2018: GBP112.8m) on a statutory
basis is an increase of 25.3%. On a continuing basis revenue
increased 22.1% to GBP137.7m (2018: GBP112.8m). This includes the
impact of the BioMed and Systagenix acquisitions. Organic revenues
on a constant currency basis are 4.3% less than prior year caused
by delays in product launches, the knock-on effect of operational
issues experienced by some of our key customers, and the impact of
the shutdown of a third party steriliser in the UK. Systagenix has
performed very well in the first six months following the
acquisition, delivering higher revenues and accelerating the
cost-out programme.
Industrial revenue of GBP170.5m (2018: GBP178.7m) was 4.6% less
due to the adverse macro conditions. Organic revenue on a constant
currency basis was 5.1% less than prior year.
Group operating profit fell to GBP16.8m (2018: GBP30.7m) largely
as a result of several business reorganisation and site closure
projects following the acquisition of Systagenix in October
2018.
In order to monitor the performance of the Group on a consistent
basis, the Group uses certain alternative performance measures
which enable it to assess the underlying performance of its
business, and assist shareholders in better understanding this
performance. The Group's key financial performance metric is
'Trading profit', which is operating profit before exceptional
items, acquisition costs, amortisation of intangible assets and
legacy pension costs. The reconciliation between trading profit and
operating profit is shown below:
Reconciliation between trading profit and operating profit
GBPm
-------------------- ------
Trading Profit 38.2
-------------------- ------
Amortisation (6.0)
Exceptional items (12.8)
Pension admin costs (0.6)
Acquisition costs (2.0)
-------------------- ------
Operating Profit 16.8
-------------------- ------
Trading profit increased 10.7% to GBP38.2m (2018: GBP34.5m) and
on a continuing basis was GBP34.6m (2018: GBP34.5m). Trading profit
margins on a statutory basis are 12.3% (2018: 11.8%) and fall to
11.2% on a continuing basis.
Healthcare trading profit of GBP20.9m (2018: GBP17.4m) was 20.1%
higher and on a continuing basis was GBP17.3m (2018: GBP17.4m).
Organic trading profit on a constant currency basis is flat at
GBP17.4m, although we saw a return to organic growth in the second
half of the year; the trading profit margin for Healthcare was
14.8%, weakened somewhat by the acquisition mix from 15.4% in the
prior year, with an organic trading profit margin improvement to
16.0% (2018: 15.4%).
Industrial trading profit of GBP22.3m (2018: GBP22.5m) was 0.9%
lower. The trading profit margin improved 4.0% to 13.1% (2018:
12.6%), with good progress to the medium-term target of 15.0%.
Excluding the impact of Markel, the trading profit margins improved
5.6% to 13.3%.
Profit before tax
The Group profit before tax was GBP14.9m (2018: GBP28.8m), with
the reduction as a result of the exceptional and adjusted items
shown above. The adjusted profit before tax was GBP36.8m(1) (2018:
GBP27.6m).
Currency
Currency translation had an overall beneficial impact on both
sales and profit during the 2018 reporting period, increasing sales
by 0.1% and trading profit by 0.6%.
Exceptional and non-trading adjusted items
Exceptional costs of GBP12.8m (2018: GBP0.1m gain) were booked
in the period.
A charge of GBP1.0m related to the potential increase in the UK
defined benefit pension scheme liabilities following the recent
court judgement regarding the equalisation of pension scheme
benefits in relation to Guaranteed Minimum Pensions (GMPs). This
judgement affects all UK relevant schemes and confirms that member
benefits do need to be equalised for the effects of unequal GMPs
and provides some clarity on the methodology that should be used,
impacting benefits earned between 17 May 1990 and 5 April 1997.
Included in the exceptional items were site closures and asset
write-offs and accelerated depreciation costs of GBP14.0m relating
to the closure of the UK Dunstable manufacturing site and three
site closures in the US with a move into the newly-built Knoxville
site. We expect these closures to be completed in the next
financial year.
On an annual basis the Group assesses the recoverability of all
goodwill, intangible and asset balances. At 31 March 2019 the
discounted cash flows for the Ramsbury site did not support the
goodwill associated with the acquisition in February 2015, largely
as a result of the delays in a major customer product launch. An
impairment of GBP4.6m was recognised as a result.
Deferred consideration of GBP6.8m was released following the
acquisition of BioMed in March 2018, with the aspirational targets
of the previous owners unlikely to be attained within the two-year
timeframe following acquisition.
The Group has also adjusted the trading profit for the following
non-trading items as shown above in the reconciliation between
statutory operating profit and trading profit:
-- amortisation of intangible items of GBP6.0m;
-- pension administration costs for the legacy UK scheme of GBP0.6m; and
-- following the acquisition of Systagenix, acquisition costs of
GBP2.0m were incurred in the period.
Systagenix acquisition impact
On 1 October 2018 Scapa Group plc acquired 100% of the share
capital of Systagenix Wound Management Manufacturing Ltd from
Acelity for a cash consideration of GBP34.0m and entered an
exclusive five-year development and supply agreement for Systagenix
advanced wound care products to Acelity.
This transformative transaction has enhanced the foundations of
the Group's Healthcare strategy and provides the capabilities to
deliver long-term sustainable growth as we expand across the
complete value chain. As the acquisition also included a five-year
exclusive agreement, this was subject to the fair value
requirements of IFRS 15 Revenue from Contracts with Customers and
as a result a contract liability provision of GBP35.8m was created
upon acquisition which will be released across the five-year supply
agreement. This release is GBP3.6m in the period to 31 March 2019
against revenue and is excluded when we refer to the term
'continuing', i.e. the continuing basis in the Group's results
before the impact of this IFRS 15 uplift.
Cash flow
2019 2018
GBPm GBPm
---------------------------------------------------- ------ ------
Cash generated from operations 23.3 34.7
Cash outflow on exceptional items (2.9) (3.6)
Net capital expenditure (27.1) (6.4)
Net tax and interest (9.2) (4.1)
Proceeds from disposal of fixed assets 1.0 -
Proceeds from disposal of available-for-sale assets - 13.3
---------------------------------------------------- ------ ------
Free cash flow (14.9) 33.9
Dividend paid (3.7) (3.0)
Exchange and other movements (1.0) 1.9
---------------------------------------------------- ------ ------
(Decrease)/Increase in net cash (19.6) 32.8
Opening net debt (3.8) (16.1)
Acquisitions (32.3) (20.5)
---------------------------------------------------- ------ ------
Closing net debt (55.7) (3.8)
---------------------------------------------------- ------ ------
The net debt includes GBP12.0m for a temporary finance lease for
the new Knoxville site.
Net debt to EBITDA
The Group has a revolving credit facility of GBP70m committed
with a further GBP30m uncommitted accordion until October 2022, and
there is a good level of headroom against the facility at the end
of March 2019. At the end of the year adjusted net debt was
GBP43.7m(2) (2018: GBP3.8m) and the ratio of net debt to EBITDA was
0.95 times, giving significant headroom against our facility
covenant of 3 times. The Group continues to operate well within its
banking covenants.
2019 2018
GBPm GBPm
---------------------------- ----- -----
Trading profit 38.2 34.5
Depreciation 7.7 6.3
---------------------------- ----- -----
EBITDA 45.9 40.8
---------------------------- ----- -----
Net debt to EBITDA 1.21x 0.09x
---------------------------- ----- -----
Adjusted net debt to EBITDA 0.95x 0.09x
---------------------------- ----- -----
Taxation
The adjusted effective tax rate was 20.9% (2018: 16.2%)
resulting in a tax charge of GBP6.7m (2018: GBP5.3m) and includes a
GBP7.7m (2018: GBP5.4m) charge on trading activities and GBP1.0m
credit (2018: GBP0.1m credit) on exceptional and non-trading
activities.
The Group's effective tax rate is a blend of the different
national rates from the operating subsidiaries in the various
countries in which we operate, applied to locally generated
profits. The 2018 rate of 16.2% benefited from the one-off effect
of the passing of the Tax Cuts and Jobs Act in the US in December
2017, with the 2019 rate of 20.9% moving back to a normalised rate.
Although the other national rates applied to local profits are
generally higher than the UK standard rate, the Group also benefits
from unrecognised tax losses in the UK along with sensible and
compliant tax planning.
The Group's cash tax payment in the year was GBP7.8m (2018:
GBP2.8m) with the increase partially attributable to the tax
payable to the Swiss authorities following the sale of the Swiss
site in 2017.
Earnings per share
Adjusted earnings per share improved by 3.8% to 18.9p (2018:
18.2p) and basic earnings per share fell to 5.3p (2018: 15.4p) as a
result of site closures and reorganisation costs in the period.
Pension
The balance sheet value of the Group's defined pension schemes
was a deficit of GBP8.4m (2018: GBP21.0m) at the end of March 2019.
This deficit relates to schemes that have been closed for many
years, and some small overseas leaving indemnities that are classed
as defined benefit. The majority of the post-retirement benefit
schemes for employees are defined contribution.
The UK pension scheme Actuary completed the latest triennial
valuation for the scheme during this year and as a result no
changes were required to the contributions arrangement beyond those
agreed through the 2012 Central Asset Reserve (CAR) structure which
were GBP4.0m (2018: GBP3.9m) in the year.
Scapa continues to work closely with the Trustee of the UK
scheme in a joint working party arrangement as we seek to move the
UK scheme to a full buy-out position in the medium-term.
Brexit
As a global company, with over 82% of the Group's activity
outside of the UK, Scapa has limited exposure to Brexit and the
Board continues to closely monitor the situation to assess the
implications of the changes as they emerge, in particular relating
to customs and duties and foreign exchange impact, including a
no-deal Brexit.
We did see a very small level GBP4.7m uplift in revenues in the
year ended 31 March 2019 as a result of some customer pull-forwards
as part of their Brexit planning strategies.
Risk management and the year ahead
Risk is managed closely and is spread across our businesses and
managed to individual materiality. We have a Code of Conduct, which
is adopted internationally and reflects our ethical approach to
business. The Board has considered risks in its review of going
concern within the following categories; Strategic, Financial,
Market, Operations and Regulatory, and has been able to conclude
the review satisfactorily.
(1) Trading profit less cash interest
(2) Excluding temporary finance lease for Knoxville site
Consolidated Income Statement
for the year ended 31 March 2019
Year ended Year ended
31 March 31 March
2019 2018
All on continuing operations note GBPm GBPm
----------------------------------------- ---- ---------- ----------
Revenue 2 311.8 291.5
Operating profit 2, 4 16.8 30.7
----------------------------------------- ---- ---------- ----------
Trading profit* 38.2 34.5
----------------------------------------- ---- ---------- ----------
Amortisation of intangible assets (6.0) (3.3)
Exceptional items 5 (12.8) 0.1
Acquisition costs (2.0) -
Pension administration costs (0.6) (0.6)
----------------------------------------- ---- ---------- ----------
Operating profit 16.8 30.7
----------------------------------------- ---- ---------- ----------
Net finance costs 7 (1.9) (1.9)
----------------------------------------- ---- ---------- ----------
Profit on ordinary activities before tax 14.9 28.8
----------------------------------------- ---- ---------- ----------
Taxation charge 8 (6.7) (5.3)
----------------------------------------- ---- ---------- ----------
Profit for the year 8.2 23.5
----------------------------------------- ---- ---------- ----------
Weighted average number of shares 9 154.1 153.1
Basic earnings per share (p) 9 5.3 15.4
Diluted earnings per share (p) 9 5.2 14.8
Adjusted earnings per share (p)** 9 18.9 18.2
----------------------------------------- ---- ---------- ----------
* Profit before tax, before net finance costs, amortisation of
intangible assets, exceptional items, acquisition costs and legacy
pension costs
** Adjusted earnings per share is calculated by dividing the
trading profit less cash interest less tax on operating activities
by the weighted average number of ordinary shares in issue during
the year
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2019
Year ended Year ended
31 March 31 March
2019 2018
All on continuing operations note GBPm GBPm
------------------------------------------------------- ----- ---------- ----------
Profit for the year 8.2 23.5
-------------------------------------------------------------- ---------- ----------
Items that may be reclassified subsequently to
profit and loss:
Exchange differences on translating foreign operations 5.5 (9.8)
Actuarial gain 9.4 6.6
Items that will not be reclassified subsequently
to profit and loss:
Deferred tax on actuarial gain (0.5) (0.7)
-------------------------------------------------------------- ---------- ----------
Other comprehensive income for the year 14.4 (3.9)
-------------------------------------------------------------- ---------- ----------
Total comprehensive income for the year 22.6 19.6
-------------------------------------------------------------- ---------- ----------
Consolidated Balance Sheet
as at 31 March 2019
31 March 31 March
2019 2018
note GBPm GBPm
--------------------------------------------- ---- -------- --------
Assets
Non-current assets
Goodwill 12 108.3 67.2
Intangible assets 13 10.8 11.0
Property, plant and equipment 14 81.0 45.6
Deferred tax asset 8 4.3 5.2
Other receivables 0.2 0.2
--------------------------------------------- ---- -------- --------
204.6 129.2
Current assets
Inventory 15 45.9 35.0
Trade and other receivables 16 69.2 58.8
Current tax asset 1.1 0.2
Cash and cash equivalents 17 10.8 18.1
--------------------------------------------- ---- -------- --------
127.0 112.1
Liabilities
Current liabilities
Financial liabilities:
- Borrowings and other financial liabilities 19 (12.2) (1.0)
Trade and other payables 18 (58.5) (57.2)
Deferred consideration - (2.9)
Current tax liabilities (1.2) (2.7)
Provisions 20 (18.6) (2.2)
--------------------------------------------- ---- -------- --------
(90.5) (66.0)
--------------------------------------------- ---- -------- --------
Net current assets 36.5 46.1
--------------------------------------------- ---- -------- --------
Non-current liabilities
Financial liabilities:
- Borrowings and other financial liabilities 19 (54.8) (21.5)
Trade and other payables 18 (0.6) (0.1)
Deferred consideration - (3.5)
Deferred tax liabilities 8 (6.0) (4.5)
Non-current tax liabilities (3.8) (2.9)
Retirement benefit obligations (8.4) (21.0)
Provisions 20 (28.1) (2.9)
--------------------------------------------- ---- -------- --------
(101.7) (56.4)
--------------------------------------------- ---- -------- --------
Net assets 139.4 118.9
--------------------------------------------- ---- -------- --------
Shareholders' equity
Ordinary shares 7.7 7.7
Share premium 1.0 0.4
Retained earnings 101.8 87.4
Translation reserve 28.9 23.4
--------------------------------------------- ---- -------- --------
Total shareholders' equity 139.4 118.9
--------------------------------------------- ---- -------- --------
Consolidated Statement of Changes in Equity
for the year ended 31 March 2019
Share Share Translation Retained Total
capital premium reserves earnings equity
GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------- ------- ----------- -------- ------
Balance at 31 March 2017 7.6 0.4 33.2 59.2 100.4
------------------------------------- ------- ------- ----------- -------- ------
Employee share option scheme - value
of employee services - - - 1.9 1.9
Equity-settled share-based payments - - - (0.1) (0.1)
Dividends to shareholders - - - (3.0) (3.0)
Issue of shares 0.1 - - - 0.1
------------------------------------- ------- ------- ----------- -------- ------
0.1 - - (1.2) (1.1)
Currency translation differences - - (9.8) - (9.8)
Actuarial gain on pension schemes - - - 6.6 6.6
Deferred tax on actuarial gain - - - (0.7) (0.7)
------------------------------------- ------- ------- ----------- -------- ------
Net income recognised directly in
equity - - (9.8) 5.9 (3.9)
Profit for the period - - - 23.5 23.5
------------------------------------- ------- ------- ----------- -------- ------
Total comprehensive income - - (9.8) 29.4 19.6
------------------------------------- ------- ------- ----------- -------- ------
Balance at 31 March 2018 7.7 0.4 23.4 87.4 118.9
Employee share option scheme - value
of employee services - - - 1.0 1.0
Dividends to shareholders - - - (3.7) (3.7)
Issue of shares - 0.6 - - 0.6
------------------------------------- ------- ------- ----------- -------- ------
- 0.6 - (2.7) (2.1)
Currency translation differences - - 5.5 - 5.5
Actuarial gain on pension schemes - - - 9.4 9.4
Deferred tax on actuarial gain - - - (0.5) (0.5)
------------------------------------- ------- ------- ----------- -------- ------
Net income recognised directly in
equity - - 5.5 8.9 14.4
Profit for the period - - - 8.2 8.2
------------------------------------- ------- ------- ----------- -------- ------
Total comprehensive income - - 5.5 17.1 22.6
------------------------------------- ------- ------- ----------- -------- ------
Balance at 31 March 2019 7.7 1.0 28.9 101.8 139.4
------------------------------------- ------- ------- ----------- -------- ------
Consolidated Cash Flow Statement
for the year ended 31 March 2019
Year ended Year ended
31 March 31 March
2019 2018
All on continuing operations note GBPm GBPm
------------------------------------------------------- ---- ---------- ----------
Cash flows from operating activities
Net cash flow from operations 21 20.4 31.1
------------------------------------------------------- ---- ---------- ----------
Cash generated from operations before exceptional
items 21 23.3 34.7
Cash outflows from exceptional items 21 (2.9) (3.6)
------------------------------------------------------- ---- ---------- ----------
Net cash flow from operations 20.4 31.1
------------------------------------------------------- ---- ---------- ----------
Net interest paid (1.4) (1.3)
Income tax paid (7.8) (2.8)
------------------------------------------------------- ---- ---------- ----------
Net cash generated from operating activities 11.2 27.0
------------------------------------------------------- ---- ---------- ----------
Cash flows used in investing activities
Acquisition of subsidiary, net of cash acquired 11 (32.3) (20.5)
Purchase of property, plant and equipment (27.1) (6.4)
Purchase of capitalised development costs (0.1) (0.2)
Proceeds from disposal of fixed assets 1.0 -
Proceeds from disposal of available-for-sale
assets* - 13.3
------------------------------------------------------- ---- ---------- ----------
Net cash used in investing activities (58.5) (13.8)
------------------------------------------------------- ---- ---------- ----------
Cash flows generated from/(used in) financing
activities
Issue of shares 0.6 -
Dividends (3.7) (3.0)
Increase in borrowings 123.2 34.8
Repayment of borrowings (80.7) (38.1)
------------------------------------------------------- ---- ---------- ----------
Net cash generated from/(used in) financing activities 39.4 (6.3)
------------------------------------------------------- ---- ---------- ----------
Net (decrease)/increase in cash and cash equivalents (7.9) 6.9
Cash and cash equivalents at beginning of the
year 18.1 12.1
Exchange gains/(losses) on cash and cash equivalents 0.6 (0.9)
------------------------------------------------------- ---- ---------- ----------
Total cash and cash equivalents at end of the
year 17 10.8 18.1
------------------------------------------------------- ---- ---------- ----------
* Gain on disposal treated as exceptional income
Notes on the accounts
1. Basis of preparation
These consolidated financial statements have been prepared in
accordance with the accounting policies set out in the annual
report for the year ended 31 March 2019. While the financial
information included in this preliminary announcement has been
prepared in accordance with the recognition and measurement
criteria of International Financial Reporting Standards (IFRSs), as
adopted for use in the EU, this announcement does not itself
contain sufficient information to comply with IFRSs. The Group
expects to publish full financial statements that comply with IFRSs
in June 2019.
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 March 2019 or
2018, but is derived from those accounts. Statutory accounts for
2018 have been delivered to the Registrar of Companies and those
for 2019 will be delivered following the Company's Annual General
Meeting. The auditor has reported on those accounts; their reports
were unqualified, did not draw attention to any matters by way of
emphasis without qualifying their report and did not contain
statements under s498(2) or (3) Companies Act 2006.
The financial statements have been prepared on the historical
cost basis of accounting except as disclosed in the accounting
policies set out in the annual report for the year ended 31 March
2019. The same accounting policies, presentations and methods of
computation are followed in the condensed set of financial
statements as applied in the Group's latest annual audited
financial statements. The annual financial statements of Scapa
Group plc are prepared in accordance with International Financial
Reporting Standards as adopted by the European Union.
2. Segmental reporting
Business unit segments
The Group operates two standalone business units: Healthcare and
Industrial, supported by a strategic Corporate function. All
inter-segment transactions are made on an arm's length basis.
The Board relies primarily on turnover and trading profit to
assess the performance of the Group and makes decisions about
resources to be allocated to each segment; assets and liabilities
are looked at geographically. Trading profit is reconciled to
operating profit on the face of the Income Statement.
The Board reviews the performance of the business using
information presented at constant exchange rates. The prior year
results have been restated at constant currency as shown on the
following pages.
Segment results
The segment results for the year ended 31 March 2019 are as
follows:
Healthcare Industrial Head office Group
GBPm GBPm GBPm GBPm
------------------------------------- ---------- ---------- ----------- ------
External revenue 141.3 170.5 - 311.8
-------------------------------------- ---------- ---------- ----------- ------
Trading profit/(loss) 20.9 22.3 (5.0) 38.2
Amortisation of intangible assets (5.3) (0.7) - (6.0)
Exceptional items (11.3) (0.5) (1.0) (12.8)
Acquisition costs (2.0) - - (2.0)
Pension administration costs - - (0.6) (0.6)
-------------------------------------- ---------- ---------- ----------- ------
Operating profit/(loss) 2.3 21.1 (6.6) 16.8
Net finance costs - - - (1.9)
-------------------------------------- ---------- ---------- ----------- ------
Profit on ordinary activities before
tax - - - 14.9
Tax charge - - - (6.7)
-------------------------------------- ---------- ---------- ----------- ------
Profit for the year - - - 8.2
-------------------------------------- ---------- ---------- ----------- ------
Revenue is allocated based on the country in which the order is
received. The revenue analysis based on the location of the
customer is as follows:
Europe N America Asia Other Group
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------ --------- ---- ----- -----
External revenue - 31 March 2019 128.8 145.7 22.4 14.9 311.8
--------------------------------- ------ --------- ---- ----- -----
External revenue - 31 March 2018 111.2 141.8 20.4 18.1 291.5
--------------------------------- ------ --------- ---- ----- -----
The revenue analysis based on the location of the selling
company as follows:
Europe N America Asia Other Group
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------ --------- ---- ----- -----
External revenue - 31 March 2019 124.3 167.3 18.2 2.0 311.8
--------------------------------- ------ --------- ---- ----- -----
External revenue - 31 March 2018 110.5 162.7 15.8 2.5 291.5
--------------------------------- ------ --------- ---- ----- -----
There are no single customers with greater than 10% share of the
total Group revenue.
The segment results for the year ended 31 March 2018 are as
follows:
Healthcare Industrial Head office Group
GBPm GBPm GBPm GBPm
------------------------------------- ---------- ---------- ----------- -----
External revenue 112.8 178.7 - 291.5
-------------------------------------- ---------- ---------- ----------- -----
Trading profit/(loss) 17.4 22.5 (5.4) 34.5
Amortisation of intangible assets (2.9) (0.4) - (3.3)
Exceptional items (1.5) 1.8 (0.2) 0.1
Pension administration costs - - (0.6) (0.6)
-------------------------------------- ---------- ---------- ----------- -----
Operating profit/(loss) 13.0 23.9 (6.2) 30.7
Net finance costs - - - (1.9)
-------------------------------------- ---------- ---------- ----------- -----
Profit on ordinary activities before
tax - - - 28.8
Tax charge - - - (5.3)
-------------------------------------- ---------- ---------- ----------- -----
Profit for the year - - - 23.5
-------------------------------------- ---------- ---------- ----------- -----
The Board reviews the performance of the business using
information presented at consistent exchange rates. The prior year
results have been restated using this year's exchange rates as
follows:
Healthcare Industrial Head office Group
GBPm GBPm GBPm GBPm
--------------------------------- ---------- ---------- ----------- -----
External revenue 112.8 178.7 - 291.5
Foreign exchange 0.8 (0.5) - 0.3
---------------------------------- ---------- ---------- ----------- -----
Underlying external revenue 113.6 178.2 - 291.8
---------------------------------- ---------- ---------- ----------- -----
Trading profit/(loss) 17.4 22.5 (5.4) 34.5
Foreign exchange 0.1 0.1 - 0.2
---------------------------------- ---------- ---------- ----------- -----
Underlying trading profit/(loss) 17.5 22.6 (5.4) 34.7
---------------------------------- ---------- ---------- ----------- -----
3. Segment assets and liabilities
The Board does not review assets and liabilities by business
unit but by geographical area as reporting entity balance sheets
cannot be split accurately by business unit. The assets and
liabilities at 31 March 2019 and capital expenditure for the year
then ended can be analysed into geographical segments as
follows:
Europe N America Asia Head office Group
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------ --------- ----- ----------- ------
Non-current assets* 87.9 111.1 0.7 0.6 200.3
Inventory 23.1 20.3 2.5 - 45.9
Trade receivables - net 29.4 30.1 2.0 - 61.5
Trade payables (25.4) (16.5) (1.2) (1.0) (44.1)
Cash 3.7 4.0 3.1 - 10.8
Additions of property, plant and
equipment 5.5 20.8 0.5 0.3 27.1
--------------------------------- ------ --------- ----- ----------- ------
* Non-current assets excluding deferred tax assets
The assets and liabilities at 31 March 2018 and capital
expenditure for the year then ended were as follows:
Europe N America Asia Head office Group
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------ --------- ----- ----------- ------
Non-current assets* 30.8 91.5 1.2 0.5 124.0
Inventory 14.9 17.9 2.2 - 35.0
Trade receivables - net 23.5 27.0 1.8 - 52.3
Trade payables (23.3) (14.6) (0.7) (1.2) (39.8)
Cash 6.6 8.6 2.9 - 18.1
Additions of property, plant and
equipment 3.1 3.0 0.2 0.1 6.4
--------------------------------- ------ --------- ----- ----------- ------
* Non-current assets excluding deferred tax assets
Unallocated head office items relate to assets and liabilities
incurred in the normal course of business for the Parent
Company.
4. Operating profit
The operating profit for the year is stated after
(charging)/crediting:
2019 2018
GBPm GBPm
------------------------------------------------------- ------- -------
Revenue 311.8 291.5
Materials and overheads (155.1) (143.7)
Factory costs (excluding employee costs) (26.9) (23.2)
Outward freight costs (7.5) (7.4)
Directors' and employees' costs (68.7) (67.3)
Depreciation of tangible fixed assets:
- owned assets (7.6) (6.2)
- leased assets (0.1) (0.1)
Operating lease rentals:
- land and buildings (3.2) (2.8)
- plant, machinery and other (0.9) (1.0)
Repairs and maintenance costs (3.8) (3.7)
Amortisation of government grants received - 0.1
Research and development costs (excluding employee
costs) (1.7) (0.9)
Foreign exchange (losses)/gains (0.2) (0.6)
Amortisation of other intangible assets (5.6) (3.1)
Amortisation of internally-generated assets (0.4) (0.2)
Movement in inventory provision (0.4) (0.8)
Impairment gain/(loss) recognised in trade receivables 0.3 (0.2)
Exceptional items (12.8) 0.1
Pension administration costs (0.6) (0.6)
------------------------------------------------------- ------- -------
The analysis of auditor's remuneration is as follows:
2019 2018
GBP'000 GBP'000
--------------------------------------- ------- -------
Audit fees - Parent Company 113 117
Audit fees - subsidiary undertakings 312 246
Taxation compliance services 6 17
Taxation advisory services 2 4
Other audit related assurance services 11 10
Corporate finance services - 217
Other non-audit services 31 5
--------------------------------------- ------- -------
475 616
--------------------------------------- ------- -------
Total audit fees were GBP425,000 (2018: GBP363,000). Total
non-audit fees payable to the auditor were GBP50,000 (2018:
GBP253,000). Other non-audit services relate to remuneration
advice.
5. Exceptional items
2019 2018
GBPm GBPm
---------------------------------------------- ------ -----
Operating income:
BioMed deferred consideration adjustment 6.8 -
Swiss land and building sale - 6.9
Operating expenses:
Site closure costs (11.7) (2.9)
Asset write-offs and accelerated depreciation (2.3) (1.8)
Goodwill impairment (4.6) -
Pension GMP equalisation (1.0) -
Reorganisation costs - (1.1)
Abortive acquisition costs - (0.2)
Acquisition costs - (0.8)
---------------------------------------------- ------ -----
(12.8) 0.1
---------------------------------------------- ------ -----
Exceptional operating income
An exceptional gain of GBP6.8m relating to BioMed Laboratories
LLC deferred consideration was released due to the current and
proposed future year performance not supporting the achievement of
the aspirational growth plans of the former owners given at the
time of acquisition.
The prior year exceptional operating income related to the
closure of the Rorschach site in Switzerland in 2016. The land and
buildings were sold on 20 July 2017 for an amount of GBP13.3m,
resulting in an exceptional gain for this disposal of GBP6.9m.
Exceptional operating expenses
Site closure costs of GBP11.7m and asset write-offs and
accelerated depreciation of GBP2.3m comprises four key areas within
Scapa Group as follows:
-- The Dunstable and Luton manufacturing facility in the UK
entered a formal closure consultation process following the initial
closure announcement in September 2018. The closure was confirmed
in October 2018 following the consultation period. As at 30
September we had recognised GBP2.2m in exceptional operating
expenses but this was before the acquisition of Systagenix and the
subsequent business transfer to Gargrave. The Operational
Excellence team have now carried out a full cost assessment for the
closures of the sites and transfer of the appropriate assets and
this now totals GBP8.9m.
-- The integration of the technical transfer business into
Gargrave and the restructuring of the Systagenix business totals
GBP1.5m.
-- The closure costs of the Inglewood and Liverpool sites in the
US total GBP3.4m. This is in order to facilitate the move into a
Healthcare centre of excellence in Knoxville.
-- Additional impairment costs of GBP0.2m in the year were
incurred following the prior year closure of the Korean
manufacturing site.
On an annual basis the Group assesses the recoverability of all
goodwill, intangible and asset balances. The discounted cash flows
calculated for the Ramsbury site currently do not support the
goodwill associated with the acquisition of the business in
February 2015, largely as a result of the delays in a major
customer product launch. Goodwill impairment of GBP4.6m has been
recognised at 31 March 2019.
Pension GMP equalisation costs have been incurred following the
Lloyds High Court Case on the recognition of GMP in UK pension
scheme liabilities, this has been calculated to increase the Scapa
Group plc pension scheme liability by GBP1.0m as at the end of
March 2019.
The prior year exceptional operating expenses related to: the
exit of production from Korea; GBP2.9m closure and associated
transfer cost; plus an additional GBP1.8m for the impairment of
assets; reorganisation of a UK based manufacturing facility of
GBP1.1m for employee-related severance costs; acquisition costs of
GBP0.8m relating to the acquisition of Markel Industries and BioMed
Laboratories LLC and GBP0.2m of abortive acquisition costs.
6. Employee benefit expense
2019 2018
GBPm GBPm
------------------------------------------------- ---- ----
Wages, salaries and other benefits 57.1 54.3
Social security costs 7.7 8.7
Share options granted to Directors and employees 1.0 1.9
Pension costs - defined contribution plans 2.7 2.2
Pension costs - defined benefit plans 0.2 0.2
------------------------------------------------- ---- ----
68.7 67.3
Pension GMP equalisation (note 5) 1.0 -
------------------------------------------------- ---- ----
69.7 67.3
------------------------------------------------- ---- ----
Average employee numbers 2019 2018
------------------------- ----- -----
Europe 771 607
North America 654 635
Asia 63 66
------------------------- ----- -----
1,488 1,308
------------------------- ----- -----
7. Net finance costs
2019 2018
GBPm GBPm
------------------------------------------------------- ----- -----
Interest payable on bank loans and overdrafts (1.4) (1.2)
Interest income on pension scheme assets less interest
on scheme liabilities (0.5) (0.7)
------------------------------------------------------- ----- -----
Net finance costs (1.9) (1.9)
------------------------------------------------------- ----- -----
8. Taxation
Income tax charge
2019 2018
GBPm GBPm
---------------------------------------------- ----- -----
Current tax:
Tax on trading activities - current year (5.8) (4.5)
Tax on trading activities - prior year 0.2 (0.1)
Tax on non-trading items (0.7) (1.0)
---------------------------------------------- ----- -----
Total current tax (6.3) (5.6)
---------------------------------------------- ----- -----
Deferred tax:
Tax on trading activities - current year (1.9) (0.7)
Tax on trading activities - prior year (0.2) (0.1)
Tax on non-trading items 1.7 1.1
---------------------------------------------- ----- -----
Total deferred tax (0.4) 0.3
---------------------------------------------- ----- -----
Tax charge on trading activities for the year (7.7) (5.4)
---------------------------------------------- ----- -----
Tax credit on non-trading items for the year 1.0 0.1
---------------------------------------------- ----- -----
Tax charge for the year (6.7) (5.3)
---------------------------------------------- ----- -----
The tax credit on non-trading items is restricted due to the
majority of the site closure costs arising in the UK.
The actual tax on the Group's profit before tax differs from the
theoretical amount using the UK corporation tax rate as
follows:
2019 2018
GBPm GBPm
-------------------------------------------------------- ----- -----
Profit on ordinary activities before tax 14.9 28.8
-------------------------------------------------------- ----- -----
Tax charge at 19.0% (2018: 19%) (2.8) (5.5)
Movements to unprovided deferred tax 0.3 0.3
Income not taxable and other deductions - 0.2
Items not deductible for tax purposes and other taxable
items (2.3) (0.3)
Change in tax rate (0.1) 2.2
Effect of overseas tax rates being higher than UK tax
rate (1.8) (2.0)
Adjustments in respect of prior years - (0.2)
-------------------------------------------------------- ----- -----
Actual tax charge for the year (6.7) (5.3)
-------------------------------------------------------- ----- -----
The Finance Act 2017 introduced a reduction in the main rate of
corporation tax to 17.0% from 1 April 2020. There is no expiry date
on timing difference, unused tax losses or tax credits.
The deferred tax balances included in these accounts are
attributable to the following:
2019 2018
GBPm GBPm
--------------------------------------------- ----- -----
Deferred tax assets:
- Losses 1.8 0.8
- Provisions and other temporary differences 1.1 2.4
- Retirement benefit liabilities 1.8 3.3
--------------------------------------------- ----- -----
4.7 6.5
--------------------------------------------- ----- -----
Deferred tax liabilities:
- Accelerated tax depreciation (1.0) (2.2)
- Other temporary differences (1.0) (0.3)
- Tax effect of goodwill and intangibles (4.4) (3.3)
--------------------------------------------- ----- -----
(6.4) (5.8)
--------------------------------------------- ----- -----
As required by IAS 12, deferred tax assets and liabilities may
only be offset where they arise in the same jurisdictions and are
therefore presented on the Balance Sheet as follows:
2019 2018
GBPm GBPm
------------------------------------------------ ----- -----
Deferred tax assets as above 4.7 6.5
- Deferred tax liabilities in same jurisdiction (0.4) (1.3)
------------------------------------------------ ----- -----
Deferred tax asset on the Balance Sheet 4.3 5.2
------------------------------------------------ ----- -----
Deferred tax liabilities as above (6.4) (5.8)
- Deferred tax assets in same jurisdiction 0.4 1.3
------------------------------------------------ ----- -----
Deferred tax liability on the Balance Sheet (6.0) (4.5)
------------------------------------------------ ----- -----
Deferred tax is only recognised to the extent that it will be
recoverable in future periods.
2019 2018
Movement in deferred tax GBPm GBPm
------------------------------- ----- -----
Beginning of the year 0.7 0.9
Exchange differences (0.2) 0.2
Income Statement charge (0.4) 0.3
Acquisitions (1.3) -
Deferred tax on actuarial gain (0.5) (0.7)
------------------------------- ----- -----
End of year (1.7) 0.7
------------------------------- ----- -----
At the Balance Sheet date, the Group has unused tax losses of
GBP28.5m (2018: GBP28.4m) available for offset against future
profits. A deferred tax asset has been recognised in respect of
GBP9.4m (2018: GBP3.5m) of such losses, based on management
forecasts of future taxable profits against which the assets can be
recovered in the relevant jurisdictions. No deferred tax asset has
been recognised in respect of the remaining GBP19.1m (2018:
GBP24.9m) of such losses where there remains uncertainty over the
timing of utilisation relating to future profitability. The
majority of losses may be carried forward indefinitely.
Tax assets amounting to GBP7.9m (2018: GBP10.0m) have not been
recognised due to the uncertainty over the utilisation of the
underlying tax losses in each jurisdiction.
2019 2018
Deferred tax items have not been recognised in respect
of the following items GBPm GBPm
------------------------------------------------------- ---- ----
Accelerated capital allowances 3.5 3.3
Temporary differences 0.5 0.8
Pensions - 1.0
Tax losses 3.9 4.9
------------------------------------------------------- ---- ----
Total 7.9 10.0
------------------------------------------------------- ---- ----
9. Earnings per share
Basic
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue during the year.
Diluted
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all potentially dilutive ordinary shares 158,386,377
(2018: 158,305,608). Diluted earnings per share has been calculated
including share options in existence at 31 March 2019.
Adjusted
Adjusted earnings per share is calculated by dividing the
trading profit less cash interest less tax on operating activities
by the weighted average number of ordinary shares in issue during
the year.
2019 2018
------------------------------------------------------ ----- -----
Profit attributable to equity holders of the Company
(GBPm) 8.2 23.5
Weighted average number of ordinary shares in issue
(m) 154.1 153.1
Basic earnings per share (p) 5.3 15.4
Weighted average number of shares in issue, including
potentially dilutive shares (m) 158.4 158.3
Diluted earnings per share (p) 5.2 14.8
Adjusted earnings per share (p) 18.9 18.2
------------------------------------------------------ ----- -----
10. Dividend per share
A final dividend of 2.9p per share is proposed for the year
ended 31 March 2019 (2018: 2.4p). The proposed final dividend is
subject to approval by the shareholders and has not been included
as a liability in these financial statements. The total estimated
dividend to be paid is GBP4.5m. No interim dividend was
proposed.
11. Acquisition of subsidiary
On 1 October 2018 the Group acquired 100% of the share capital
of Systagenix Wound Management Manufacturing Limited. Systagenix is
a global leader in advanced wound care, developing and marketing
therapeutic solutions and supplying over 20 million advanced wound
dressings per month to more than 75 countries. Its longstanding
commitment to skin and wound care began with innovative wound care
treatments developed by the experienced team of R&D scientists
at the Gargrave Centre of Excellence for Wound Healing in North
Yorkshire, England since 1934. In addition, Scapa has also entered
into a five-year exclusive Manufacturing Supply Agreement with
Acelity for Systagenix advanced wound care products which expands
Scapa's existing partnership with Acelity. This agreement has been
treated as part of the consideration for the acquisition, and a
contract liability provision has been recognised at fair value
based on the principles of IFRS 15.
The Directors believe that the acquisition of Systagenix will
give the following benefits to Scapa, including:
-- The Gargrave site will serve as Scapa's European centre of excellence for Healthcare
-- Significantly enhances Scapa's capabilities, services and footprint
-- Adds gamma sterilisation to Scapa's capabilities, providing a
unique value proposition and additional flexibility
-- Further deepens Scapa's strategic relationship with Acelity
-- Brings to the Group 22 R&D scientists with 196 years'
combined experience and over half with advanced degrees
-- The acquired operations have existing third party Contract
Manufacturing Operations and a sterilisation business operated out
of Gargrave
-- Scapa will leverage the acquired assets and capabilities to continue its organic growth
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are as set out in the table
below:
Fair Value
GBPm
------------------------------------------------ ----------
Net assets acquired
Separately identifiable intangible assets 5.0
Property, plant and machinery 18.4
Debtors and other assets 3.3
Inventory 6.7
Cash and cash equivalents 1.7
Deferred tax (1.3)
Trade and other payables (4.4)
------------------------------------------------ ----------
29.4
Goodwill 40.4
Total consideration 69.8
------------------------------------------------ ----------
Satisfied by cash 34.0
------------------------------------------------ ----------
Contract liability provision 35.8
------------------------------------------------ ----------
Net cash outflow arising on acquisition:
------------------------------------------------ ----------
Cash consideration 34.0
------------------------------------------------ ----------
Less: cash and cash equivalent balance acquired (1.7)
------------------------------------------------ ----------
32.3
------------------------------------------------ ----------
The goodwill and intangibles of GBP45.4m arising on
consolidation from the acquisition do not give rise to any
deductible amounts for tax purposes in the UK. Acquisition-related
costs amounted to GBP2.0m.
Systagenix contributed GBP22.7m of revenue and GBP2.0m to Group
profit between the date of acquisition and 31 March 2019. If the
acquisition of Systagenix had been completed on the first day of
the financial year, Group revenues for the period would have been
GBP330.7m and Group profit before tax would have been GBP18.7m.
On 23 March 2018 the Group acquired 100% of the share capital of
BioMed Laboratories LLC. As at 31 March 2018 the Group reported the
provisional net assets acquired.
During the year to 31 March 2019 the Group identified additional
liabilities of GBP1.1m within the hindsight period and have
reported below the final acquisition balance sheet.
Reported Final
March March
2018 2019
GBPm GBPm
------------------------------------------ -------- -----
Net assets acquired
Separately identifiable intangible assets 5.9 5.9
Property, plant and machinery 0.8 0.8
Debtors and other assets 0.6 0.6
Inventory 1.2 1.2
Cash and cash equivalents 0.1 0.1
Trade and other payables (0.8) (1.9)
------------------------------------------ -------- -----
7.8 6.7
Goodwill* 11.9 13.0
Total consideration 19.7 19.7
------------------------------------------ -------- -----
* Goodwill value held in US$. Final Goodwill value on
acquisition of GBP13.0m is prior to revaluation. As at 31 March
2019 the goodwill value is GBP13.9m
12. Goodwill
2019 2018
GBPm GBPm
---------------------------------------- ------ ------
Cost
1 April 2018 90.9 82.9
Additions 41.5 16.3
Exchange differences 5.8 (8.3)
---------------------------------------- ------ ------
31 March 2019 138.2 90.9
---------------------------------------- ------ ------
Accumulated amortisation and impairment
1 April 2018 (23.7) (26.5)
Exchange differences (1.6) 2.8
Impairment (4.6) -
---------------------------------------- ------ ------
31 March 2019 (29.9) (23.7)
---------------------------------------- ------ ------
Net book value at 31 March 2019 108.3 67.2
---------------------------------------- ------ ------
In the year the goodwill value of First Water Limited was
impaired by GBP4.6m. As at 31 March 2019 the discounted cash flows
calculated for the Ramsbury site did not support the goodwill
associated with the acquisition of the business in February 2015,
largely as a result of the delays in a major customer product
launch.
Goodwill relates to the Acutek Medical operation GBP14.7m (2018:
GBP13.8m), Webtec GBP16.0m (2018: GBP15.0m), First Water Limited
GBP2.1m (2018: GBP6.7m), EuroMed GBP16.7m (2018: GBP15.6m), Markel
Industries GBP4.5m (2018: GBP4.2m), BioMed Laboratories GBP13.9m
(2018: GBP11.9m) and Systagenix GBP40.4m.
The carrying value of the Group's goodwill is not subject to
annual amortisation and was tested for impairment at March 2019.
The recoverable amount has been determined on a value in use basis
on each cash-generating unit using the management approved
twelve-month forecasts for each cash-generating unit. The base
twelve-month projection is inflated by zero to 10.0% up to year 5,
which management believes does not exceed the long-term average
growth rate for the industry, and then is subject to a zero to 1%
growth and costs inflation through to year 20, with a terminal
value calculated on a perpetuity basis.
These cash flows are discounted at a pre-tax discount rate of
10.0% (2018: 10.0%) and adjusted for specific risk factors that
take into account the sensitivities of the projection. The market
participant WACC is assessed as being suitable for each
cash-generating unit as these are based within the UK and US, where
returns are similar. The Group has conducted a sensitivity analysis
on the impairment test of the impact of a no-deal Brexit. If the
assumed growth rate was reduced to 0% and an increase in the
pre-tax discount rate to 14.0%, the recoverable amount of all cash
generating units would reduce, with three sites being subject to
potential impairment. However, the Board are confident that the
current growth opportunities for these sites will support the
carrying values of these cash generating units and no further
impairment is required.
13. Other intangible assets
Customer
Patents lists
and and Technology
development Customer sales and
costs relationships pipeline know-how Total
GBPm GBPm GBPm GBPm GBPm
--------------------------------------- ----------- ------------- -------- ---------- ------
Cost
1 April 2017 4.7 8.9 2.9 1.3 17.8
Exchange differences (0.4) (0.4) - - (0.8)
Additions 0.2 - - - 0.2
Acquisition of subsidiary 0.2 7.8 - - 8.0
--------------------------------------- ----------- ------------- -------- ---------- ------
31 March 2018 and 1 April 2018 4.7 16.3 2.9 1.3 25.2
Exchange differences 0.2 0.7 - 0.1 1.0
Additions 0.1 - - - 0.1
Acquisition of subsidiary - 5.0 - - 5.0
--------------------------------------- ----------- ------------- -------- ---------- ------
31 March 2019 5.0 22.0 2.9 1.4 31.3
--------------------------------------- ----------- ------------- -------- ---------- ------
Amortisation
1 April 2017 (1.3) (6.2) (2.8) (0.9) (11.2)
Exchange differences 0.1 0.2 - - 0.3
Charge for the year (1.2) (1.9) - (0.2) (3.3)
--------------------------------------- ----------- ------------- -------- ---------- ------
31 March 2018 and 1 April 2018 (2.4) (7.9) (2.8) (1.1) (14.2)
--------------------------------------- ----------- ------------- -------- ---------- ------
Exchange differences (0.1) (0.2) - - (0.3)
Charge for the year (1.2) (4.6) (0.1) (0.1) (6.0)
--------------------------------------- ----------- ------------- -------- ---------- ------
31 March 2019 (3.7) (12.7) (2.9) (1.2) (20.5)
--------------------------------------- ----------- ------------- -------- ---------- ------
Carrying amount
--------------------------------------- ----------- ------------- -------- ---------- ------
31 March 2019 1.3 9.3 - 0.2 10.8
--------------------------------------- ----------- ------------- -------- ---------- ------
31 March 2018 2.3 8.4 0.1 0.2 11.0
--------------------------------------- ----------- ------------- -------- ---------- ------
Remaining useful economic life (years) 1-3 1-3 - 1-2 -
--------------------------------------- ----------- ------------- -------- ---------- ------
The brought forward intangible assets relate to the acquisition
of BioMed Laboratories in 2018, Markel Industries in 2017, EuroMed
Inc in 2016, First Water Limited in 2015 and Webtec in 2011. No
value has been assigned to brand names, as Scapa companies are
contract manufacturers and inherent brand value resides with
customers rather than the manufacturer.
14. Property, plant and equipment
Freehold Long Furniture, Assets
Plant fittings
land and leasehold and and IT under
buildings buildings machinery equipment systems construction Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- --------- --------- --------- ---------- ------- ------------ -------
Cost
1 April 2017 14.8 8.7 114.2 5.0 19.8 1.6 164.1
Exchange differences (0.7) (0.2) (5.0) (0.2) (0.6) (0.1) (6.8)
Additions 0.3 0.3 2.4 0.5 0.2 2.7 6.4
Acquisition of subsidiary - - 0.7 0.2 - - 0.9
Disposals - - (22.3) (1.6) (0.6) - (24.5)
Transfers 0.6 - 1.0 0.1 0.2 (1.9) -
-------------------------- --------- --------- --------- ---------- ------- ------------ -------
31 March 2018 and 1
April 2018 15.0 8.8 91.0 4.0 19.0 2.3 140.1
-------------------------- --------- --------- --------- ---------- ------- ------------ -------
Exchange differences 0.3 0.1 1.7 - 0.3 0.1 2.5
Additions 13.2 0.7 4.8 0.4 0.2 7.8 27.1
Acquisition of subsidiary 8.2 - 8.9 0.4 0.8 0.1 18.4
Disposals - (0.1) (2.1) - - (0.1) (2.3)
Transfers 0.3 - 1.2 0.1 - (1.6) -
-------------------------- --------- --------- --------- ---------- ------- ------------ -------
31 March 2019 37.0 9.5 105.5 4.9 20.3 8.6 185.8
-------------------------- --------- --------- --------- ---------- ------- ------------ -------
Accumulated depreciation
1 April 2017 (5.6) (4.7) (82.0) (3.8) (18.7) - (114.8)
Exchange differences 0.3 0.1 3.6 0.2 0.5 - 4.7
Depreciation (0.7) (0.3) (4.5) (0.3) (0.5) - (6.3)
Impairment - - (1.8) - - - (1.8)
Disposals - - 21.5 1.6 0.6 - 23.7
-------------------------- --------- --------- --------- ---------- ------- ------------ -------
31 March 2018 and 1
April 2018 (6.0) (4.9) (63.2) (2.3) (18.1) - (94.5)
-------------------------- --------- --------- --------- ---------- ------- ------------ -------
Exchange differences (0.2) (0.1) (1.1) - (0.2) - (1.6)
Depreciation (0.9) (0.4) (5.6) (0.3) (0.5) - (7.7)
Impairment - (0.1) (1.7) (0.4) (0.1) - (2.3)
Disposals - 0.1 1.2 - - - 1.3
-------------------------- --------- --------- --------- ---------- ------- ------------ -------
31 March 2019 (7.1) (5.4) (70.4) (3.0) (18.9) - (104.8)
-------------------------- --------- --------- --------- ---------- ------- ------------ -------
Carrying amount
-------------------------- --------- --------- --------- ---------- ------- ------------ -------
31 March 2019 29.9 4.1 35.1 1.9 1.4 8.6 81.0
-------------------------- --------- --------- --------- ---------- ------- ------------ -------
31 March 2018 9.0 3.9 27.8 1.7 0.9 2.3 45.6
-------------------------- --------- --------- --------- ---------- ------- ------------ -------
The Group has not revalued any item of property, plant and
equipment. Impairment of property, plant and equipment of GBP2.3m
relates to the closure sites in the UK GBP1.6m, US GBP0.5m and
Korea GBP0.2m (2018: GBP1.8m in Korea).
Assets held under finance leases, capitalised and included in
property, plant and equipment are as follows:
2019 2018
GBPm GBPm
------------------------- ----- -----
Cost 13.2 0.6
Accumulated depreciation (0.6) (0.5)
------------------------- ----- -----
Net book amount 12.6 0.1
------------------------- ----- -----
During the year ended 31 March 2019 there were no events or
changes in circumstance that would indicate the carrying value of
property, plant and equipment may not be recoverable.
15. Inventory
2019 2018
GBPm GBPm
----------------- ---- ----
Raw materials 18.3 14.0
Work in progress 13.7 8.3
Finished goods 13.9 12.7
----------------- ---- ----
45.9 35.0
----------------- ---- ----
The material and overhead element of inventory recognised as an
expense and included in the Income Statement amounted to GBP155.1m
(2018: GBP143.7m).
There is no material difference between the Balance Sheet value
and the fair value less costs to sell.
16. Trade and other receivables
2019 2018
GBPm GBPm
---------------------------------- ----- -----
Amounts due within one year:
Trade receivables 63.3 54.5
Less: provisions for impairment (1.8) (2.2)
---------------------------------- ----- -----
Trade receivables - net 61.5 52.3
Other debtors 2.6 2.0
Prepayments and accrued income 5.1 4.5
---------------------------------- ----- -----
Total amounts due within one year 69.2 58.8
---------------------------------- ----- -----
The carrying amounts of these receivables are denominated in the
following currencies:
2019 2018
GBPm GBPm
---------------- ---- ----
Pounds Sterling 15.6 6.2
US Dollars 31.9 28.3
Euros 17.2 19.8
Other 4.5 4.5
---------------- ---- ----
69.2 58.8
---------------- ---- ----
At the year end, the following trade receivables balances were
overdue but not impaired:
2019 2018
GBPm GBPm
----------------------- ---- ----
Less than 1 month 2.6 1.2
----------------------- ---- ----
Between 1 and 3 months 0.6 -
----------------------- ---- ----
Overdue analysis includes impact of foreign exchange movements.
Historically customer default is low. The credit quality of the
year-end receivables balance is considered high. The Group does not
use credit insurance to cover any instance of default as the risk
is considered to be low.
The movement in the impairment provision for trade receivables
is as follows:
2019 2018
GBPm GBPm
------------------------------------ ----- -----
Opening provision at 1 April 2018 2.2 2.8
Exchange differences - (0.1)
Provisions on acquisition - 0.1
(Release)/Charge for the year (0.3) 0.2
Receivables written off in the year (0.1) (0.8)
------------------------------------ ----- -----
Closing provision at 31 March 2019 1.8 2.2
------------------------------------ ----- -----
Included in the impairment provision are individually impaired
trade receivables with a gross balance of GBP1.8m (2018: GBP2.2m).
The impairment recognised represents the difference between the
carrying amount of these trade receivables and the present value of
the expected proceeds.
Ageing of impaired trade receivables:
2019 2018
GBPm GBPm
----------------------- ---- ----
Less than 1 month - 1.5
Between 1 and 3 months 1.3 0.6
Greater than 3 months 0.5 0.1
----------------------- ---- ----
17. Cash and cash equivalents
Cash and bank overdrafts include the following for the purposes
of the Cash Flow Statement:
2019 2018
GBPm GBPm
-------------------------- ---- ----
Cash and cash equivalents 10.8 18.1
-------------------------- ---- ----
18. Trade and other payables
2019 2018
GBPm GBPm
-------------------------------------- ---- ----
Trade payables and trade accruals 44.1 39.8
Other taxes and social security 4.4 4.9
Other creditors 10.0 12.5
-------------------------------------- ---- ----
58.5 57.2
-------------------------------------- ---- ----
Amounts due after more than one year:
-------------------------------------- ---- ----
Trade and other payables 0.6 0.1
-------------------------------------- ---- ----
The carrying amounts of these payables are denominated in the
following currencies:
2019 2018
GBPm GBPm
----------------------------- ---- ----
Amounts due within one year:
Pounds Sterling 16.6 15.5
US Dollars 20.4 19.0
Euros 18.4 19.7
Other 3.1 3.0
----------------------------- ---- ----
58.5 57.2
----------------------------- ---- ----
2019 2018
GBPm GBPm
-------------------------------------- ---- ----
Amounts due after more than one year:
US Dollars 0.6 -
Pounds Sterling - 0.1
-------------------------------------- ---- ----
0.6 0.1
-------------------------------------- ---- ----
Trade payables principally comprise amounts outstanding for
trade purchases and ongoing costs. The average credit period taken
for trade purchases is 88 days (2018: 87 days), stated using the
non-labour element of cost of goods sold. The Group has financial
risk management policies in place to ensure that all payables are
paid within the pre-agreed credit terms.
19. Borrowings
2019 2018
GBPm GBPm
-------------------------------------- ---- ----
Amounts due within one year:
Finance leases 12.1 0.1
Other loans 0.1 0.9
-------------------------------------- ---- ----
12.2 1.0
-------------------------------------- ---- ----
Amounts due after more than one year:
Bank loan 54.7 21.4
Finance leases 0.1 0.1
-------------------------------------- ---- ----
54.8 21.5
-------------------------------------- ---- ----
Total borrowings 67.0 22.5
-------------------------------------- ---- ----
In October 2017 the Group entered into a revolving credit
facility (RCF) with a banking syndicate. The principal features of
the facility are:
-- the initial committed value of the facility is GBP70m
-- there is access to an accordion of GBP30m
-- it is unsecured
-- it is repayable in October 2022
-- the interest payable on drawings under the loan is based on
inter-bank interest plus a sliding scale margin determined by the
Group's leverage; the margin is currently 1.1%
-- the facility has two covenants - the ratio of EBITDA to
interest paid must be above 4:1, and the ratio of EBITDA to net
debt must be less than 3.0
The carrying value of borrowings is approximate to their fair
value. The effective interest rates at the Balance Sheet date were
as follows:
%
------------------------------------------ ----
31 March 2019 - Bank loans and overdrafts 2.2%
31 March 2018 - Bank loans and overdrafts 3.1%
------------------------------------------ ----
The carrying amounts of the Group's borrowings are denominated
in the following currencies:
2019 2018
GBPm GBPm
---------------- ---- ----
Pounds Sterling 43.1 -
US Dollars 23.9 22.5
---------------- ---- ----
67.0 22.5
---------------- ---- ----
Movements in forward currency contracts used to hedge against
the exposure to exchange differences due to the timing of cash
flows are taken through the Income Statement as it is not Group
policy to hedge account for these instruments. At 31 March 2019
there were no assets or liabilities recognised in the Balance Sheet
relating to the fair values of forward foreign exchange contracts
in place (2018: GBPNil).
The Group has the following undrawn borrowing facilities:
2019 2018
GBPm GBPm
---------------------- ---- ----
Bank loan (committed) 15.3 48.6
---------------------- ---- ----
20. Provisions
Reorganisation
and leasehold Contract
commitments Liability Environmental Total
GBPm GBPm GBPm GBPm
------------------------ -------------- --------- ------------- -----
At 1 April 2018 4.9 - 0.2 5.1
Additions in the year 12.8 35.8 - 48.6
Release in the year (0.7) (3.6) - (4.3)
Utilised in the year (2.6) - (0.1) (2.7)
------------------------ -------------- --------- ------------- -----
At 31 March 2019 14.4 32.2 0.1 46.7
------------------------ -------------- --------- ------------- -----
Analysis of provisions:
Current 11.4 7.2 - 18.6
Non-current 3.0 25.0 0.1 28.1
------------------------ -------------- --------- ------------- -----
At 31 March 2019 14.4 32.2 0.1 46.7
------------------------ -------------- --------- ------------- -----
Reorganisation
and leasehold
commitments Environmental Total
GBPm GBPm GBPm
------------------------ -------------- ------------- -----
At 1 April 2017 3.3 0.4 3.7
Additions in the year 5.3 - 5.3
Utilised in the year (3.7) (0.2) (3.9)
------------------------ -------------- ------------- -----
At 31 March 2018 4.9 0.2 5.1
------------------------ -------------- ------------- -----
Analysis of provisions:
Current 2.1 0.1 2.2
Non-current 2.8 0.1 2.9
------------------------ -------------- ------------- -----
At 31 March 2018 4.9 0.2 5.1
------------------------ -------------- ------------- -----
- Reorganisation and leasehold commitments
The GBP14.4m (2018: GBP4.9m) reorganisation and leasehold
commitments provision relates to dilapidations for leasehold
property of GBP2.3m (2018: GBP2.8m), GBP0.1m (2018: GBP0.1m) in
relation to reorganisation costs, GBP10.2m relating to site
closures in Korea, UK and US and GBP1.8m relating to acquisition
provisions for BioMed Laboratories LLC and Systagenix Wound
Management Manufacturing Ltd. The expected utilisation of these
provisions ranges between one and three years.
- Contract liability provisions
The GBP32.2m (2018: GBPNil) contract liability provision relates
to the acquisition of Systagenix Wound Management Manufacturing Ltd
in October 2018. This provision will be released on a straight-line
basis over a five-year period, in line with the exclusive supply
contract.
- Environmental provisions
Environmental provisions relate to expected costs required to
clean up environmental contamination of a number of sites in Europe
of GBP0.1m (2018: GBP0.2m). The Group expects the majority of the
spend against the environmental provisions to be incurred over the
next three years.
21. Reconciliation of operating profit to operating cash flow,
and reconciliation of net cash
Year ended Year ended
31 March 31 March
2019 2018
All on continuing operations GBPm GBPm
-------------------------------------------------------- ---------- ----------
Operating profit 16.8 30.7
Adjustments for:
Depreciation and amortisation 13.7 9.6
Profit on disposal of land and buildings - (6.9)
Exceptional pension GMP equalisation 1.0 -
Impairment of tangible fixed assets 2.3 1.8
Impairment of goodwill 4.6 -
Pensions payments in excess of charge (4.7) (4.4)
Share options charge 1.0 1.9
Grant income released - (0.1)
Changes in working capital:
-------------------------------------------------------- ---------- ----------
Inventories (3.2) (4.5)
Trade debtors (4.7) (2.0)
Trade creditors 2.0 8.0
-------------------------------------------------------- ---------- ----------
Changes in trading working capital (5.9) 1.5
Other debtors (1.0) (2.0)
Other creditors (4.5) (2.3)
Deferred consideration (6.9) (0.1)
Net movement in environmental provisions (0.1) (0.2)
Net movement in reorganisation and leasehold commitment
provisions 0.5 0.4
Net movement in contract liability provision 3.6 1.2
-------------------------------------------------------- ---------- ----------
Cash generated from operations 20.4 31.1
-------------------------------------------------------- ---------- ----------
Cash generated from operations before exceptional items 23.3 34.7
Cash outflows from exceptional items (2.9) (3.6)
-------------------------------------------------------- ---------- ----------
Cash generated from operations 20.4 31.1
-------------------------------------------------------- ---------- ----------
Analysis of cash and cash equivalents and borrowings
At 31
At 1 April Cash Exchange Non-cash March
2018 flow movement movement 2019
GBPm GBPm GBPm GBPm GBPm
------------------------------------ ---------- ------ -------- -------- ------
Cash and cash equivalents 18.1 (7.9) 0.6 - 10.8
------------------------------------ ---------- ------ -------- -------- ------
Borrowings within one year (1.0) (11.0) (0.2) - (12.2)
Borrowings after more than one year (20.9) (31.5) (1.8) (0.1) (54.3)
------------------------------------ ---------- ------ -------- -------- ------
Total borrowings (21.9) (42.5) (2.0) (0.1) (66.5)
------------------------------------ ---------- ------ -------- -------- ------
Total (3.8) (50.4) (1.4) (0.1) (55.7)
------------------------------------ ---------- ------ -------- -------- ------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GMGZKRGLGLZM
(END) Dow Jones Newswires
May 21, 2019 02:01 ET (06:01 GMT)
Grafico Azioni Scapa (LSE:SCPA)
Storico
Da Mar 2024 a Apr 2024
Grafico Azioni Scapa (LSE:SCPA)
Storico
Da Apr 2023 a Apr 2024
