KINGSPAN GROUP PLC

HALF-YEARLY FINANCIAL REPORT

for the period ended 30 June 2021

KINGSPAN GROUP PLC

RESULTS FOR THE HALF YEAR 30 JUNE 2021

Kingspan, the global leader in high performance insulation and building envelope solutions, issues its half-yearly financial report for the six-month period ended 30 June 2021.

Financial Highlights:

Operational Highlights:

Summary Financials:

*Operating profit before amortisation of intangibles

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

Gene Murtagh, Chief Executive of Kingspan commented:

"Growth in the first half of the year has been remarkably strong with revenue and trading profit at record levels driven by high levels of demand and a global recovery in the construction sector. Despite inflation in our input costs, effective price management has helped increase trading margins, with a stand out performance in our largest division - insulated panels.

Our strategy of expanding through acquisition and diversifying geographically has continued, with ten acquisitions made during the period across four continents, and a robust balance sheet positioned to support future growth.  We also continue to invest in organic expansion, product innovation, digitalisation, enhanced compliance and executing on our ambitious Planet Passionate sustainability targets.

A strong pipeline of future demand means we are positive about the outlook for the second half of the year. Longer term, the decarbonisation agenda and increasing awareness of the need to reduce the contribution of the built environment to climate change is supportive of our focus on delivering customers with high performance solutions that deliver best-in-class thermal performance."

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Business Review

The first half of 2021 has proven to be an extraordinary period for Kingspan during which we have experienced unprecedented demand, coupled with increasingly acute supply constraints and an inflationary curve never experienced before. The latter has meant that over the course of the year price management activity will have had to recover well in excess of €600m in cost increases. Whilst a lag has been and can be expected, the recovery effort has so far been a success. In all, and despite these pressures, the business delivered record revenue and trading profit up 41% to €2.92bn and up 64% to €329m respectively. Compared with 2019 those performance statistics were ahead by 30% and 43%. Given the particularly unique backdrop it is an immense credit to the team globally to have delivered this performance.

By market, and almost without exception, growth was achieved in both order intake and deliveries, and in our largest category, Insulated Panels, the backlog at half year grew further and was significantly ahead of the same point in 2020. This clearly bodes well for the remainder of the year, although we anticipate disruption to our supply capability due to some critical raw material constraints. Construction markets in general have been buoyant and the palpable shift toward more energy efficient building for both new builds and renovations has been, and will remain, a positive driver of growth at Kingspan. In addition, our increasing exposure to high growth end-markets including online retail, data warehousing and electric vehicle production, are likely to be key strands of the future development of the Group.

Planet Passionate

Building upon the 2020 achievement of Net Zero Energy across the Group, over a year ago we launched our Planet Passionate agenda, a mission critical and distinctively ambitious programme across the four pillars of Energy, Carbon, Circularity and Water. We have set targets across twelve sub-categories in all of our businesses with annual goals across the next ten years. Significant progress has already been made in the first year of the programme, as detailed in our inaugural Planet Passionate report published in April. Further advancement is underway in 2021, even in the face of very significant growth in manufacturing output.

Kingspan has recently announced ambitious new targets aligned with its Planet Passionate programme for reducing its Scope 1, 2 and 3 CHG emissions. The Group has now committed to reducing absolute Scope 1 and 2 CHG emissions by 90% by 2030 from a 2020 base year. It has also pledged to reduce absolute Scope 3 CHG emissions by 42% within the same timeframe.

The ambitious new targets are in line with the scale of reductions required to keep global warming below 1.5C from pre-industrial levels.

Expansion

During the period we invested a total of €496m in acquisitions, capex and financial investments. Of note, the €242m purchase of Denmark headquartered Logstor completed in June, and the Romanian based TeraSteel also completed in the period. We also entered the Uruguayan insulated panel market through Bromyros and bolstered our insulation channel in New Zealand and Australia with the onboarding of Thermakraft, since the period end. Additionally, we became a founding investor in H2 Green Steel, a start up in Sweden that aims to become the world's first zero carbon steel plant. Over a year ago we signed an agreement to acquire Trimo in Slovenia and we remain fully engaged in, and committed to, what has already been a lengthy regulatory process. These and other investments, including our broadening organic footprint, will all serve to increase our exposure to the growing global drive to dramatically decrease building related emissions in the future. Currently, the construction and operation of buildings accounts for approximately 40% of all greenhouse gases.

Innovation

Continuing the trajectory of QuadCore™ as an industry-leading solution particularly in the areas of thermal-efficiency and fire performance, development of QuadCore™ 2.0 has continued with the aim of launching in Britain and Ireland initially. We expect to commence the extensive certification process before year end.

The production process for PowerPanel^® is now fully commissioned and the first trial project is underway with the replacement of the existing roof at our Kingscourt facility in Ireland. Comprehensive product testing and certification is in progress and we plan a formal market launch during quarter four of this year. Significant progress has been made in developing an A-Class fibre free AlphaCore^® insulation solution from a materials perspective, and tests are currently underway to determine the optimal thermal performance and installation methods.

A separate development project is currently underway with the objective of achieving an A-Class fire performance for our Optim-R^® product, the highest thermal performance insulation in our offering. Our aim is still to have a product ready for market by late 2022. Separately, over the next two years, we plan to have a B-Class fire performance available as a standard offering across much of the Kooltherm^® range.

Kingspan Digital

The Kingspan Digitalisation Programme sets out to transform the business across its value chain. We are now developing an entire digitally integrated ecosystem that links products, services and operational capabilities. We aim, over time, to reach a new bar in seamless, flexible and accurate digital solutions for our customers.

Product Integrity

A number of enhancements were made early in the year to bolster the Group's product compliance processes. ISO37301 is the leading standard for establishing, developing and maintaining compliance management systems. In July, we achieved this standard for Kingspan Group's Compliance function and at one of our manufacturing sites, which is among the first production sites in the world of any type to achieve it. This system will be embedded throughout our organisation and in each of our current 182 manufacturing locations, with 20 sites expected to have received the accreditation by H1 2022.

During the period, in excess of 250 third party external product and system audits took place across the Group. In addition, 50 manufacturing sites have been internally audited under the process validated by the Audit and Compliance Committee.

Insulated Panels

(1)   Comprising underlying +41% (volume +30% and price/mix +11%), currency -3% and acquisitions +6%.

Activity in our largest segment has continued the momentum demonstrated last year right through the first half of 2021 with deliveries reaching a record 40 million m². Revenue and volume are both strongly ahead and order intake volume was ahead by 50%. As noted earlier, this leaves the backlog significantly ahead of the same point in 2020. Quadcore™ comprised 15% of insulated panels order intake value in the period.

Construction activity is clearly ahead in most markets and for Kingspan this is being further enhanced by the tangible increase in the penetration of insulated panels in a number of key markets. This dynamic has been particularly evident in the US, Brazil, France and the Benelux where the category is growing encouragingly in each case. Germany has also been strong, and significant growth in order intake has also been registered in Britain. Ireland has experienced a remarkably strong first half.

Work has begun on a new insulated panel facility in central France, due for completion in late 2022. Similarly, in North America work is progressing on a new greenfield facility in north east US and an additional greenfield plant will be added in the midwest region. This will bring our plant count to nine in the region. Brazil has commenced production at the new facility in Santa Catarina and plans are afoot to add further lines in the north of the country.

Our plan for plant construction in Vietnam has experienced understandable logistical challenges that we are confident will be resolved, but remains central to our strategy for the region.

Insulation Boards

(1)   Comprising underlying +36% (volume +27% and price/mix +9%), currency -2% and acquisitions +2%.

Sales value and volume were both well ahead of last year in all key markets and deliveries reached a record 38 million m². Newbuild has recovered strongly in many regions and RMI activity is becoming a more meaningful portion of our insulation offering. Western Europe and North America in particular posted significant volume increases and momentum in Australasia has improved substantially. Volume growth in Britain was comfortably in excess of 20%.

Production commenced in our new Kooltherm^® facility in Sweden. The new manufacturing plant is powered by 100% renewable electricity, of which 20% is produced on-site, and it will support the growing drive towards modern high performance insulation in that region.

During the period a number of attractive insulation acquisitions were either completed or signed. Key amongst these was Logstor, a global leader in medium and large core insulated pipes for multiple applications but predominately for the district heating sector. We anticipate this end market will grow as Europe focuses increasingly on deep improvements to achieve energy efficient infrastructure of cities in particular. Separately we signed an agreement to acquire Thermakraft, based in New Zealand, which will significantly enhance our insulation presence in Australasia. Finally, in the US, we acquired Dyplast based in Florida in the industrial insulation sphere.

Light & Air 

(1)   Comprising underlying +2%, currency -1% and acquisitions +38%.

The division took a significant step forward in 2020 with the acquisition of Colt Group which added material scale to the category with annual revenue in the order of €250m. Geographically it also resulted in Northern Europe taking a leap forward, in particular Germany and the Netherlands. More recently we completed the acquisition of Skydome which broadly doubles our presence in France and Major Industries in the US was acquired close to the period end. In all, the division is on track to deliver 2021 revenue of approximately €550m with a trading profit margin in the region of 8%. It is our medium term aim to drive revenue towards €1bn delivering a trading profit margin of 10%. To achieve this, organic development will continue to be supplemented with acquisitions across both the 'Light' and the 'Air' end markets. The first half demonstrated significant lag in raw material recovery, more so than across the rest of the Group, and we anticipate a more complete recovery during the second half. Additionally, the segment bore the first quarter seasonal weakness at Colt, which last year was pre-acquisition.

Water & Energy

(1)   Comprising underlying +24%, currency impact +3% and acquisitions +9%.

This segment delivered a robust half year result with notable growth achieved in most regions, and across the product portfolio that ranges from rainwater harvesting to water treatment and hot water storage.

Of note, activity in Britain and Poland performed well across water treatment and fuel storage, and encouraging progress is being made in France in the waste water category. In the Nordics activity has recovered well and, in contrast to this, the rainwater harvesting business in Australia was more challenged as the pandemic restrictions have continued to hamper activity.

Product range expansion and innovation are key to this division's future growth and, as an example, work is well underway on the design of hydrogen tanks for the transportation sector.

Data & Flooring

(1)   Comprising underlying +25% and currency impact -3%

Given the obvious pressure on the office construction market, the Data & Flooring segment delivered a relatively strong performance in the period with revenue and trading profit ahead by 22% and 23% respectively.

For some time now the predominant focus in this business has been the pursuit of unique solutions aimed at the efficient running of data warehouses.

The product suite includes airflow panels, aisle containment and structural ceilings which are designed to minimise the energy consumed in the cooling process of these facilities. As the wider technology evolves, so too will our solutions to keep apace.

Financial Review

Overview of results

Group revenue increased by 41% to €2,920.1m (H1 2020: €2,072.7m) and trading profit increased by 64% to €328.9m (H1 2020: €200.1m). This represents a 44% increase in sales and a 67% increase in trading profit on a constant currency basis. The Group's trading margin increased by 160bps to 11.3% (H1 2020: 9.7%) primarily reflecting the impact of the inflation recovery effort and the positive effect of year on year operating leverage, due to increased trading. The amortisation charge in respect of intangibles was €12.4m compared to €10.9m in the first half of 2020. Group operating profit after amortisation increased by 67% to €316.5m (H1 2020: €189.2m). Profit after tax was €246.7m compared to €147.5m in the first half of 2020, driven in the main by the increase in trading profit. Basic EPS for the period was 132.4 cent, representing an increase of 65.9% on the first half of 2020 (H1 2020: 79.8 cent).

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

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

Finance costs (net)

Finance costs for the period were higher than the same period last year at €19.3m (H1 2020: €11.7m). Finance costs include a non-cash charge of €0.2m (H1 2020: €0.4m) relating to the Group's defined benefit pension schemes. Lease interest of €1.8m was recorded during the period (H1 2020: €2.0m). The Group's net interest expense on borrowings (bank and loan notes) in the first half of 2021 was €17.2m compared to €9.2m in the same period in 2020. Net interest increased during the period due to drawdown of the €750m Green Private Placement in December 2020 and reduced, (and in some cases negative) returns on cash balances. Interest charges will be lower in the second half of the year due to the repayment on maturity of a more expensive historical $200m private placement in August 2021.

Free cashflow

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

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

Working capital on 30 June 2021 was €631.7m (31 December 2020: €450.8m), an increase of €180.9m (€118.5m excl. acquisitions) in the period. The increase is driven by the increased level of year on year trading, with the Group investing in working capital to support the significant increase in sales.  The average working capital to sales percentage was 9.7% compared with 11.6% in H1 2020. Working capital management and cash generation continue to be important financial metrics for the business. The lower than normal working capital percentage is reflective of the very high levels of activity coupled with lower inventory days due to raw material supply constraints.

Net Debt

Net debt increased by €365.5m during the first half of the year to €601.7m (31 December 2020: €236.2m). The movement in debt is analysed in the table below:

Retirement benefits

The primary method of pension provision for current employees is by way of defined contribution arrangements. The Group has three legacy defined benefit schemes in the UK which are closed to new members and to future accrual. In addition, the Group assumed a number of defined benefit pension liabilities in Mainland Europe through acquisitions completed in recent years. The net aggregate pension liability in respect of all schemes and obligations was €39.3m at 30 June 2021 (30 June 2020: €34.4m).

Taxation

The tax charge for the first half of the year was €50.5m (H1 2020: €30.0m) which represents an effective tax rate of 17.0% on profit before tax (H1 2020: 16.9%). The effective rate is broadly consistent year on year. Taxation payments of €40.9m (H1 2020: €14.9) were higher than in the first half of 2020 with the prior year benefitting from deferred payment programmes in place in a number of jurisdictions in response to the pandemic, which have since been paid in full.

Acquisitions

The Group incurred €435.9m on acquisitions and financial investments during the period. Of this, €242.4m was incurred on Logstor Group with an additional €193.5m incurred on 10 further acquisitions and financial investments in the first 6 months of 2021.

Dividend & repurchase of shares

The Board has declared an interim dividend of 19.9 cent (H1 2020: nil) payable on 8 October 2021 to shareholders on the register on the record date of 10 September 2021. This is in line with the previously announced revised shareholder returns policy.

During the period the Group bought back 600,000 shares at a weighted average price of €78.16. This is consistent with an objective of maintaining a broadly constant share count over time.

Capital structure and Group financing

The Group funds itself through a combination of equity and debt. Debt is funded through a combination of syndicated bank facilities and private placement loan notes. The principal syndicated facility is a green revolving credit facility of €700m entered into in May 2021 with a committed term to May 2026. There were no drawings on this facility at period end. This new facility was used to substantially replace the outgoing revolving credit facility of €461m and acquisition facility of €300m.

In addition, as part of the Group's longer-term capital structure, the Group has total private placement loan notes of €1,538m (H1 2020: €842m) which have a weighted average maturity of 6.2 years (H1 2020: 4 years).

The weighted average maturity of all debt facilities is 5.8 years (H1 2020: 3.8 years).

As well as ongoing free cashflow generation, the Group has significant available undrawn facilities and cash which provide appropriate headroom for operational requirements and development funding. Total available headroom was €1,631m at 30 June 2021 (H1 2020: €1,182m).

Related party transactions

There were no changes in related party transactions from the 2020 Annual Report that could have a material effect on the financial position or performance of the Group in the first half of the year. Eugene Murtagh retired as Chairman and non-executive director on 30 April 2021 and is no longer considered a related party.

Principal risks & uncertainties

Details of the principal risks and uncertainties facing the Group can be found in the 2020 Annual Report. These risks, namely volatility in the macro environment, failure to innovate, product failure, business interruption (including IT continuity and climate change), credit risks and credit control, employee development and retention, fraud and cybercrime, acquisition and integration of new businesses, health & safety, and laws & regulations remain the most likely to affect the Group in the second half of the current year. The Group actively manages these and all other risks through its control and risk management processes. We will continue to actively assess changes in the external environment on events which could change our risk assessment and profile.

Looking Ahead

The Group has had a very positive first half with a strong order backlog on entering the second half of the year. A prevailing and ongoing theme in the year to date has been the extent of raw material inflation and constrained availability. This backdrop will persist through the remaining part of 2021, and likely into 2022. Construction industry activity has been lively in most key markets with outperformance by Kingspan given the robustness of our global supply chain. This dynamic may change in time when raw material availability issues subside.

2021 is an abnormally buoyant year in an unparalleled environment. Whatever way the market evolves, Kingspan is well placed for the years ahead given the combined strength of our high performance product suite, the global decarbonisation agenda, our diversified end markets and strong balance sheet.

2021 Statement of Directors Responsibilities

for the 6 month period ended 30 June 2021

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

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

1)   the condensed set of consolidated financial statements included within the half-yearly financial report of Kingspan Group Plc for the six months ended 30 June 2021 (the "interim financial information") which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows and the related explanatory notes, have been presented and prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU, the Transparency Directive and Transparency Rules of the Central Bank of Ireland;

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

The directors of Kingspan Group plc, and their functions, are listed in the 2020 Annual Report, with the exception of the following changes during the period:

On behalf of the Board

Kingspan Group plc

Condensed consolidated income statement (unaudited)

for the 6 month period ended 30 June 2021

Kingspan Group plc

Condensed consolidated statement of comprehensive income (unaudited)

for the 6 month period ended 30 June 2021

Kingspan Group plc

Condensed consolidated statement of financial position

as at 30 June 2021