RPC Group's H1 net profit doubles to £26.3M, revenue up 54% to £586.7M driven by Superfos acquisition, long shelf-life and pharmaceutical products, coffee capsules, offset by paint containers, industrial products, vending cups

LONDON , November 30, 2011 (press release) – RPC Group Plc, Europe’s leading supplier of rigid plastic packaging, announces today its half year results for the six months ended 30 September 2011.


• Revenue significantly higher at £586.7m (2010: £381.9m) due to inclusion of Superfos and an 11% increase in sales on a like-for-like basis
• Overall volumes similar to last year with sales mix improving and higher polymer prices passed through to the customer base
• Adjusted operating profit increased to £45.4m (2010: £21.8m)
• Adjusted EPS at 18.3p (2010 restated: 11.7p)
• Net profit doubled to a record £26.3m for the period (2010: £13.1m)
• ROCE improved to 18.1% versus a pro-forma 15.1% for the year ending March 2011
• Satisfactory cash flow performance with cash generated from operations at £30.9m (2010: £27.1m)
• Superfos integration progressing well with accelerated synergy realisation
• Successful refinancing in the US Private Placement market providing longer term facilities
• Interim dividend of 4.2p (2010: 3.4p)

Commenting on the results, Jamie Pike, Chairman said: “RPC has delivered a very good first half year performance with the integration of the Superfos business progressing well and synergies anticipated to be £9m for the year ending March 2012. Whilst macro-economic uncertainties have increased, the Group has made significant progress towards achieving its stated aim of 20% ROCE by March 2014.”


Business operations

RPC is Europe’s leading supplier of rigid plastic packaging with operations in 18 countries. The business, which comprises 50 manufacturing sites and six separate distribution and sales centres, converts polymer granules into finished packaging product by a combination of moulding and assembly processes. It is organised around the three main conversion processes used within the Group, each site being managed within one of seven clusters which are defined along technological and market lines.

Each cluster has on average seven manufacturing sites, operating over a wide geographical area for reasons of customer proximity, local market demand and manufacturing resource.


RPC has achieved a leading position in its chosen markets and geographies by establishing strong long-term relationships with its customers and by developing high quality, innovative products that meet rigorous customer demands. The Group’s strategy is to maintain its leading market positions and to continue to develop and grow existing and new products in selected markets. This will be achieved by continued innovation and investment, leveraging RPC’s leading technological capability and through strategic corporate development.

Following the successful completion of the RPC 2010 programme, the Group is well placed to achieve growth by building on its strong market positions and technological know-how. The aim is to achieve a return on capital employed (ROCE) of 20% following the realisation of £15m to £25m steady state synergies related to the Superfos acquisition, assuming a non-recessionary economic environment and no significant volatility in raw material prices. At the half year circa £4m of these synergies had been achieved which together with the growth in higher added value products, resulted in an annualised ROCE of 18.1% indicating that the Group has made good progress in meeting this target. Total synergies this year are anticipated to be circa £9m.

Opportunities for further organic and acquisitive growth continue to be explored, both in the European market as well as in less mature higher growth economies outside Europe.

Business review

Revenues were significantly higher than the same period last year due to the inclusion of a full six months of Superfos trading activity, a business which was acquired by RPC in February 2011. The sales of £586.7m in the first half (2010: £381.9m) were 11% higher than the same period last year on a like-for-like basis. Overall like-for-like sales volumes measured in polymer tonnes converted were at similar levels to last year, with improved activity levels in higher added value segments such as long shelf-life products, pharmaceutical products and coffee capsules. This compensated for lower activity levels in segments such as paint containers, industrial products and vending cups which were affected by weakening macro-economic conditions. Selling prices increased reflecting the pass through of higher polymer prices and the improved sales mix. Polymer markets in the first half of 2011/12 stabilised and prices started to fall from June, resulting in improved margins for most product groups. Polymer prices in the third quarter of the financial year are anticipated to be relatively stable with upward movement possible in the fourth quarter.

Adjusted operating profit (before restructuring and impairment charges) more than doubled to £45.4m (2010: £21.8m) due to the contribution of Superfos trading activity and margin improvements arising from a better sales mix and more stable polymer prices. Net financing costs increased as a consequence of the additional funding costs of the Superfos acquisition, resulting in higher net debt levels and higher costs of borrowing following the renewal of the Group’s banking facilities in 2010. The Group reported a record half year net profit of £26.3m, more than twice that of the same period last year.

Restructuring costs and other exceptional items in the first half year of £4.1m (2010: £3.1m) mainly comprised the planned closure costs of the Runcorn site and other costs arising from the Superfos integration programme. The sale in August of the non-core activities of the Bramlage Verschlüsse wines and spirits closures operation in Germany generated a small profit on disposal.

The Group had a satisfactory cash performance over the period with £30.9m cash generated from operations (2010: £27.1m). The increase in working capital to 4.9% of sales was driven by the growth in higher added value products. Investment in capital projects was higher than in previous years and included new production lines for growth in the coffee capsule and personal care markets. As anticipated these developments, combined with an increase in dividend payments, resulted in a higher net debt of £200.1m. The Group retains a strong balance sheet with a total of £442m of finance facilities available. In November 2011 a significant proportion of the existing debt was refinanced with longer dated borrowings through the US Private Placement market.

Injection Moulding

The business comprises the UK Injection Moulding (UKIM), Bramlage-Wiko and Superfos clusters. Overall the injection moulding business performed very well in the period, with sales significantly higher due to the inclusion of the Superfos business within the Injection Moulding results, and return on sales improving to 9.3%.

In the UK Injection Moulding business, which comprises five sites in England and from 1 April the Superfos site at Runcorn, sales volumes were slightly down on last year with reduced activity in the UK construction and DIY sectors affecting profits. Following a review of business profitability, the closure of the Superfos site was proposed in June and confirmed in October 2011, with the majority of the business anticipated to be transferred to other UKIM sites by the end of June 2012. The related closure costs have been charged to restructuring costs and impairment charges and are not included in the results above.

Bramlage-Wiko, which operates in Germany, France, Belgium, Slovakia and the USA, continued to experience strong volume growth, mainly due to increased levels of new product development in pharmaceuticals, cosmetics and personal care. In these areas the Group is well positioned to take a significant share of new business opportunities through its strong market position and leading technological know-how. In the pharmaceutical segment the cluster benefited from moving to a sole supply position with a major customer whilst further efficiencies were achieved by increasing production at the Slovakian manufacturing facility. Significant growth opportunities have arisen in the USA, again based on the Group’s leading technological position.

Superfos, which was acquired in February 2011, manufactures and distributes open top filled injection moulded containers and has manufacturing facilities in France, Belgium, Spain, Poland, Denmark and Sweden, with joint ventures in Turkey and North Africa. Although sales volumes in southern Europe were relatively weak in the second quarter due to generally subdued activity levels in the industrial markets, overall margins were strong as the polymer purchasing and other synergies have started to take effect. The integration into the RPC Group has progressed very well with Superfos now operating as a stand-alone cluster and key management retained. Purchasing of raw materials has been centralised at Group level whilst the necessary central overhead cost reductions were effected in August. Growth opportunities in light-weighting and barrier products are being actively pursued as is the exploitation of cross-selling opportunities across the relevant geographies.


The thermoforming operations comprise the Bebo (retail food packaging), Tedeco- Gizeh (food service – vending and disposables) and Cobelplast (sheet production) clusters and are largely based in mainland Europe. Overall the thermoforming business performance was stable in the period, with growth in coffee capsules and barrier products offsetting lower volumes in vending. The increase in sales was largely attributable to the pass through of higher polymer prices to customers.

The margarine and spreads market is a significant part of the thermoforming business but most of the growth is currently generated from new business developments in oxygen barrier packaging (replacing glass and metal) and coffee capsules, which continues to grow with further investment in the period in three new production lines at Kenfig (Wales) and additional lines at Bouxwiller (France) and Deventer (the Netherlands) required to keep up with customer and consumer demand. The reorganisation of the Beuningen site was completed in the period. The overall demand or sheet products was relatively flat compared with last year although the sales mix continues to improve with growing sales in multi-layer sheet. The demand in the vending cup market continues to be affected by the high unemployment levels across the markets served by Tedeco-Gizeh.

Blow Moulding

The blow moulding operations are based both in the UK and in mainland Europe. The blow moulding business performed well in the period; sales volumes improved again and operating profit increased by 52% to £6.4m (2010: £4.2m) as the cost savings from restructuring activities and higher volumes helped improve profitability.

There was strong demand in both food and non-food sectors with good volume increases at Llantrisant, Gent and Corby. The site at Corby has particularly benefited from the strong demand for barrier blow moulded plastic jars and bottles as manufacturing capability and technological innovation is helping to accelerate the conversion of conventional glass and metal packaging to lighter weight plastic. Rising demand from the agrochemical market improved the activity levels at Gent whereas Llantrisant increased its sales through the gain of a major contract. UK demand in general was however relatively subdued.

Non-financial key performance indicators

RPC has three main non-financial performance indicators, which provide perspectives on the Group’s progress in improving its contribution to the environment and employee welfare.

Reportable accident frequency rate is defined as the number of accidents resulting in more than 3 days off work, excluding accidents where an employee is travelling to or from work, divided by the average number of employees, multiplied by the constant 100,000.

The improvement in electricity usage is largely the result of the inclusion of the Superfos sites in the period. The reportable accident frequency rate improved significantly compared with the same period last year and the year end, following a concerted effort to raise awareness of the importance of health and safety matters throughout the Group.

Financial review

Condensed consolidated income statement

Revenue in the first half of 2011/12 was significantly higher at £586.7m compared with the corresponding period last year, due to the inclusion of the Superfos business acquired in February 2011 and an 11% increase in like-for-like revenues. Overall like- for-like sales volumes were at similar levels to last year; the increase in turnover was largely due to an improved sales mix arising from the continued growth in higher added value products and sales price increases resulting from the pass through of polymer price increases to customers, together with the translation effect of the strengthening of the euro against sterling.

Adjusted operating profit (before restructuring costs and impairment losses) increased significantly in the first half of 2011/12 from £21.8m in the same period last year to £45.4m due to the impact of Superfos and related synergies as well as a like-for-like increase in profit which arose from a general improvement in margins, as polymer prices started to fall from June, together with the impact of an improved sales mix of higher added value / higher margin products.

Restructuring, impairment losses and other exceptional items of £4.1m (2010: £3.1m) were incurred in the first half year, comprising mainly the integration costs of Superfos, including expected redundancy and closure costs of the Runcorn site and head office reorganisation costs at Taastrup (Denmark). Other items include insurance income expected to be recovered for the damaged warehouse at Kerkrade (the Netherlands) and the remainder of the RPC 2010 costs such as the profit on the sale of the Bramlage Verschlüsse wines and spirits closures operation, a non-core business identified for sale within the RPC 2010 programme.

Net financing costs in the first half increased from £0.7m to £6.2m. Net interest charges were £5.2m (2010: £1.6m) reflecting the additional funding costs of the Superfos acquisition with an increase in average net debt in the first half, and the higher cost of borrowing following the renewal of the Group’s bank borrowing facilities in December 2010. Unfavourable foreign exchange movements relating to the US dollar bonds resulted in a net financial expense of £0.1m (2010: financial income £0.9m). Net financing costs on retirement benefit obligations have now been classified under net financing costs in order to comply with the anticipated classification change in IAS19 and to improve comparability with the Company’s peers. A net charge of £0.9m arose in the period, comprising £2.9m of income from pension fund assets and £3.8m of expense relating to the interest cost on retirement benefit liabilities.

The adjusted profit before tax1 increased from £20.2m to £39.3m as a result of the improvement in operating profit, partially offset by the higher net interest charge. The tax rate fell to 25.0% (2010: 28.0%) resulting in an adjusted profit after tax of £29.5m (2010: £14.6m) and adjusted basic earnings per share2 of 18.3p (2010 restated: 11.7p). The 2010 half year earnings per share measures have been restated to reflect the bonus element of the rights issue made on the acquisition of Superfos.

1 Adjusted profit before tax is defined as operating profit before restructuring, closure and impairment charges and other exceptional items less net interest.
2 Adjusted basic earnings per share is defined as adjusted profit before tax less tax adjustments divided by the weighted average number of shares in issue during the period.

A taxation charge of £8.8m has been made in the half year to 30 September 2011 in respect of the profit before taxation of £35.1m, based on the Group tax rate expectedfor the full year applied to the pre-tax income of the six month period. The effective tax rate of 25.0% on both reported and adjusted profit before tax reflects further utilisation of tax losses and reduced UK tax rates.

The profit after tax was £26.3m (2010: £13.1m); the increase was mainly due to the higher adjusted operating profit, offset by slightly higher restructuring and impairment costs and higher net financing costs. The basic earnings per share was 16.4p (2010 restated: 10.5p).

Condensed consolidated balance sheet and cash flow statement

Goodwill and other intangible assets were largely unchanged and only affected by the translation impact of the weakening of the euro against sterling between 31 March and 30 September 2011. Property, plant and equipment increased slightly to £381.8m compared with the year end; net capital expenditure levels at £32.5m were £9.2m ahead of the depreciation charged in the period, as the Group accelerated its investment in growth sectors such as coffee capsules and personal care.

Working capital (the sum of inventories, trade and other receivables and trade and other payables) increased by £21.5m to £56.7m compared with the year end position and represents 4.9% as a percentage of revenue for the half year (annualised). The growth in higher added value products has required relatively greater levels of working capital.

The long-term employee benefit liabilities decreased from £51.0m at the year end to £48.8m, mainly due to a reduction in the UK net pension deficit. This was due to an increase in the value of the UK scheme’s assets including the investment of the second of the two one-off lump sum deficit contributions of £5.0m, partially offset by a rise in the present value of liabilities mainly due to a reduction in the discount rate used.

Capital and reserves increased in the period by £4.7m, the net profit for the period of £26.3m being offset by pension related net actuarial losses of £3.2m, dividends paid of £13.1m, adverse exchange movements on translation of £6.2m and other share and share-based payment transactions. Further details are shown in the ‘Condensed consolidated statement of changes in equity’ which is included in the financial statements.

Net cash from operating activities (after tax and interest) was £20.9m compared with £22.0m in the same period in 2010, with higher cash generated from operations being offset by increased interest and tax payments. The net cash outflow from investing activities of £34.0m was higher than 2010 due to the planned increase in capital expenditure in support of growth, including additional production lines for coffee capsules.

Net debt increased by £21.4m, from £178.7m at 31 March 2011 to £200.1m at 30 September 2011, as a consequence of the increased capital investment and higher dividends paid. Gearing stands at 74% compared with 68% at the year end and the net debt to EBITDA ratio remains at 1.5. The Group has total finance facilities of approximately £442m with an amount of £239m undrawn. The facilities are unsecured and comprise a revolving credit facility of up to £200m, a €130m term loan provided for the purchase of Superfos (repayable in August 2012) and seven year floating notes totalling €35m and $40m (repayable in March 2012), together with various other credit and overdraft arrangements.

In November 2011 the Group refinanced the term loan and floating rate notes with $216m and €60m of bonds in the US Private Placement market, providing the Group with 7 year and 10 year dated borrowings and thereby strengthening the financial position of the Group for future growth.

Financial key performance indicators (KPIs)
The Group’s main financial KPIs focus on return on investment, business profitability and cash generation.

The key measure of the Group’s financial performance is return on capital employed (ROCE). This shows a 3.2% improvement versus the comparative period last year and a 3.0% improvement versus the full year 2010/11. The increase is largely attributable to the higher annualised adjusted operating profit in the first half. The Group’s target, which was announced in March 2011, is to achieve a 20% ROCE following realisation of the steady state synergies relating to the integration of Superfos by March 2014, assuming a non- recessionary economic environment without significant volatility in raw material prices.

Whilst the impact of an improved sales mix and more stable polymer market serve to increase added value per tonne and gross margin, the inclusion of Superfos trading, at margins slightly lower than the rest of the RPC Group, has diluted this effect. Free cash flow was negative due to higher capital expenditure levels and investment in working capital related to growth in higher added value products. The cash conversion ratio has consequently reduced for the period.

Principal risks and uncertainties
RPC is subject to a number of risks, both external and internal, some of which could have a serious impact on the performance of its business. These include, amongst other risks, polymer price and availability, mitigated by the pass through of price changes to customers and reducing dependence on a few suppliers; energy costs, managed by purchasing a proportion of electricity at fixed rates and by increasing efficiency of energy consumption; and dependency on key customers, reduced by joint- investment in product and technological development.

The Board regularly considers the principal risks that the Group faces and how to reduce their potential impact. The key risks to which the Group is exposed have not changed significantly over the first half of the financial year. Further information concerning the principal risks and uncertainties faced by the Group can be found on pages 10 and 11 of the Group’s annual report and accounts for the year ended 31 March 2011.

In line with its progressive dividend policy the Board has declared an interim dividend of 4.2p per share which represents an increase of 24% over the previous year. This will be paid on 27 January 2012 to ordinary shareholders on the register at 30 December 2011.

In the first half year good progress in profitability has been made based on achieving accelerated synergies, an enhanced sales mix and a more benign polymer price environment. Broader macro-economic weakness is giving rise to some slowdown in demand across certain of the Group’s product areas. Growth in higher added value products is however anticipated to continue. With circa 60% of the revenues related to the relatively resilient food markets and whilst enjoying strong market positions based on leading technological capabilities, the Group is well positioned to weather any general economic downturn. The Board remains confident that the stated aim of 20% ROCE by March 2014 will be achieved.

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.