Ladies and gentlemen, welcome to the Kingspan 2019 preliminary results. My name is Jake, and I'll be your coordinator on today's call. During the call, you'll have the option to ask a question by pressing star one. I'll now hand you over to your host, Gene Murtagh, CEO, to begin. Gene, please go ahead.
Hi. Good morning, all, and welcome to the results call from Kingspan. We'll take you directly to page 12 in the presentation, which hopefully you've all got. It's titled 2018 In Summary. In essence, it was a great year for Kingspan. Revenue up 19% to EUR 4.4 billion. Underlying revenue was up around 5%, the rest, taking into account acquisitions and currency, was the remainder. Profit was EUR 445 million, up 7% at an underlying level, 18% in total. Basic EPS was up 16% at EUR 1.84. There was growth largely right across the piece, both at an organic and acquired level. Panels up 21%, boards up 12%. Light and air almost reached EUR 300 million in revenue, some improvement at the margin, although not yet quite at the target level, we'll get there.
Water & Energy sales up 13%, also with a newly established frontier up in the Nordics. The Data & Flooring business, which is our access floors business kind of morphing into its next stage of development, saw growth 3%. We invested around EUR 470 million in acquisitions, they covered investments in Southern Europe and South America and also in Poland, covering Eastern Europe. That's really established substantial new presences for us in markets where the business hadn't already been established. In essence, I'd say it was a very positive year for the business. We'll get into that in much more detail now. I'll just hand you over to Geoff on slide number 13.
Thanks, Gene. Just to go through initially the financial highlights of the year. Group revenues of EUR 4.37 billion, up 19%. Trading profit of EUR 445.2 million, up 18%. I'll come to the constituents of both in a second. EBITDA up 18% to EUR 521.2 million. Earnings per share EUR 1.84 per share, up 16%. The total dividend for the year, EUR 0.42, up 14%. Free cash flow, very strong of the year at EUR 308.4 million, up 55% on the comparable amount in 2017. Net debt, EUR 728 million, up EUR 264 million year-on-year. Clearly a key driver of that was the acquisition spend year-on-year, which again, I'll come to in a second. The group trading margin was 10.2%, down 10 basis points versus 2017. We'll come to the divisional mix in a second. Net debt to EBITDA of 1.4 times, compared to 1.05 times in 2017.
Our return on capital employed, 16.8%. If you annualize the impact of acquisitions made, it's 17.1% versus 17.8% in the prior year. Turning to page 14, just to give you the divisional split of trading margin. Insulated Panels delivered 10%, bang in line with 2017. Insulation Boards was slightly ahead, 12.2% versus 11.9% in the prior year. Light & Air continued to progress its margin, 7.4%, up modestly on 7.2% in 2017. Water & Energy, down in the year to 7%. Most of the reason for that is the exit from smaller lines of activity that we exited during 2017. Data & Flooring Technology delivered a margin broadly in line with the prior year, 11.9% versus 11.8%. You'll see on the left-hand side of the page, compounded trading profit growth of just under 32% in the period since 2014.
Turning to page 15, just to bridge the sales and profit performance. I'm dealing with sales initially. Group sales up 19%. Currency was -3%, or EUR 92 million. Acquisitions contributed 17%, or EUR 623 million. Underlying sales grew by 5%, or EUR 172.6 million. From a profit perspective, overall trading profit was up 18%, the components of that were currency -2%, or -EUR 8.8 million. Acquisitions contributed 13%, or EUR 51 million. Underlying trading profits were up 7%, or EUR 25.6 million. As I mentioned at the outset, turning to page 16, we had a very strong free cash performance in the year, delivering free cash of EUR 308 million. Naturally, the key driver of that was the strong EBITDA during the year. Also we had a modest reduction in working capital.
Our working capital metric, our working capital to sales ratio in 2018 was 11.5%, compared to 12.4% at the end of 2017. A 90 basis points reduction in working capital, and that was mostly around lower levels of the inventory days on hand. The other key items on the bridge are cash interest expense, EUR 15.5 million. Our cash tax, EUR 75 million, and our net CapEx incurred for the year was EUR 131 million. On page 17, just to bridge the opening and closing net debt position. We opened the year with EUR 464 million of debt. We reduced debt by EUR 308 million as a consequence of free cash flow. Our acquisition spend in the year was EUR 472 million. The significant components of that being the Synthesia and Balex acquisitions. Our dividend was EUR 68 million.
We have a deferred payment due of EUR 30 million on the Synthesia acquisition, which we've accounted for as debt. All of that combines to the EUR 728 million debt at the end of the year, which is leverage of 1.4x net debt to EBITDA. Turning to return on capital employed on page 18. This is a metric that is driven hard through the business. In 2018, 16.8% compared to 17.8% in 2017. When you annualize the impact of acquisitions, bearing in mind that Balex occurred mid-year and Synthesia at the end of March, annualizing for the impact of acquisitions is 17.1%. The strength of our balance sheet is outlined on page 19. From a funding perspective, we drew down in January 2018, a further EUR 175 million of U.S. private placement loan notes.
A fixed coupon of 1.57% with a weighted average term of eight and a half years. The total available cash balances and committed undrawn facilities on hand at the end of 2018 was EUR 675 million. Included within that is our five year, EUR 500 million revolving credit facility, of which only EUR 120 million was drawn at year-end. The overall weighted average maturity of our debt is five years. We're in good shape on the funding front. The profile of our geography year-on-year is set out on page 20. The notable changes would be the U.K. has gone up in absolute terms, but in percentage terms, the U.K. is 21% of sales in 2018 compared to 25% in 2017. Mainland Europe has increased to 48% of the group as compared to 44% in 2017.
The other key geographies, pretty similar year-on-year in terms of their proportionality. That's there, the key financial highlights. With that, I'll hand back to Gene.
That's great. Thank you, Geoff. Just in the interest of time, I don't propose we go through every single last detail on the operational slides. Let's move to slide 27, which is the outlook. The year has started pretty good for us in most of our markets, with revenue and volume ahead. Order intake and the order bank, also in most of our markets, I'd say with the notable exception of insulated panels in the U.K., actually has started the year in pretty good shape. A significant feature over the last year or 18 months was obviously our raw material environment, which really was the first time in a long time that it had featured so much. Really, the pressure on that side has subsided. Material is flowing. It's flowing a lot more competitively than it was.
Part of the impact of that is a resumption of growth against traditional insulation materials. We'd have noted last year that other materials were gaining ground as a result of the lack of availability of polyurethanes. That's not the case now, and the industry is fairly rapidly recovering position against those materials. That aside, I'd just say that there's obviously plenty of negative rhetoric around. No shortage of that. We bear that in mind as we go forward. In essence, to just say we started the year well, and we're in reasonably good shape going forward. With that, really, I would like to hand it over to the floor for some questions.
Ladies and gentlemen, to ask a question, please press star followed by one. The first question today comes from Robert Eason from Goodbody. Robert, please go ahead.
Good morning, everyone. Just a few questions. Just firstly, can you just give us kind of a guidance on what is the chemical bill for FY 2018 so we can just have a sense of the scale of it and given the recent price declines in that. Just related to that, can you just give us a kind of a picture of how that is feeding into the end product in terms of pricing of boards and is it different in any specific geographic market? Is competition more intense in passing it on in one market over the other? Kind of related to all that, you talk about you're regaining market share back against the fiber [influence]. Can you give us a bit more color on that in terms of the extent of it?
Is there certain markets that that is happening more than others? So that kind of questions around insulation boards. My other question is just on the balance sheet, obviously in very, very good shape. Can you just give us a sense of the M&A pipeline for 2019 and just kind of setting our own expectations, what we should expect, on that front from Kingspan? Sorry, just one other question in relation to Water & Energy. Geoff, you just noted kind of just one or two one-offs in relation to that impact of the margin. Can you just give us a bit more kind of clarity on the scale of that so we just understand the impact on the margin in that division? Thank you.
Okay, Robert, we'll have to write a completely separate report for you on all those questions, I think.
No problem.
On the deflationary side, it's a well-known fact that MDI has gone in the complete opposite direction to what it was doing a year ago. All that stuff's very public on the ICIS price index. Broadly speaking, the material is kind of down to pretty much in the same place it was before any of the tightness started 18 months ago. That obviously led to significant price inflation our end over the last year, and it's leading to deflation, I would say, particularly evident in insulation boards, although it's also affecting panels. Any of our price deflation is effectively funded by the raw material reductions. Obviously we don't want to go into exact pricing movements, et cetera, of our products just in this particular forum. We're gaining share, as you rightly point out. You highlight fiber.
It's not just that, it's other forms of insulation materials as well that were more available last year. I'd say polystyrene in particular. With regard to places and applications, I'd say flat roofing would be a particularly notable end application where those materials gained share last year, and that's reversing at a fairly rapid pace presently. That will go mainly for U.K. and Western European markets. On the M&A pipeline, it's as healthy as ever. We've got probably EUR 500 million-EUR 600 million of real scope, I suppose, in the present year. Whether or not we get an opportunity to execute on that, it's always difficult to say. It's in as good a shape as ever. Then there was the.
On the Water & Energy margin point, Robert, about EUR 2 million was the impact of those costs in the 2018 numbers.
I'm sorry. Can you just give us a kind of a sense of the chemical bill for 2018? Just give us a sense of the scale of that bill.
Without giving absolutes, it will be about EUR 100 million of deflation in our chemical bill as well, Robert.
Okay. Thank you.
The next question today comes from Emily Biddulph from JP Morgan. Emily, your line is now open.
Morning, guys. I've got two questions, please. The first one on the U.K. I just wanted to understand the sort of comments there a little bit more. It sounds to me like you're sort of making broadly similar comments to sort of Q3. Is there anything you're seeing at the moment that is in any way unexpected or anything that's particularly changing there? Are sort of orders in the U.K. down against sort of weaker comps at the moment? Secondly, just on the U.S., obviously sort of the commentary sounds really positive. I think in the middle of last year, you said that orders were up sort of around 10%. Is that the same sort of magnitude now? Thanks.
Okay. In the U.K., yes, our order intake sales, I should say, are actually quite healthy right now. That's on the basis of a reasonably healthy bank coming into this year. Current order intake trends, however, are negative year-on-year. Still single digit, though, I'd highlight. There's no major panic on that front, but they are down single digit, and that will obviously have a dispatch impact on our U.K. panels business from into the second quarter. The project pipeline that we're tracking actually is again, quite healthy. There's a very natural reluctance on some investors' part to actually push ahead with construction projects. That's specific to insulated panels. Our board business actually is at a volume level up year-on-year in the U.K. At a square meter level, our sales and intake are ahead in the first six weeks of the year.
That's probably a pattern we'd expect to continue, as I say. That's largely reflecting a recovery of share for the materials that we're in. In North America, very healthy intake last year. We exited the year with a bank significantly up on prior year. The intake's probably not quite as bubbly in the first six weeks as it was last year. It's very early days and as we all know, there was huge weather disruption there during January, and it's very difficult to quantify the impact of that. Obviously it wasn't particularly helpful during that period. The business from a bank and dispatch perspective is still in very healthy shape there.
Brilliant. Thank you.
The next question today is from Gregor Kuglitsch from UBS. Gregor, please go ahead.
Hi. Good morning.
Gregor.
Can I just come back to the commodity side just to clarify the EUR 100 million deflation. Is that a comment on 2018 or is that your expectation for 2019? If you care to comment also what's happening on steel, please, because I think there's also some deflation there. I think in absolute terms, it's obviously a much larger bill. As regards to price, if I remember correctly, when we had the big commodity surge in 2017, I seem to remember you kind of had group-wide high single-digit pricing. Correct me if I'm wrong. Now that it's kind of going into reverse, is it fair to assume that you're going to get some pretty substantial top-line deflation appreciated on earnings, just different metrics, obviously, capture it back. I just want to get a sense sort of what we should be expecting.
It's not particularly obvious from your short-term numbers, looking at Q4 and your comments on Q1, that there's sort of a very big impact, but I would like to have some more detail on that. Perhaps any comment you could help us on CapEx as we go over the next couple of years would be helpful too? Thanks.
Okay, Gregor. The EUR 100 million, that is a year-over-year 2019 over 2018. That is what that refers to. In terms of our own selling prices, that is obviously something that is very much in flux presently. As you point out, there was kind of high single-digits inflation as a result of a lot of this pressure. You can take it will be in the kind of 5%-10% overall units deflation again on the downside of this. Obviously, that is taking into account the entire mix of everything we are doing. Like Kooltherm unaffected by this. Panels are much less affected by this. On the whole, it will be something like that and obviously much more extreme in some applications. In terms of our CapEx plans.
Our CapEx plans as we go forward for the next couple of years. This year's CapEx guidance is EUR 130 million with a similar number penciled in for 2020 at this point.
Okay. Can I just push you one more time on the pricing? I am guessing that 5%-10% is not really what you are seeing yet because I think you exited last year at 8%+. Looks like you are up mid-single-digits in the first few weeks of the year. Is this kind of what you expect at over an 18-month period as all this commodity washes through? Is this the right way to look at it?
Yes. It is going to take time. Obviously, we have not overreacted to the reductions too quickly. For a start, we have got a project bank. Sorry, an order bank in insulated panels is completely unaffected by it. On the outward pricing of the business from now, that is kind of the levels we are seeing, and it will take a little bit of time for that to flow through.
Thank you.
As a reminder, star one to ask a question. The next question comes from Flor O'Donoghue from Davy. Flor, please go ahead.
Thank you very much. Good morning, everyone. Just a couple from me. On the U.K. side, I'm just wondering, particularly, I guess, in relation to panel business, could you give us a sense now what the mix is like in terms of end market, be it warehousing, logistics, office, et cetera? Also, just in terms of Europe, obviously it's now up to nearly 50% of revenues. Would we possibly get an update on the rough breakdown of the geographical spread across Europe? Currently, just be interested in your thoughts on some of the newer places like India, Brazil, Nordics, et cetera. Finally, sorry if I can jump in one final one. Just in reference to slide 29 of the pitch and the global expansion projects. Just a couple ones there that look interesting and your thoughts will be appreciated.
One is Paraguay in terms of 2021, the other one is just the XPS facility you have listed for the U.K. for this year? Thanks very much.
Okay, Flor . Just in terms of the trends in the U.K. On the whole, obviously it's going to be trending downwards for very obvious reasons. There's a lot of pressure around warehousing on the positive. There's pretty much every warehouse in the country is full. That side of the business actually has been reasonably stable and if anything, the pipeline's looking positive. Again, I think a lot of that will depend on what the outcome of the ongoing negotiations are. That's relatively stable. Residential is clearly going to see a downtrend. I think our exposure to that in the U.K. is not too high, I would say. We'd expect kind of marginal reductions on that side. In terms of office, actual office construction right now is reasonably healthy. Again, that's the completion of projects that were underway over the last year or two.
As we look ahead, we do expect to see, I'd say in excess of a 10% reduction in office start this year, that'll probably decrease further into next year. Again, this is all just a present view of life of the U.K., and a lot of that's contingent on where this whole thing ends up. In terms of some of the newer markets, India, Brazil, Nordics, you've highlighted. India, just taking it in that sequence, it's really a very tiny embryonic market for insulation and indeed for insulated panels. Insulation in general terms is all but nonexistent in it as a country. Panels have tended to have been there mainly around cold storage and food distribution applications. In very broad terms, the market size in India would be half what it is in the U.K.
If you run the square meter per head of population statistic there, I think there's an awful lot of scope in the future in that market, it'll be slow to move. Brazil, quite different. It's more developed. We've got a substantial footprint in the market. The standard of product, generally speaking, is a lot lower. The standard, the price of the product, et cetera, is at very different levels to what we see in Europe or in North America. That's obviously going to take some time to evolve. We'd be very encouraged by the progress of our partnership there so far. As you point out, and I'll come back, sorry, to some of the greenfield projects, we're obviously going to be expanding that presence. Then in the Nordics, we've had a presence there in insulated panels for some time.
That was supplied predominantly from Poland, although some from the U.K., in the run up towards starting a manufacturing plant in Finland about 18 months ago. We also have the presence of the fiber panel in Finland through the Paroc acquisition. All of that side of the business actually has been progressing quite well. Then from an insulation perspective, we have small business in Finland, and we're halfway through the construction of a Kooltherm facility in Sweden. Again, when you look at the penetration metrics of advanced insulation in that market, they are sub 5% versus obviously multiples of that across Western Europe and the U.K. and elsewhere. We see a significant scope for the displacement of traditional materials in that market, simply because of the just unwieldy kind of thicknesses of materials.
It's very common to have four or 500 millimeters of insulation, which obviously is crazy in terms of the space requirement for that in buildings. Conversion from those materials has been happening progressively, and we see that accelerating, I think, into the future. We should get going in that facility probably around the turn of the year. I'd expect that we'll start producing Kooltherm there. In terms of the other organic expansions, there's lots of them underway. You've highlighted Paraguay and XPS in the U.K. I think the South American piece, we've obviously well established in Brazil. There are two more facilities from an organic perspective we intend to build out there. One of them has started already, near enough to São Paulo. There will be a further one up more in the Manaus area of Brazil. That's probably a couple of years away.
We want to get into other parts of Latin America. It's probably starting with Paraguay and indeed even Uruguay thereafter. We really want to get a complete footprint, out of what we've got in Europe, right across the Latin American market at this early stage. The XPS investment that you highlight from the U.K. is pretty much ready. That's a material that we have been importing from partners mainly in Southern Europe, actually, into the U.K. We've had a sales presence in XPS in the U.K. for quite some time. As I say, now we're just establishing our own manufacturing presence, which obviously is complemented by the learnings from our XPS business in Winchester, North America.
Flor, just to deal with your question on the outline split of mainland European revenues of 48%, very directly, France, Germany, and the Benelux would be approximately 10% each. The balance of our European spread would be the Nordics, Eastern Europe, and Southern Europe.
Great. Geoff, if I can ask a separate question. Can you give us any color on the residual impact from last year's deals, what we should have in? Obviously, it'll all pretty much come through in H1, but just conscious of the fact that Balex will be in for H1, Synthesia will be in for a little bit extra. What kind of numbers should we be thinking about in terms of the incremental M&A in our models?
Broadly, the run rate of revenues into this year is about EUR 150 million of full-year revenues into 2019 at a margin of somewhere between 7%-8%.
Great. Brilliant. Thanks very much. Thank you for that.
All right. Bye.
As a reminder, it's star one to ask a question. The next question comes from Andy Murphy from Bank of America Merrill Lynch. Andy, your line is now open.
Thank you. Good morning, guys. I've got three hopefully quick questions. On the roof board opportunity that you've highlighted in the statement, I was just wondering if you could just delve into that a little bit and give us a sense of the size of the opportunity there. Secondly, around Spain, can you perhaps give us guide on what level of market share you are all likely to enjoy in the short and in the medium term. Just on the recycling of recycled materials, recycled raw materials. I'm just interested to see that. I was wondering if you could expand a little bit on that, what the costs of it are, what the long-term benefits are for the firm, and how much of a sort of altruistic angle there is in terms of sort of taking an environmental stance.
Yeah. Sure. Just dealing with the roof board opportunity, we've obviously had a very long presence in roof board insulation through the thermal range of PIR board. We're very close to launching a QuadCore material here, which is really about setting ourselves apart from the PIR competition. We've been successfully doing that in insulated panels. We've about 8% of our global sales revenue of panels is now QuadCore. It's a margin enhancer and a clear differentiator, and our flat roofing board business lacks that advantage. Trials have been very successful. We're going through the accreditation phase at the moment, and we'll launch that soon. In terms of Spain, from an insulation perspective, actually it's from a urethane insulation perspective, it's actually a very small market. We've a fine facility there just outside Girona.
It supplies Spain and actually a lot of other markets right around the world with certain product applications. The local market itself has a long way to go in terms of penetration by capacity any other place we are. We obviously have an Insulated Panel business close by as well. It's focused right across the spectrum, but its predominant emphasis is on cold storage applications. That's a well-established market in Spain, and our market share would be at a healthy level there. From a recycled material perspective, again, this has a Spain bias to it. When we bought the Synthesia business, we also bought a supply capability of polyols, which is about 40% of our polyols would be about 40% of our PIR and QuadCore blends. It's our intention to use those facilities to accelerate the use of recycled PET-based polyols within Kingspan.
So far that would've been almost non-existent. It's our expectation that 100% of our QuadCore polyol, whether it's internally supplied or externally supplied, will be recycled PET-based. We've a number of initiatives underway to at least double that over the next four or five years. To be honest, I'd say that's a conservative estimation.
Okay, great. Thanks very much.
We currently have no further questions.
Great. Well, thank you all for joining the call, We'll obviously be touching base with many of you over the coming days and weeks. Again, thanks.
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your line.