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Trading Update

 2nd May 2017

Plastics Capital (AIM: PLA), the niche plastics products group, is pleased to announce that it expects trading for the financial year ended 31 March 2017 to be broadly in line with market expectations.

Organic sales growth for FY16-17 has exceeded expectations particularly in the Industrial Division, where new business has contributed strongly. Our mandrels and bearings businesses have both had record years driven by new business wins that have now gone into production.  Our matrix activities have expanded internationally, through minority investments in sales and distribution businesses in the USA (“CCM”) and Italy (“Mito”); in addition, just before the end of the financial year, we also completed the relocation of our factory in China from Beijing to Tianjin where costs are significantly lower. In the Films Division, Flexipol, acquired in November 2014, has continued to perform very well and Synpac, acquired in July 2016, has performed in line with expectations at the time the investment was made and is being integrated into Flexipol’s management structure.

Gross margins at constant currency have remained stable and we have continued to invest in sales, new products and management resources to drive future sales growth.  The impact of currency movements, particularly post-Brexit, have been substantial with differing impacts across the Group.  For the time being, our export based business have become significantly more competitive.  However, in aggregate over the financial year, the impact of currency has been broadly neutral because of the forward contacts we have in place as part of our hedging policy.  The effect our hedging policy is to delay the impact of currency movements on profits by approximately two years.

Overall performance has been particularly positive despite the effect of some restructuring needed at Palagan, one of our three films businesses, to enable the business to develop suitably in future years.  We have strengthened the senior management team there, adding two new roles, one in business development and one in product development.  We have also improved the terms and conditions of the factory staff to enable Palagan to raise productivity, innovation and quality going forward; in the short term, however, this has increased production labour costs.  Consequently, for FY16-17, profits at Palagan have deteriorated, although it remains healthily profitable.  We are pleased to report signs of performance improvement as the financial year ended and as we move into FY17-18.

Capital expenditure in FY16-17 has been significantly higher than in prior years as we have added new production capacity and capabilities in films, bearings and mandrels; our capital expenditure programme was explained in some detail to shareholders at the beginning of FY16-17 and we have followed this through largely as planned.  Working capital has been managed efficiently and net debt finished the year in line with expectations at approximately £16.1 million. 

Organic growth remains the key priority and is based on building and maintaining close working relationships with key accounts and related product and process innovation.  The pipeline of projects won but not yet in full production is very strong and capacity will continue to be added as necessary to meet these growth opportunities.  In addition, acquisition opportunities are in our sights but, as ever, it is difficult to predict whether these will come to fruition and, if so, over what time scale.  Overall, we believe that the business is well placed to generate significant shareholder value in the future.

Following the investments made in CCM and Mito, and advice from our auditors, KPMG, we will be consolidating these companies fully into the Group’s FY16-17 P&L account and Balance Sheet with an adjustment made through a Non-Controlling Interest so removing that part of the profit we do not own for CCM and Mito.  The conclusion reached by KPMG is that both these minority investments should be treated as subsidiaries as we have significant control. The changes will result in a material increase in reported revenues for FY16-17, a smaller increase to EBITDA but will not materially affect reported earnings per share.

Commenting, Faisal Rahmatallah, Executive Chairman, said: "We are pleased to report strong growth both organically and through acquisition.  Generating sustainable organic growth has been a challenge in recent prior years but we now see that the investments that we have made in people, business development, product development and new capacity have put us onto a stronger growth trajectory.  We can see this continuing as we move into FY17-18 and hope we can complement this with further acquisitive growth too.”

 

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