Kingspan says it faces challenges maintaining growth

Chief executive says price of steel and chemicals used to make insulation rising

Kingspan chief executive Gene Murtagh: Its  biggest business is manufacturing insulation panels and boards to cut energy consumption in buildings. Photograph: Cyril Byrne

Kingspan chief executive Gene Murtagh: Its biggest business is manufacturing insulation panels and boards to cut energy consumption in buildings. Photograph: Cyril Byrne

 

Kingspan faces some challenges this year in maintaining growth that saw profits at the insulation manufacturer rise 33 per cent to €341 million in 2016. The Cavan-based group said on Friday that it grew revenues by 12 per cent last year to €3.1 billion, while trading profit expanded at a rate of 33.2 per cent to €341 million from €256 million.

Low raw material costs aided this growth, driving margins up to 11 per cent in 2016 from 9.2 per cent the previous year. However chief executive Gene Murtagh confirmed that expenses were on the way back up.

Various factors are pushing up the price of the steel and chemicals that Kingspan uses to make its insulation products, forcing the group to pass on those costs to its customers. According to Mr Murtagh, clients recognise the need for this. “I have never had a customer say to me: ‘I want to buy your product for more than I paid the last time’ but the reality of this is widely known, and it’s no surprise to anybody. So we’re working through it,” he said.

Insulation panels

Kingspan’s biggest business is manufacturing insulation panels and boards fitted in buildings to cut energy consumption. It has operations in Europe, North America and Australasia. A significant proportion of sales come from new construction and refurbishments.

The company has yet to see any negative impact on its UK business from last year’s Brexit vote. Orders point to a strong start there this year while Mr Murtagh noted that he had not seen cause for concern.

The company has enough capacity in the UK to meet the market’s needs, so any trade barriers that result from its leaving the EU are unlikely to have much of an impact.

Following a seasonal lull that combined with an expected slowdown ahead of the November elections, US sales have regained their normal momentum.

Mr Murtagh acknowledged that the Irish group could benefit from US president Donald Trump’s proposed infrastructure and stimulus spending, but stressed that it was not relying on this.

Alongside this, sales in the Republic, which account for about 4 per cent of Kingspan’s revenues, have been growing at double-digit percentages. The group’s chief executive expects this to continue in 2017.

Record year

In his statement Mr Murtagh said 2016 had been another record year. “We are encouraged about the outlook for the first half of 2017, with the current order book solidly ahead of the same point last year,” he added.

Kingspan’s net debt was €428 million on December 31st. It has €682 million in cash and undrawn debt available to it. Mr Murtagh explained that, taking into account its policy of maintaining a ratio of two times debt to earnings, this left “about €500 million” for acquisitions or capital spending.

While it has candidates in mind, he stressed that any deals would depend on price. The Cavan-based group spent €251 million buying rivals last year.

The biggest were Euroclad and its associate, Eurobond, both of which Kingspan’s subsidiary Joris Ide purchased, and German company, Essman, which makes windows and skylights.

PANEL

Kingspan Group plc

Turnover: €3.1 billion +12%

Trading profit: €341 million +33%

Earnings per share: 143.8 cent +35%

Dividend: 33.5 cent +34%