Polypipe Group Plc Looks to Be on Road to Recovery

Summary

• With the onset of the deadly disease of Covid-19, most of the construction activity came to a halt
• Polypipe saw it’s like-for-like revenue falling in the six months to 30 June; however, the company bounced back faster than expected.
• The company completed the restructuring actions undertaken to position the business for expected future demand

Shortage of raw material and manpower, disruption of supply chain creating handicaps in performing contractual obligations, were the different ill effects of the Covid-19 pandemic, which were triggered by the various restrictions put in place by the administrations to curb the spread of virus. Some raw materials import related to the construction industry from other countries, were badly affected, creating a domino effect on the entire sector. The contraction in consumption demand had also been one of the impacts which the sector underwent.

However, all those companies who promptly adopted corrective measures in time, to safeguard against the inevitable, are on solid footing. One such company belonging to the construction industry, Polypipe Group PLC has started showing improvement, and the recovery is evident from the half-yearly results released by the company for the year ending 30 June 2020.

Financial Highlights Depicting Faster Recovery of the Company

With the onset of the deadly disease, most of the construction activity came to a halt. The leading provider of sustainable water and climate management solutions, Polypipe saw it’s like-for-like revenue fall in the six months to 30 June. However, the company bounced back faster than expected.

• The revenue recorded by the company for H1 2020 was £173.6 million (H1 2019: £223.3 million), which declined by 22.3 per cent in comparison with the same period previous year. Excluding the impact of acquisitions, revenue was 25.1 per cent lower on a like-for-like basis.
• The company’s underlying operating profit of £10.5 million for H1 2020 (H1 2019: £39.3 million) was 73.3 per cent lower than the H1 2019, resulting in an underlying operating margin of 6.0 per cent (H1 2019: 17.6 per cent). This was mainly due to the decline in profitability, which was driven by an unexpected fall in volume losses. Though, the company was partially able to offset it by undertaking cost reduction action.
• Finance costs of £3.9 million were incurred by the company in H1 2020 (H1 2019: £3.8 million), which was in line with the previous year same period results. The cost of raised levels of indebtedness from the beginning of March was the reason behind the increase in finance cost.
• The company recorded non-underlying operating costs of £4.3 million (H1 2019: £4.2 million) because of the amortisation of intangible assets arising from acquisitions (including the acquisition of Alderburgh in 2019).
• The period saw the total tax charge of £0.9 million (2019: £5.7 million). The underlying tax charge of £1.1 million (H1 2019: £6.3 million) resulted in an effective underlying tax rate of 16.7 per cent (H1 2019: 17.7 per cent).
• The Group recorded an underlying profit after tax of £5.5 million, which declined by 81.2 per cent in H1 2020 (H1 2019: £29.3m), with underlying earnings per share declining by 82.3 per cent at 2.6 pence (H1 2019: 14.7 pence).
• Profit after tax (including non-underlying items) was 94.6 per cent lower at £1.4 million (H1 2019: £25.7 million)
• The company’s basic earnings per share were recorded at 0.7 pence, decreasing by 94.6 per cent (H1 2019: 12.9 pence).
• In order to preserve cash during the ongoing crisis, the Board decided not to propose an interim dividend for the period.

Covid-19 Effects on the Company

Trading in Q1 2020 was mostly in line with 2019, with all the impact of Covid-19 impeding the Q2 2020 trading activities. The company prioritised on the health, safety and wellbeing of its employees, business and stakeholders. Decisive and strong actions were undertaken as per the guidelines issued by the Government and the Public Health England, to ensure the smooth operation of all its businesses so as to improve the volume levels.

Nevertheless, the company had to furlough 1,771 employees. The restructuring actions undertaken were completed in order to position the business for expected future demand. The programme included 104 redundancies, which were comparatively lower than the 250, at risk positions announced in July. Rest of the employees now returned to their respective workplaces. The Government will be reimbursing the Job Retention Scheme money to those employees who were made redundant (£0.7 million). Also, the Group has stated that it will not utilise the Job Retention Bonus Scheme planned to be available from February 2021.

Change in the Management

The company confirmed that Paul Dean, Non-Executive Director and Audit Committee Chair, will be stepping down from his position after the publication of the Group's half-yearly results.

About the company

Polypipe Group Plc was established in 2007 as a manufacturer of plastic piping systems for the sector including residential, commercial, civil and infrastructure. The Company is segmented into Residential Piping Systems, Commercial and Infrastructure Piping Systems (UK), and Commercial and Infrastructure (Mainland Europe). It provides a solution to surface water management and treatment, rainwater harvesting, flood defence, recycling of water for re-use in flushing toilets.

The company carries out its operations in the regions across the United Kingdom, French and Irish building and construction markets with a presence in Italy and the Middle East, and sales to specific regions across the world. With over 20,000 product lines, the company operates from approximately 20 facilities in total.

Stock Performance

Polypipe Group PLC (LON:PLP) stock was trading at GBX 432.50 on 17 September 2020, at 9:07 AM, down by 0.35 per cent from its previous close of GBX 434.00. The 52-week low/high price was GBX 381.00/619.00. It was having a market capitalisation (Mcap) of £989.37 million. The volume traded at the time of reporting was 15,626. The company recorded a negative return on price, which was 20.44 per cent on a YTD (Year to Date) basis.

(Source: Thomson Reuters)

Conclusion

All the industries were ushered with a new and an unknown operating environment because of the Covid-19 pandemic. There was a rapid change in the construction industry over the past several weeks as governmental restrictions, supply chain challenges and increased job site safety protocols spread across the country. However, these challenging impacts were dealt with hopefulness, patience and positivity by Polypipe Plc, restoring its operations and helping the company in recovering sooner than expected.