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Plastics Capital confident it is now firing on both cylinders

In his recent Budget, the Chancellor announced a new tax that will be applied from 2022 to manufactured or imported plastic packaging that does not contain at least 30% recycled content.
Plastic machinery
The group's products are all industrial products sold to other industrial businesses and not used by consumers

Plastics Capital Plc (LON:PLA), the niche plastics product manufacturer, said its full-year performance will be ahead of last year, in line with expectations.

The company put in a solid first-half performance in the six months to the end of September, with encouraging signs of the Industrials division rediscovering its mojo after the bearings business suffered delays in two important product launches by customers in the corresponding period of 2017.

WATCH: Plastics Capital puts in solid first half performance with double-digit organic growth

Revenue rose 11.4% to £40.63mln from £36.46mln, with organic growth clocking in at 12.1% on a constant currency (CC) basis. The Films division’s organic CC revenue growth was 12.0% while the Industrial division’s growth was 12.2%.

Underlying earnings (EBITDA) rose 42.8% to £3.67mln from £2.57mln, with EBITDA up 29.0% on a CC basis, thanks largely to the Industrial division, which is more operationally geared than the Films division.

Profit before tax rose 75.4% to £2.10mln from £2.0mln the year before.

Net debt widened to £15.75mln from £14.99mln.

The full benefit of the reorganisation of the Films division is yet to feed through

The Films division recently switched from being three separate businesses, each with their own sales forces and factories, to a unified division with just one sales force and one raw material procurement team.

Management estimates it will take another 6-18 months for all the management and system changes to bed down fully.

On the Industrial side, the new business pipeline (projects already won but not yet in production or not yet at full production rate) increased to £5.8mln, underpinning management’s confidence that the business is on “a healthy growth trajectory”.

The company said it would be seeking shareholder approval on December 20 to change the company’s name to Synnovia.

The second half of the fiscal year has “commenced favourably” with the usual seasonal upturn in the Films Division and continued good performance in the Industrial Division.

The group has seen an improvement in the order book in its mandrel (spindle) business, which was the only part of the group that had a weaker than expected first half.

Management is mindful of the potential pitfalls ahead, such as trade wars, Brexit and concern over plastic waste, but if these can be factors remain benign, the board remains confident about the outcome for the current financial year and future growth of the group for the medium to longer term.

"I am pleased to report continued strong organic revenue growth across the group,” said Faisal Rahmatallah, the chairman of Plastics Capital.

“This is now being reflected in improved profitability as the mix of revenues in our two divisions has rebalanced and because we are now feeling the full effect of sterling's devaluation in 2016 after the Brexit vote. Meanwhile, we have continued to invest heavily in business development, new products, production capacity and employee capabilities,” he added.

“Order books are healthy and we expect good sales growth to continue for the foreseeable future if economic conditions remain satisfactory,” Rahmatallah said.

Analysts' reaction

Research house Capital Network said it would be leaving its full-year forecasts unchanged after the interims but said the performance reinforced its confidence in those forecasts.

“The company lists various uncertainties that could affect the near-term or medium-term outlook – Brexit, trades wars, and the UK’s proposed plastics tax to be introduced in 2022. We believe that these are all well known to the market and do not represents new incremental risks,” Capital Network said.

Shares in Plastics Capital currently trade at 106p, up 1.5p.

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Synnovia PLC Timeline

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July 09 2019
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April 26 2019
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