RPC shrugs off higher polymer prices

Plastic products design and engineering company RPC Group reported solid underlying growth in the first half of the year, boosted by added-value products in China and the US.

The FTSE 250 company, which is in talks with US private equity giants Apollo and Bain Capital ahead of a 3 December offer deadline, reporting revenue growth of 7% to £1.89bn for the six months ended 30 September.

Growth in the top line reflected continued organic growth of 3.2%, the contribution from acquisitions, and the pass-through of higher polymer prices, partially offset by foreign exchange movements.

Its adjusted operating profit rose 3% to £214.3m, which the board said demonstrated good organic profit growth despite polymer headwinds.

Statutory profit after tax from continuing operations was ahead 1% to £119.1m, with a 2% improvement in statutory basic earnings per share to 28.9p.

RPC reported “robust” adjusted operating cash conversion, achieving 89% while investing in growth projects, while free cash flow declined 14% to £142.9m. The board declared an interim dividend of 8.1p, up 4%.

On the operational front, the company saw “significant” organic growth in China and the US, due to higher added value products.

It invested in its sustainability proposition during the period, with the acquisition of UK-based recycler PLASgran apparently positioning RPC as one of Europe's leading recyclers.

The board said it continued to “selectively consolidate” its European markets with the acquisition of Nordfolien, and finalised the disposal of Letica Foodservice while continuing with the disposal of the other non-core businesses.

RPC returned £99m to shareholders through dividend payments, and the completion of its inaugural share buyback scheme.

“I am pleased with the trading performance over the last six months,” said chief executive officer Pim Vervaat, describing

“We achieved good profitable organic growth with a robust cash flow performance whilst investing for future higher added value growth.”

Vervaat was “excited” by the many opportunities to further develop both organically and through acquisitions, saying the group remains "well placed to benefit from the development opportunities driven by globalisation and recent sustainability and e-commerce trends", still targeting organic growth ahead of GDP.

Shares in RPC were little moved in early trade on Wednesday at 751.8p.

Analyst Nicholas Hyett at Hargreaves Lansdown said: “The first thing that jumps out of these results is a very healthy organic growth number, unfortunately it’s rapidly followed by an operating profit number that’s distinctly lacklustre and free cash flow growth that’s downright ugly.

"Management are pointing to higher raw plastic prices and a delay in passing that through to customers as an explanation – and that’s fair enough – but given the questions RPC’s faced about ‘hidden’ costs in the past, it’s not ideal."

He added that this was "a bit of a side show" as the private equity talks deadline for an offer is next Monday, "and if both parties walk away that’ll be very painful".

Broker Peel Hunt noted that adjusted operating cash conversion of 89% had been achieved while investing in growth projects. "Encouraging first half and the group is well placed to benefit from the development opportunities driven by globalisation and recent sustainability and e-commerce trends. Looking ahead management continues to target through the cycle organic growth ahead of GDP."

The broker said that around £393m PBT is forecast for the full year, with the average analyst forecast rising to £422m for 2020.