Polypipe beats the market with strong growth

Polypipe's chief executive Martin Payne
Polypipe's chief executive Martin Payne
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Polypipe​, one of Europe’s biggest manufacturers of plastic pipe systems,​​ ​reported record trading in 2017 despite a challenging ​trading backdrop and a warning that Carillion's collapse could lead to project delays.

The Doncaster-based firm said UK revenues rose 8 per cent to £366m in 2017 although there is evidence that project starts are being delayed.

​Group r​evenue ​rose 6 per cent ​to ​a record ​£41​2​m​ in the year to December 31 and underlying operating profit ​rose ​6​ per cent​ ​to a record £72.6m​.​ ​

Underlying ​pre-tax ​profit ​rose 8 per cent ​to £65.7m.

Looking ahead, the group welcomed the news that the UK and EU have agreed on a large part of the Brexit transition deal.

Chief executive Martin Payne said: "I think it starts to give certainty to clients. We manufacture in the UK so there's not a lot of cross border trade. Our workforce is 11 per cent European and it's fairly settled.

"Anything that gives more clarity is welcomed."

Demand from UK housebuilding was very strong and the group has benefited from having a broad exposure to the construction market.

"We've got a housing shortage that needs to be filled," said Mr Payne.

The ​Residential Systems ​division grew by 10.3​ per cent.

​The group said while the fundamentals in the Residential Systems segment are very strong, driven by the new housebuild sector, the UK ​Renovation, Maintenance and Improvement (RMI) market is likely to remain challenging.

"RMI markets have been less than helpful -​ consumer confidence is not good," said Mr Payne.​

​"Private and public RMI has been a tough place. It's very much consumer driven ​and we've got negative real wage growth."

​Polypipe said the news of Carillion's demise in January may potentially lead to further project delays as main contracts are renegotiated and the impact on sub-contractors works through the market.

"We've had a few delays on projects with ​Carillion," said Mr Payne.

"There is no direct impact from Carillion's demise​ as we sell through merchants such as Travis Perkins and Saint-Gobain.

"We've seen delays on road projects. However, on joint ventures such as the A14, the joint venture partners seem to have kicked in and taken over."

​ ​​The group has managed to increase selling prices​ to offset polymer ​price rises and this should come through from ​the ​second quarter​. ​

​"Customers don't welcome price increases, but we managed to do them. Raw material prices can go up and down," said Mr Payne.

In light of the public backlash against plastic pollution, Mr Payne said Polypipe has a very strong sustainability story.

"We use 44,000 tonnes of recycled plastic a year," he said.

"A third of our plastic requirement comes from recycled milk and bleach bottles. We use the recycled plastic in drainage pipes."

​The group is recommend​ing a​ final dividend of 7.5​p ​a share​,​ giving a full year dividend of 11.1​p​ per share, ​a rise of ​9.9​ per cent.

The firm said 2018 will be another year of progress ​and its expectations for the year remain unchanged​.​

​Mr Payne ​said​: "Against the backdrop of a mixed UK construction market performance, continued political and economic uncertainty, and challenges in some overseas markets, Polypipe has delivered strong results in line with our expectations by focusing on its core strategic growth drivers.

​"​UK construction market performance is likely to remain mixed, but with continued focus on our customers and a balanced exposure to the different sectors within construction, we look forward to another year of progression in 2018."

​Following the ​g​roup's record performance in 2017, ​it said ​the current year has started ahead of the same period last year.

Forecasts for 2018 show a broadly flat construction market although​ Polypipe has a strong track record of outperforming the market.

Analyst Graeme Kyle at Shore Capital said: "Polypipe has published preliminary results for 2017 which were a slight beat to both our and consensus expectations and should we think be taken well by investors.

"Both primary segments (UK Residential Systems and UK Commercial & Infrastructure Systems) were slightly ahead of our expectations on both revenue and profit lines. Management reported no change to its expectations for 2018 and note that selling price increases have been successful in offsetting raw material price inflation."