Kingspan Group plc (KRX) Earnings Call Transcript & Summary

Good morning, and welcome to today's Kingspan Half Year Results 2026 Conference Call. My name is Seb, and I'll be the operator for your call today. [Operator Instructions] I will now hand the floor over to Gene Murtagh, CEO, to begin the call. Please go ahead.

Thank you, and good morning, everybody. Welcome to the half year results 2026 here at Kingspan. We get straight into it on Slide #3, which is titled H1 in Summary. Really quite a strong first half, bearing in mind the first quarter was difficult worldwide and in our sector naturally. But for the first half, I think a very pleasing outcome with revenue just under EUR 4.9 billion, which is 8% ahead of prior year. Our EBITDA was up 9% at EUR 626 million and our trading profit our pure trading profit number, up 10% at EUR 487 million, all of which is, I think, reasonably positive in the environment that we're in. Importantly, by business segment, pre-currency, the envelope business was up 4% at a revenue level and advances, which is heavily focused on the data side, was up 36% pre currency at a revenue level. So both extremely encouraging, and we get into the order books in both businesses as we go through the presentation. We're holding back on our share buyback program just to preserve dry powder for some opportunities that are out there right now. And the outlook for the second half of the year is even better again. We're upping our guidance to EUR 1.125 billion trading profit for the year as a whole, which would imply second half trading profit growth of around 25%. So momentum is increasing, and we expect that to obviously continue into 2027 as well. So that's it in summary. And I'll just hand it over to Geoff for some detail on this.

Thanks, Gene. And I'm speaking to the financial highlights on Page 6. So going to the top group revenue, up 8% half year on half year, and I'll come to the constitution of that in a second. EBITDA up 9%, trading profit up 10%. But I would highlight that the -- this year's reported number of EUR 487.2 million is net of EUR 4.5 million of Advances IPO exploration costs. So actually stripping that out, and adjusting for currency, the underlying trading profit was up 13% half year-on-half year. Earnings per share up 5%. As you recall, the interest number in the first half of '25 was flattered by a one-off credit we would expect, based on the guidance that we've given for the full year on trading profit of EUR 1,125 million that our earnings per share growth on a full year basis will be close to mid-teens for the full year. Our interim dividend of EUR 0.271, up 3%, a strong free cash flow performance in the first half, EUR 144 million, and I'll come to the components of that shortly. A decent trading margin performance of 10%, up 20 basis points. The margin performance continues to evolve positively. We expect in the second half to be knocking on the door of 12% in the second half. So our full year margin guidance for the year ought to be in the region of 11% on a full year basis. From a debt and leverage perspective, the balance sheet remains in good shape. Net debt-to-EBITDA standing at little over 1.5x. Turning to Page 7, just the bridges of revenue and profit. Firstly, to deal with revenue. Currency clipped EUR 61 million or about 1.5% of sales half year on half year. Acquisitions contributed EUR 125 million or about 3% and underlying sales grew by 6% or EUR 278 million, all combining to give us the EUR 4.86 billion for the first half. From a profit perspective, currency shaved a little under 2% of the half year number, EUR 8.4 million. M&A contributed EUR 14 million, which is net of that EUR 4.5 million that I referred to earlier. And underlying profit grew by EUR 38.7 million in the first half, all combining to give the EUR 487 million for the first half. Turning to Page 8, just on our sales by geography. I think a couple of particular highlights on this would be that the Americas business grew by 1/5 in total, half year over half year, up 21% constant currency. And our Rest of World business grew by over 1/4 half year-on-half year. And the rest of the business grew nicely in the first half as well, and you've got the components of the various territories there on the slide. Turning to free cash on Page 9. Obviously, the strongest component of free cash flow performance is EBITDA, which was ahead in the half year. On working capital, we typically build working capital in the first half. Our trading balance sheet is larger in June than it is at year-end. Our working capital to sales ratio actually improved in the first half of '26. The working capital sales ratio is 12.3% in June '26 compared to 13.1% in June '25. So a positive performance there. CapEx, a little under EUR 156 million. Our CapEx guidance for the full year is EUR 360 million and a similar number going into 2027. And the only other number I'd highlight on the page is our tax outflow, EUR 47 million, slightly lower than the income statement charge that will normalize with the income statement charge as we move through the year. Reconciling that to the overall net debt position on Page 10. The only other items of note on that beyond free cash flow are a modest acquisition spend in the period of a little under EUR 74 million and our dividend payments of EUR 52.6 million. On Page 11, some highlights on our balance sheet. Balance sheet remains in strong shape, net debt-to-EBITDA at 1.56x. An undrawn component of EUR 700 million of our green revolving credit facility, which is committed to May 2028. And with total outstanding private placement notes of EUR 1.4 billion and public bonds of EUR 750 million. The weighted average maturity of all of our debt facilities is 3.7 years. And with total available liquidity of EUR 1.3 billion. And what I would say is that the group remains strongly committed to its investment-grade rating, which means maintaining leverage sub 2x. And with that, I will hand back to Gene.

Great, Geoff. So we just -- we'll take you to Slide 25, which is outlook. And then head on to the Q&A. So obviously, the general geopolitical environment remains, I guess, unpredictable, but that's something we've got used to dealing with for some time now. But even considering that, we do expect the second half to deliver strong performance, both on the Building Envelope business and in the Advances business and pretty much across the world, obviously, with some markets, some businesses doing better than others. But in total, we expect the business to solidly break through EUR 10 billion in revenue for the year as a whole. And as we said, to reach a trading profit of in and around EUR 1.125 billion, way up from prior year, 18% if we achieve that number. And again, importantly, we expect that momentum to carry through into next year and kind of feels like about EUR 1.3 billion as an organic rate of growth or to be achievable at a trading profit level for 2027. And that's well backed by pipeline and customer engagement on projects. And that's really in a nutshell. So we're happy now to take your questions.

Our first question is from Shane Carberry with Goodbody.

Well done, Gene, Geoff, on a stellar set of results. First one for me is just in terms of the panel order intake growth, pretty exceptional stuff that kind of 13%. And Gene, you kind of gave us that really helpful slide back at the full year, I was talking about the consistent outperformance of about 3% versus the market. It probably feels like this is going to be an even bigger outperformance. So could we dig a little bit deeper into exactly what you're seeing in terms of the kind of panel growth would be really helpful. And then just on Advances, like obviously, we kind of commenced the year thinking about an outturn for '26 at an EBITDA level of EUR 300 million. And you talked about doubling that. Obviously, it feels like you're running significantly ahead of that for 2026. So how should we think about sort of the medium-term targets, certainly feels like you're going to hit that EUR 600 million maybe sooner than we would have anticipated.

Okay. Shane, thank you. Yes, the order intake was pretty pleasing for the first half of insulated panels, 13% ahead by volume, globally. And you can take the order book is kind of up at a similar level. That delivered a strong performance for the first half, and we -- we expect that to continue kind of with this sort of momentum into the second half as well. We're -- actually, we've seen quite an encouraging performance in some parts of Europe. Iberia, France, Germany, we would kind of pull out as having been strong performers for us. They've been reasonably depressed for quite some time. So good momentum there in -- particularly in penetration growth and some new product introduction. North America has continued to be strong for us. And indeed, so has Latin America where the business has expanded way beyond Brazil into many surrounding countries. And even recently into Argentina. So like that expansion is going very encouragingly. And we would see that whole market as really very early stage in terms of the adoption of this method of construction. So we continue to focus on that. So yes, I'd have to say that has been by and large, a kind of a global growth trend that we've been driving and experiencing. And then from the Advances side, we had indicated an EBITDA in 2026 of around EUR 300 million. Yes, that's going to be significantly up on that. It could be EUR 400-ish million. If you recall, at the time when we pulled back from the IPO the very reason we gave, which some people didn't seem to catch at the time, was that momentum was just increasing way beyond our expectation, even in the near term. So that's evident in coming through now and we'd be very confident that we break through that EUR 600 million guide that we had given. I think it was for 2030, we're in advance of that. At an organic level. Clearly, that's not including any acquisitions, which, of course, we would expect to do. So that's the general shape of those 2 questions.

Next question is from Florence O'Donoghue from Davy.

Thank you. I have 2 questions as well. First, I might ask is just on advances. Just wondering about the order book in terms of how long that now stretches out. And just in terms of the kind of evolution of the business in terms of the nature of the orders, the type. Is there any kind of changes there? Or what are you seeing? And then the second one, just on the reference to the dry powder. Just interested to hear your thoughts on that in terms of what it might actually mean in terms of the balance sheet capacity, et cetera, and what we might need to keep an eye out for in the coming while. Those 2, please.

Yes. So on the advances side, like raised floor, this has been -- like it's around -- the environment we're operating is growing significantly. Like there's no need for us to kind of focus on that. That's clear. Our market share growth is hurtling along at a product-by-product level. And then our share of wallet is expanding as we add different technologies to the offering. And that's something that we're going to continue to focus very heavily on. So like the shape of this business is entirely different than it was even 3 or 4 years ago, where we've gone from floors to ceilings to modular racks into air management and significantly now into liquid cooling in the data centers. And that itself hasn't really kicked off yet and we would expect in the second half and particularly into 2027 and beyond that, that will really gain momentum. And this is all before we get into the next stage, which is more the electrical side insofar as it's bolted on to the rack itself, which is precisely what we're doing. And that should pull the share of wallet up significantly again. So we're really just evolving the whole product offering, gaining share and gaining share of wallet. The dry powder comment is you can take it, as Geoff said, like our focus is on ensuring that our investment grade is maintained. So we've heard speculation that we're going to be up to all sorts. You can take it, we're not going to be up to all sorts. We will look at chunky deals naturally, but nothing that kind of stretching us beyond 2x, and we want to be very clear about that. But that still leaves us with encouraging opportunity that we hope to continue to move on, as you normally expect us to.

The next question is from Elodie Rall with JPMorgan.

So just following up on your M&A ambitions. Could you maybe elaborate a little bit about Indeed, where you'd go, what your financial firepower would be that 2x leverage that you've mentioned, is that a hard cap? Or would you be able to go a little bit above it? Would you use equity eventually for a deal? So it -- so if you can give us a bit more color about how big what we could expect there? That would be helpful. And second, on margins, I mean, 11% margin for '26. That's versus broadly 10% for the last few years. And historically, so are we now in a different dynamic? And should we expect more margin progression from here?

Okay. Elodie. So just on the first point, just to reiterate, again, we have no intention of doing anything that involves equity anytime soon. We obviously would never dismiss that as a possibility long term, but nothing remotely imminent on that front. If you think about us pushing it to 2x with an intention to rapidly delever as we always have done, that implies we have headroom of approximately EUR 1 billion at the present time. And that's about the height of it. And we have lots of opportunities that would fill that scope.

Just to pick up on your point around margin, Elodie. You'll have seen in the first half some progression on margin by 20 basis points at a group level. We expect the momentum in margin in the second half to pick up to close to -- at a group level, close to 12% in the second half. So we ought to be at or around 11% for the full year. As we progress the business into next year and consistent with the EUR 1.3 billion of trading profit that Gene referenced earlier, we continue to see ongoing incremental improvement on that front as well as we move through the years.

The next question is from Julian Radlinger from UBS.

So 2 questions from me, please. First of all, can you give us a sense for the organic growth you're expecting in the second half for Envelope? And maybe how that fits between price and cost, roughly? I know you don't like to talk about that, but I think what -- with the conflict going on and the input cost inflation currently. I think a lot of investors would be interested to understand that a bit better. And then secondly, on commercial roofing, I didn't see too much in the release, maybe I missed it. Can you remind us of your -- of the sales targets there, how that's -- how the ramp there is going? I think that should be happening now, right? What are your expectations for sales and EBITDA contribution either into '27 or in 2027?

So I'll just deal with the first bit there, if I can, Julian. The commercial roofing rollout in the U.S. is going totally according to plan. We would expect revenue next year to be hopefully pushing up around $200 million with a positive contribution as well. We're already manufacturing and delivering product from our facility in Oklahoma, which is a fairly stunning plant and will be the location where CMD is later in the year. Commissioning in Cumberland in Maryland at the present time. And the hot on the heels of all that would be a facility for polyiso board in Utah. That we're working on right now. So that's kind of what's on our immediate horizon. As I say, developing well, commercial engagement is very positive with the customer base. And we'd be at least as confident as we ever were about how we will succeed in driving that business forward in the U.S. And of course, in Europe, the business is performing exceptionally well too. And the business, as you know, right now that's in excess of EUR 800 million in Europe, and we're satisfied with the performance of that as well.

Yes. Just to deal with the sales performance in Envelopes, I mean, firstly, it's worth highlighting that both divisions have contributed to the earnings upgrade that we've referenced this morning, both this year and our early guidance next year. But if you look at the trajectory of sales, and I'm just going to do a pre-currency to avoid any to avoid that, in the first quarter, our Building Envelope sales were minus 2%. For the first half, they were up 4% pre-currency. That implies a pickup in momentum in the second quarter. We're not going to be drawn on the specifics of pricing and volumes, given the category breadth that we have, the breadth of end markets that we're in, all of the factors around that. But suffice to say, we would expect the top line growth in envelopes to be better than 4% in the second half of the year. But more importantly than that, the EUR 1.125 billion profit guidance is where we remain centrally focused. The margin recovery speaks for itself in terms of the margin performance in Envelopes in the first half. And indeed, we expect the margin performance in envelopes to be north of 11% in the second half. So that will be borne out through a combination of volume and pricing in different markets and different products.

The next question is from Alexander Craeymeersch from Kepler Cheuvreux.

Yes, 2 questions on my side. So question would be on inflation. If you could say a word on what you expect for the second half in terms of chemical inflation and steel inflation in terms of the cost. And if you also expect that some demand of your clients got put forward to Q2, considering they were anticipating some price increases in the third quarter. So that would be 1 part. And then, yes, the other one is on advances. I mean clearly, it's gaining steam here. So a couple of months ago, you mentioned that you would postpone the IPO. I think it's -- I mean the markets sort of read into that, that this is canceled. But the question that I really have is now whether we still need to take into account the potential IPO of these advances or whether this is completely behind us, but I would anticipate a positive read considering this strong momentum.

Okay. So in terms of cost inflation in the second half, that's obviously a moving piece. View on that kind of ebb and flow depending on the week and what's going on geopolitically. But broadly speaking, I'd say we would feel that -- broadly speaking, we feel that we have already taken on the cost inflation by and large that we would expect to through particularly the second quarter. There may be some humps and bumps as we go through H2. Chemicals and steel may move in different directions and for entirely different reasons. I think if anything, steel could push on a little, I wouldn't expect it to be huge, but possibly a little. And on our chemical input side, I think it's reasonable to expect it to remain broadly stable, although that will jump around depending on the obvious stuff. So from a selling price perspective, I'd also say that we've -- we've done a good job in terms of cost recovery. That's evident in terms of the maintenance of margins in the businesses. And again, I would say that we'd expect that to be broadly stable in the second half. And in terms of what impact that's had in terms of H1 forward buying, like that's always -- honestly, that's very difficult for even us to assess. The majority of Kingspan's business, as you know, is made to order. The only bit that is not is around Insulation Board, which can go into stock as standard items. And that's a relatively small part of the overall group. The bigger part by far in terms of insulated panels is all bespoke and it's impossible to actually buy forward. So we have an order bank, like we said, that's extremely healthy for the second half. And that's for delivery through to the second half. I think it's not unreasonable to think that there's been some element of forward buying, but it's not something we think has been a very significant feature of the business. You can take it the -- on the advances side, the IPO discussion is over. It's very much a central part of Kingspan as, by the way, it would have been even in the event of IPO. If you recall, we were going to retain 75% of it in any event. So there's 1 Kingspan, it's all together. It's all very tight, and we're blasting forward.

Next question is from Ben Rada Martin from Goldman Sachs.