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RPC half-year pretax profit falls as polymer prices rise but revenue climbs 7%

Deadline for private equity firms to announce a decision on a potential bid for RPC is December 3
plastics
RPC reiterated it has been in talks with Apollo Global Management and Bain Capital

RPC Group PLC (LON:RPC) said Wednesday, its half-year pretax profit declined by 5% while revenue increased, as the plastics producer discusses the potential of a takeover offer.

The FTSE 250-listed company’s profit before tax fell 5% to £154.4mln from £161.7mln a year ago, saying that was due to increases in net finance costs stemming from increased net debt, and LIBOR and margin increases. 

READ: RPC's potential private equity bidders granted more time to make offer for the firm

Revenue stepped higher by 7% to £1.89bln, reflecting continued organic growth of 3.2%, a contribution from acquisitions and pass-through of higher polymer prices that were partially offset by foreign exchange movements. Revenue a year ago was £1.77bln.

RPC’s adjusted operating profit on a constant currency basis rose by 3% to £214.3mln from £208.7mln a year ago. RPC said the result highlights good organic profit growth despite headwinds from higher polymer prices.

The company said during the half-year, it disposed of its Letica Foodservice business for total consideration of US$95mlm to Graphic Paper International at a profit of £19.2mln. It also said progress is also being made on the disposal of some other businesses. Those were being held for sale at their expected net realisable value, resulting in an impairment of £37.1mln within discontinued operations.

It also said its interim dividend of 8.1p was up 4%.

Operating profit "distinctly lacklustre" 

Nicholas Hyett, Equity Analyst at Hargreaves Lansdown commented: “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.”

But, he added, that’s “all a bit of a side-show".

Hyett pointed out that RPC is in talks with two US private equity giants about a potential takeover, and progress there is far more important for the share price than these numbers. “The current deadline for an offer is next Monday, and if both parties walk away that’ll be very painful,” he added.

RPC today simply reiterated that it's been in discussions with Apollo Global Management and Bain Capital about a potential bid, and that the deadline for the parties to either announce whether or not they plan to make an offer has been extended to December 3.

READ: Press reports says short-seller Fraser Perring targeting RPC

On Monday, RPC shares ticked higher after press reports said Fraser Perring, the short-seller whose research group uncovered financial irregularities at South African retailer Steinhoff, was targeting RPC.

In afternoon trading on Wednesday, RPC shares were 1% higher at 759.60p.

 -- Adds analyst comment, share price --

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