Kingspan Group plc Annual Report & Financial Statements 2016 Design: www.reddog.ie Design: Kingspan Group plc Kingspan Group Annual Report & Financial Statements 2016 Financial Statements Annual Report& Dublin Road Tel: +353 42 969 8000 Kingscourt Fax: +353 42 966 7501 Co Cavan Email: [email protected] Ireland A82 XY31 www.kingspan.com Kingspan. The global leader in high performance Shaping the future built environment. insulation and building Pioneering new technologies with envelope solutions. energy conservation at their heart. Germany Westhafen Tower — Light & Air: Natural ventilation system SUMMARY FINANCIALS 2 GLOBAL REACH 8 BUSINESS & STRATEGIC REPORT UK Chairman’s Statement 4 Delancey Street Business Model & Strategy 8 — COMPLETING Environmental: Chief Executive’s Review 16 THE ENVELOPE Thermomax Solar Thermal Tubes Financial Review 24 11 Risk & Risk Management 30 Corporate Social Responsibility 32 DIRECTORS' REPORT Chairman’s Introduction 42 The Board 44 Report of the Directors 46 Corporate Governance Statement 54 Report of the Remuneration Committee 61 Report of the Audit Committee 72 FINANCIAL STATEMENTS Independent Auditor’s Report 80 Financial Statements 83 Notes to the Financial Statements 91 OTHER INFORMATION Alternative Performance Measures 128 Shareholder Information 130 Principal Subsidiary Undertakings 133 Group Five Year Summary 136 SUMMARY 2 2 FINANCIALS Trading Margin up EPS up 180bps 35% 11.0% 2 143.8 cent 2 2015 9.2% Profit After Tax up 2015 106.7 cent EBITDA1 up 34% 28% €255.5m 2 €404.1m 2 2015 €190.6m Revenue up 2015 €316.4m Trading Profit2 up 12% 33% €3.1bn €340.9m 2015 €2.8bn 2015 €255.9m 1 Earnings before finance USA cost, income taxes, Kennesaw State University depreciation and — intangible amortisation Insulation Boards: Greenguard XPS 2 Earnings before finance cost, income taxes and intangible amortisation 2 Kingspan Group plc Annual Report & Financial Statements 2016 Business & Strategic Report 3 These results reflect particularly strong contribution from BUSINESS & organic growth and improved margins over the course of the year. In addition, the businesses acquired in 2015 are STRATEGIC now fully integrated, and contributed well during the period. REPORT These have been bolstered by further the high-end architectural facades while growing the Company’s acquisitions during 2016, including businesses in the UK, as well as return on capital year-on-year, Essmann in Europe and Bristolite in Tankworks in Australia which gives and maintaining a strong balance North America which together with our Environmental business its first sheet. Notably, during the year our existing daylighting business will platform in the Australasia region. the Company secured long-term CHAIRMAN’S combine to form a new Light & Air strategic funding at very attractive division offering a range of products These acquisitions, as well as parallel interest rates, which will support that will “Complete the Envelope”. organic investments in the Nordics, the further development of the STATEMENT Other acquisitions during the year North America, Australasia and the Group in the coming years. included Euro Clad and Eurobond, Middle East, have been achieved Building on the achievements of the previous year, 2016 was another record year for Kingspan. In a year that threw Australia up many geopolitical surprises, Kingspan’s WAIS Sports Centre — management remained focused on Insulated Panels: its business and strategy, delivering Evolution and Trapezoidal Revenues of €3.1bn, up 12%, and Trading Profit of €340.9m, up 33%. 4 Kingspan Group plc Annual Report & Financial Statements 2016 Business & Strategic Report Chairman's Statement 5 USA Notre Dame University — Insulation Boards: Kooltherm K15 Rainscreen Board France Center Parc — Light & Air: Electric control panels for natural and smoke ventilation MANAGEMENT AND EMPLOYEES GOVERNANCE On behalf of the Board, I want The Board continues to manage and to thank the management team monitor governance and risk across and more than 10,000 employees the business throughout the year, throughout Kingspan, for delivering details of which are set out in the these outstanding results. During Report of the Audit Committee and the year the Board visited four of the Corporate Governance Statement our manufacturing sites, in the US in this annual report. We also and in the Middle East, and had maintained an open dialogue with our the opportunity to meet with the major shareholders on the Company’s senior management in each location governance as well as strategy and and see first-hand the energy and financial performance, as detailed in commitment of the local teams. the Financial Review and the Report of the Remuneration Committee in DIVIDEND this annual report. There were no The Board is recommending a final appointments to or retirements dividend of 23.5 cent per share, which from the Board during the year. if approved at the Annual General Meeting, will give a total dividend LOOKING AHEAD for the year of 33.5 cent, an increase At the heart of Kingspan’s approach of 34% on prior year. This will be the is the drive to help our customers seventh consecutive year of growth in achieve improved building the shareholders’ dividend, in line with performance and reduced running the Company’s continued progression. costs. I am confident that the business model of offering an increasing range If approved, the final dividend will be of high performance insulation and paid (subject to Irish withholding tax low energy solutions which “Complete rules) on 5 May 2017 to shareholders the Envelope”, which has contributed on the register at close of business to our excellent performance in this on 31 March 2017. past year, remains compelling. I am also confident that as we continue to expand this model across an ever growing geographic base we are well positioned to deliver increased shareholder value in 2017 and beyond. Eugene Murtagh Chairman 17 February 2017 6 Kingspan Group plc Annual Report & Financial Statements 2016 Business & Strategic Report Chairman's Statement 7 BUSINESS & STRATEGIC REPORT 5 Business GLOBAL BUSINESS Divisions 3 3 Effective from January 2017 3 2 REACH MODEL & 3 3 6 16 4 2 4 4 2 10 2 8 4 STRATEGY 11 1 3 10,000+ 2 2 Who We Are Employees 2 Kingspan Locations ! Kingspan is the global leader in high performance Globally Africa Belgium Romania insulation and building envelopes. Kingspan Egypt Bosnia Russia differentiates itself through its relentless Morocco Bulgaria Serbia development of innovative and patent-protected South Africa Croatia Slovakia proprietary technology. Sales Czech Republic Slovenia 101 Asia Denmark Spain ! Kingspan helps its customers to build in an energy Manufacturing Hong Kong Estonia Sweden efficient manner that both reduces running costs Manufacturing India Finland Switzerland and also meets environmental regulations and Facilities Indonesia France United Kingdom greenhouse gas emissions targets. Improving building Malaysia Germany Ukraine performance, construction methods and ultimately Pakistan Hungary people’s lives, is what drives Kingspan forward Singapore Ireland Middle East around the world. Thailand Italy Iran 1 Vietnam Kazakhstan Iraq ! Founded in Kingscourt, Co Cavan in Ireland in 1965, Latvia Saudi Arabia the Company has expanded into a global business Global Innovation Australasia Lithuania Turkey operating in over 70 countries, employing more Centre (Ireland) Australia Macedonia UAE than 10,000 people. New Zealand Montenegro Qatar 2 Netherlands Jordan 2 Europe Northern Ireland Americas Queen Alia Albania Norway Canada 13 International Airport 3 Austria Poland Mexico — Azerbaijan USA Regional R&D Insulated Panels: Kingzip Centres (Worldwide) 8 Kingspan Group plc Annual Report & Financial Statements 2016 Business & Strategic Report Business Model & Strategy 9 Business & Strategic Report 10 BUSINESS & STRATEGIC REPORT BUSINESS & STRATEGIC REPORT Drivers Sector The Company manages its business BUSINESS AT A through 5 operating divisions: 85% Energy Efficiency 72% Commercial & Industrial › Insulated Panels & Conversion 18% Residential MODEL & GLANCE › Insulation Boards 15% Other 10% Office & Data › Access Floor Systems STRATEGY Kingspan manufactures › Environmental a suite of complementary › Light & Air* building envelope solutions for both the new build and refurbishment markets. INSULATED PANELS timber systems. A wide product range ENVIRONMENTAL A global leader in the design, suitable for a variety of applications in Providing trusted market-leading End Market Channel development and manufacture of the domestic, non-domestic, solutions for rainwater harvesting products and solutions for advanced new-build and refurbishment sectors. and wastewater management, Completing building envelopes. Providing thermally renewable energy technologies and hot the Envelope efficient and airtight insulated panel ACCESS FLOOR SYSTEMS water systems, environmental building envelopes, integrated solar The world’s largest supplier of raised fuel storage and smart monitoring PV and smart lighting systems, and access flooring, providing the most for all types of building projects. Insulated panels world-class customer and technical cost effective way of creating flexible 30% Refurbishment 75% Direct support in sustainable building design space and convenient distribution of LIGHT & AIR* 70% New Build 25% Via Distribution and realisation. All of our products building services in a range of high-end Newly established in 2016, Kingspan and systems are backed by extensive architectural