Final Results

 KINGSPAN GROUP PLC

PRELIMINARY RESULTS

Year Ended 31 December 2018

KINGSPAN GROUP PLC

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018

Kingspan, the global leader in high performance insulation and building envelope solutions, reports its preliminary results for the year ended 31 December 2018.

Financial Highlights:

· Revenue up 19% to €4.4bn, (pre-currency, up 22%).

· Trading profit up 18% to €445.2m, (pre-currency, up 20%).

· Free cashflow up 55% to €308.4m.

· Group trading margin of 10.2%, a decrease of 10bps.

· Basic EPS up 16% to 184.0 cent.

· Final dividend per share of 30.0 cent. Total dividend for the year up 13.5% to 42.0 cent.

· Year-end net debt of €728.3m (2017: €463.9m). Net debt to EBITDA of 1.4x (2017: 1.05x).

· ROCE of 16.8% (2017: 17.8%).

Operational Highlights:

· Insulated Panels sales growth of 21%. Strong activity in the Americas, a positive performance in Continental Europe and a solid UK outturn against a difficult backdrop. Good contribution from acquisitions in Europe and Latin America.

· Insulation Boards sales growth of 12% reflecting a positive outturn in the Iberian acquisition, ongoing advancement of Kooltherm® and solid underlying markets overall. New capacity planned for the Nordic region and the Middle East reflecting ongoing conversion from traditional materials.

· Light & Air sales approaching €300m with improved margins in Europe offsetting softer US margin, strong order intake overall in the US and a planned new facility in France to service Europe and the Middle East.

· Water & Energy (formerly Environmental) sales growth of 13% with a new frontier established in the Nordic region.

· Data & Flooring Technology (formerly Access Floors) sales growth of 3% with strong sales of datacentre solutions offsetting more sluggish office activity.

Summary Financials:

 *Operating profit before amortisation of intangibles and non trading items

** Trading profit divided by total revenue

Gene M. Murtagh, Chief Executive of Kingspan commented:

"2018 was a year of strong growth for Kingspan, with the company delivering revenues of over €4bn for the first time. Performance has been robust in most of our major markets, and momentum has improved through the year. With the order book going into the new financial year ahead of the prior year period, we are confident in our near-term outlook. Notwithstanding this we remain mindful of challenges to growth, particularly the continuing uncertainty in the UK. However, the geographical diversification of the business, helped by our acquisitions last year to expand our footprint in Latin America, Southern Europe and India, means we are well placed to continue to deliver long-term returns to shareholders."

For further information contact:

Business Review

During 2018 Kingspan generated record revenues of almost €4.4bn, and EBITDA exceeded €500m for the first time. Trading profit reached €445m, ahead by 18% over prior year, and EPS was up by 16% at 184.0 cent per share. In all, it was a positive outcome and delivered in the face of unprecedented turbulence in our raw material supply chain. Total investment was €604m in the period, €472.3m of which was on acquisition and €131.3m on net internal capital expenditure. Year-end net debt/EBITDA was 1.4x.

Momentum in activity generally improved for us as the year evolved, and with the notable exception of the politically hamstrung UK, most of our major markets ended the year strongly with order banks well positioned for the start of 2019. The majority of Western Europe performed robustly, North America advanced well, as did Latin America. Conversely, the UK eased back considerably towards year-end although it is relatively stable for Kingspan despite the backdrop.

Strategy

Our strategic agenda is focused on the four pillars of Innovation, Globalisation, Penetration and Planet Passionate. 2018 once again delivered advancements in all four areas:

- Product Innovation and range expansion is key to Kingspan. The rollout of QuadCore™ has been core to this agenda in recent years and in 2018 8% of global Insulated Panel sales contained this proprietary technology. 2019 will see its launch as a roof Insulation Board thereby creating a clear differentiator in this application. Development of Kooltherm® 200 continues and the fibre-free 'A Core' project is progressing on plan and we expect to launch our solution during 2020. IKON™, our global innovation hub is well under construction at our home base of Kingscourt in Ireland and is scheduled to open around mid-year. It will focus on delivering the full spectrum of insulation and building envelope solutions that are ThermalSafe, FireSafe, SmokeSafe, WeatherSafe and FibreSafe.

- Globalisation of Kingspan remains at the heart of our ongoing evolution. In late 2017 we further expanded our manufacturing footprint by investing in partnerships in Brazil and Colombia. These acquisitions firmly place Kingspan in a market leading position across Latin America, a new frontier for Kingspan, with a strong platform for further growth in the region.

Early in 2018 we acquired a presence in Southern Europe through the Synthesia Group, consisting of three operating businesses; Synthesia International, Poliuretanos and Huurre. Through its Huurre and Poliuretanos businesses, the Synthesia Group gives Kingspan a leading position in both Insulated Panels and Insulation Boards on the Iberian Peninsula and strengthens our emerging Insulated Panels presence in Latin America. It also provides an excellent technology platform for blended chemical systems similar to those used throughout the wider Kingspan Group.

We also advanced our position in Central Europe with the acquisition in July 2018 of Balex Metal, a Polish manufacturer of Insulated Panels and Insulation Boards. Balex has a strong market presence locally and in surrounding export markets. It complements our existing presence in the region and brings with it two well invested manufacturing facilities.

In July we invested in the Kingspan Jindal business in India opening the door to a longer term conversion opportunity in the region.

- Penetration growth and conversion from traditional insulation and building methods has been a core driver of our success to date. As energy consumption, energy conservation, and energy sources become increasingly important challenges for the world, demand should rise for product technologies which address this urgent agenda. Buildings consume approximately 40% of global energy and Kingspan's solutions are designed to dramatically curtail the environmental damage from building emissions.

- We are Planet Passionate at Kingspan. We are committed to achieving 100% Net Zero Energy by 2020, and stand alone within our industry in having this goal. Our product technology provides designers, developers and owners the means with which to equally embrace a lower energy future. Circularity is becoming crucial, and our products are reusable, recyclable and increasingly comprise recycled PET with a commitment to more than doubling this source within the coming five years. We are developing initiatives to harvest recycled raw materials from both land and ocean.

Insulated Panels

(1) Comprising underlying +6%, currency -3% and acquisitions +18%

Mainland Europe

The Continental European region performed well overall for our Insulated Panels businesses. France in particular had an excellent year, as did the Netherlands. Germany and Belgium delivered solid outcomes and market penetration in the Nordics advanced further as the region increasingly adopts advanced methods. Activity in Central Europe was mixed and the focus on reviving margins in this market resulted in a strong operating outcome, further bolstered by the addition of Balex to the portfolio. Early in the year we entered the Iberian market with the acquisition of Synthesia which in both the home and export markets delivered an excellent first year's performance, and ahead of plan.

Americas

Volume, margin and profitability all improved considerably in North America during 2018 as penetration for Insulated Panels continued to grow, and as the steep cost inflation experienced earlier in the year was passed through to market. The temperature controlled environments segment performed well and the adoption of our insulated architectural facades range continued to outpace traditional construction methods across a wide variety of building applications. 2018 was also our first full year of operation in Latin America through the Kingspan Isoeste partnership in Brazil and PanelMET in Colombia. Both businesses made significant progress over the prior year and have begun to deliver broader technical and operational synergies. Across the Americas in total, the business exited the year with an order bank well ahead of prior year.

UK

Sales volumes were strong towards the end of the year bringing the full year on year output broadly in line with 2017. This was achieved despite growing uncertainty and a construction market backdrop that weakened towards year-end. Whilst the project pipeline is in reasonable shape, the growing deficit in confidence has resulted in ongoing postponements. We expect this situation to prevail until the political and economic landscape is more certain, and will focus our efforts on accelerating QuadCore™ and Kingspan Facades growth to help compensate for an anticipated general contraction in building activity.

Asia Pacific & Middle East

Having experienced a challenging 2017, the business in Australasia regained momentum in 2018 with both the order bank and specification pipeline well improved by year-end. This bodes positively for the first half of 2019. Meanwhile in Turkey and the Middle East, growth also resumed and a healthy project pipeline should provide a solid foundation from which to advance long term in the region. During the year we also entered India through the Kingspan Jindal partnership which provides us with two manufacturing facilities in this relatively embryonic and exciting new frontier.

Ireland

Not surprisingly, construction activity in Ireland has expanded once again and at a more digestible pace than in the past. The non-residential segment which this business unit serves experienced a significant uplift in 2018 and we would anticipate this trend continuing into 2019.

Insulation Boards

(1) Comprising underlying +2%, currency -2% and acquisitions +12%.

UK

The business had a strong start to 2018 which was largely fueled by continuing penetration growth of Kooltherm® coupled with the selling price inflationary impact of rising raw material costs. Since then, and as indicated at half year, these prices have reversed somewhat leading to corresponding deflation in the price of our PIR based products. This general trend, also experienced in other markets, has resulted in PIR regaining share from traditional materials. More broadly in the UK however, the political backdrop has meant that demand for building products has eased in recent months and is likely to weaken further if this uncertainty persists.

Mainland Europe

Having had a weak start to the year, the demand for advanced insulation in Mainland Europe improved significantly in the second half of the year. The scarcity of some raw materials had hampered growth earlier in the year. Activity in the Netherlands was particularly strong and our presence in the Nordics, which is dominated by traditional fibrous materials, continued to advance in anticipation of our upcoming Kooltherm® facility which we expect to commission in the fourth quarter of this year. Our first year with the Synthesia Insulation business in Spain, has been very satisfactory at a time of gradual recovery in the Iberian market. This business has been further bolstered by growth in exports as it delivers its technologies across a broad international base of end markets.

Americas

Again, following a slow start to 2018, our business in North America improved as the year progressed. The investment made in 2017 in a new XPS line in Winchester Virginia is now fully operational and as its capacity becomes increasingly utilised our focus will shift to assessing further locations to establish a future manufacturing presence. The specification pipeline for Kooltherm® has grown substantially, albeit from a small base. Whilst this is currently supported by supply from Europe it is our intention in the medium term to manufacture this technology locally in the USA.

Asia Pacific & Middle East

This region has again delivered strong growth for the division in 2018. The business is now providing solutions to a broader set of applications and is supported by both the new PIR line installed earlier in the year, and a new phenolic board plant. The latter will be aimed at servicing the increasing demand for advanced insulation in HVAC applications in the UAE and beyond.

Ireland

The revenue growth experienced during the first half continued through the remainder of the year, largely driven by Kooltherm® and strong PIR pricing, although the latter eased somewhat towards year-end. Raw material deflation has led to some price erosion of PIR which we anticipate will stabilise in the near-term.

Light & Air

(1)  Comprising underlying +7%, currency -1% and acquisitions +37%.

Continental Europe, particularly Germany, performed well and has continued to do so into the early part of 2019. The Benelux was a little more subdued as the project pipeline was lower than in recent years, although this picture has improved into early 2019. Southern Europe grew marginally and the relocation of this business into a state-of-the-art manufacturing facility in Lyon, France will provide capacity for growth, and play a key role in supporting the substantial daylighting requirement across the Middle East.

In North America the specification bank for the high-end UniQuad® wall-lighting system has grown considerably during the year. Order intake outpaced dispatches during the year and this augurs well for 2019. In contrast to this, more generic roof-lighting systems have become increasingly competitive resulting in an element of margin pressure. This pattern is expected to improve during the current year and over time the integrated sales effort with our Insulated Panels business is expected to deliver meaningful sales leverage.

Water & Energy (formerly Environmental)

(1) Comprising underlying +3%, currency impact -3% and acquisitions +13%

Underlying sales revenue was relatively stable during 2018. Margins were affected by costs incurred on the exit from micro wind and solar thermal activities and also by acquisition expenses related to the Norwegian investment. The UK weakened across most product segments in the second half, Ireland performed well, as did much of Mainland Europe. Integration of the VPI acquisition in the Nordics is progressing and provides a new growth frontier in the waste water management category which we expect will feature prominently in the division's future. In Australia, the rainwater harvesting business has performed very strongly in recent years, particularly in the residential segment in New South Wales. With this sector easing back, we expect demand for rainwater systems in that region to moderate but aim to compensate for this with a wider product offering and growth initiatives in other states.

Data & Flooring Technology (formerly Access Floors)

(1) Comprising underlying +2%, currency -3% and acquisitions +4%

The re-naming of this division is a reflection of the evolution of the division's product offering since it started life in Kingspan as Access Floors in isolation. The portfolio now includes a wide range of sub-structure technology and air management solutions for datacentres, as well as a much wider offering on floor finishes.

In the first half of the year, the performance of the business in the UK was in contrast to the general trend in office construction performing robustly through the second half. Whilst the requirement for access floors is expected to contract marginally through 2019, growth is anticipated in data solutions activity, a sector which has been a key growth area for the division in recent years. This is also likely to be the case in North America and Australia where we expect to deliver tangible progress in the year ahead. In addition, during 2018 our presence grew in Continental Europe through the business acquired in Belgium in late 2017.

Acquisitions

During the year we completed eight acquisitions with a consideration of almost €470m. These included the leading insulated panel and board businesses in Iberia, a strong player in the insulated panel business in Central and Eastern Europe and a partnership with the market leader in the insulated panel market in India.

Financial Review

The Financial Review provides an overview of the Group's financial performance for the year ended 31 December 2018 and of the Group's financial position at that date.

Overview of results

Group revenue increased by 19% to €4.4bn (2017: €3.7bn) and trading profit increased by 18% to €445.2m (2017: €377.5m) with a modest decrease of 10 basis points in the Group's trading profit margin to 10.2% (2017: 10.3%). Basic EPS for the year was 184.0 cent (2017: 159.0 cent), representing an increase of 16%.

The Group's underlying sales and trading profit growth by division are set out below:

The Group's trading profit measure is earnings before interest, tax, amortisation of intangibles and non trading items:

The key drivers of sales and trading profit performance in each division are set out in the Business Review.

Finance costs (net)

Finance costs for the year increased by €2.2m to €18.1m (2017: €15.9m). A net non-cash credit of €0.6m (2017: credit of €0.6m) was recorded in respect of swaps on the Group's USD private placement notes. The Group's net interest expense on borrowings (bank and loan notes) was €18.0m (2017: €16.1m). This increase reflects higher average gross and net debt levels in 2018, due to acquisition spend. The interest expense is driven extensively by gross debt balances with cash yields, although improving, still low in the current environment.

Taxation

The tax charge for the year was €69.1m (2017: €60.6m) which represents an effective tax rate of 17.1% (2017: 17.5%). The decrease in the effective rate reflects, primarily, the change in the geographical mix of earnings year on year and reductions in certain territorial tax rates.

Divisional reporting

The Group renamed two pre-existing divisions during the year to more appropriately reflect the business activity in each case. The divisions are now named Water & Energy (formerly Environmental) and Data & Flooring Technology (formerly Access Floors).

Dividends

The Board has proposed a final dividend of 30.0 cent per ordinary share payable on 10 May 2019 to shareholders registered on the record date of 29 March 2019. When combined with the interim dividend of 12.0 cent per share, the total dividend for the year increased to 42.0 cent (2017: 37.0 cent), an increase of 13.5%.

Retirement benefits

The primary method of pension provision for current employees is by way of defined contribution arrangements. The Group has two legacy defined benefit schemes in the UK which are closed to new members and to future accrual. In addition, the Group assumed a number of smaller defined benefit pension liabilities in Mainland Europe through acquisitions completed in recent years. The net pension liability in respect of all defined benefit schemes was €13.1m (2017: €13.6m) as at 31 December 2018.

Intangible assets and goodwill

Intangible assets and goodwill increased during the year by €316.1m to €1,502.1m (2017: €1,186.0m). Intangible assets and goodwill of €340.1m were recorded in the year relating to acquisitions and additions completed by the Group, offset by annual amortisation of €22.2m (2017: €15.7m) and a small decrease due to year end exchange rates used to translate intangible assets and goodwill other than those denominated in euro.

Key performance indicators - financial

The Group has a set of financial key performance indicators (KPIs) which are set out in the table below. These KPIs are used to measure the financial and operational performance of the Group and are used to track progress continually and also in achieving medium and long term targets.

(a) Basic EPS growth. The growth in EPS is accounted for primarily by an 18% increase in trading profit, partially offset by an increase in intangible amortisation generating a 17% increase in profit after tax. The minority interest amount increased year on year leading to a basic EPS increase of 16%.

(b) Sales growth of 19% (2017: 18%) was driven by a 17% contribution from acquisitions, a 5% increase in underlying sales and a 3% decrease due to the effect of currency translation. A key contributor to underlying sales growth in the year was price growth necessitated by raw material inflation recovery in the first half of the year. Furthermore, sales volumes were positive in most key end markets.

(c) Trading margin by division is set out below:

The Insulated Panels division trading margin was stable year on year reflecting ongoing progress in sales of QuadCore™ and the market mix of sales. The trading margin improvement in the Insulation Boards division reflects a positive Kooltherm® mix and some relief on raw material prices towards the end of the year. The decrease in the Water & Energy trading margin reflects, in the main, the impact of costs associated with the exit from small scale wind and solar thermal activity. The increased trading margin in Light & Air reflects an improved margin performance overall in Europe which offset more subdued margins in certain products in the US. The modest increase in trading margin in Data & Flooring Technology reflects the geographic market and product mix of sales year on year.

(d) Free cashflow is an important indicator and it reflects the amount of internally generated capital available for re-investment in the business or for distribution to shareholders.

*Earnings before finance costs, income taxes, depreciation, amortisation and non trading items

Working capital at year end was €543.9m (2017: €477.8m) and represents 11.5% (2017: 12.4%) of annualised turnover based on fourth quarter sales. This metric is closely managed and monitored throughout the year and is subject to a certain amount of seasonal variability associated with trading patterns and the timing of significant purchases of steel and chemicals. The decrease year on year reflects a 90 basis points reduction in underlying working capital levels due mainly to lower inventory days on hand.

(e) Return on capital employed, calculated as operating profit divided by total equity plus net debt, was 16.8% in 2018 (2017: 17.8%) or 17.1% including the annualised impact of acquisitions. The creation of shareholder value through the delivery of long term returns well in excess of the Group's cost of capital is a core principle of Kingspan's financial strategy. The increase in profitability together with the deployment of further capital has maintained returns on capital during the year.

(f) Net debt to EBITDA measures the ratio of net debt to earnings and at 1.4x (2017: 1.05x) is comfortably less than the Group's banking covenant of 3.5x in both 2018 and 2017.

Acquisitions and capital expenditure

During the period the Group made the following acquisitions for a total upfront cash consideration of €469.2m with an additional deferred amount of €30m payable in April 2019.

· On 7 March 2018, the purchase of 100% of the Synthesia Group for an initial cash amount of €213.4m plus a deferred amount of €30m payable in April 2019.

· On 8 May 2018, the purchase of 100% of Vestfold Plastindustri AS, a Norwegian water treatment business for a total cash consideration of €12.3m.

· On 4 July 2018, the purchase of 100% of Balex Metal Sp.z.o.o., a Polish based manufacturer of insulated panels and insulation boards for a cash amount of €197.6m.

· On 9 July 2018, the purchase of 51% of Jindal Mectec Private Limited, an Indian manufacturer of insulated panels for a cash amount of €22.8m

· An investment of €8.2m in Invicara PTE Limited, a Building Information Modelling solution provider with global reach.

· Further capital outlay of €14.9m was made with respect to business within Light & Air and Water & Energy together with some residual payments arising on the finalisation of completion accounts for prior year acquisitions.

Capital structure and Group financing

The Group funds itself through a combination of equity and debt. Debt is funded through syndicated and bilateral bank facilities and private placement loan notes. The primary bank debt facility is a €500m revolving credit facility, €120m of which was drawn at year end and which matures in June 2022. As at 31 December 2018, the Group also had bilateral bank facilities of €50m, which were fully drawn. Private placement loan note funding net of related derivatives totals €808m. The weighted average maturity of the notes is 5.6 years, including a private placement of €175m completed on 8 December 2017 which was drawn on 31 January 2018.

The Group had significant available undrawn facilities and cash balances which, in aggregate, were c.€675m at 31 December 2018 and provide appropriate headroom for ongoing operational requirements and development funding.

Net debt

Net debt increased by €264.4m during 2018 to €728.3m (2017: €463.9m). This is analysed in the table below:

Key financial covenants

The majority of Group borrowings are subject to primary financial covenants calculated in accordance with lenders' facility agreements:

- A maximum net debt to EBITDA ratio of 3.5 times; and

- A minimum EBITDA to net interest coverage of 4 times.

The performance against these covenants in the current and comparative year is set out below:

Investor relations

Kingspan is committed to interacting with the international financial community to ensure a full understanding of the Group's strategic plans and its performance against these plans. During the year, the executive management and investor team presented at three capital market conferences, hosted a capital markets day at our Holywell facility in Wales and conducted 311 institutional one-on-one and group meetings.

Share price and market capitalisation

The Company's shares traded in the range of €32.60 to €43.60 during the year. The share price at 31 December 2018 was €37.38 (31 December 2017: €36.41) giving a market capitalisation at that date of €6.7bn (2017: €6.5bn). Total shareholder return for 2018 was 3.8%.

Impact of Brexit

At the time of writing the exact form of the UK's exit from the European Union is not clear. Given our manufacturing base in both the UK and the Eurozone Kingspan is well positioned to deal with the outcome in whatever form it takes, albeit in a context of the wider macro economic conditions.

Financial risk management

The Group operates a centralised treasury function governed by a treasury policy approved by the Group Board. This policy primarily covers foreign exchange risk, credit risk, liquidity risk and interest rate risk. The principal objective of the policy is to minimise financial risk at reasonable cost. Adherence to the policy is monitored by the CFO and the Internal Audit function. The Group does not engage in speculative trading of derivatives or related financial instruments.

Looking Ahead

2019 has started well for the Group with like-for-like sales revenue and volume ahead of the same period last year. Order intake and the order bank in many of our key markets are ahead of prior year, although some exceptions exist. As the competitive dynamics of the various raw materials in insulation have changed in recent months Kingspan's proprietary non-fibrous cores have grown share and, in general, penetration of advanced insulation has improved following the supply turbulence earlier in 2018 which had upset this momentum.

Whilst these indicators bode well for our near-term future, we remain acutely mindful of the increasingly negative economic rhetoric, not alone in the UK, that could well impact the appetite for investment in construction later in the year. Setting aside this macro concern, and any unavoidable effect it may have on Kingspan, we remain resolutely focused on the delivery of our long-term strategy.

On behalf of the Board

Kingspan Group plc

Group Condensed Income Statement

for the year ended 31 December 2018

Kingspan Group plc

Group Condensed Statement of Comprehensive Income

for the year ended 31 December 2018

Kingspan Group plc

Group Condensed Statement of Financial Position

As at 31 December 2018

Kingspan Group plc

Group Condensed Statement of Changes in Equity

for the year ended 31 December 2018

Kingspan Group plc

Group Condensed Statement of Changes in Equity

for the year ended 31 December 2017

Notes to the Preliminary Results

for the year ended 31 December 2018

1 GENERAL INFORMATION

The financial information presented in this report has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs) as adopted by the European Union and as set out in the Group's annual financial statements in respect of the year ended 31 December 2017 except as noted below. The financial information does not include all the information and disclosures required in the annual financial statements. The Annual Report will be distributed to shareholders and made available on the Company's website www.kingspan.com in due course. It will also be filed with the Company's annual return in the Companies Registration Office. The auditors have reported on the financial statements for the year ended 31 December 2018 and their report was unqualified and did not contain any matters to which attention was drawn by way of emphasis. The financial information for the year ended 31 December 2017 represents an abbreviated version of the Group's statutory financial statements on which an unqualified audit report was issued and which have been filed with the Companies Registration Office.

Basis of preparation and accounting policies

The financial information contained in this Preliminary Statement has been prepared in accordance with the accounting policies set out in the last annual financial statements with the exception of changes in accounting policy in respect of IFRS 9, Financial Instruments and IFRS 15, Revenue from Contracts with Customers which are described below.

IFRS does not define certain Income Statement headings. For clarity, the following are the definitions as applied by the Group:

- Trading profit refers to the operating profit generated by the businesses before intangible asset amortisation and non trading items.

- Trading margin refers to the trading profit, as calculated above, as a percentage of revenue.

- Operating profit is profit before income taxes and net finance costs.

The following standards are effective from 1 January 2018.

New and amended standards and interpretations effective during 2018

Financial instruments

IFRS 9, Financial Instruments, replaces IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 addresses the classification, measurement and derecognition of financial assets and liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. The Group has adopted IFRS 9 from 1 January 2018.

IFRS 9 largely retains the requirements of IAS 39 for the classification and measurement of financial liabilities but eliminates the previous IAS 39 categories for financial assets. The vast majority of the Group's financial assets are trade receivables and cash and as a result the classification and measurement changes do not have a material impact on the Group's consolidated financial statements.

For trade receivables, the Group applies the IFRS 9 simplified approach to measure expected credit losses which uses a lifetime expected loss allowance. Given historic loss rates, normal receivable ageing and the significant portion of trade receivables that are within agreed terms, the change in impairment methodology as a result of implementing IFRS 9 did not have a material impact on the Group's financial results.

The hedge accounting requirements in IFRS 9 are optional. Under the transition requirements of the new standard, the Group may choose to apply, as its accounting policy IAS 39. The Group have decided not to adopt the hedge accounting requirements under IFRS 9 and will continue to apply IAS 39. This decision has no impact on the current effective hedging relationships.

The cumulative effect method has been adopted upon transitioning to IFRS 9. The impact of adopting IFRS 9 on our consolidated financial statements was not material for the Group and there was no adjustment to retained earnings on application at 1 January 2018.

Revenue recognition

IFRS 15, Revenue from Contracts with Customers, replaces IAS 18, Revenue and IAS 11, Construction Contracts and related interpretations. IFRS 15 establishes a five-step model for reporting the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. IFRS 15 specifies how and when revenue should be recognised as well as requiring enhanced disclosures. The Group has adopted IFRS 15 from 1 January 2018, using the modified retrospective approach and has not restated comparatives for 2017.

The Group used the five-step model to develop an impact assessment framework to assess the impact of IFRS 15 on the Group's revenue transactions. The results of our IFRS 15 assessment framework and contract reviews indicated that the impact of applying IFRS 15 on our consolidated financial statements was not material for the Group and there was no adjustment to retained earnings or material impact on the timing of revenue recognition on application of the new rules at 1 January 2018.

Revenue is recognised when control of goods is transferred to the customer, which for the vast majority of the Group is at a point in time when delivery has taken place in accordance with the terms of sale.

New and amended standards and interpretations issued but not yet effective or early adopted

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both the lessee and the lessor. For lessees, IFRS 16 eliminates the classification of leases as either operating leases or finance leases and introduces a single lessee accounting model whereby all leases are accounted for as finance leases, with some exemptions for short-term and low-value leases. It also includes an election which permits a lessee not to separate non-lease components (e.g. maintenance) from lease components and instead capitalise both the lease cost and associated non-lease cost. The lessee will recognise a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. All right-of-use assets will be measured at the amount of the lease liability on adoption. IFRS 16 is effective for annual periods beginning on or after 1 January 2019, and the Group will apply IFRS 16 from its effective date.

The standard will primarily affect the accounting for the Group's operating leases. The application of IFRS 16 will result in the recognition of additional assets and liabilities in the consolidated statement of financial position and in the consolidated income statement it will replace the straight-line operating lease expense with a depreciation charge for the right-of-use asset and an interest expense on the lease liabilities.

The Group has completed an initial assessment of the potential impact of IFRS 16 on its consolidated financial statements. The Group will adopt the new standard by applying the modified retrospective approach and will avail of the recognition exemption for short-term and low-value leases. The Group's non-cancellable operating lease commitments on an undiscounted basis at 31 December 2018 are detailed in Note 31 to the consolidated financial statements of the Group's 2018 Annual Report and provides an indication of the scale of leases held by the Group.

Based on this initial impact assessment, and the current group profile, the standard is expected to increase debt by €140m and reduce profit before tax by €1.4m.

The new standards, amendments to standards and interpretations are as follows:

*not EU endorsed

2 SEGMENT REPORTING 

In identifying the Group's operating segments, management based its decision on the product supplied by each segment and the fact that each segment is managed and reported separately to the Chief Operating Decision Maker. These operating segments are monitored and strategic decisions are made on the basis of segment operating results.

Operating segments

The Group has the following five operating segments:

Analysis by class of business

The disaggregation of revenue by geography is set out in more detail below.

The segments specified above capture the major product lines relevant to the Group.

The combination of the disaggregation of revenue by product group, geography and the timing of revenue recognition capture the key categories of disclosure with respect to revenue. No further disclosures are required with respect to disaggregation of revenue other than what has been presented above.

Inter-segment transfers are carried out at arm's length prices and using an appropriate transfer pricing methodology. As inter-segment revenue is not material, it is not subject to separate disclosure in the above analysis. For the purposes of the segmental analysis, corporate overheads have been allocated to each division based on their respective revenue for the year.

The Group has initially applied IFRS 15 at 1 January 2018. Under the transition methods chosen, comparative information is not restated.

* Capital investment includes fair value of property, plant and equipment and intangible assets acquired in business combinations.

* Total non-current assets excluding derivative financial instruments and deferred tax assets.

The Group has activities in over 90 countries worldwide. The revenues from external customers and non-current assets (as defined in IFRS 8) attributable to the country of domicile and all foreign countries or regions of operation are as set out above and specific regions are highlighted separately on the basis of materiality.

There are no material dependencies or concentrations on individual customers which would warrant disclosure under IFRS 8. The individual entities within the Group each have a large number of customers spread across various activities, end-users and geographies.

3 NON-TRADING ITEMS

During the period, no items of a non-trading nature arose.

In the prior period, the Group disposed of the trade and assets of Kingspan Gefinex GmbH, which was part of the Insulation Boards division, for €5.7m and realised a non-trading profit of €2.9m, and impaired goodwill relating to a US energy business, which was part of the Insulated Panels division.

4 FINANCE EXPENSE AND FINANCE INCOME