Modern Methods of Construction - · PDF filebefore goodwill amortisation up 29%, and earnings...

Annual Report andFinancial Statements 2004

Modern Methodsof Construction

Group plc

Financial Highlights

% Change 2004 2003 Reported

Turnover c958.1m c783.9m +22%

Operating profit c102.2m c79.4m +29%(before goodwill amortisation)

Operating profit c94.2m c71.5m +32%

Net profit before tax c88.0m c65.4m +34%

Basic earnings per share 42.3c 31.2c +36%

Adjusted earnings per share 47.0c 36.0c +31%(before goodwill amortisation)

Dividend per share for the year 9.6c 7.2c +33%

Dividend cover (before goodwill amortisation) 4.9 times 5.0 times

Interest cover 20.3 times 16.8 times

Gearing ratio 35.6% 48.6%(net debt as % of shareholders’ funds)

Financial Highlightsfor the year ended 31st December 2004

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Contents


Chairman’s Statement 2

Chief Executive’s Review 10

Environmental Policy 16

Financial Review 17

Directors and other Information 22

Shareholder and other Information 23

Report of the Directors 24

Report of the Remuneration Committee 36

Statement of Directors’ Responsibilities 42

Independent Auditors’ Report 43

Group Profit and Loss Account 46

Statement of Total Recognised Gains and Losses 47

Note of Historical Cost Profits and Losses 47

Reconciliation of Movements in Shareholders’ Funds 47

Group Balance Sheet 48

Group Cash Flow Statement 49

Company Balance Sheet 51

Accounting Policies 52

Notes to the Financial Statements 56

Group Five Year Summary 75

c o n t e n t s

Chairman’s Statement

2


Results

Kingspan delivered strong growth performance in

2004 with turnover up 22%, operating profits

before goodwill amortisation up 29%, and earnings

up 36%. Almost all of this growth was organic.

Trading conditions in all of our geographic markets

proved considerably more stable than in recent

times. Strong progress was made in all major

Divisions, assisted by the resumption of growth in

our Raised Access Floors business. This was

achieved despite dramatic pressures on our input

costs. Total combined capital spend, including

acquisitions and capex activity, amounted to

e81.2 million.

Profit before tax was e88.0 million (2003:

e65.4 million). Earnings attributable to ordinary

shareholders were e70.0 million (2003:

e51.4 million). Cash generation remained strong up

26% with earnings before interest, tax, depreciation

and amortisation (EBITDA) of e127.3 million (2003:

e101.4 million). Net debt at year end was

e107.6 million, a reduction of e13.2 million from

e120.8 million at 31st December 2003. This

reduction was achieved after net capital investment

during the year of e54.6 million, acquisitions of

e26.6 million and after the receipt of e27 million

(US$36 million) being the proceeds from the Tate

settlement. Gearing at 31st December 2004 was

36% (2003: 49%).

Dividends

Given the continued strong cash-flow, it is

proposed to pay a final dividend of 6.2 cent per

share, an increase of 35% on the 2003 final

dividend of 4.6 cent. This gives a total dividend for

the year of 9.6 cent per share, an increase of 33%

on 2003. This results in dividend cover of 4.9 times

earnings before amortisation, and 8.0 times

earnings before interest, taxation, depreciation and

amortisation.

It is proposed to pay the final dividend on

10th June 2005, to shareholders on the register on

18th March 2005. It is the intention to continue with

a progressive dividend policy for 2005 in a manner

compatible with the growth plans set out later in

this statement, so as to bring dividend cover to a

level closer to industry norms.

Board changes

Mr. Noel Crowe was co-opted to the Board as an

Executive Director on 2nd February 2004, and was

elected at the Annual General Meeting on 27th May

2004.

Mr. David Byrne, S.C. was co-opted to the Board

as Non-executive Director on 1st January 2005.

Mr. Tom Mulcahy, Non-executive Director, retired

from the Board on 31st May 2004.

Management and staff

Kingspan is very soundly based operationally and

financially and enjoys a strong reputation for

prudent management capable of delivering

responsible growth. In the last 10 years, the Group

has achieved a compound annual growth rate of

9.8% on its earnings per share with total

shareholder returns of 2,195% since January 1995.

This was achieved by a focused, dedicated and

energetic team of management and staff whose

hard work and commitment epitomise the spirit and

culture of the Kingspan Group and I would like to

take this opportunity to thank everyone for their

contribution during 2004.

3


3

Kingspan minimises therequirement forspecialised skills on site.

4


Acquisitions

There were two acquisitions completed during

2004, an insulated door panel business and a small

bolt-on to the Environmental Containers Division.

The combined consideration for the businesses

was e24.8 million. The larger of the two, Apco, a

door panel manufacturer in Belgium, was acquired

in August 2004 for a consideration of e15.4 million

plus debt of e1.6 million. Kingspan already

manufactures door panels at its plant in Sherburn,

North Yorkshire and this production will be

transferred to the Belgian facility in 2005. This will

free up capacity in Sherburn and achieve

manufacturing efficiencies. Turnover from Apco

from date of acquisition to 31st December 2004

was e5.3 million.

In February 2005, the acquisition of the RCM group

of businesses was completed in the UK for an initial

consideration of e22 million. RCM is a leading

player in the growing UK unvented cylinder market

and will greatly complement the Environmental

Container Division’s existing presence in that sector.

5



record in developing integrated product solutions

across a broad range of categories differentiated by

thermal efficiency, fire ratings, speed of erection

and structural and aesthetic quality. The Group’s

product suite is designed to meet the ever

increasing requirement of architects and developers

for holistic solutions, while adding value for building

owners and occupants. There is an ever increasing

movement towards the use of Modern Methods of

Construction, geared towards reducing the need

for on-site skills, and driven by the need for greater

penetration of low energy buildings. Many of

Kingspan’s products and solutions are specifically

designed to capitalise on this trend. The Group

continues to benefit from promoting greater

environmental awareness. Across all of its

operations the Group markets a portfolio of

products that recognises and addresses these

trends.

Strategy

Strong Market Positions

The Group is confident that it can continue to

identify products, markets and segments with high

growth potential and that it has the ability to

develop strong positions within those segments.

Kingspan has avoided competing for market share

in more traditional commodity building materials

that lack opportunity for developing differentiated

market positions. Kingspan has the ability to drive

the development of specialised materials

applications from initial niche positions into

mainstream products through various

Innovating for the future

Kingspan has a unique business model and while

generally classified as being a building products

group, it has many factors that distinguish it from

other companies in the sector.

Kingspan Group is a leading edge provider of an

integrated range of value added building materials

and solutions utilised in commercial and residential

construction in Ireland, the UK, Continental Europe

and the USA. Kingspan has a successful

Kingspan speeds up the constructionprocess ON-SITE with pre-engineeredbuilding solutions manufacturedOFF-SITE.

6


enhancements such as improvements in product

lifespan, strength, thermal quality, and fire

retardation, while at the same time fitting into its

concept for Off-Site solutions. Kingspan believes

that the achievement of a top market position in a

product and geographic market brings substantial

competitive advantages and reduces operating and

financing risks to the Group. Kingspan’s focus can

allow it to achieve strong market positions for each

of its core product offerings within each targeted

geographic market, rather than be active across a

large range of geographic operations with limited

market share. The Group measures its success, in

part, by its ability to develop large, profitable

market shares and this will continue to be the case.

Capitalise on environmental regulation

The Group’s products are at the forefront of

changes in the building materials industry that are

being driven by economics, regulation, safety,

aesthetics, and a move towards Modern Methods

of Construction. In the context of an evolving

market environment, Kingspan is deliberately

focused on the development of value-added

products for its customers.

Kingspan embraces and actively promotes a trend

toward enhanced environmental consciousness.

Kingspan has seen the increased focus on

environmental issues and the demands that it

presents as an opportunity to utilise its strength in

innovation to tailor products to suit the evolving

needs of the market rather than view them as

barriers to enhanced efficiency or the growth of its

business.

Leveraging technology

While the Group has a core strategy of having a

strong market position in any product, it is also

careful to permit flexibility to allow for innovation

and new product development.

Kingspan's strong market positions and large

manufacturing base allow it the opportunity to

incubate new products with very limited costs.

This incubation opportunity provides the Group

with product development options that carry

relatively low risk. Once a product is incubated, it

can be test-manufactured and marketed with

7



relative ease and low costs. Once the market has

accepted the product, it can be put into low-scale

production, and then ramped up as demand

improves.

Brands synonymous with products

Kingspan has become synonymous with high value

added product categories through marketing

campaigns that focus on issues relating to the

environment, energy and cash pay-back period.

As part of these campaigns, end users have come

to identify Kingspan as being closely associated

with certain products. These associations often

extend across regions and product types. In this

respect, the Group is unique in the sector.

Modern Methods of Construction

Kingspan has sought to achieve and maintain a

“first mover” status in the construction market's

move towards Modern Methods of Construction.

The shortage of wet-trades, individuals, skilled or

semi-skilled, active in the construction trades such

as cement or bricklaying, has become particularly

acute in the UK and to a lesser extent in Ireland.

Kingspan anticipated the development and

acceleration of this trend in the UK. Early in the life

of this trend, the Group sought to develop a

product suite that would service this changing

market, and invested heavily to have appropriate

products available in the marketplace.

Kingspan has believed for some time that Modern

Methods of Construction were relevant to industrial,

commercial and the institutional building sectors.

More recently, the Group has seen a particularly

attractive set of opportunities in the domestic

housing market. Kingspan has strategically

positioned itself in the market place with the

development of its TEK® Building System. Scale

has been an inhibiting factor in the utilisation of

Off-Site solutions in the domestic housing market

and it is Kingspan’s intention to address this market

with an enhanced and complementary range of

products that can be produced on a larger scale

than heretofore. The Group sees opportunities to

add to its product range and, in the process, open

up a much larger target market.

Conventional construction canlead to cavities, moisture, coldbridges and interstitial condensation.Kingspan provides effective solutions.


8


A robust Kingspan buildingenvelope provides a highperformance weather proofsolution and complies with thelatest Building Regulations.

9



Product development supported by timely capital

expenditure and appropriate acquisitions gives the

Group confidence in the future ahead,

notwithstanding the fact that there will be varying

pressures from increased competition in some

areas and upward pressure on raw material prices

in other areas. The Group feels that the

appropriateness of its products to the current

construction environment will help it achieve good

growth going forward.

Eugene Murtagh

8th March 2005

Corporate Governance

The Kingspan Board and management are

committed to achieving the highest standards of

corporate governance and ethical business

conduct. A detailed statement of Kingspan’s

compliance with the Principles of Good

Governance as set out in the Combined Code is

given in the Directors’ Report. The Group is

dedicated and fully committed to carrying out its

business in an environmentally responsible manner

as set out in the environmental policy note on

page 16 of the Annual Report.

Outlook

The macro environment in which Kingspan

operates has continued to improve through the

second half of 2004 and into the opening quarter

of 2005. The Group is continuing to benefit from

the strategy set out above.

10

Chief Executive’s Review

Overall, 2004 was a very positive year for the

Group. Strong organic growth was achieved across

the main divisions while the general construction

climate proved healthier than in recent years.

During the period the Group witnessed some of the

most significant upward movements in raw material

costs ever experienced by its industry. These

increases, driven by the steel and chemical sectors,

were in the order of e30 million. These were

passed on to the marketplace. Further increases

are anticipated during 2005 and the Group’s

approach will be to recover these from the market.

Despite this turbulence in costs, 2004 marked a

number of noteworthy achievements:

1) EBITA exceeded e100 million for the first time

and year-on-year earnings growth was 36%;

2) Substantial capacity was added to enable

continued organic development of the Group;

3) Exceptionally high revenue growth at both

Insulated Panels and Insulation Boards, by 30%

and 28% respectively;

4) New product penetration improved significantly.

Related revenue is now e40 million;

5) The acquisition of Apco, now Kingspan Door

Components, a dedicated insulated door panel

company in Belgium;

6) An improvement in activity in the Access Floors

business.


Insulated Panels

The Insulated Panels business continued to build

on the progress made in 2003, and posted sales

growth of 30%. Growth was achieved in all

geographic regions in which this business is

present. In the UK volumes grew by 16%

compared to a market growth of 5%. Penetration

of the insulated metal cladding sector reached 53%

and it is the Group goal to drive that conversion

towards 70% by 2008. This aim should be

somewhat boosted by an environmentally geared

revision to the UK building codes in 2006.

11



The Group’s primary UK panel facility at Holywell,

North Wales, which was the subject of a circa

e15 million capacity expansion during 2004 will

facilitate this demand. This plant now houses the

world’s highest output insulated roof panel line.

The Group’s business in the Benelux region

reversed the pressures of recent years by

significantly outgrowing the sector’s overall

performance.

In Central and Eastern Europe (CEE), the Group

further consolidated its position and grew sales by

29%. Growth occurred in all CEE markets and

plans for the Region will be furthered by the

addition of a e12 million greenfield plant in

Hungary that goes into production in Quarter 2

this year.

In Quarter 3 2004 Apco, an insulated door panel

business in Belgium, was acquired. Combined with

existing door panel volumes, the revenue from this

dedicated Belgian facility is expected to exceed

e20 million this year.

Kingspan improves health & safety at workby providing a safe working platform whichreduces the risks related to falls from heights.

12


Insulation

During 2004 the rigid insulation board business in

the UK and Ireland continued to grow share

primarily against traditional forms of insulation.

Now representing 21% of Group turnover, this

division’s sales grew by 28% over prior year. This

rapid pace of growth was enabled by capacity

related capital investment of e22.2 million over the

past 2 years and although the rate of growth can

be expected to slow somewhat this year, 2006

should see a return to double digit volume increase

driven by the next revision to the building

regulations.

The mainland European phenolic insulation board

business, based in Kestern, The Netherlands,

continued gaining traction against a relatively

lacklustre market. Overall this business performed

13



Off-Site & Structural

Representing 12% of Group turnover in 2004, this

business’s sales grew by 28%. The rate of growth

far exceeded that of recent years driven in the main

by four factors:

- double digit volume growth in its key products;

- upbeat UK structural steel environment;

- inflationary growth reflecting significant steel

increase;

- positive market reception of the “Off-Site”

product suite.

Off-Site building solutions have been at the core of

the Group strategy for some time now, evidenced

in particular from the success of Insulated Panels in

converting markets from site assembled

alternatives. TEK® Building System, arguably the

lowest energy home construction available, is

gaining ground in a market that is increasingly

conscious of highly efficient building solutions and

methods. In this product, revenue in 2004 grew by

43%.

The current investment of e10 million at the

Group’s Off-Site manufacturing facility in Sherburn,

North Yorkshire, is the next phase in deepening the

Group’s capability of providing the market with

more fully integrated Modern Methods of

Construction and Off-Site solutions. The UK

Government, in particular, is strongly encouraging

the increased usage of Modern Methods of

Construction. The opportunities that exist for

Kingspan to position itself at the forefront of this

sector can be significant for the Group as a whole.

solidly during 2004. Further phenolic product

development initiatives will in time enhance the

attractiveness of this insulant for more mainstream

markets.

Kingspan’s single fix single componentsystem cuts site installation by up to50% compared with site assembledbuilt-up systems.

14


Raised Access Floors

Sales of raised access flooring represented 12% of

Group turnover in the year under review. At

e119 million, sales were up 3% in the year

compared to 2003.

This sales trend recovery was due to a strong

rebound in the performance of the US business.

Revenue grew there by 40% to e54 million or by

54% in US$ terms. Despite the fact that the overall

market for high rise commercial office construction

was weak, conversion to raised access floors

versus traditional floors continued apace and

penetration now stands at approximately 13%.

In the UK, sales continued to decline. Revenues

reduced by 15% to e65 million and the business

broke even. The pace of this slow-down decreased

as the year progressed and early figures for 2005

indicate a more stable market environment. Current

market activity hints at some degree of recovery

during 2006. Both the US and UK operations have

undergone significant cost restructuring over the

past few years and are both well positioned to

profitably capitalise on any upturn in the general

high-rise construction sector.

Research & Development

Research and development has been at the core of

the Group’s success in the recent past. The

proprietary technology used primarily within the

Insulated Panel and Insulation Board businesses

has played a very significant role in advancing the

Group’s position as the leading supplier of high

performance ‘FireSafe’ solutions to the construction

Environmental Containers

This division, representing 15% of Group turnover,

put in a typically robust performance. Sales

increased by 11%. The shift in our product mix

towards more value-added environmental solutions

provided much of the growth and is reflective of the

overall pattern within the fuel storage sector. For

Kingspan, this has been led by the UK market

where now more than 30% of domestic fuel tanks

are “twin-walled” for enhanced leakage protection,

and more than 70% of applications now use the

Group’s value-adding Watchman® telemetry

systems. It is anticipated that this trend will

continue not only in the UK, but in Ireland which

currently lacks the environmental legislation

necessary to ensure safer storage solutions.

Capacity is being added in the Division to

capitalise on this trend.

The Polish based mainland European business has

built upon the progress made since its

establishment 5 years ago and is now moving

towards a leading position in Scandinavia, where

conversion from traditional metal to plastic tanks is

in the early phases. This business grew by 50%

over the prior year.

Until recently, Kingspan occupied only a niche

presence in the UK unvented cylinder market.

The acquisition of RCM, however, completed in

February 2005 for an initial consideration of

e22 million, now firmly positions this Division as

a leading provider to this expanding market.

15



industry. The Group is focused on a e30 million

medium-term pipeline of developments ranging

from basic materials technology, to Modern

Methods of Construction, to thermal performance

with an increasing emphasis on sustainability and

renewability of building solutions. These initiatives

are all geared towards sustaining the Group’s

advantage over traditional materials and solutions

used within the construction industry.

Conclusion

The overall construction environment in which the

Group operates is more encouraging than it has

been for some time. The Group’s strategy and

Operations are geared fully towards providing

further organic growth, complemented by a degree

of acquisition activity.

Gene M. Murtagh

8th March 2005

16

Environmental Policy

It is Kingspan Group’s objective to conduct its

business activities in an environmentally responsible

manner. Under Kingspan Group’s Environmental

Policy, the Group is committed to:

• Complying with applicable environmental

legislation

• Optimising energy and raw material usage

• Prevention of pollution and environmental

damage

• Continuous improvement of environmental

performance

To this end, Kingspan Group is endeavouring to :

• Embed environmental responsibility throughout

the Group by designating champions at Group

and Divisional levels

• Set and monitor key objectives and targets to

minimise environmental impact

• Carry out environmental due diligence on any

future acquisitions

• Actively promote environmental awareness

among Kingspan employees by providing

appropriate training programs

• Engage external consultants to conduct

Environmental Audits at key manufacturing

locations


17

Financial Review


Financial Review

Results

Turnover for the year ended 31st December 2004

was e958.1 million, up 22% compared to the

previous year. Acquisitions in the year generated

e5.3 million additional turnover.

Profit before tax was e88.0 million (2003:

e65.4 million). Earnings attributable to ordinary

shareholders were e70.0 million (2003:

e51.4 million). Cash generation remained strong

with earnings before interest, tax, depreciation and

amortisation (EBITDA) of e127.3 million

(2003: e101.4 million). Goodwill amortisation

amounted to e7.9 million (2003: e7.9 million).

Turnover and Margins

Group turnover increased by 22% or

e174.2 million compared to 2003.

The Tables below detail the Group’s Turnover by

Class of Activity and Geographical Area and the

year on year growth achieved.

The gross profit margin, being gross profit as a

percentage of turnover, was 29.5% in the year,

down marginally from 29.6% last year. There was

an improvement in the second half of the year to

29.7% compared to 29.2% in the first half.

The operating margin, being earnings before

interest, tax and goodwill amortisation as a

percentage of turnover, was 10.7% in the year, up

from 10.1% last year. Again the trend has been

positive throughout the second half of the year,

increasing from 10.1% in the first half to 11.2% in

the second half of the year.

Taxation

The effective tax rate, calculated on earnings before

goodwill amortisation, was 18.8% compared to

19.0% in 2003.

% of Total Sales

Structural & Off-Site12.2%

EnvironmentalContainers14.9%

Insulation Boards20.8%

Raised Access Flooring12.4%

Insulated Panels39.7%

Analysis by Class of Activity

Year ended Year ended31.12.04 31.12.03 cmillion % ChangeEmillion cmillion increase 2004-2003

Insulated Panels 380.2 292.5 87.7 30%

Raised AccessFlooring 119.2 115.7 3.5 3%

Insulation Boards 199.4 155.8 43.6 28%

EnvironmentalContainers 142.5 128.4 14.1 11%

Structural & Off-Site 116.8 91.5 25.3 28%

958.1 783.9 174.2 22%

18

Financial Review

Analysis by Geographical Area

Year ended Year ended31.12.04 31.12.03 % ChangeYmillion emillion 2004-2003

Republic ofIreland 136.8 105.8 29%

Britain andNorthern Ireland 592.4 494.8 20%

Mainland Europe 163.2 126.4 29%

United Statesof America 53.6 36.8 46%

Other 12.1 20.1 -40%

958.1 783.9 22%

% of Total SalesUnited Statesof America5.6%

MainlandEurope17.0%

Britain andNorthern Ireland61.8%

Republicof Ireland14.3%

Other1.3%

Earnings Per Share

Basic Earnings per share at 42.3 cent show an

increase of 35.6% over the previous year. Basic

earnings per share before goodwill amortisation

at 47.0 cent show an increase of 30.6% over the

previous year. Adjusted earnings per share have

grown at an annual compound rate of 9.8% over

the period 1994 to 2004.

Dividends

The dividend for 2004 is 9.6 cent per share. This

consists of an interim dividend of 3.4 cent per

share paid on 15th October 2004, and a final

dividend of 6.2 cent per share proposed to be paid

on 10th June 2005 to shareholders on the register

on 18th March 2005. This represents a 33%

increase on the previous year. The dividend for the

year is covered 4.9 times by earnings before

32.7c

37.9c 35.5c 36.0c

47.0c

2000 2001 2002 2003 2004

Adjusted Earnings Per Share

19

Financial Review


Funds Flow

The table below summarises the Group’s funds

flow for 2004 and 2003:

Year ended Year ended2004 2003

Ymillion emillion

Operating profit 94.2 71.5Depreciation 24.5 21.5Amortisation 8.6 8.4Working capital increase (35.0) (25.1)Interest (6.6) (6.5)Taxation paid (14.8) (8.9)Others 12.6 (0.6)

Free cash flow 83.5 60.3

Acquisitions (26.6) (7.6)Receipt of Tate settlement 24.7 -Net capital expenditure (54.6) (36.3)Dividends paid (13.2) (30.3)Others - (0.2)

(69.7) (74.4)

Cash flow movement 13.8 (14.1)

Debt translation (0.6) 10.6

Decrease/(increase) in net debt 13.2 (3.5)

Net debt at start of year (120.8) (117.3)

Net debt at end of year (107.6) (120.8)

The acquisitions during the year were financed out

of Group resources. Debt reduction before

acquisitions, dividend payments and non-cash

translation effect was e53.6 million (2003:

e23.8. million).

The free cash flow for the year, representing

operating cash flow less interest and taxation paid,

amounted to e83.5 million, an increase of

e23.2 million compared to e60.3 million in 2003.

This performance represents 50.4 cent per share

(2003: 36.5 cent). Over the two years 2003 and

2004, a total of e143.8 million in free cash was

generated of which e90.9 million was spent on net

capital expenditure.

Operational working capital at the year end was

e154.2 million (2003: e116.5 million) and

represented 16.1% of turnover (2003: 14.9%),

against a company target of 15.0%. The increase

in working capital percentage reflects a busy

trading end to the year. Working capital days

(which takes into account the phasing of sales) has

improved from 37 days in 2003 to 33 days in 2004.

amortisation, and 8 times earnings before interest,

taxation, depreciation and amortisation compared

to 8.5 times in 2003. The dividend yield for the year

was 1.9% compared to 2.7% for 2003 based on

the average share price in the relevant years.

The regular dividend has grown at an annual

compound rate of 27.6% over the period 2000

through to 2004. It is the strategy of the Group to

continue with a progressive dividend policy so as to

bring dividend cover to a level closer to industry

norms.

20

Return on Capital Employed

The return on capital employed, being profit before

interest and taxation as a percentage of

shareholders’ funds plus net debt at the year end,

was 23.0% compared to 19.4% in 2003. If goodwill

previously written off of e80.7 million was still on

the balance sheet, the corresponding figures would

be 20.1% in 2004 and 18.1% in 2003.

Treasury

At 31st December 2004, the Group had syndicated

bank facilities of e350 million and e60 million of

overdraft and other facilities. The syndicated

facilities are comprised of a e125 million 5 year

term loan; a e125 million 5 year revolving credit;

and a e100 million 364 day facility with a 4 year

term option.

The drawn down facilities at 31st December 2004

were e181.2 million, comprising e107.6 million

EUR debt and e73.6 million of STG debt. It is

Group policy to enter into interest rate hedging to

limit interest rate exposure on a proportion of the

Group’s medium to long term debt. Approximately

51% of the net debt is subject to interest rate

swaps, at 2.94% on the EUR debt and at 4.97 %

on the STG debt, both swaps expire on

31st December 2006.

Currently the Group does not enter into any

external hedges to limit the exposure on translating

non-Euro earnings.

Foreign exchange transaction exposure is internally

hedged as far as possible and to the extent that

they are not, such residual exposures are hedged

on a rolling 12 month basis.

Tate Settlement

A settlement had been reached with the former

shareholders of Tate Global Corporation with

respect to a dispute arising from the sale of Tate

Global Corporation to Kingspan in January 2001.

The settlement included a US$36 million reduction

to the purchase price of the stock of Tate Global

Corporation. These funds were received on

29th December 2004 and booked by Kingspan in

the 2004 accounts. This translates to e27 million,

of which e24.7 million reduced goodwill and the

balance was applied to legal and other costs.

Pension Deficit

The Group’s pension deficit relates to two legacy

defined benefit schemes in the UK. All of these

schemes have been closed and the liability relates

only to past service. As at 31st December 2004,

the pension liability, net of tax, of the Group

amounted to e15.9 million compared to e12.1

million at 31st December 2003, and reflects a

change in underlying assumptions in the full

actuarial valuations completed as at the year end.

Summary

Overall the Group is in a strong financial position

going into 2005 and is well positioned for

continued growth. The balance sheet is

conservatively geared and this will enable the

Group to comfortably fund its anticipated growth,

through both organic means and bolt on

acquisitions.

Dermot Mulvihill

8th March 2005

Financial Review

21

Financial Review


“Go away.Can’t you see we’re busy.”

22

Directors and other Information

Directors

Eugene Murtagh* is Group Chairman and the Group’s co-founder. He is also a Director of The International Fund for Ireland.(Age 62)

Gene M. Murtagh was appointed Chief Executive on 1st January 2005, having been appointed to the Board in 1999. Previously he was Chief (Age 33) Operating Officer, Managing Director of the Group’s Insulated Panel businesses and Managing Director of the Environmental

Container business.

Brendan Murtagh is Head of Corporate Development and the Group’s co-founder. He is also a Non-executive Director ofB.Comm. Howard Holdings plc and Rushbrook Properties plc.(Age 59)

Dermot Mulvihill joined the Group in 1986 and is Group Finance Director.F. C.A., M.B.A.

(Age 55)

Jim Paul is Managing Director of the Group’s Structural and Off-Site and Raised Access Floors businesses. Before (Age 63) joining the Group he worked in a number of senior management positions in the building materials industry

in the UK and the Middle East.

Russell Shiels has management responsibility for the Group’s Raised Access Floors business based in Maryland, USA.B.Bus.Sc. He was previously Managing Director of the Group’s Building Components and Raised Access Floors

(Age 44) businesses in the UK. Before joining the Group he worked in a number of senior management roles in thebuilding materials sector in South Africa and the UK.

Peter Wilson is Managing Director of the Group’s Insulation businesses and has worked for the Group for twenty-three years.(Age 48)

Noel Crowe is Managing Director of the Group’s Environmental Containers businesses and has worked for the Group for four years.F.C.A. He previously held a number of senior management positions in ABB Inc. and ABB Industrial Systems Limited.

(Age 46)

Eoin McCarthy* works on special projects and has been with the Group for over thirty years.(Age 63)

Kevin O’Connell* joined the Board in 1983 and is Chairman of the Remuneration Committee. His career in general B.E., C.Eng., F.I.E.I., M.B.A. management has spanned industry and banking. He is currently a Non-executive Director of L & P Group Limited

(Age 67) and The Centre for Boardroom Studies Limited.

Brian Joyce* joined the Board in 2003. He was formerly Managing Director of the Irish Dairy Board, and is currently Chairman of theB.A., B.Comm., F.C.M.A. EBS Building Society and the Mater Private Hospital.

(Age 64)

Tony McArdle* joined the Board in 2003. He was previously a Director of Ulster Bank where he held a number of senior positions.(Age 56)

David Byrne* joined the Board in 2005. He served as the EU Commissioner for Health and Consumer Protection from September 1999 untilS.C., B.A., F.C.I. Arb., November 2004. Prior to this, he served as Attorney General in the Irish Government. He is currently a Director of Irish Life and

(Age 57) Permanent plc.

*Denotes Non-executive Director

Secretary

Dermot Mulvihill was appointed Group secretary in September 2000.F. C.A., M.B.A.

(Age 55)

Board Committees

Audit Committee Tony McArdle (Chairman), Brian Joyce, Eoin McCarthy, Kevin O’Connell.

Nominations Eugene Murtagh (Chairman), Brian Joyce, Tony McArdle, Eoin McCarthy, Brendan Murtagh, Kevin O’Connell.Committee

Remuneration Kevin O’Connell (Chairman), Brian Joyce, Tony McArdle, Eoin McCarthy.Committee

Senior Independent Brian JoyceDirector

Company Information

Registered Office: Dublin Road, Kingscourt, Co. Cavan.

Principal Bankers: IIB Bank Bank of Ireland Ulster BankABN AMRO Bank Barclays Bank Wachovia BankAllied Irish Banks Bayerische Landesbank

Auditors: Grant Thornton, Registered Auditors and Chartered Accountants, 24-26 City Quay, Dublin 2.

Solicitors: McCann FitzGerald, 2 Harbourmaster Place, IFSC, Dublin 1.Macfarlanes, 10 Norwich Street, London, EC4A 1BD.

Registrar and Computershare Investor Services (Ireland) Limited,Transfer Office: Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18.

Stockbrokers: Goodbody Stockbrokers, Ballsbridge Park, Ballsbridge, Dublin 4.Investec Bank (UK) Limited, 2 Gresham Street, London EC2V 7QP.

Directors and other Information

23

Shareholder and other Information


Annual Meeting

The Annual General Meeting will be held at Jury’s

Hotel, Ballsbridge, Dublin 4 on 26th May 2005 at

11 a.m. The Notice of the Meeting together with a

Proxy Form are being sent to shareholders with this

Annual Report.

Registrar

Administrative enquiries about the holding of

Kingspan Group Plc shares should be directed to

the Company Registrar:

Computershare Investor Services (Ireland) Limited

Heron House

Corrig Road

Sandyford Industrial Estate

Dublin 18

Amalgamation of Shareholding Accounts

Shareholders who receive duplicate sets of

Company mailings due to multiple accounts in their

name should write to the Company’s Registrar to

have their accounts amalgamated.

Financial Calendar

Preliminary Results announced: 8th March 2005

Annual General Meeting: 26th May 2005

Extraordinary General Meeting: 26th May 2005

Payment date for 2004 Final Dividend:

10th June 2005

Announcement of Interim Results for 2005:

Early September 2005

Payment date for 2005 Interim Dividend:

End October 2005.

Shareholder and other Information

Shareholder Analysis at 8th March 2005

Shareholding Number % of Number of %range of accounts total shares held of total

1 to 1000 1,591 40.2 909,451 0.51,001 – 10,000 1,942 49.1 6,574,052 3.910,001 – 100,000 327 8.3 9,988,622 6.0100,001 – 1,000,000 70 1.8 20,176,931 12.0Over 1,000,000 25 0.6 130,092,692 77.6

3,955 100.0 167,741,748 100.0

24

Report of the Directors


The Directors have pleasure in presenting their

report with the audited Financial Statements for the

year ended 31st December 2004 which are set out

on pages 46 to 74.

Results and Dividends

Group turnover at e958.1 million was 22% higher

than 2003. Group profit on ordinary activities before

taxation amounted to e88.0 million, an increase of

e22.6 million (or 34%) on the previous year. Profit

attributable to ordinary shareholders increased by

36% or e18.6 million to e70.0 million, while

earnings per share were 42.3c representing an

increase of 36% compared with 31.2c in the

previous year.

An interim dividend of 3.4c per share (2003: 2.6c)

was paid in October 2004. It is proposed to pay a

final dividend of 6.2c per share (2003: 4.6c). This

will be paid on 10th June 2005 to shareholders

registered on 18th March 2005. The total dividend

of 9.6c compares with 7.2c in 2003, an increase of

33%. Retained profit for the year amounted to

e54.0 million.

Business Review & Future Developments

Kingspan Group is a major manufacturer of an

integrated range of products for the construction

industry. A detailed review of the business and

commentary on the results and on future

developments are contained in the Chairman’s

Statement, Chief Executive’s Review and Financial

Review on pages 2 to 20.

Research & Development

The Group continues to place considerable

emphasis on research and development of existing

and new products and on the improvement of the

production process.

Accounting Records

The Directors are responsible for ensuring that

proper books and accounting records, as outlined

in Section 202 of the Companies Act 1990, are

kept by the Group. The Directors have appointed

suitable accounting personnel, including a

professionally qualified Finance Director, in order to

ensure that those requirements are complied with.

The books and accounting records of the Group

are maintained at the principal executive offices

located at Dublin Road, Kingscourt, Co. Cavan.

Corporate Governance

The Directors are committed to achieving the

highest standards of corporate governance and

this statement describes how the Principles of

Good Governance set out in the Combined Code

on Corporate Governance July 2003, as appended

to the Listing Rules of the Irish Stock Exchange

and the UK Listing Authority have been applied by

the Company.

The Directors confirm that the Group, except in

the respects more fully described below, has

complied throughout the accounting period and up

to the date of approval of the Annual Report with

the provisions of the Combined Code.

25



Board of Directors

At the date of this report the Board consists of

seven executive and six Non-executive Directors.

Each of the executive Directors has a combination

of general industry and business experience,

functional skills and experience in the construction

materials market.

All of the Directors bring an objective judgement to

bear on issues of strategy, resources and

standards of performance. The Board of Directors

reserves for itself a formal schedule of matters on

which it takes the ultimate decision. These cover

the acquisition and disposal of businesses and

other material assets, the raising of capital,

strategic plans, operating budgets, treasury and

risk management policies, organisation structure,

recruitment of senior executives and overall

personnel policy. Certain other matters are

delegated to the Board Committees, further details

of which are set out below.

With effect from 1st January 2005, Mr. Gene M.

Murtagh was appointed Chief Executive.

Mr. Eugene Murtagh, who had combined the roles

of Chairman and Chief Executive, continues in

office as Non-executive Chairman. The division of

responsibilities between the Chairman and the

Chief Executive is clearly established, set out in

writing and agreed by the Board. In arranging these

appointments, the Board, through the Senior

Independent Director, consulted with major

shareholders in advance.

The Board has determined the following

Non-executive Directors to be independent:

Mr. Brian Joyce, Mr. David Byrne, Mr. Tony McArdle

and Mr. Kevin O’Connell. In reaching this

conclusion, the Board took into account a number

of factors that might appear to affect the

independence of one of the Directors including

length of service on the Board. The Board decided

that the independence of the relevant director was

not compromised.

The Directors believe that, notwithstanding the fact

that half the Board excluding the Chairman does

not consist of Non-executives, the Board functions

effectively and there is a balance so that no

individual or group of individuals can dominate

decision making. The Directors are keeping this

balance of membership under active review.

Mr. Brian Joyce is currently nominated as the

Senior Independent Director of the Company.

Individual Directors may seek independent

professional advice, at the expense of the Company,

in furtherance of their duties as a Director.

The Group has arranged appropriate insurance

cover in respect of legal action against its Directors.

The Chairman

The Chairman is responsible for the efficient and

effective working of the Board. He ensures that

Board agendas cover key strategic issues

confronting the Group; that the Board reviews and

approves management’s plans for the Group; and

that Directors receive accurate, timely, clear and

relevant information. The Chairman consults, at

least once per annum, with Non-executive

Directors without the executives present.

26


The Board meets regularly throughout the year.

There are eleven scheduled Board meetings and

occasional other meetings if issues arise which

require urgent Board consideration. All Directors are

properly briefed on issues arising at Board

meetings, supplied with appropriate and timely

information for such meetings and given the

opportunity to probe and question the information

supplied and to seek such extra information as they

consider appropriate. The Group’s professional

advisors are available for consultation with the

Board and attend Board meetings as required. All

Directors have access to the advice and services of

the Company secretary who is responsible for

ensuring that Board procedures are followed. He is

also responsible for advising the Board through the

Chairman on all governance matters. The

appointment and removal of the Company

secretary are specifically reserved for the approval

of the Board.

Attendance at Board and Board Committee meetingsduring the year ended 31st December 2004

Board Audit Remuneration Nomination

A B A B A B A B

Eugene Murtagh 11 11 2 2Gene M. Murtagh 11 11Brendan Murtagh 11 11 2 2Dermot Mulvihill 11 11Jim Paul 11 10Russell Shiels 11 6Peter Wilson 11 9Noel Crowe1 10 9Eoin McCarthy 11 11 3 2 5 1 2 2Kevin O'Connell 11 11 3 3 5 5 2 2Brian Joyce 11 11 3 3 5 5 2 2Tony McArdle 11 11 3 3 5 5 2 2Tom Mulcahy2 4 2 1 1

Column A - indicates the number of meetings held during the period the Director was a member of the Board and/or Committee

Column B - indicates the number of meetings attended during the period the Director was a member of the Board and/or Committee1 Appointed 2nd February 2004 2 Retired 31st May 2004

Newly appointed Directors are subject to election at

the Annual General Meeting following their

appointments. Excluding any such newly appointed

Directors, one third of the Board is subject to

re-election at each Annual General Meeting.

Non-executive Directors are appointed to the Board

for an initial term of three years, renewable with the

Board’s agreement, but subject to re-election by

the shareholders on the normal rotation basis. Any

Non-executive Director who has served more than

nine years from the time of first election is subject

to annual re-election thereafter. The terms of

reference of the Nominations Committee and the

terms and conditions of appointment of non-

executives are available on request from the

Company secretary.

The Chairman ensures that new Directors receive a

full induction on joining the Board. All Directors

regularly update and refresh their skills and

knowledge.

27



Performance Appraisal

It is intended that the Chairman will conduct an

Annual Review of Corporate Governance, and the

operation and performance of the Board and its

Committees. This will be achieved through

discussions with each Director and the Company

secretary. A review of individual Directors’

performance will also be conducted by the

Chairman and each Director will be provided with

feedback gathered from other members of the

Board. It is also intended that the performance of

the Chairman will be reviewed annually by the

Senior Independent Director.

Board Committees

The Board has appointed Audit, Remuneration and

Nominations Committees. All Committees of the

Board have written terms of reference setting out

their authorities and duties and these terms are in

accordance with the provisions of the Combined

Code. The Chairman of each Committee is available

to give a report on the Committee’s proceedings at

Board meetings if required. Membership of the

Committees is set out on page 22.

Audit Committees

The Audit Committee consists of four Non-executive

Directors as detailed on page 22. Committee

members bring considerable financial and

accounting experience to the Committee’s work.

The Board is satisfied that the combined

qualifications and experience of the members give

the Committee collectively the financial expertise

necessary to discharge its responsibilities.

The Committee meets the external auditors without

management present to discuss matters relating to

its remit and any issues arising from the audit

generally.

The main responsibilities of the Committee include:

• Monitoring the integrity of the Group’s Financial

Statements and reviewing significant financial

reporting judgements contained in them;

• Reviewing the Group’s internal financial controls

and internal control and risk management

systems;

• Monitoring and reviewing the effectiveness of the

Group’s internal audit function;

• Making recommendations to the Board in

relation to the re-appointment or, if considered

appropriate, removal of the external auditors and

approving the remuneration and terms of

engagement of the external auditors;

• Monitoring the independence and objectivity of

the external auditors and the effectiveness of the

audit process, taking into consideration relevant

professional and regulatory requirements;

• Developing and implementing a policy on the

engagement of the external auditors to supply

non-audit services;

• Reporting to the Board, identifying any matters

in respect of which it considers that action is

needed and making recommendations as to the

steps to be taken.

28


In discharging its responsibilities the Audit

Committee meets a minimum of three times per

year. The external auditors attend these meetings

as required and have direct access to the

Committee and its Chairman at all times. The

Finance Director, head of internal audit and other

Group executives attend these meetings as

required. Minutes of the meetings are circulated to

the full Board.

The Committee’s responsibilities are discharged as

follows:

• Prior to their release, it reviews the preliminary

results announcements and Annual Reports and

questions the external auditor, the internal

auditors and the Finance Director in this regard.

It compares the results with management

accounts and budgets, and reviews

reconciliations between these and final results. It

receives a report from the external auditors at

that meeting identifying any accounting or

judgemental issues arising from the audit

requiring its attention.

• It reviews Group accounting policies on an

annual basis.

• Prior to their release, it reviews the preliminary

interim results announcements and Interim

Reports. It compares the results with

management accounts and budgets, and

reviews reconciliations between these and the

interim results.

• It reviews the performance of the external

auditors, considering the quality of the reports

and advice provided to the Committee. It also

considers the level of understanding of the

Group’s business, the objectivity of the auditors’

views of the Group’s internal controls and their

ability to complete the audit within tight

deadlines.

• It reviews the external auditors’ work plan both

before and after the audit. It reviews all audit

findings, adjustments, proposed management

letters and recommendations and management

responses thereto, and monitors action taken by

management as a result of any

recommendations.

• It reviews and approves the annual internal audit

plan, and carries out a regular assessment of the

resources available to deliver on the plan in a

timely fashion. It reviews all reports from the

internal auditors and management responses to

such reports and action points arising from

them.

• It reviews all relevant reports and

recommendations from external consultants on

an exception basis.

• It reviews annually the Group risk analysis and

management action and strategy to deal with

identified risks.

• A procedure has been adopted by the Board by

which staff of the Group are encouraged to raise

any concerns about possible improprieties in any

area of the Group. The Committee will review

this policy annually and satisfy itself that there is

appropriate investigation and follow up on any

such concerns raised.

29



Remuneration Committee

The Remuneration Committee consists of four

Non-executive Directors as detailed on page 22.

The Committee has responsibility for setting

remuneration for all Executive Directors and for the

Chairman, including pension contributions and any

compensation payments. The Committee also

monitors the level and structure of remuneration for

senior management. The Report of the Remuneration

Committee is set out on pages 36 to 41.

Nominations Committee

The Nominations Committee consists of six

members as detailed on page 22. The Nominations

Committee assists the Board to ensure that the

composition of the Board and its Committees is

appropriate for the needs of the Group. The

Committee meets at least once a year, and

additionally if required, to consider the Board’s

membership, to identify any additional skills or

experience which might benefit the Board’s

performance, to interview candidates and

recommend appointments to or, where necessary,

removals from, the Board.

The Committee is currently reviewing the

composition of the Board as regards the balance of

Executive and Non-executive Directors. In addition

to the appointment of Mr. David Byrne, it is

envisaged that an additional Non-executive Director

will be appointed in 2005.

• It has developed the following safeguards to

ensure that the independence of the external

audit is not compromised:

- Seeking confirmation from auditors that in

their professional judgement they are

independent from the Group;

- Obtaining an account of all relationships

between the external auditors and Group;

- Reviewing the economic importance of the

Group to the external auditors by monitoring

the audit fees as a percentage of the total fee

income generated from the relationship with

the Group. The Group also compares the

total fee income of the external auditors

generated from their relationship with the

Group with their total fee income, in light of

the ethical guidelines as set down by the

Institute of Chartered Accountants in Ireland.

The auditors are permitted to provide non-audit

services that are not, or are not perceived to be, in

conflict with auditor independence, provided that

they have the skills and integrity to carry out the

work and are considered to be the most

appropriate to undertake such work in the best

interests of the Group.

The head of internal audit reports directly to the

Chairman of the Audit Committee and both internal

audit and external auditors have direct access to

the Committee Chairman at all times.

30


The key elements of the Group’s system of internal

control include the following:

• a clearly defined organisation structure with

formal lines of authority, accountability and

responsibility;

• a formal schedule of matters specifically reserved

for decision by the Board;

• regular assessment of major business risks,

including investment and financing;

• a comprehensive annual budgeting process and

a review by the Board of actual performance

compared with budget on a monthly basis;

• clearly defined and appropriate levels of

authorisation for all transactions;

• the Audit Committee and an internal audit

function;

• the Chairman of the Audit Committee reports to

the Board on all significant issues considered by

the Committee, and the minutes of its meetings

are circulated to all Directors;

• Systematic monitoring and assessment of risk

areas through management and Board reviews.

The Directors confirm that the Group’s ongoing

process for identifying, evaluating and managing its

significant risks is in accordance with the Turnbull

guidance (Internal Control; Guidance for Directors

on the Combined Code). The process has been in

place throughout the accounting period and up to

the date of approval of the Annual Report and

Financial Statements, and is regularly reviewed by

the Board.

Communication with Shareholders

Communication with Shareholders is given a high

priority. The Company encourages communication

with all Shareholders, and welcomes their

participation at Annual General Meetings. All

Shareholders who attend the Company’s Annual

General Meeting are given the opportunity to

question the chairman and other members of the

Board, including the Chairmen of the committees,

on any aspect of the Group’s business. The

Company’s website, www.kingspan.com, provides

the full text of the Annual and Interim Reports and

the presentations to analysts and investors.

Internal Control

The Board of Directors has overall responsibility for

the Group’s system of internal control and has

delegated responsibility for the implementation of

this system to executive management. This

delegation ensures the embedding of the system of

internal control throughout the Group’s operations,

and ensures that the organisation is capable of

responding quickly to evolving business risks, and

that significant internal control issues, should they

arise, are reported quickly to appropriate levels of

management. Such a system of internal control by

its nature is designed to manage rather than

eliminate the risk of failure to achieve business

objectives, and can provide reasonable, but not

absolute, assurance against material misstatement

or loss.

31



The Directors confirm that they have conducted an

annual review of the effectiveness of the system of

internal control up to and including the date of

approval of the financial statements. The process

used by the Board for this review includes:

• The review by the Audit Committee of the

external and internal auditors’ work plans, reports

and internal control recommendations;

• Review by the Board and Audit Committee of the

specific identified risk areas;

• Consideration of reports from management and

internal and external auditors on the system of

internal control and on material control

weaknesses;

• Discussions with management on the

implementation of strategies on any internal

control and risk areas identified;

• Consideration by the Board of the impact of the

Companies (Auditing and Accounting) Act 2003

on the Group.

The approach by the Board is proactive in

identifying possible weaknesses and obtaining the

relevant degree of assurance on specific areas of

internal control and not merely reporting by

exception.

Going Concern

The Directors have reviewed budgets, projected

cash flows and other relevant information, and, on

the basis of this review, are confident that the

Company and the Group have adequate resources

to continue in operational existence for the

foreseeable future. For this reason, the Directors

consider it appropriate to adopt the going concern

basis in preparing the Financial Statements.

Directors

The Directors of the Company at the date of this

report are shown on page 22.

Mr. Tom Mulcahy retired from the Group Board on

31st May 2004.

Mr. David Byrne was co-opted to the Group Board

on 1st January 2005 and offers himself for election

by members at the Annual General Meeting.

Mr. Eugene Murtagh, Mr. Russell Shiels and Mr. Jim

Paul retire from the Board by rotation and, being

eligible, offer themselves for re-election. Mr. Jim

Paul will retire as an Executive and from the Board

at the end of this year.

Mr. Kevin O’Connell and Mr. Eoin McCarthy, being

Non-executive Directors who have served for over

nine years on the Board, retire from the Board in

accordance with best practice, and, being eligible,

offer themselves for re-election.

Conflicts of Interest

Save as set out in this Annual Report, none of the

Directors has any direct or indirect interest in any

contract or arrangement subsisting at the date

hereof which is significant in relation to the

business of the Company or any of its subsidiaries

nor in the share capital of the Company or any of

its subsidiaries.

32


Directors’ & Secretary’s Interests in SharesThe beneficial interests of the Directors and secretary and their spouses and minor children in the shares ofthe Company at the end of the financial year are as follows:

31st December 2004 31st December 2003 Eugene Murtagh 40,000,000 40,000,000Gene M. Murtagh 78,000 78,000Brendan Murtagh 7,525,000 7,525,000Dermot Mulvihill 1,010,830 1,035,830Jim Paul 163,165 163,165Russell Shiels 204,330 204,330Peter Wilson 100,670 130,830Noel Crowe - -Eoin McCarthy 3,000,000 3,958,335Kevin O'Connell 76,130 76,130Brian Joyce - -Tony McArdle 14,250 14,250David Byrne - -

52,172,375 53,185,870

Political Donations

Neither the company nor any of its subsidiaries has

made any political donations in the year which

would be required to be disclosed under The

Electoral Act 1997.

Significant Events since Year End

In February 2005, the acquisition of the RCM group

of businesses was completed in the UK for an initial

consideration of e22 million. RCM is a leading

player in the growing UK unvented cylinder market

and will greatly complement the Environmental

Containers Division’s existing presence in that

sector.

There have been no changes in these interests between 31st December 2004 and the date of this report.

33



Special Business at the Annual General

Meeting

Shareholders are being asked to renew until the

Annual General Meeting in 2006, the authority to

allot any unissued share capital of the Company.

No issue of shares will be made which could

effectively alter control of the Company without

prior approval of the shareholders in General

Meeting. At present the Directors do not intend to

issue any shares.

Shareholders are being asked to renew, until the

Annual General Meeting in 2006, the power of the

Directors to disapply the statutory pre-emption

provisions applying to ordinary shares in the event

of a rights issue or in any other issue for cash up to

an aggregate of 5% of the nominal value of the

Company’s issued ordinary share capital.

Shareholders are also being asked to renew, until

the Annual General Meeting in 2006, the

authorisation for the Company, or any of its

subsidiaries, to purchase up to 10% of the

Company’s own shares and to reissue such shares

purchased by it and not cancelled. The Directors

would only exercise the power to purchase the

Company’s own shares at price levels which they

considered to be in the best interests of the

shareholders generally, after taking account of the

Company’s overall financial position. The minimum

price which may be paid for a purchase of the

Company’s own shares shall be the nominal value

of the ordinary shares, and the maximum price

which may be paid shall be 105% of the then

average market price of the ordinary shares.

Shareholders are being asked to approve that,

where the Company’s shares have been

repurchased, (such shares being known as

Treasury shares), these shares may be sold off-

market at a maximum price of 120% of the

Appropriation Average (as defined in the resolution),

and a minimum price of 95% of the Appropriation

Average.

Special Business at the Extraordinary General

Meeting

Subject to the passing of Resolution 7 renewing the

authority of the Company to buy back up to 10%

of its issued share capital, and in the circumstances

described in the separate circular sent to

shareholders, those shareholders who are

independent of the Directors of the Company are

asked to approve that none of the Murtagh

Directors or of the Kingspan Directors shall by

reason of an increase in their holding be obliged to

make an offer to shareholders of the Company

under Rule 9.1 or Rule 37(a) of the Irish Takeover

Panel Act, 1997 Takeover Rules, 2001 and 2002.

Substantial Shareholdings

Eugene Murtagh’s shareholding at the date of this

report amounted to 23.9% of the issued share

capital of the Company, and Brendan Murtagh’s

shareholding amounted to 4.5% of the issued

share capital of the Company. Details of Directors’

shareholdings at 31st December 2004 are set out

on page 32.

34


The Directors have been notified of the following other substantial shareholdings at the date of this report:

International Financial Reporting Standards

The Group prepares its consolidated Financial

Statements in accordance with accounting

principles generally accepted in the Republic of

Ireland (Irish GAAP), which are consistent with UK

GAAP.

As part of the European Commission’s plan to

develop a single European capital market, the

application of IFRS is mandatory for the

consolidated Financial Statements of all listed

European Union companies for reporting periods

beginning on or after 1st January 2005. The

Regulation passed by the European Union requires

that IFRS-compliant Financial Statements be

produced by Kingspan Group plc for the financial

periods ending 30th June 2005 and 31st December

2005, and that those Financial Statements contain

a full set of disclosures for the comparative periods

in 2004. Under this regulation, 1st January 2004 is

the transition date for Kingspan.

The principal changes for Kingspan arising from the

move from Irish GAAP to IFRS and their estimated

impact on the Financial Statements will be:

• Expensing of share options through the Group

income statement using a trinomial model

(IFRS2); this would have reduced reported profits

for 2004 by approximately e1.8 million.

• Cessation of goodwill amortisation, offset to

some extent by the recognition and amortisation

of intangible assets arising on business

combinations deemed separable from goodwill

(IFRS 3 and IAS 38); as a result, reported profits

for 2004 would have increased by approximately

e7.9 million.

• Recognition of assets and liabilities of defined

benefit pension schemes on the face of the

Group balance sheet and recognising pension

expenses in the Group income statement using

principles similar to FRS 17 as disclosed in note

32 to the 2004 financial statements (IAS 19); the

effect of this change on the income statement

and the balance sheet is set out in note 32.

Institution Shares held %

Bank of Ireland Asset Management 8,600,144 5.13%

M & G Investment Management 7,909,003 4.71%

Fidelity Investments 6,568,166 3.92%

AIB Investment Managers 6,229,180 3.71%

35



• Recognition and measurement of financial

instruments at fair value and employment of

hedge accounting for derivative exposures (IAS

32 and IAS 39); this will have no effect on

reported profits.

• Under IAS 10, Events after the Balance Sheet

date, it is no longer acceptable to recognize a

dividend declared and approved after the

balance sheet date. This would have increased

the retained profit for 2004 by e10.3 million.

In accordance with IFRS 1, which establishes the

framework for transition to IFRS by a first-time

adopter such as Kingspan, the Group proposes to

elect, in common with the majority of listed

companies, to avail of a number of specific

exemptions from retrospective restatement as

follows:

• Business combinations undertaken prior to the

transition date of 1st January 2004 will not be

restated;

• Previous fixed asset revaluations will be regarded

as deemed cost and will not be adjusted;

• Cumulative actuarial gains and losses for defined

benefit pension schemes will be recognised in

full in the Group balance sheet;

• Financial results prior to 2004 will not be

restated.

In compliance with the transitional arrangements

set out in IFRS 2, the Group has decided that this

standard, which addresses the expensing of share

options, will be applied in respect of options

granted after 7th November 2002.

The full impact of IFRS restatement on the

published 2004 interim and year-end 2004

consolidated financial statements will be provided

to shareholders during the course of 2005. The

trading statement for the first six months of 2005

will provide guidance under IFRS and both the

interim 2005 and full-year 2005 results will be

reported under IFRS.

Health and Safety

The Group makes every effort to safeguard the well

being of the Group’s employees through strict

adherence to health and safety standards. In the

opinion of the Directors, all relevant Group

companies meet the requirements of the Safety,

Health and Welfare at Work Act, 1989.


The Group’s Environmental Policy is outlined on

page 16 of the Annual Report

Subsidiary companies

The Company’s principal subsidiary undertakings at

31st December 2004, country of incorporation and

nature of business are listed on pages 71 to 74.

Auditors

In accordance with Section 160(2) of the

Companies Act, 1963 the auditors, Grant Thornton,

Registered Auditors, will continue in office.

On behalf of the Board:

Eugene Murtagh, Chairman

Gene M. Murtagh, Director

8th March 2005

36

Report of the Remuneration Committee

Composition of the Remuneration Committee

The Remuneration Committee consists entirely of

Non-executive Directors and its membership is

given on page 22. The terms of reference for the

Committee are to determine the Group’s policy on

executive remuneration and to consider and

approve salaries and other elements of the

remuneration packages of the Executive Directors.

Compliance

The Company has complied throughout the year

with the Listing Rules of the Irish Stock Exchange

and its best practice provisions in relation to

Directors’ remuneration and has given full

consideration to Section B of the Best Practice

Provisions annexed to the Stock Exchange Listing

Rules.

Policy on Remuneration of Executive Directors

The Group’s policy on Directors’ remuneration is

aimed at ensuring that remuneration packages will

attract, retain and motivate executive Directors and

senior executives of the calibre necessary to

develop the Group and enhance Shareholder value.

In setting remuneration levels the Remuneration

Committee consults with the Chairman, takes into

consideration the remuneration practices of other

quoted companies of similar size and scope and

takes independent professional advice in this

regard. The elements of the remuneration package

for Executive Directors are basic salary and

benefits, annual bonus, pensions and participation

in the Group share option scheme. In addition, as

set out below, there is a long-term incentive plan

for Directors and senior executives. These

packages are reviewed annually by the

Remuneration Committee, having regard to

personal performance, competitive market practice

and comparative information. Performance related

rewards consist of bonus payments and grant of

options. Bonus payments are based on the

attainment of targets determined at the start of the

year.

Directors’ Remuneration

Executive Basic Benefit Performance Pension 2004 2003Directors Salary in kind related bonus contributions Total Total

E'000 E'000 E'000 E'000 E'000 e'000

Eugene Murtagh 420 35 210 315 980 713Gene M. Murtagh 350 23 175 53 601 318Brendan Murtagh 380 33 190 369 972 729Dermot Mulvihill 275 22 138 267 702 523Jim Paul 253 30 127 52 462 320Russell Shiels 253 14 127 62 456 335Peter Wilson 221 16 111 33 381 181 Noel Crowe1 187 7 94 28 316 -Robert Barr 2 - - - - - 728

2,339 180 1,172 1,179 4,870 3,847


37



Non-executive Directors

2004 2003Non-executive Non-executive

fees feesE'000 e'000

Eoin McCarthy 3 45 48Kevin O'Connell 48 50Brian Joyce 45 26Tony McArdle 45 26Tom Mulcahy 4 19 26Danny Kitchen 5 - 38

202 214

Benefits relate to health insurance premiums and to

the use by Directors of company cars. Pension

contributions represent payments made under

defined contribution pension schemes operated by

the Group.

1 Mr. Noel Crowe was co-opted as an Executive

Director on 2nd February 2004.

2 Mr. Robert Barr resigned as an Executive

Director effective from 31st October 2003.

3 Mr. Eoin McCarthy was also paid e63,488 in

respect of other services provided to the Group.

4 Mr. Tom Mulcahy retired as a Non-executive

Director on 31st May 2004.

5 Mr. Danny Kitchen retired as a Non-executive

Director on 13th August 2003.

Number of Directors at year-end

2004 2003

Executive Directors 8 7Non-executive Directors 4 5

Total 12 12

Average number of Directors during the year

2004 2003


Total 12 12

38


Annual Bonus Scheme

Bonus payments based on the attainment of

targets determined at the start of the year by the

Remuneration Committee are payable to Executive

Directors.

Pension Scheme

The Group operates a defined contribution pension

scheme for Executive Directors. Pension

contributions are calculated on basic salary only.

Standard Share Option Scheme

Under the terms of the share option scheme

approved by shareholders in May 1998, (the

Standard Scheme), share options may be awarded

to Executive Directors. Such options are

exercisable only when earnings per share (eps)

growth exceeds growth of the Irish Consumer Price

Index over a period of at least three years

subsequent to the granting of the options, by at

least 2% per annum compound. The percentage of

share capital which can be issued under the

scheme and individual grant limits comply with

I.A.I.M. guidelines. Grants of share options are

awarded annually to ensure a smooth progression

over the life of the scheme and at the market price

of the Company’s shares at the time of the grant.

Under the share option scheme, options become

exercisable three years after they are granted and

remain exercisable for seven years. Details of the

options granted to Directors under the Standard

Scheme are set out on page 39.

Long-Term Incentive Plan

The objective of the long-term incentive plan,

approved by shareholders in May 2001, is to

motivate and reward Directors and senior

executives for exceptional performance. Share

options granted to an individual under the terms of

the plan are exercisable only if certain performance

criteria are achieved in the three year period

following the end of the accounting period ending

prior to that in which the options were granted.

These conditions are:

• EPS growth must increase by at least the

composite inflation index plus 10% per annum

compound over the three years and

• For 100% of the award to vest, EPS growth

must be in the top quartile of companies in the

FTSE 250. If EPS growth is in the second

quartile, 50% of the award will vest.

Otherwise the shares do not vest.

39



Details of Share Options granted to PLC Directors under Standard Share Option Scheme

At Granted Exercised At Option Average Earliest31st Dec during during 31st Dec price option price exercise Expiry

Director 2003 year year 2004 Cent Cent date date

Eugene Murtagh 120,000 120,000 245 11/10/2004 11/10/2011

120,000 120,000 245

Gene M. Murtagh 62,500 62,500 267 25/09/2001 25/09/200840,000 40,000 235 29/03/2002 29/03/200940,000 40,000 310 28/04/2003 28/04/2010

100,000 100,000 245 11/10/2004 11/10/2011100,000 100,000 135 09/10/2005 09/10/201266,000 66,000 330 18/09/2006 18/09/2013

200,000 200,000 565 23/09/2007 23/09/2014

408,500 200,000 608,500 347

Brendan Murtagh 120,000 120,000 245 11/10/2004 11/10/2011120,000 120,000 135 09/10/2005 09/10/2012125,000 125,000 330 18/09/2006 18/09/2013

250,000 250,000 565 23/09/2007 23/09/2014

365,000 250,000 615,000 371

Dermot Mulvihill 100,000 100,000 245 11/10/2004 11/10/2011100,000 100,000 135 09/10/2005 09/10/2012125,000 125,000 330 18/09/2006 18/09/2013

115,000 115,000 565 23/09/2007 23/09/2014

325,000 115,000 440,000 328

Jim Paul 41,665 41,665 125 01/01/2000 01/01/2007100,000 100,000 245 11/10/2004 11/10/2011100,000 100,000 135 09/10/2005 09/10/2012100,000 100,000 330 18/09/2006 18/09/2013

341,665 341,665 223

Russell Shiels 289,000 289,000 128 10/09/1999 10/09/200683,335 83,335 125 01/01/2000 01/01/2007

100,000 100,000 245 11/10/2004 11/10/2011100,000 100,000 135 09/10/2005 09/10/2012

50,000 50,000 565 23/09/2007 23/09/2014

572,335 50,000 622,335 183

Peter Wilson 1 125,000 (125,000) - 179 125,000 125,000 264 25/09/2001 25/09/2008

100,000 100,000 565 23/09/2007 23/09/2014

250,000 100,000 (125,000) 225,000 398

Noel Crowe 55,000 55,000 245 11/10/2004 11/10/201130,000 30,000 135 09/10/2005 09/10/201230,000 30,000 330 18/09/2006 18/09/2013

50,000 50,000 565 23/09/2007 23/09/2014

115,000 50,000 165,000 337

1 The share price on the day when Peter Wilson exercised his options was e6.62.

40


Details of share options granted to Directors under Long-Term Incentive Share Option Scheme

At Granted Exercised At Option Average Earliest31st Dec during during 31st Dec price option price exercise Expiry

Director 2003 year year 2004 Cent Cent date date

Eugene Murtagh 41,000 41,000 13 09/10/2004 09/10/2008

41,000 41,000 13

Gene M. Murtagh 33,000 33,000 13 09/10/2004 09/10/200833,000 33,000 13 09/10/2005 09/10/200930,000 30,000 13 18/09/2006 18/09/2010

37,000 37,000 13 23/09/2007 23/09/2011

96,000 37,000 133,000 13

Brendan Murtagh 38,000 38,000 13 09/10/2004 09/10/200838,000 38,000 13 09/10/2005 09/10/200935,000 35,000 13 18/09/2006 18/09/2010

41,000 41,000 13 23/09/2007 23/09/2011

111,000 41,000 152,000 13

Dermot Mulvihill 33,000 33,000 13 09/10/2004 09/10/200833,000 33,000 13 09/10/2005 09/10/200930,000 30,000 13 18/09/2006 18/09/2010

29,000 29,000 13 23/09/2007 23/09/2011

96,000 29,000 125,000 13

Jim Paul 33,000 33,000 13 09/10/2004 09/10/200833,000 33,000 13 09/10/2005 09/10/200929,000 29,000 13 18/09/2006 18/09/2010

95,000 95,000 13

Russell Shiels 33,000 33,000 13 09/10/2004 09/10/200833,000 33,000 13 09/10/2005 09/10/200930,000 30,000 13 18/09/2006 18/09/2010

27,000 27,000 13 23/09/2007 23/09/2011

96,000 27,000 123,000 13

Noel Crowe 20,000 20,000 13 23/09/2007 23/09/2011

20,000 20,000 13

Peter Wilson 24,000 24,000 13 23/09/2007 23/09/2011

24,000 24,000 13

No options were cancelled during the year. The share price at 31st December 2004 was e7.05, and the range

during 2004 was e3.97 to e7.15.

41



The Company’s Register of Directors’ Interests,

which is open to inspection at the Registered

Office, contains full details of Directors’

shareholdings and share options.

Service Contracts

No Director has a service contract in excess of

one year.

Non-executive Directors

The Non-executive Directors each receive a fee

which is determined by the Board. The Non-

executive Directors do not have service contracts

and do not receive any pension or other benefits

from the Company, nor do they participate in any

bonus or share option schemes.

42

Statement of the Directors’ Responsibilities

Statement of the Directors’ Responsibilities

Company law in Ireland requires the Directors to

prepare Financial Statements for each financial

year which give a true and fair view of the state of

affairs of the Company and of the Group and of

the profit or loss of the Group for that period. In

preparing those Financial Statements, the

Directors are required to:

• Select suitable accounting policies and then

apply them consistently;

• Make judgements and estimates that are

reasonable and prudent;

• Disclose and explain any material departures

from applicable accounting standards;

• Prepare the Financial Statements on the going

concern basis unless it is inappropriate to

presume that the Company, and the Group as a

whole, will continue in business.

The Directors are responsible for keeping proper

accounting records which disclose with

reasonable accuracy at any time the financial

position of the Company and which enable them

to ensure that the Financial Statements are

prepared in accordance with accounting

standards generally accepted in Ireland, and

comply with the Companies Acts, 1963 to 2003

and the European Communities (Companies:

Group Accounts) Regulations 1992.

They are responsible for safeguarding the assets

of the Group and hence for taking reasonable

steps for the prevention and detection of fraud

and other irregularities.

The maintenance and integrity of the Group’s

website are the responsibility of the Directors.

43


Independent Auditors’ Report


to the Shareholders of Kingspan Group plc

We have audited the Financial Statements of the

Group for the year ended 31st December 2004

which comprise the Group Profit and Loss

Account, Statement of Total Recognised Gains

and Losses, Group Balance Sheet, Company

Balance Sheet, Group Cash Flow Statement, and

the related notes 1 to 35. These Financial

Statements have been prepared under the

historical cost convention (as modified by the

revaluation of certain fixed assets) and the

accounting policies set out therein.

This report is made solely to the Company’s

shareholders, as a body, in accordance with

Section 193 of the Companies Act, 1990. Our

audit work has been undertaken so that we might

state to the Company’s shareholders those

matters we are required to state to them in an

auditors’ report and for no other purpose. To the

fullest extent permitted by law, we do not accept

or assume responsibility to anyone other than the

Company and the Company’s shareholders as a

body, for our audit work, for this report, or for the

opinions we have formed.

Respective Responsibilities of Directors and

Independent Auditors

The Directors' responsibilities for preparing the

Annual Report and the Financial Statements in

accordance with applicable law and Irish

Accounting Standards are set out in the

Statement of Directors' Responsibilities.

Our responsibility is to audit the Financial

Statements in accordance with relevant legal and

regulatory requirements, Auditing Standards

promulgated by the Auditing Practices Board in

Ireland and the United Kingdom and the Listing

Rules of the Irish Stock Exchange.

We report to you our opinion as to whether the

Financial Statements give a true and fair view and

are properly prepared in accordance with the

Companies Acts. We also report to you whether in

our opinion: proper books of account have been

kept by the Company; whether, at the balance

sheet date, there exists a financial situation

requiring the convening of an Extraordinary

General Meeting of the Company; and whether

the information given in the Directors' Report is

consistent with the Financial Statements. In

addition, we state whether we have obtained all

the information and explanations we consider

necessary for the purposes of our audit and

whether the Company's balance sheet is in

agreement with the books of account.

We report to the shareholders if, in our opinion,

any information specified by law or the Listing

Rules regarding Directors' remuneration and

Directors' transactions is not given and, where

practicable, include such information in our report.

We review whether the corporate governance

statement reflects the Company's compliance

with the nine provisions of the revised Combined

Code specified for our review by the Listing Rules,

and we report if it does not. We are not required

to consider whether the Board's statements on

internal control cover all risks and controls, or

form an opinion on the effectiveness of the

Group’s corporate governance procedures or its

risk and control procedures.

44

We read other information contained in the Annual

Report and consider whether it is consistent with

the audited Financial Statements. This other

information comprises only the Directors' Report,

the Chairman's Statement, the Chief Executive’s

Review, the Financial Review, the Report of the

Remuneration Committee and the Corporate

Governance Statement. We consider the

implications for our report if we become aware of

any apparent misstatements or material

inconsistencies with the Financial Statements.

Our responsibilities do not extend to any other

information.

Basis of Audit Opinion

We conducted our audit in accordance with

Auditing Standards issued by the Auditing

Practices Board. An audit includes examination,

on a test basis, of evidence relevant to the

amounts and disclosures in the Financial

Statements. It also includes an assessment of the

significant estimates and judgments made by the

Directors in the preparation of the Financial

Statements, and of whether the accounting

policies are appropriate to the Group's

circumstances, consistently applied and

adequately disclosed.

We planned and performed our audit so as to

obtain all the information and explanations which

we considered necessary in order to provide us

with sufficient evidence to give reasonable

assurance that the Financial Statements are free

from material misstatement, whether caused by

fraud or other irregularity or error. In forming our

opinion we also evaluated the overall adequacy of

the presentation of information in the Financial

Statements.

Opinion

In our opinion the Financial Statements give a true

and fair view of the state of the Group's and the

Company's affairs as at 31st December 2004 and

of the Group's profit for the year then ended and

have been properly prepared in accordance with

the Companies Acts, 1963 to 2003 and the

European Communities (Companies: Group

Accounts) Regulations, 1992.

We have obtained all the information and

explanations we consider necessary for the

purposes of our audit. In our opinion proper

books of account have been kept by the

Company.

The Company's balance sheet is in agreement

with the books of account.

In our opinion the information given in the

Directors' Report is consistent with the Financial

Statements.

The net assets of the Company, as stated in the

balance sheet, are more than half of the amount

of its called-up share capital and, in our opinion,

on that basis there did not exist at 31st December

2004 a financial situation which under Section

40(1) of the Companies (Amendment) Act, 1983,

would require the convening of an Extraordinary

General Meeting of the Company.

GRANT THORNTON

Chartered Accountants

and Registered Auditors

24-26 City Quay

Dublin 2

8th March 2005


45


Financial Statements

Group Profit and Loss Account 46

Statement of Total Recognised Gains and Losses 47

Note of Historical Cost Profits and Losses 47

Reconciliation of Movements in Shareholders’ Funds 47

Group Balance Sheet 48

Group Cash Flow Statement 49

Company Balance Sheet 51

Accounting Policies 52

Notes to the Financial Statements 56

Group Five Year Summary 75

f i n a n c i a ls t a t e m e n t s

46


ContinuingOperations Acquisitions Total Total

2004 2004 2004 2003Note E‘000 E‘000 E‘000 b‘000

2 TURNOVER 952,753 5,330 958,083 783,894

COST OF SALES (671,748) (3,981) (675,729) (551,542)

GROSS PROFIT 281,005 1,349 282,354 232,352

Distribution costs (59,269) - (59,269) (48,990)Administrative expenses (119,910) (997) (120,907) (103,972)

OPERATING PROFIT BEFOREGOODWILL AMORTISATION 101,826 352 102,178 79,390

Goodwill amortisation (7,669) (268) (7,937) (7,933)

OPERATING PROFIT 94,157 84 94,241 71,457

4 Interest payable and similar charges (7,144) (6,802)5 Interest receivable and other income 873 786

6 PROFIT ON ORDINARYACTIVITIES BEFORE TAXATION 87,970 65,441

8 Tax on profit on ordinary activities (17,993) (13,959)

PROFIT ON ORDINARYACTIVITIES AFTER TAXATION 69,977 51,482

Minority interest (2) (74)

PROFIT ATTRIBUTABLE TOORDINARY SHAREHOLDERS 69,975 51,408

9 Ordinary dividends (15,930) (11,896)

PROFIT RETAINED FOR THE YEAR 54,045 39,512

10 BASIC EARNINGS PER SHARE 42.3 c 31.2 c

10 BASIC EARNINGS PER SHARE 47.0 c 36.0 c(before goodwill amortisation)

10 DILUTED EARNINGS PER SHARE 41.5 c 30.9 c


Gene M. Murtagh, Chief Executive

Group Profit and Loss Accountfor the year ended 31st December 2004

47


2004 2003E‘000 b‘000

Profit for financial year attributable to Group shareholders 69,975 51,408Dividends (15,930) (11,896)

54,045 39,512

Exchange adjustments (1,921) (27,611)New share capital subscribed 1,585 627

Net addition to shareholders' funds 53,709 12,528Opening shareholders' funds 248,432 235,904

Closing shareholders' funds 302,141 248,432

2004 2003E‘000 b‘000

Profit for financial year attributable to Group shareholders 69,975 51,408

Exchange adjustments (1,921) (27,611)

Total gains and losses recognised since last Annual Report 68,054 23,797

Statement of Total Recognised Gains and Lossesfor the year ended 31st December 2004

2004 2003E‘000 b‘000

Profit on ordinary activities before taxation 87,970 65,441

Difference between historical cost depreciation chargeand actual charge for the year calculated on the revalued amount 37 37

Historical cost profit on ordinary activities before taxation 88,007 65,478

Retained historical cost profit 54,082 39,549

Note of Historical Cost Profits and Lossesfor the year ended 31st December 2004

Reconciliation of Movements in Shareholders’ Funds

48


2004 2003Note E‘000 b‘000

FIXED ASSETS11 Tangible assets 211,813 176,14012 Intangible assets 104,282 122,48713 Financial assets 38 49

316,133 298,676

CURRENT ASSETS14 Stocks 89,225 61,70815 Trade and other debtors 220,643 175,957

Cash and term deposits 87,791 55,746

397,659 293,411

CREDITORSAmounts falling due within one year

16 Trade and other creditors 176,029 139,61318 Bank and other borrowings 108,217 46,298

Deferred consideration 597 85Dividends 10,300 7,608

295,143 193,604

NET CURRENT ASSETS 102,516 99,807

TOTAL ASSETS LESS CURRENT LIABILITIES 418,649 398,483

CREDITORSAmounts falling due after more than one year

18 Bank and other borrowings 76,136 126,116Deferred consideration 10,463 4,067

86,599 130,183

20 PROVISIONS FOR LIABILITIES AND CHARGES 27,813 17,605

21 GOVERNMENT GRANTS 915 999

303,322 249,696

CAPITAL AND RESERVES22 Called-up share capital 21,797 21,71123 Share premium account 20,260 18,76124 Revaluation reserve 891 89125 Profit and loss account 294,010 239,96526 Other reserves (34,817) (32,896)

Shareholders' funds 302,141 248,432

27 MINORITY INTERESTS 1,181 1,264

303,322 249,696



Group Balance Sheetas at 31st December 2004

49


2004 2003Note E‘000 b‘000

28 NET CASH INFLOW FROM OPERATING ACTIVITIES 103,430 75,698

RETURNS ON INVESTMENTS AND SERVICING OF FINANCEInterest received 875 794Interest paid (7,452) (7,294)Interest element of finance lease rental payments (20) (3)

Net cash outflow from returns on investmentsand servicing of finance (6,597) (6,503)

TAXATIONCorporation tax paid (14,826) (8,909)

CAPITAL EXPENDITURE AND FINANCIAL INVESTMENTPurchase of tangible fixed assets (56,695) (39,690)New finance leases 82 -Proceeds on sale of financial fixed assets 11 -Proceeds on sale of tangible fixed assets 2,124 3,374

Net cash outflow for capital expenditure and financial investment (54,478) (36,316)

ACQUISITIONS AND DISPOSALS29 Purchase of subsidiary undertakings (18,051) (7,478)

Receipt of Tate Global Corporation settlement 24,680 -Net cash acquired with acquisitions 954 728Payment of deferred consideration in respect of acquisitions (629) (734)

Net cash inflow/(outflow) for acquisitions and disposals 6,954 (7,484)

EQUITY DIVIDENDS PAID (13,237) (30,322)

CASH INFLOW/(OUTFLOW) BEFOREUSE OF LIQUID RESOURCES AND FINANCING 21,246 (13,836)

MANAGEMENT OF LIQUID RESOURCESDecrease in bank deposits 9,301 3,400

FINANCINGIssue of shares 1,585 627Increase in term debt 8,994 1,212Capital element of finance lease repayments (5) (37)Capital grants received 20 7Acquisition of shares held by minorities - (418)Dividends paid to minorities (91) (288)

Net cash inflow from financing 10,503 1,103

INCREASE/(DECREASE) IN CASH FOR THE YEAR 41,050 (9,333)

Group Cash Flow Statementfor the year ended 31st December 2004

50


2004 2003Note E‘000 b‘000

RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

Increase/(Decrease) in cash for the year 41,050 (9,333)

Decrease in liquid resources (9,301) (3,400)

Cash flow from movement in debt, lease finance and deferred consideration (8,360) (441)

Change in net debt resulting from cash flows 23,389 (13,174)

Loans and finance leases acquired with subsidiaries (2,054) (246)

Deferred consideration arising on acquisitions during the year (7,456) (646)

New finance leases (82) -

Translation adjustment (598) 10,552

Movement in net debt in the year 13,199 (3,514)

NET DEBT AT START OF YEAR (120,820) (117,306)

30 NET DEBT AT END OF YEAR (107,621) (120,820)



Group Cash Flow Statementfor the year ended 31st December 2004

51


2004 2003Note E‘000 b‘000

FIXED ASSETS13 Financial assets 11,960 11,960

CURRENT ASSETS15 Debtors 87,976 109,002

Cash at bank and in hand 1,376 -

89,352 109,002

CREDITORSAmounts falling due within one year

16 Trade and other creditors 18,290 25,70518 Bank and other borrowings - 583

Dividends 10,300 7,608

28,590 33,896

NET CURRENT ASSETS 60,762 75,106

TOTAL ASSETS LESS CURRENT LIABILITIES 72,722 87,066

CAPITAL AND RESERVES22 Called-up share capital 21,797 21,71123 Share premium account 20,260 18,76125 Profit and loss account 30,152 46,08126 Other reserves 513 513

Shareholders' funds 72,722 87,066



Company Balance Sheetfor the year ended 31st December 2004

52


(A) Basis of accounting

The Financial Statements are prepared in accordance with generally accepted

accounting principles and Irish statute comprising the Companies Acts 1963 to 2003

and the European Communities (Companies:Group Accounts) Regulations 1992. The

Financial Statements are prepared under the historical cost convention with the

exception of certain land and buildings which are stated at valuation and comply with

financial reporting standards of the Accounting Standards Boards, as promulgated

by The Institute of Chartered Accountants in Ireland.

(B) Basis of consolidation

The consolidated Financial Statements incorporate the Financial Statements of the

Company and its subsidiary undertakings and also the Group’s share of the profits

and losses of associated companies. Where a subsidiary is acquired or disposed of

during the financial year, the Group Financial Statements include the attributable

results from or to the effective date of acquisition or disposal. All intra-group profits

are eliminated on consolidation.

(C) Goodwill

Goodwill comprises the excess cost of the Group’s interest in subsidiaries over the

fair value of the net identifiable assets as at the date of acquisition. With effect from

1st January 1998, goodwill arising on acquisitions, representing the excess of the

purchase price over the fair value of the net assets acquired, is capitalised and

amortised against trading profits over its useful life of 20 years. Goodwill arising prior

to that date was written off in the year of acquisition against reserves.

(D) Turnover

Turnover comprises the total amount receivable by the Group in the ordinary course

of business with outside customers for goods and services supplied, exclusive of

trade discounts and value added tax.

(E) Stocks

Stocks are stated at the lower of cost and net realisable value. In the case of raw

materials, cost means purchase price including transport and handling costs, less

trade discounts, calculated on a first in first out basis. For work in progress and

Accounting Policies for the year ended 31st December 2004

53


finished goods, cost consists of direct materials, direct labour and attributable

production overheads.

Net realisable value comprises the actual or estimated selling price (less trade

discounts), less all further costs to completion, and less all costs to be incurred in

marketing, selling and distribution.

(F) Deferred taxation

Current tax is calculated on taxable profits and is based on the applicable taxation

rates prevailing at the balance sheet date. Deferred tax is provided for on all timing

differences which are expected to reverse in the foreseeable future. Timing

differences arise as a result of differences between the profit as computed for

taxation purposes and the profit as stated in the Financial Statements. Deferred tax

liabilities are not discounted. Deferred tax assets are recognised only to the extent

that the Directors consider that it is more likely than not that there will be suitable

taxable profits from which the future reversal of the underlying timing differences can

be deducted.

(G) Grants

Capital grants received in respect of the purchase of tangible assets are treated as a

deferred credit, a portion of which is released to the Profit and Loss account annually

over the useful economic life of the asset to which it relates.

(H) Depreciation of tangible fixed assets

Tangible fixed assets, excluding freehold land, are depreciated at appropriate rates in

order to write them off over their expected useful lives.

The rates generally applied are:

Freehold buildings 2% on cost

Plant and machinery 10% to 20% on cost

Fixtures and fittings 10% to 20% on cost

Motor vehicles 20% to 25% on cost

Leased assets 10% to 25% on cost

54


(I) Amortisation of patents

Purchased patents are amortised on a straight line basis over 121/2 years.

(J) Leasing

Assets held under leasing arrangements, that transfer substantially all the risks and

rewards of ownership to the Group, are capitalised. The capital element of the

related rental obligation is shown on the Balance Sheet. The interest element of the

rental obligation is charged to the Profit and Loss Account so as to produce a

constant periodic rate of charge.

Rentals in respect of operating leases are charged to the Profit and Loss Account as

incurred.

(K) Investments

Investments are stated at cost less amounts written off.

(L) Pension costs

The Group operates a number of pension schemes. The pension costs relating to

defined contribution schemes are charged to the Profit and Loss Account in the year

in which they are incurred. The pension costs relating to defined benefit schemes are

assessed in accordance with the advice of independent qualified actuaries. The

amounts so determined are accounted for on the basis of charging the expected

cost of providing pensions over the years during which the Group benefits from the

relevant employees’ services. Variations from regular cost, arising from periodic

actuarial valuations, are charged to operating profit over the expected remaining

service lives of current employees.

(M) Research and development

Expenditure on research and development is charged to the Profit and Loss Account

in the year in which it is incurred.

55



(N) Foreign currencies

The Financial Statements are expressed in Euro. Monetary assets and liabilities

denominated in foreign currencies are translated at the exchange rate ruling at the

balance sheet date (or, where relevant, at a forward exchange rate) and revenues,

costs and non-monetary assets, at the exchange rates ruling at the dates of the

transactions. Profits and losses arising from foreign currency are dealt with through

the Profit and Loss Account. Monetary assets are amounts held or receivable in

money; all other assets are non-monetary assets.

On consolidation, the assets and liabilities of overseas subsidiary companies are

translated into Euro at the rates of exchange ruling at the balance sheet date.

Exchange differences arising from the restatement of the opening balance sheets of

these subsidiary companies are dealt with through reserves. The operating results of

overseas subsidiary companies are translated into Euro at the average rates

applicable during the year.

56


1. REPORTING CURRENCY

The currency used in this Annual Report is Euro. Results and cash flows of foreign subsidiary undertakings have beentranslated into Euro at the average exchange rates, and the related balance sheets have been translated at the ratesof exchange ruling at the balance sheet date.

Exchange rates used were as follows:Average rates Year end rates

Euro = 2004 2003 2004 2003

Pound Sterling 0.679 0.692 0.693 0.705US Dollar 1.244 1.132 1.335 1.240Czech Koruna 31.953 31.894 30.600 32.500Polish Zloty 4.534 4.400 4.100 4.640

2. TURNOVER 2004 2003The analysis by class of activity is as follows: E‘000 b‘000

Insulated panels 380,192 292,530Raised access flooring 119,238 115,681Insulation boards 199,395 155,768Environmental containers 142,462 128,413Off-Site & Structural 116,796 91,502

958,083 783,894

The analysis by geographical area is as follows:

Republic of Ireland 136,769 105,799Britain and Northern Ireland 592,363 494,743Mainland Europe 163,221 126,410United States of America 53,636 36,825Other 12,094 20,117

958,083 783,894

3. EMPLOYEES 2004 2003

The average number of persons employed by the Group in the financial year was:

Production 2,148 2,107Sales and distribution 702 703Management and administration 501 370

3,351 3,180

The staff costs were: E‘000 b‘000

Wages and salaries 121,651 106,822Social welfare costs 12,452 10,677Pension contributions 7,454 4,667

141,557 122,166

Notes to the Financial Statementsfor the year ended 31st December 2004

57


4. INTEREST PAYABLE AND SIMILAR CHARGES 2004 2003E‘000 b‘000

Bank loans and overdrafts repayable within five years 7,124 6,762Hire purchase and finance leases 20 40

7,144 6,802

5. INTEREST RECEIVABLE AND OTHER INCOME 2004 2003E‘000 b‘000

Interest receivable 873 786

6. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 2004 2003The profit for the year is stated after charging / (crediting): E’000 o’000

Operating lease payments 1,752 837Product development costs 4,973 4,957Depreciation 24,498 21,511Amortisation of intangible assets 8,606 8,407Loss/(profit) on sale of tangible assets 1,161 (426)Capital grants credited (128) (102)

Auditors’ RemunerationAudit services:Statutory Audit 741 663Audit related regulatory reporting 166 133Tax services:Compliance services 86 68Advisory services 31 28Other 205 153


58

7. DIRECTORS’ REMUNERATION

Executive Basic Benefit Performance Pension 2004 2003Directors Salary in kind related bonus contributions Total Total

E'000 E'000 E'000 E'000 E'000 e'000

Eugene Murtagh 420 35 210 315 980 713Gene M. Murtagh 350 23 175 53 601 318Brendan Murtagh 380 33 190 369 972 729Dermot Mulvihill 275 22 138 267 702 523Jim Paul 253 30 127 52 462 320Russell Shiels 253 14 127 62 456 335Peter Wilson 221 16 111 33 381 181Noel Crowe1 187 7 94 28 316 -Robert Barr 2 - - - - - 728

2,339 180 1,172 1,179 4,870 3,847

Non-executive Directors2004 2003

Non-executive Non-executivefees feesE'000 e'000

Eoin McCarthy 3 45 48Kevin O'Connell 48 50Brian Joyce 45 26Tony McArdle 45 26Tom Mulcahy 4 19 26Danny Kitchen 5 - 38

202 214

2004 2003

Number of Directors at year end


Total 12 12

Average number of Directors during the year


Total 12 12

1 Mr. Noel Crowe was co-opted as an Executive Director on 2nd February 2004.

2 Mr. Robert Barr resigned as an Executive Director effective from 31st October 2003.

3 Mr. Eoin McCarthy was also paid e63,488 in respect of other services provided to the Group.

4 Mr. Tom Mulcahy retired as a Non-executive Director on 31st May 2004.

5 Mr. Danny Kitchen retired as a Non-executive Director on 13th August 2003.



• Benefits relate to health insurance premiums and to the use by Directors of Company cars.• Pension contributions represent payments made under defined contribution pension schemes operated by the Group.

59


8. TAX ON PROFIT ON ORDINARY ACTIVITIES 2004 2003The charge for taxation, based on profits for the year, comprises: E‘000 b‘000

Corporation tax- Irish 4,265 2,707- Overseas 13,823 9,287

Deferred taxation (95) 1,965

17,993 13,959

Profit on ordinary activities before tax 87,970 65,441

Profits on ordinary activities multiplied by average rate of corporation tax 19,100 13,712

Expenses not deductable for tax purposes 3,039 1,457Capital allowances in excess of depreciation (1,192) (2,411)Trade Losses utilised (572) (744)Adjustment to charge in respect of prior years (1,457) (13)Net effect of differing tax rates (891) (465)Other differences 61 458

Corporation tax charge 18,088 11,994

9. DIVIDENDS 2004 2003Ordinary dividends E‘000 b‘000Paid: Interim dividend 3.40c per share

(2003: 2.60c per share) on 165,592,828 shares 5,630 4,288

Payable: Final dividend 6.20c per share(2003: 4.60c per share) on 166,121,748 shares 10,300 7,608

15,930 11,896

10. EARNINGS PER SHARE 2004 2003The calculations of earnings per share are based on the following: E‘000 b‘000

Profit attributable to ordinary shareholders 69,975 51,408

Number of Number ofshares ('000) shares ('000)

2004 2003Weighted average number of ordinary shares for the calculationof basic earnings per share 165,621 164,984Dilutive effect of share options 3,025 1,425Weighted average number of ordinary shares for the calculationof diluted earnings per share 168,646 166,409

Ecent bcent

Basic earnings per share 42.3 31.2

Diluted earnings per share 41.5 30.9

Basic earnings per share before goodwill amortisation 47.0 36.0


60


11. TANGIBLE ASSETSGROUP Land and Motor Leased

buildings Plant vehicles assets TotalCost or valuation Y’000 Y’000 Y’000 Y’000 Y’000

At 1st January 81,653 228,596 5,704 5,420 321,373Acquisitions 1,496 1,539 - 542 3,577Additions 24,398 29,783 2,302 172 56,655Disposals (170) (5,286) (1,801) (15) (7,272)Translation adjustment 1,447 1,130 145 9 2,731

At 31st December 108,824 255,762 6,350 6,128 377,064

Depreciation

At 1st January (16,546) (121,125) (2,972) (4,590) (145,233)Provision for year (2,590) (20,427) (1,356) (125) (24,498)Provision on disposals 75 2,437 1,470 5 3,987Translation adjustment 66 502 (57) (18) 493

At 31st December (18,995) (138,613) (2,915) (4,728) (165,251)

Net book value at 31st December 2004 89,829 117,149 3,435 1,400 211,813

Net book value at 31st December 2003 65,107 107,471 2,732 830 176,140

Certain land and buildings of the Group were revalued at 31st December 1980 on a depreciated replacement costbasis. Additions since that date have been included at cost. Land and buildings would have been stated as followsunder the historical cost convention:

2004 2003Y’000 e’000

Cost 108,022 80,851Accumulated depreciation (17,434) (15,001)

Net book value 90,588 65,850

12. INTANGIBLE ASSETS2004 2003Y’000 e’000

PatentsAt 1st January 2,429 2,931On acquisition 410 -Translation adjustment 10 (28)Amortised in period (669) (474)

At 31st December 2,180 2,429

GoodwillAt 1st January 120,058 139,714On acquisition (7,217) 4,375Translation adjustment (2,802) (16,098)Amortised in period (7,937) (7,933)

At 31st December 102,102 120,058

TotalAt 1st January 122,487 142,645On acquisition (6,807) 4,375Translation adjustment (2,792) (16,126)Amortised in period (8,606) (8,407)

At 31st December 104,282 122,487


61



13. FINANCIAL ASSETS 2004 2003E‘000 b‘000

GROUPListed on the London Stock Exchange (at cost) 13 13Unlisted investments (at cost) 25 36

38 49

The market value of the listed investments at 31st December 2004 was b16,000 (2003: b13,000).

COMPANY 2004 2003E‘000 b‘000

Shares in subsidiaries at cost - unlisted 11,960 11,960

14. STOCKS 2004 2003E‘000 b‘000

Raw materials and consumables 62,945 36,552Work in progress 2,527 2,736Finished goods 23,753 22,420

89,225 61,708

The replacement cost of stock is not considered to be materially different from the amounts shown above.

15. DEBTORS Group Company2004 2003 2004 2003

Amounts falling due within one year: E‘000 b‘000 E‘000 b‘000

Trade debtors 204,998 159,363 - -Other debtors 8,850 5,974 - -Prepayments 6,382 10,207 - -Amounts due from subsidiaries - - 87,976 109,002

220,230 175,544 87,976 109,002Amounts falling due after more than one year:Other debtors 413 413 - -

220,643 175,957 87,976 109,002

16. TRADE AND OTHER CREDITORS Group Company2004 2003 2004 2003


Trade creditors 88,972 81,183 - -Accruals and deferred income 48,313 31,709 - -Taxation and social welfare (note 17) 38,744 26,721 - -Amount due to subsidiaries - - 18,290 25,705

176,029 139,613 18,290 25,705

17. TAXATION AND SOCIAL WELFARE 2004 2003E‘000 b‘000

Corporation tax 19,355 15,468Irish income tax and social welfare 47 22Other income tax and social welfare 4,251 3,847Value Added Tax 15,091 7,384

38,744 26,721

62



18. BANK AND OTHER BORROWINGS Group Company2004 2003 2004 2003


Bank loans and overdrafts 107,669 46,293 - 583Finance lease and hire purchase obligations 548 5 - -

108,217 46,298 - 583

Amounts falling due after more than one year:

Bank loans repayable:- between one and two years 25,000 60,936 - -- between two and five years 50,248 64,833 - -- after more than five years 888 347 - -

76,136 126,116 - -

19. GROUP FINANCIAL ARRANGEMENTS

(i) Analysis of interest rate exposure

Floating rate Fixed rate Total Fixed debtE‘000 E‘000 E‘000 % Period

Sterling 59,194 14,430 73,624 4.97 0.76Euro 67,590 40,000 107,590 2.94 0.76

126,784 54,430 181,214

Floating rate debt comprises bank borrowings bearing interest rates fixed in advance for periods ranging fromovernight to three months by reference to interbank interest rates. Interest rate swaps are entered into only for thepurpose of managing the Group's mix of fixed and floating rate debt.

(ii) Fair value of financial assets and liabilities

The fair value of the Group's short term and long term financial assets and liabilities approximates to the carrying valueat 31st December 2004 other than those set out below. The fair value of interest rate swaps has been determined byprices available from the markets on which instruments involved are traded.

Fair valueE‘000

Foreign currency contracts 144Interest rate swaps (233)

63



20. PROVISIONS FOR LIABILITIES AND CHARGESAt Provided Claims Provisions Translation At

1.1.04 Acquisitions during year paid released adjustment 31.12.04E‘000 E‘000 E‘000 E‘000 E‘000 E‘000 E‘000

Deferred taxation 9,198 - (95) - - 227 9,330Guarantees and warranties 8,407 9 31,227 (14,814) (6,264) (82) 18,483

17,605 9 31,132 (14,814) (6,264) 145 27,813

Deferred taxation2004 2003

Deferred taxation represents the following total timing differences: Y’000 e’000

Accelerated capital allowances 13,581 11,772Other timing differences (4,251) (2,574)

9,330 9,198

Deferred tax arises from differences in the timing of the recognition of items, principally depreciation and capital allowances, in the Financial Statements and by the tax authorities. There was an unrecognised deferred tax asset of e4.5 million at 31st December 2004 (2003: e1.9 million). The tax asset will be recognised when it has been determined that it is more likely than not that the benefit will be realised through future taxable income.

No provision has been made for any taxation that might arise on the disposal of properties, as there is no intention todispose of them in the foreseeable future. Full provision has been made for all other timing differences.

Guarantees and warrantiesSome products carry formal guarantees of satisfactory performance of varying periods following their purchase by customers. Provision is made for the estimated cost of honouring unexpired warranties. The expected timing of anypayments under guarantees and warranties is uncertain.

21. CAPITAL GRANTS2004 2003E‘000 b‘000

At 1st January 999 1,145Translation adjustment 10 (51)On acquisition 14 -Received in year 20 7Profit and loss account (128) (102)

At 31st December 915 999

22. CALLED-UP SHARE CAPITAL2004 2003

Authorised E‘000 b‘000220,000,000 Ordinary shares of b0.13c each(2003: 220,000,000 Ordinary shares of b0.13c each) 28,600 28,600

Issued and fully paidOrdinary shares of b0.13c eachOpening balance - 167,007,495 shares 21,711 21,631Share options exercised -shares 86 80

Closing balance shares 167,671,328 shares 21,797 21,711

23. SHARE PREMIUM ACCOUNT2004 2003E‘000 b‘000

At 1st January 18,761 18,214Premium on shares issued 1,526 551Expenses paid in respect of share issues (27) (4)


64


24. REVALUATION RESERVE2004 2003E‘000 b‘000

At beginning and end of year 891 891

25. PROFIT AND LOSS ACCOUNT Group Company2004 2003 2004 2003E‘000 b‘000 E‘000 b‘000

At 1st January 239,965 200,453 46,081 (13,976)Retained profit for the year 54,045 39,512 (15,929) 60,057

At 31st December 294,010 239,965 30,152 46,081

The Profit and Loss Account of the Company is not presented separately in the Financial Statements as the conditionslaid down in Section 3(2) of the Companies (Amendment) Act, 1986 have been complied with.

26. OTHER RESERVES Group Company2004 2003 2004 2003E‘000 b‘000 E‘000 b‘000

At 1st January (32,896) (5,285) 513 513Exchange adjustments (1,921) (27,611) - -

At 31st December (34,817) (32,896) 513 513

Included in other reserves is a capital reserve arising on the cancellation of own shares of b513,000 (2003: b513,000).

27. MINORITY INTERESTS2004 2003E‘000 b‘000

At 1st January 1,264 1,655Translation adjustment 6 (71)Arising on acquisition - 312Acquisition of shares held by minorities - (418)Dividends paid to minorities (91) (288)Profit and loss account - equity interest 2 56

- non-equity interest - 18


Equity interests 415 498Non-equity interests 766 766

1,181 1,264

The non-equity interests refer to redeemable preference shares in a subsidiary company, Mildenhall Limited.


65


28. RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOWFROM OPERATING ACTIVITIES

2004 2003E‘000 b‘000

Operating profit 94,241 71,457Depreciation charges 24,498 21,511Amortisation of intangible assets 8,606 8,407Loss/(profit) on sale of tangible assets 1,161 (426)Government grants amortised (128) (102)Increase in stocks (21,838) (4,685)Increase in debtors (39,779) (17,749)Increase/(decrease) in creditors 36,669 (2,715)

103,430 75,698

29. ACQUISITIONS AND DISPOSALS

The Group made the following acquisitions in the year:Fair

Value Consideration GoodwillName of company / business acquired E‘000 E‘000 E‘000

Apco 3,562 15,403 11,841Others 4,424 9,582 5,158Receipt of Tate Global Corporation settlement - (24,680) (24,680)Revision of fair values on prior year acquisitions 58 522 464

8,044 827 (7,217)

Goodwill arising on the acquisitions has been capitalised and is written off over 20 years. All the acquisitions havebeen accounted for by the acquisition method of accounting.

A summary of the effect of acquisitions during the year is as follows:

Book value Fair value Fair valueat acquisition adjustments to the Group

E‘000 E‘000 E‘000Tangible fixed assets 3,878 (301) 3,577Intangible fixed assets 410 - 410Stocks 3,910 659 4,569Debtors 5,453 - 5,453Cash at bank and in hand 954 - 954Creditors (5,268) 359 (4,909)Finance leases (466) - (466)Bank loans (1,588) - (1,588)Government Grants (14) - (14)

Total net assets acquired 7,269 717 7,986

Effects of revisions of fair values above 58Goodwill (7,217)

Consideration 827

Satisfied by:

Cash- paid in current year 18,051- received in current year relating to receipt of arbitration settlement (24,680)Deferred consideration 7,456

827


66


The subsidiary undertakings acquired during the year had the following effects on the principalheadings of the Group cash flow statement:

E‘000

Net cash flow from operating activities 661Returns on investments and servicing of finance (35)Investing activities (353)

273

30. ANALYSIS OF NET DEBTAcquisitions& Disposals Other

At Cash (excl. cash & non-cash Exchange At1.1.04 flow overdrafts) changes movements 31.12.04E‘000 E‘000 E‘000 E‘000 E‘000 E‘000

Cash at bank 30,604 40,794 - - 591 71,989Overdrafts (2,829) 256 - - (17) (2,590)

41,050

Term deposits 25,142 (9,301) - - (38) 15,803

Bank loans- due within 1 year (43,464) (61,557) (67) - 9 (105,079)- due after 1 year (126,116) 52,563 (1,521) - (1,062) (76,136)Finance lease obligations (5) 5 (466) (82) - (548)

(8,989)

Deferred consideration- due within 1 year (85) - - (512) - (597)- due after 1 year (4,067) 629 - (6,944) (81) (10,463)

629

(120,820) 23,389 (2,054) (7,538) (598) (107,621)


67


31. GUARANTEES AND OTHER FINANCIAL COMMITMENTS

(i) Government grants

No grants were repayable at 31st December 2004.

(ii) Guarantees and contingencies

The bank borrowings are secured by cross guarantees by Kingspan Group plc and certain of its subsidiaries.

(iii) Leasing and hire purchase2004 2003E‘000 b‘000

Finance lease and hire purchase obligationsnet of interest are due as follows:- within one year 548 5- after more than one year - -

548 5

Operating lease obligations are due as follows:- within one year 1,569 1,716- after more than one year 1,157 1,609

2,726 3,325

(iv) Future capital expenditure

Capital expenditure approved by the Directors but not provided in the Financial Statements, none of which relatesto the holding company, is as follows:

2004 2003E‘000 b‘000

Contracted for 9,343 16,578Not contracted for 6,950 12,700

16,293 29,278


68


68

32. PENSION OBLIGATIONS

The Group operates two defined benefit and a number of defined contributions schemes, the assets of which areadministered by trustees in funds independent from those of the Group.

Total employer pension contributions for the year amounted to b7,454,293 (2003: b4,667,488) of whichb2,884,560 (2003: b338,998) related to defined benefit schemes.

The pension costs relating to the Group's defined benefit schemes are assessed in accordance with the advice ofqualified actuaries using the attained age method. The most recent actuarial valuations were 31st March 2004 and5th April 2004.

At the year end the market value of the assets of the Group's defined benefit schemes totalled b42,069,264(2003: b36,507,801) and at the date of the actuarial valuation in 2004 the two Group schemes were in deficit; thecombined deficiency of these schemes at that date was b20,675,325 (2003: b1,165,957, based on the 2001actuarial valuation) and are being funded over the weighted average service lives of the members. After allowing forexpected future increases in earnings and in pension payments the valuations indicated that the actuarial value ofthese assets was sufficient to cover 64% of the benefits that had accrued to members.

At the year end b800,829 (2003: b594,698) was included in creditors in respect of pension liabilities and bNil(2003: bNil) included in debtors in respect of pension prepayments.

In general, actuarial valuations are not available for public inspection; however, the results of valuations are advisedto members of the various schemes.

Financial Reporting Standard 17 - Retirement Benefits

Financial Reporting Standard 17 - Retirement Benefits (FRS 17), was issued by the Accounting Standards Board inNovember 2000 and represents a significant change in the method of accounting for pension costs compared withthe previous rules as set out in SSAP 24. Full implementation of the new accounting rules prescribed by FRS17 hasbeen deferred by the Accounting Standards Board. The Group have elected to avail of transitional provisionsoutlined in the standard, which for 2004, permit the use of the SSAP 24 regulations for determining pension costbut require the additional disclosure of the balance sheet impact of the adoption of FRS 17 as at 31st December2004, 31st December 2003 and 31st December 2002.

The Group operates a number of defined benefit pension schemes in Britain. The valuations employed for FRS 17disclosure purposes have been updated by the schemes’ independent and qualified actuaries to take account ofthe requirements of the new accounting standard in order to assess the liabilities of the combined defined benefitpension schemes as at 31st December 2004. The valuations have been completed using the projected unitmethod. The major assumptions used by the actuary as at 31st December 2004 were:

2004 2003 2002Rate of increase in salaries 0.00% 1.73% 2.68%Rate of increase of pensions in payment 2.77% 2.60% 2.28%Discount rate 5.26% 5.37% 5.50%Inflation assumption 2.77% 2.60% 2.28%

The assets in the scheme and the expected rate of return as at 31st December 2004, 2003 and 2002 were:2004 2003 2002

E'000 e'000 e'000

Equities 7.15% 26,473 7.35% 23,063 7.33% 24,363Bonds 5.00% 15,066 5.00% 13,214 5.00% 11,717Cash 4.00% 469 4.65% 184 5.00% 283Other 7.00% 61 7.00% 47 4.67% 85Total market value of assets 42,069 36,508 36,448 Actuarial value of liability (64,733) (53,732) (51,590)Recoverable deficit in the scheme (22,664) (17,224) (15,142)Related deferred tax asset 6,799 5,167 4,543Net pension liability (15,865) (12,057) (10,599)


69


69

2004 2003 2002

E'000 h'000 h'000

Net assetsTotal Group net assets excluding pension liability 303,322 249,696 237,559Pension liability (15,865) (12,057) (10,599)

Total Group net assets including pension liability 287,457 237,639 226,960

Reserves noteProfit and loss reserve excluding pension liability 294,010 239,965 200,453Pension liability (15,865) (12,057) (10,599)

Profit and loss reserve including pension liability 278,145 227,908 189,854

Analysis of the amount charged to operating profitCurrent service cost (27) - (910)

Total operating charge (27) - (910)

Analysis of net return on fund

Expected return on fund assets 2,303 2,096 2,980Interest on pension liabilities (2,893) (2,560) (2,660)

(590) (464) 320

Analysis of amount recognised in statement of totalrecognised gains and losses (STRGL)

Actual return less expected return on assets 1,323 2,747 (7,395)Experience gains on losses on liabilities (3,727) (72) (958)Changes in assumptions (5,004) (5,637) (1,867)

Actuarial loss recognised in STRGL (7,408) (2,962) (10,220)

Net loss recognised (7,408) (2,962) (10,220)

Movement in deficit during the year

Deficit in fund at beginning of year (17,224) (15,141) (4,920)Movement during year:Current service cost (27) - (910)Contributions paid by the employer 2,885 170 272Net return on assets/(interest cost) (590) (464) 320Translation adjustment (300) 1,173 317Actuarial loss (7,408) (2,962) (10,220)

Deficit in fund at end of year (22,664) (17,224) (15,141)


70



2004 2003 2002

E'000 h'000 h'000

History of experience gains and losses

Difference between expected and actual return on Fund assets:amount 1,323 2,747 (7,395)percentage of Fund assets 3.0% 8.0% (20.0%)

Experience gains and losses on Fund liabilities:amount (3,727) (72) (958)percentage of Fund liabilities (6.0%) (0.1%) (2.0%)

Total amount recognised in statement of total recognised gains and losses:amount (7,408) (2,962) (10,220)percentage of Fund liabilities (11.0%) (6.0%) (20.0%)

33. RELATED PARTY TRANSACTIONS

Cavair Limited is owned by Mr Eugene Murtagh, a Director of the Group. The Group purchased travel services to the value of h301,600 from this company during the year. There was no balance owed to or from this Company at31st December 2004.

71



34. GROUP COMPANIES

The principal subsidiary companies and the percentage shareholding held by Kingspan Group plc, either directly or indirectly, at the balance sheet date are as follows:

Shareholding % Nature of Business

Ireland

Envirocare Pollution Control Limited 51 Sales & Marketing

Kingspan Funding Ireland 100 Finance Company

Kingspan GSP Limited 100 Manufacturing

Kingspan Holdings (Irl) Limited 100 Administration

Kingspan Holdings (Overseas) Limited 100 Holding Company

Kingspan Insulation Limited 100 Manufacturing

Kingspan Limited 100 Manufacturing

Kingspan Research and Developments Limited 100 Product development

Thermal Product Developments Limited 100 Product development

Registered Office: Dublin Road, Kingscourt, Co. Cavan, Ireland.

Kingspan Finance 100 Finance Company

Kingspan International Finance 100 Finance Company

Registered Office: West Block, IFSC, Dublin 1, Ireland.

United Kingdom

Kingspan Environmental Containers Limited 100 Holding Company

Plastic Development Centre Limited 100 Product development

Polmeric Mouldings Limited 100 Manufacturing

Rom Aqua Limited 100 Sales & Marketing

Titan Environmental Limited 100 Manufacturing

Registered Office: Seapatrick, Banbridge, Co. Down, Northern Ireland.

Tyrrell Tanks Limited 100 Manufacturing

Registered Office: 37 Seagoe Industrial Estate, Portadown, Co. Armagh, Northern Ireland.

72



Group Companies Shareholding % Nature of Business

Environmental Treatment Systems Limited 100 Manufacturing

Interlink Fabrications Limited 100 Manufacturing

Kingspan Access Floors Limited 100 Manufacturing

Kingspan Funding UK 100 Finance Company

Kingspan Group Limited 100 Holding Company

Kingspan Insulation Limited 100 Manufacturing

Kingspan Investment Limited 100 Holding Company

Kingspan Limited 100 Manufacturing

Kooltherm Holdings Limited 100 Holding Company

Titan Plastech Limited 100 Manufacturing

Registered Office: Greenfield Business Park No. 2, Holywell, North Wales, UK.

Titan Pollution Control Limited 100 Manufacturing

Registered Office: 3 West Portway Industrial Estate, Andover, Hampshire, UK.

Kingspan Metl-Con Limited 100 Manufacturing

Registered Office: Sherburn, Malton, North Yorkshire, UK.

Belgium

Kingspan Door Components S.A. 100 Manufacturing

Registered Office: 1A Zone Industrielle de l’Europe 2, 7900 Leuze-en-Hainaut, Belgium.

Kingspan Holdings Belgium N.V. 100 Holding Company

Kingspan N.V. 100 Sales & Marketing

Registered Office: Bouwelven 17, Industriepark Klein Gent, 2280 Grobbendonk, Belgium.

Czech Republic

Kingspan a.s. 100 Manufacturing

Registered Office: Vázní 465, 500 03 Hradec Králové, Czech Republic.

Denmark

Kingspan Miljøcontainere A/S 100 Sales & Marketing

Registered Office: Amerikaveg 1, 7000 Fredericia, Denmark.

Germany

Kingspan Holding GmbH 100 Holding Company

Kingspan GmbH 100 Sales & Marketing

Registered Office: Am Schornacker 2, 46485 Wesel, Germany.

Kingspan TEK GmbH 100 Manufacturing

Registered Office: Beusterstraße 1a, 16348 Klosterfelde, Germany.

73



Hong Kong

Kingspan China Limited 80 Manufacturing

Registered Office: 26 Wong Chuk Hang Road, Aberdeen, China.

Hungary

Kingspan Kft 100 Sales & Marketing

Registered Office: Feherhajo u. 5, 1052 Budapest, Hungary.

Luxembourg

Kingspan Luxembourg Finance Sarl 100 Finance Company

Kingspan Luxembourg Sarl 100 Finance Company

Registered Office: 398 Route d’Esch, L-1471, Luxembourg.

Netherlands

Kingspan Holdings Netherlands B.V. 100 Holding Company

Kingspan B.V. 100 Sales & Marketing

Kingspan Insulation B.V. 100 Manufacturing

Registered Office: 6669 ZG Dodewaard, Netherlands.

Poland

Kingspan Sp. z o.o. 100 Manufacturing

Registered Office: ul. Przemyslowa 20, 27-300 Lipsko, Poland.

Titan-Eko Sp. z o.o. 100 Manufacturing

Registered Office: ul. Topolowa 5, 62-090 Rokietnica, Poland.

Romania

Kingspan S.R.L. 100 Sales & Marketing

Registered Office: B-dul Iancu de Hunedoary nr. P, bl.11, sc. 2 et., ap. 50, sector 1, Bucharest, Romania.

Singapore

Kingspan Asia PTE Limited 85 Manufacturing

Registered Office: 50A Circular Road, Singapore.

Slovakia

Kingspan, s.r.o. 100 Sales & Marketing

Registered Office: Ceska 3, 831 03 Bratislava, Slovakia.


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Spain

Kingspan Holdings Spain SL 100 Holding Company

Registered Office: C/Alfonso XII. 22-20 DCHA, 28014 Madrid, Spain

Kingspan Suelo Technicos 50 Sales & Marketing

Registered Office: C/Guindos, 2 San Sebastian Delosreyes, 28700 Madrid, Spain

United States of America

Kingspan Holdings US Inc. 100 Holding Company

Registered Office: c/o Entity Services Group LLC, 103 Foulk Road, Suite 202, Wilmington, Delaware, 19803,

USA.

Tate Access Floors Leasing, Inc. 100 Leasing

Registered Office: c/o Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington,

Delaware, 19601, USA.

Tate Global Corporation Inc. 100 Holding

Tate Access Floors, Inc. 100 Manufacturing

Registered Office: 7510 Montevideo Road, Jessup, Maryland, 20794, USA.

35. APPROVAL OF FINANCIAL STATEMENTS

The Financial Statements were approved by the Directors on 8th March 2005.

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Group Five Year Summary

RESULTS (Amounts in Emillions) 2004 2003 2002 2001 2000

Turnover 958.1 783.9 739.6 828.9 662.6

Operating income 94.2 71.5 73.1 88.6 76.8

Net profit before tax 88.0 65.4 63.7 73.4 67.5

Operating cash flow 103.4 75.7 103.0 146.7 77.5

EQUITY (Amounts in Emillions) 2004 2003 2002 2001 2000

Gross assets 713.8 592.1 611.2 652.5 485.6

Working capital (stock / debtors / creditors) 153.2 113.5 102.7 104.7 109.3

Ordinary shareholders equity 302.1 248.4 235.9 231.0 184.4

Bank debt & lease obligations (net) 107.6 120.8 117.3 169.7 109.9

RATIOS 2004 2003 2002 2001 2000

Net debt as % of shareholders’ equity 35.6% 48.6% 49.7% 73.5% 59.6%

Current assets / current liabilities 1.35 1.52 1.55 1.80 1.26

PER ORDINARY SHARE (Amounts in Ecent) 2004 2003 2002 2001 2000

Earnings 42.3 31.2 30.2 32.9 30.4

Operating cash flows 62.4 45.9 61.6 87.0 45.9

Net assets 183.1 151.3 142.1 137.4 111.2

Ordinary dividends 9.60 7.20 5.90 4.70 3.62

AVERAGE NUMBER OF EMPLOYEES 3,351 3,180 3,102 3,326 2,809


76



TURNOVERemillion

NET PROFIT BEFORE TAXemillion

662.

6

828.

9

739.

6

783.

9

958.

1

67.5 73

.4

63.7

65.4

88.0

2000

2001

2002

2003

2004

2000

2001

2002

2003

2004

77


EARNINGS PER SHAREeCent

DIVIDENDS PER SHAREeCent

2000

2001

2002

2003

2004

30.4 32

.9

30.2 31

.2

42.3

2000

2001

2002

2003

2004

3.62

4.70

5.90

7.20

9.60

Group plc

Kingspan Group plcDublin Road, Kingscourt, Co. Cavan, IrelandTelephone: +353 42 969 8000 Fax: +353 42 966 7501Email: [email protected]

www.kingspan.com

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