TIDMECEL
RNS Number : 1416T
Eurocell plc
16 March 2023
16 March 2023
EUROCELL PLC (Symbol: ECEL)
PRELIMINARY RESULTS FOR THE YEARED 31 DECEMBER 2022
Solid financial performance and continuing to gain market
share
Eurocell plc is a market leading, vertically integrated UK
manufacturer, distributor and recycler of innovative window, door
and roofline PVC building products
Key financial performance measures
(1) 2022 2021 Change
Revenue (GBP million) 381.2 339.8 12%
Underlying measures (2)
Adjusted operating profit (GBP
million) 31.3 29.7 5%
Adjusted operating profit margin
(%) 8.2% 8.7% (0.5)%
Adjusted profit before tax (GBP
million) 28.7 27.7 4%
Adjusted basic earnings per share
(pence) 21.4 19.4 10%
Reported measures
Operating profit (GBP million) 29.1 29.7 (2)%
Profit before tax (GBP million) 26.2 27.7 (5)%
Loss after tax from discontinued
operations (2.3) (0.5) (1.8)
Basic earnings per share (pence) 19.6 19.4 1%
Capital investment (GBP million) 12.3 16.7 (4.4)
Net debt (GBP million) (3) 78.1 69.7 8.4
Net debt, pre-IFRS 16 (GBP million)
(3) 14.4 11.0 3.4
Total dividends per share for the
year (pence) 10.7 9.6 11%
------ ------ -------
Financial headlines
-- Delivered a solid financial performance against an increasingly challenging backdrop and strong
2021 comparatives
-- Continued successful deployment of commercial strategies, with sales up 12% vs 2021, including:
- Profiles up 15% and Building Plastics up 10%
- New build, large contract and RMI(4) project work robust throughout the year
- Slowdown in smaller discretionary RMI work experienced by trade fabricators and the branch
network in H2
-- Price was the significant driver of sales growth in 2022
- Selling price increases and surcharges recovering unprecedented input cost inflation
- H2 margins reflected lower volumes and not all cost inflation being fully recovered until
early in 2023
-- Cyber incident in July / August, resulted in temporary disruption and some financial impact
- Incident efficiently resolved, with the business remaining operational throughout
- Insurance claim partially resolved, with compensation income of GBP1.1 million recognised
in 2022
- Steps taken to implement further resilience and security measures
-- Adjusted operating profit from continuing operations up 5% vs 2021
- Adjusted operating profit margin of 8.2% (2021: 8.7%), reflecting the dilutive impact of inflation
-- Adjusted profit before tax from continuing operations up 4% vs 2021, reflecting lower sales
volumes, cost control, operating efficiencies and recovery of significant input cost inflation
-- Investment in business growth and resilience, with capex of GBP12.3 million, including substantial
completion of operating capacity expansion and the start of a programme to improve IT infrastructure
-- Strong balance sheet and liquidity, with pre-IFRS 16 net debt of GBP14.4 million (31 December
2021: GBP11.0 million)
- Average pre-IFRS 16 net debt of GBP17.0 million in 2022
- GBP75 million unsecured sustainable revolving credit facility refinanced in May 2022
-- Proposed final dividend of 7.2 pence per share (2021: 6.4 pence per share), resulting in total
dividends for the year of 10.7 pence per share up 11%, reflecting solid financial performance
and a lower tax rate in 2022
Operational headlines
-- Increased run rate on Profiles fabricator wins, with 29 new accounts in 2022 (2017-21:
average
15 per annum)
-- In Building Plastics, 2023 focus on optimising performance from existing branch estate
-- New warehouse and expanded manufacturing capacity now delivering improved operating
efficiencies
-- Decisive action taken on costs to prepare the business for 2023
- Reduced operating costs by c.GBP5 million per annum from the beginning of
2023, with the related
redundancy costs and asset impairment charges (together GBP2.2 million)
included as a non-underlying
item in the financial statements
- Following a review, streamlined the business via the disposal of Security
Hardware in December,
with loss on sale and trading loss (together GBP2.3 million) presented as a
discontinued operation
in the financial statements
Sustainability headlines
-- Strong on sustainability as the leading UK-based recycler of PVC windows:
- Further improvement in proportion of recycled material used to 29% (2021: 27%)
- 82% of waste recycled in 2022 (2021: 82%)
- c.GBP1.5 million investment in solar panels to be installed at our primary manufacturing facilities
Mark Kelly, Chief Executive of Eurocell plc said:
"In 2022, the business responded well to major challenges to
report solid financial results for the year, with progress in sales
and adjusted profits against a very strong 2021.
"Looking ahead, in preparation for tougher market conditions, we
completed a restructuring programme in Q4 2022 to reduce operating
costs, and in December, to further simplify the business, we sold
the trade and assets of Security Hardware.
"We continue to take market share and have increased the run
rate on new fabricator account acquisitions, with our pipeline of
other potential new customers remaining healthy. Market share gains
are further supported by the impact of maturing branches and a
widening product range, all underpinned by very high product
availability and increasingly efficient operations.
"For the current year, the latest construction industry forecast
s (5) recognise the currently challenging market conditions and
ongoing macroeconomic uncertainty. However, we have acted swiftly
on cost to prepare the business for 2023 and we expect our strategy
to enable us to optimise performance in our markets."
Notes
(1) Stated on a continuing basis i.e. excluding discontinued operations.
(2) Non-underlying items of GBP2.5 million in 2022 include restructuring costs of GBP2.2
million
(redundancy payments of GBP1.6 million and tangible and right-of-use asset impairment
charges
of GBP0.6 million) and GBP0.3 million of costs relating to the refinancing of the Group's
GBP75 million Revolving Credit Facility. There were no non-underlying items in 2021.
(3) Net debt is bank overdrafts, borrowings and lease liabilities less cash and cash
equivalents
and deferred consideration. Pre-IFRS 16 net debt excludes lease liabilities and is
provided
as our financial covenants are measured on this basis.
(4) RMI is repair, maintenance and improvement.
(5) Construction Products Association Forecasts 2022-24, published January 2023, predicting
declines
in the RMI and new build markets of 9% and 11% respectively for 2023.
Analyst presentation
There will be an audiocast presentation for analysts and
investors at 9am today. The presentation can be accessed remotely
via a live audiocast link as follows:
https://streamstudio.world-television.com/782-2007-35360/en
Alternatively, you can join via conference call as follows:
United Kingdom (local) +44 20 3936 2999
United Kingdom (toll free) +44 800 640 6441
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United States +1 646 664 1960
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All other locations https://www.netroadshow.com/events/global-numbers?confId=47959
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Participant access code 352865
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A copy of the presentation will be made available from 7am on 16
March on the Group's website:
https://investors.eurocell.co.uk/investors/
Following the presentation, a recording of the audiocast will
also be made available on the Group's website (link above).
CHAIRMAN'S STATEMENT
Introduction
The last twelve months have seen major changes and significant
challenges for the Group and in our markets. The progress we made
during 2022 is testament to the commitment, hard work and
dedication of our teams in every part of the Company, so I start
this year's report by offering, on behalf of shareholders and of
the Board, my sincere thanks to them all.
Financial and operating performance
Against a backdrop of unprecedented levels of inflation and
weakening markets, particularly in the second half of the year, the
business has delivered a solid financial performance in 2022,
keeping pace with an exceptionally strong comparative period.
Sales for the year were GBP381 million, up 12% compared to 2021,
and adjusted profit before tax from continuing operations was up 4%
at GBP28.7 million (2021: GBP27.7 million). Reported profit before
tax, also on a continuing basis, was down 5% at GBP26.2 million
(2021: GBP27.7 million), reflecting the cost of a restructuring
programme, which will benefit our financial results in 2023.
We are mindful of the uncertain macroeconomic background and its
impact on our markets and we have therefore taken steps to prepare
the business for 2023 and beyond. This included a restructuring
programme completed in the fourth quarter of 2022, which will
reduce operating costs by c.GBP5 million per annum from the start
of 2023. In December, following a review, and to further simplify
the business, we completed the disposal of Security Hardware, a
supplier of window hardware with sales of c.GBP3 million per annum.
These actions leave the business better placed for 2023.
Net debt at 31 December 2022 on a pre-IFRS 16 basis stood at
GBP14.4 million (31 December 2021: GBP11.0 million). We have
significant headroom on our bank facility and a strong balance
sheet, which provides flexibility and options for the future.
Dividends
We paid an interim dividend of 3.5 pence per share in October
2022. The Board proposes a final dividend of 7.2 pence per share
(2021: 6.4 pence per share), which results in total dividends for
the year of 10.7 pence per share, up 11% (2021: 9.6 pence per
share), reflecting our solid financial performance and a lower tax
rate in 2022.
Strategy
In November, the Board conducted a review of the Group's
strategy, our markets and activities. We concluded that our overall
strategic objective, to deliver sustainable growth in shareholder
value by increasing sales and profits above our market growth
rates, remains appropriate.
Over the last few years, we have targeted seven strategic
priorities to deliver this objective. We agreed that, whilst the
seven priorities remain relevant for the medium to long term, we
will focus on certain specific aspects of the strategy in 2023. In
particular, we have an opportunity to exploit our spare operational
capacity and grow market share in Profiles by acquiring new
fabricator customers. We also intend to temporarily pause our
branch opening programme until the economic outlook is clearer, and
will instead focus on optimising returns from the existing branch
estate. We will also continue to develop and improve the rewards
and other benefits of working for Eurocell for our employees.
Finally, we agreed that acquisitions would not be a focus for
2023.
The key aspects of our performance against each of the seven
priorities is described in the Chief Executive Officer's
Review.
Overall, we are confident that, through the successful
progression of our strategy, we will continue to outperform our
markets and deliver sustainable growth in shareholder value.
Board changes and governance
This has also been a period of transition for the Board.
I succeeded Bob Lawson as Chair, following his retirement in
July 2022, and I would like to thank Bob for his tremendous
contribution to the development of Eurocell since our IPO in
2015.
Kate Allum and Alison Littley joined the Board in July 2022 and
Iraj Amiri joined in November, all as independent Non-executive
Directors. Kate, Alison and Iraj bring valuable commercial insight
and extensive board committee and ESG knowledge, as well as recent
and relevant financial experience, and have strengthened the
expertise of the Board in these areas.
Sucheta Govil left the Board in July and Martyn Coffey has
indicated his intention to step down at our AGM in May. I would
also like to thank Sucheta and Martyn for their contribution to the
Group.
As previously announced, in January 2023, Mark Kelly, Chief
Executive Officer, notified the Board of his intention to retire
later this year. He will be succeeded as CEO by Darren Waters,
currently Chief Operating Officer of Ibstock plc, who will join the
Board as Chief Executive Designate in April.
Mark has led the Group successfully from 2016, overseeing
positive change throughout the business, delivering on significant
growth since then, as well as completing substantial investment to
expand capacity and provide a strong platform for the future. We
are extremely grateful to Mark for his immense contribution to the
Group, and on behalf of the Board, I thank him for his significant
achievements and we wish him all the very best for the future.
To ensure a smooth transition, Mark will remain in his role
until a handover period has been completed, following which he will
retire from the Board and the position of Chief Executive Officer
at the Group's AGM in May.
Darren has extensive experience and knowledge of the building
products and fenestration sectors in the UK, both from his current
role at Ibstock and from his previous position at Tyman plc, where
he was the Chief Executive of UK and Ireland from 2012 to 2020.
Whilst this has been a period of significant change, I am very
pleased that we have been able to attract such high-calibre
individuals into the Company.
Finally, I can confirm that we aim to comply with the UK
Corporate Governance Code and that as a Board, we are committed to
the highest standards of corporate governance and ensuring
effective communication with shareholders.
Derek Mapp
Chair
CHIEF EXECUTIVE OFFICER'S REVIEW
INTRODUCTION
We entered 2022 well placed to take advantage of favourable
conditions in our markets and delivered a strong first six months
of the year. However, whilst new build, large contract and repair,
maintenance and improvement (RMI) project work continued to be
robust throughout the second half, this was offset by the impact of
the previously reported cyber incident and a slow-down in smaller
discretionary RMI work experienced by our branch network and trade
fabricators in H2.
Price was the significant driver of sales growth in 2022. Whilst
we continue to recover input cost inflation with selling price
increases and surcharges, we experienced margin pressure in the
second half, reflecting lower volumes and not all cost inflation
being fully recovered until early in 2023.
Overall, despite these second half challenges, and against an
exceptionally strong prior period, we reported progress in sales
and adjusted profits for the year.
After a period of very strong demand, the Construction Product
Association's latest forecast, published in January, predicts
declines in the RMI and new build markets of 9% and 11%
respectively for 2023, before starting to recover in 2024.
In anticipation of weaker markets in 2023, we completed a
restructuring programme in Q4, which along with other measures will
reduce operating costs by approximately GBP5 million per annum from
the start of 2023. Following a review, and to further streamline
the business, in December we completed the sale of Security
Hardware, a supplier of window hardware to the RMI market with
annual third-party sales of c.GBP3 million, to UAP Limited, a
UK-based door hardware supplier, who will supply hardware to all
our branches.
Looking ahead, we continue to take market share and have
increased the run rate on new fabricator account acquisitions, with
our pipeline of other potential new fabricator customers remaining
healthy. Market share gains are further supported by the impact of
maturing branches and a widening product range, all underpinned by
good product availability and increasingly efficient operations,
reflecting the benefit of our recent investments in operating
capacity.
FINANCIAL RESULTS
We delivered a solid financial performance in 2022, against a
very strong prior period.
Sales for the year were GBP381 million, or 12% above 2021 and
adjusted profit before tax from continuing operations was GBP28.7
million, up 4% or GBP1.0 million on 2021 (GBP27.7 million).
Reported profit before tax was down 5% at GBP26.2 million (2021:
GBP27.7 million), after non-underlying costs totalling GBP2.5
million, primarily reflecting the cost of our Q4 2022 restructuring
programme. Following the sale of Security Hardware, we have
presented the trading loss for the year and loss on disposal of
that business (in total GBP2.3 million) as a discontinued
operation.
Further information on our financial performance is included in
the Chief Financial Officer's Review and Divisional Reviews.
SUSTAINABILITY
Our objective is to continue to improve the sustainability of
the Group. We have a defined suite of environmental and social
targets and KPIs against which to measure our progress.
Central to our environmental targets, which cover both the
circular economy as well as emissions and energy management, is
reducing the carbon footprint of the business and our products. Our
social objectives are broad and cover areas such as health &
safety, diversity and education. In addition to the matters covered
by these KPIs, we are progressing similar work on related topics
such as transport emissions, employee well-being and community
engagement. Our objectives align well with several relevant UN
Sustainable Development Goals, as well the UK's transition towards
a net zero carbon economy. We report our progress against these
KPIs on an annual basis.
Looking forward there are four key themes to our work on
sustainable development:
-- Carbon, energy and water - defining our pathway to carbon neutrality and net zero, which will
be driven primarily by reducing Scope 1 and 2 emissions in extrusion and recycling;
-- Waste minimisation and circularity - further strengthening materials recovery and process
optimisation;
-- People and places - becoming the regional employer of choice and stepping up community engagement;
and
-- Governance - reporting progress against published ESG targets and aligning with recognised
sustainability indices.
As a measure of commitment to achieving our goals, our new GBP75
million sustainable Revolving Credit Facility (refinancing
completed in May, see the Chief Financial Officer's Review)
contains annual recycling, emissions and waste reduction targets,
with modest adjustments to the margin based upon performance.
In May, we also approved a c.GBP1.5 million investment in solar
panels to be installed at our primary manufacturing facilities,
which will supply more than 5% of the energy used in the
manufacture of our extruded products.
Towards the end of 2022, the Group's Social Values and ESG
Committee was formed to provide formal and transparent oversight of
the Group's ESG programme. This includes sustainability, employee
welfare and responsible business practices, as well as our
contribution to the societies we operate in. The committee also
monitors progress against our sustainability KPIs. It is comprised
of two independent Non-executive Directors; Alison Littley (Chair)
and Iraj Amiri, as well as the Group's Sustainability Manager,
Simon Drury, and Human Resources Director, Bruce Stephen.
OPERATIONAL PERFORMANCE
Health and safety
The safety and wellbeing of our employees and contractors is our
first operational priority and we continue to maintain a good
safety performance. Our Lost Time Injury Frequency Rate ('LTIR')
was 1.0 in 2022, compared to 0.8 in 2021. Our RIDDOR (Reporting of
Injuries, Diseases and Dangerous Occurrences Regulations 2013)
performance was better than the industry average. There were no
major injuries and 23 minor accidents recorded under RIDDOR in the
year (2021: no major injuries, 28 minor injuries). We have improved
the reporting of near misses and unsafe acts and conditions, as
part of a proactive approach to risk management, with the aim of
reducing the likelihood of future workplace injuries. This
improvement, when combined with the effective and timely
implementation of corrective and preventive action, supports our
positive safety culture and we are targeting an improvement in the
LTIR in 2023.
Production
In 2022 we manufactured 54.1k tonnes of rigid and foam PVC
profiles at our primary extrusion facilities, 5% lower than 2021.
This reflects our work to start reducing inventories, after the
very high levels of production in 2021, when we built stock to
mitigate the risk of raw material supply interruption and volatile
pricing.
Overall Equipment Effectiveness ('OEE', a measure which takes
into account machine availability, performance and yield) increased
to 71% in 2022 (2021: 68%) due to improved efficiency and labour
availability across our operations. In addition, our initiatives to
increase compliance with the production plan at a line-item level
have been successful, which helped drive a reduction in
manufactured stock of c.GBP5 million in the second half.
Recycling
We have made further progress in 2022, with the use of recycled
material in our primary extrusion increasing to 29% (16.7k tonnes)
of materials consumed, compared to 27% in 2021. This drives
significant cost and carbon savings compared to the use of virgin
material. In addition, substantially all scrap generated in
extrusion is recycled back into our production processes, further
reducing waste sent to landfill.
SUPPLY CHAIN AND INFLATION
Strong demand in our markets over the last two years put sector
supply chains under pressure, and we experienced tighter supply and
an inflationary environment, with prices of certain raw materials,
particularly PVC resin, rising significantly over this period.
Throughout this period we have taken effective action to offset
ongoing input cost inflation, including a dynamic approach to
selling prices and surcharges. Higher resin costs were also
partially offset by our market-leading recycling plants. In
addition, our progressive forward hedging policy for electricity
provided some protection from rising energy costs in 2022.
The cost of key raw materials does now appear to be stabilising,
and in some cases beginning to fall. However, the delay on
recovering some raw material cost increases from the second half of
2022, combined with continued significant increases in the cost of
energy and labour, has resulted in the implementation of further
selling price increases from the beginning of 2023.
STRATEGY
Strategic priorities
Our overall strategic objective remains to deliver sustainable
growth in shareholder value, by increasing sales and profits above
our market growth rates. We have seven strategic priorities to help
us achieve this objective.
Grow market share in Profiles
In 2018 we became the leading supplier of rigid PVC profile to
the UK market, with a share of c.15%. We continue to consolidate
our position and believe we now have a share of around 20%. Our
objective is to increase this over the medium term.
We have a sector-led strategy, with initiatives focused
primarily on the trade / retail and new build sectors. We aim to be
recognised as the number one choice for the trade / retail
fabricator, and to further consolidate our position as the leading
supplier to the new build market. Central to our plans for 2023 is
exploiting our spare operational capacity to acquire new fabricator
customers in both sectors. See the Profiles Divisional Review.
Expand the branch network
Our medium term strategic objective for Building Plastics is to
achieve sector-leading operations from 270-300 sites. The growth
will come mostly by taking market share from independent operators,
who currently have more than 60% market share. In 2022 we believe
we continued to take market share, and estimate that we now have
c.25% of the UK roofline market.
Our aim is to be the number one choice for relevant trades
across the UK, by creating the market-leading proposition and
becoming recognised as first for service to the tradesperson.
Given the uncertain macroeconomic outlook, we will for now pause
our branch opening programme, and focus in 2023 on optimising
returns from the existing estate. See the Building Plastics
Divisional Review.
Increase the use of recycled material
Expanding recycling improves product and business
sustainability, with less plastic going to landfill. Recycling also
increases our profits, because the cost of recycled compound is
typically lower through the cycle than the price of virgin
material. This is very important at the moment, with the price of
virgin resin reaching historic high levels in 2022.
We have been investing to increase our recycling capability
through the expansion of our two recycling plants and by investment
in co-extrusion tooling, which allows a greater proportion of
recycled material to be used in our products.
We are now the leading UK-based recycler of PVC windows. As well
as keeping pace with increased demand, we have continued to improve
the proportion of recycled material consumed in our primary
extrusion operations. Usage increased from 9% of materials consumed
(or 4.1k tonnes) in 2015 to 29% of consumption (or 16.7k tonnes) in
2022, driving a significant cost saving compared to the use of
virgin material. Our objective is to increase this to around 33%
over the next few years.
In 2022, we estimate that our recycling operation saved the
equivalent of c.3 million end-of-life window frames from landfill
and c.47k tonnes of carbon compared to the use of virgin PVC
(equivalent to the annual CO(2) output of over 7,000 UK homes).
Furthermore, we are finding more ways of using all the product
generated by our recycling plants and expect to progressively
reduce waste sent to landfill to less than 5% in the near term.
A weaker RMI market and less window replacements restricted
feedstock availability for our recycling business in the second
half of 2022, leading to increased purchase prices. However, we are
making good progress securing additional sources of feedstock for
2023.
Develop innovative new products
We are committed to maintaining market leadership by offering
the very latest in product improvement, both through development of
existing products and the introduction of new ones. We work closely
with our customers and technical advisors on development and to
help maintain our product pipeline. Highlights for 2022
include:
-- Improved conservatory and roof system range, including more contemporary styles and design
features that rival the specialist conservatory companies, with a "fitter friendly" installation
process;
-- A new aluminium flat rooflight (Luma), with security accreditation and strong thermal characteristics;
-- A premium garden room (Kyube Plus), with a canopy and additional glazing / cladding options;
and
-- Expansion of our outdoor living range to include premium pergolas and verandas (aluminium-clad
and maintenance-free).
Looking forward to 2023, we will continue to work with
housebuilders to further develop fit-for-purpose window and door
solutions for the Future Homes Standard. In addition, reflecting
the continuing strong demand for affordable extra work and leisure
space at home, we are developing "extension kits", which provide an
alternative and affordable method to add space at a fraction of the
cost, time and inconvenience compared to traditional extensions or
moving house.
Deliver sustained operational excellence
Historical manufacturing and warehousing constraints have now
been resolved through major investments in new capacity, thereby
providing a strong platform for efficient future sales and market
share growth.
With the addition of five new lines in 2022, we have now
increased extrusion capacity by c.40% compared to 2018, thereby
providing good headroom against current levels of demand.
Transition to our new state-of-the-art warehouse, completed in
2021, was also central to increasing capacity and to delivering
improvements in operational efficiencies. This new site also
unlocked the operational footprint for the Group, via the
conversion in 2021 of our old warehouse to a specialist
manufacturing site, and the relocation of secondary operations,
including foiling and conservatory roofs, providing a better
environment to drive these businesses forward. In addition, this
freed up space to future-proof extrusion capacity for the
medium-term.
Operating efficiencies in 2022 were good, with OEE improving to
71% (2021: 68%). Our focus is now on delivering further
efficiencies from the new warehouse and production facilities.
Whilst the unprecedented level of inflation of the last 18 months
has provided a major headwind to operating margin expansion,
looking ahead, with constraints resolved, we expect the benefit of
sales growth to flow through to improved margins.
Develop a sector-leading digital proposition
Stakeholders increasingly require full end-to-end digital
solutions, a trend accelerated by the COVID pandemic. We expect a
sector-leading digital proposition to act as an enabler to our
other priorities and improve the supplier, customer and employee
experience, making Eurocell an even better business partner all
round.
Having selected software for a new website (including an
integrated product management system and e-commerce platform) and
an employee management system in 2021, our focus in 2022 was on the
development of these two key components of our digital strategy.
These projects are now well advanced, with both systems due to be
launched in 2023.
Following a full review in 2022, we believe that the age profile
of our principal Enterprise Resource Planning ('ERP') operating
system has become a limiting factor in the development of our
business. This conclusion recognises that our current SAP system
was implemented in 2006, when the Group was primarily a
manufacturer of PVC profile, with no recycling and only a small
branch operation. We are therefore starting a project to upgrade or
replace our SAP system, with the principal tasks for 2023 being
scoping and system selection. Thereafter, we anticipate
implementation to be a 2-3 year process and, whilst it is very
early in the process, we estimate the total capital costs of the
project will be in the region of GBP6-8 million.
Explore potential bolt-on acquisitions
Exploring potential acquisitions in the markets in which we
operate remains a medium to long term option for the Group, but
will not be a priority in 2023.
SUMMARY AND OUTLOOK
In 2022, the business responded well to major challenges to
report solid financial results for the year, with progress in sales
and adjusted profits against a very strong 2021.
Looking ahead, in preparation for tougher market conditions, we
completed a restructuring programme in Q4 2022 to reduce operating
costs, and in December, to further simplify the business, we sold
the trade and assets of Security Hardware.
We continue to take market share and have increased the run rate
on new fabricator account acquisitions, with our pipeline of other
potential new fabricator customers remaining healthy. Market share
gains are further supported by the impact of maturing branches and
a widening product range, all underpinned by very high product
availability and increasingly efficient operations.
For the current year, the latest construction industry forecasts
recognise the currently challenging market conditions and ongoing
macroeconomic uncertainty. However, we have acted swiftly on cost
to prepare the business for 2023 and we expect our strategy to
enable us to optimise performance in our markets.
Mark Kelly
Chief Executive Officer
DIVISIONAL REVIEWS
PROFILES
Strategy
In 2018 we became the leading supplier of rigid PVC profile to
the UK market, with a share of c.15%. We continue to consolidate
our position and believe we now have a share of around 20%. Our
strategic objective is to increase this over the medium term.
The demand created by our specification and marketing teams,
together with continuing new product introductions, have supported
growth for our existing fabricator customers over the last few
years. We have also increased the run rate on new fabricator
account acquisitions and our pipeline of other potential new
fabricator customers remains healthy. Looking forward, there is an
opportunity to capitalise on our recent investments in warehousing
and production plant, to exploit spare operational capacity and
continue to grow market share in Profiles.
Our plans to achieve this are sector-led, with initiatives
focused primarily on the trade / retail and new build sectors,
which together represent c.90% of Profiles sales (c.55% for trade
and c.35% for new build).
There is a compelling case for larger trade fabricators to
switch to Eurocell. This includes a strong product range and
continued product development e.g. better aesthetics (such as flush
windows), a more contemporary look to roofing and door products and
improved environmental characteristics. In addition, the benefits
of pull-through profile specifications and increasing opportunities
to supply our branches, all delivered via improving service, remain
attractive to prospective fabricator accounts.
Expanding our share of the new build market has been key to
recent growth, driven by sales of cavity closures where we are the
clear market leader. Looking forward, building regulations for
windows are becoming increasingly complicated and our technical
teams are working with our larger customers to enable them to
conform, including development of new product applications to meet
changing requirements.
This includes the Future Homes Standard, which will complement
the existing Building Regulations to ensure new homes built from
2025 produce 75-80% less carbon emissions than homes delivered
under the old regulations. The housebuilders have already taken
significant steps to reduce emissions through walls, floors and
roofs. However, to comply with the proposed new regulations,
solutions to reduce emissions through windows and doors are likely
to be required. This plays well to Eurocell's technical expertise
and we are working with the housebuilders and our customers to
design a fit-for-purpose solution.
We have strong relationships with large and medium-sized
housebuilders, maintained by our specification and technical teams.
We now plan to target regional housebuilders to further consolidate
our position of strength within the new build sector.
2022 2021 Change
GBPm GBPm %
----------------------------- ----- ----- ------
Third-party revenue 161.7 140.7 15%
Inter-segmental revenue 72.3 63.9 13%
------------------------------- ----- ----- ------
Total revenue 234.0 204.6 14%
------------------------------- ----- ----- ------
Adjusted(1) operating profit 20.2 20.7 (2)%
------------------------------- ----- ----- ------
Operating profit 19.3 20.7 (7)%
------------------------------- ----- ----- ------
(1) Adjusted performance measures are stated before non-underlying items.
Profiles third-party revenue for the year was GBP161.7 million,
15% higher than 2021, with price the significant driver of higher
sales.
As described above, we continue to take market share. During
2017-21 we added c.75 new accounts (an average of 15 per annum). A
further 29 accounts were added in 2022, which are coming online
progressively (typically 6 months from the point of signing) and
will provide support for 2023, and our prospect pipeline remains
healthy.
Adjusted operating profit for 2022 of GBP20.2 million was 2%
below the previous year (2021: GBP20.7 million), reflecting flat
volumes and cost control, but with not all cost inflation being
fully recovered until early in 2023. Reported operating profit is
stated after non-underlying restructuring costs and associated
asset impairments totalling GBP0.9 million. Further information on
non-underlying items is included in the Chief Financial Officer's
Review.
BUILDING PLASTICS
Strategy
Our overall medium term strategic objective for Building
Plastics is to achieve sector-leading operations from 270-300
sites. Growth will come mostly by taking market share from
independent operators, who currently have more than 60% market
share (measured by number of sites). In 2022 we believe we
continued to take market share, and estimate that we now have c.25%
of the UK roofline market.
Our aim is to be the number one choice for relevant trades
across the UK, by creating the market-leading proposition and being
recognised as first for service to the tradesperson.
We are mindful of the uncertain macroeconomic background and its
impact on our markets. We therefore intend to temporarily pause our
branch opening programme until the economic outlook is clearer.
However, this allows our team to review and focus on improvements
we can make to the existing estate, which will also support the
future expansion and growth of the network.
Our review is already in progress, and includes a deep dive to
better understand the key characteristics of our best performing
branches, with a view to replicating these across the network and
improving returns on invested capital. This includes consideration
of branch format, scale and infrastructure costs (including rent),
product range and new product development, labour turnover (and
other people metrics), value added services and operational
efficiencies.
We have two branch formats: standard (209 branches), and large
(10 branches), the latter with bigger display areas and a wider
product range available. Both current and potential future formats
are part of the review.
Customer centric new product development is also a fundamental
pillar of our strategy to expand the branch network. In 2022 this
included development of our conservatory and roofs proposition,
launch of a new flat roof lantern and expansion of our outdoor
living product range to include pergolas and verandas.
Our best performing branches are generally those with the lowest
rates of labour turnover. Our initiatives to reduce labour
attrition across the network are focused on four key drivers:
systems and processes; environment and engagement; pay and reward;
and training.
We believe we can drive further growth in the network by
developing value added services for our customers. For example, we
expect our recently established Select Installer scheme for
conservatory roofs to create a nationwide network of Eurocell
advocates, as we channel customer leads through the installer
community.
Finally, we also expect to support profitability and returns in
the network through a series of ongoing continuous improvement
activities. These are focused on margin control, underperforming
branches, asset protection, range simplification and stock
optimisation.
2022 2021 Change
GBPm GBPm %
----------------------------- ----- ----- ------
Third-party revenue 219.5 199.1 10%
Inter-segmental revenue 0.3 0.5 (40)%
------------------------------- ----- ----- ------
Total revenue 219.8 199.6 10%
------------------------------- ----- ----- ------
Adjusted(1) operating profit 12.2 12.6 (3)%
------------------------------- ----- ----- ------
Operating profit 10.9 12.6 (13)%
------------------------------- ----- ----- ------
(1) Adjusted performance measures are stated before non-underlying items.
Building Plastics third-party revenue for the year was GBP219.5
million, 10% higher than 2021, with price the significant driver of
sales growth.
Adjusted operating profit for 2022 was GBP12.2 million, 3% below
the previous year (2021: GBP12.6 million), reflecting lower volumes
and cost control, but with not all cost inflation being fully
recovered until early in 2023. Reported operating profit is stated
after non-underlying restructuring costs and associated asset
impairments totalling GBP1.3 million. As part of the restructuring
exercise, we concluded that 5 underperforming branches would be
closed in Q1 2023, leaving a network of 214 sites. These branches
were selected based on performance, remaining lease duration and
ability to transfer sales to other nearby sites.
Further information on non-underlying items is included in the
Chief Financial Officer's Review.
CHIEF FINANCIAL OFFICER'S REVIEW
2022 2021
GBPm GBPm
--------------------------------------------- ------- -------
Revenue 381.2 339.8
Gross profit 184.5 172.1
Gross margin % 48.4% 50.6%
Overheads (130.4) (119.7)
Other income (3) 1.1 -
---------------------------------------------- ------- -------
Adjusted(2) EBITDA 55.2 52.4
Depreciation and amortisation (23.9) (22.7)
---------------------------------------------- ------- -------
Adjusted(2) operating profit 31.3 29.7
Finance costs (2.6) (2.0)
---------------------------------------------- ------- -------
Adjusted(2) profit before tax 28.7 27.7
Taxation (4.7) (6.1)
---------------------------------------------- ------- -------
Adjusted(2) profit after tax 24.0 21.6
Adjusted(2) basic earnings per share (pence) 21.4 19.4
---------------------------------------------- ------- -------
Non-underlying overheads (2.2) -
Non-underlying finance costs (0.3) -
Tax on non-underlying items 0.5 -
---------------------------------------------- ------- -------
Reported operating profit 29.1 29.7
---------------------------------------------- ------- -------
Reported profit before tax 26.2 27.7
Reported profit after tax 22.0 21.6
Loss after tax from discontinued operations (2.3) (0.5)
---------------------------------------------- ------- -------
Reported basic earnings per share (pence) 19.6 19.4
---------------------------------------------- ------- -------
Profit for the year 19.7 21.1
---------------------------------------------- ------- -------
(1) Results are stated on a continuing basis i.e. before discontinued operations (see below).
(2) See alternative performance measures.
(3) Other income is amounts received under the Group's cyber
insurance policy, net of excess paid, in respect of business
interruption to the Group's continuing trading activities as a
result of a cyber incident in July and August 2022.
INTRODUCTION
The business overcame significant challenges in 2022 to deliver
solid financial results for the year, with, on a continuing basis,
sales of GBP381.2 million up 12% and adjusted profit before tax of
GBP28.7 million up 4% on 2021. We also took decisive action to
prepare the business for 2023, with the completion of a
restructuring programme and disposal of Security Hardware. Reported
profit before tax was GBP26.2 million (2021: GBP27.7 million),
stated after the cost of the restructuring programme.
After a strong first half, our markets began to slow down in H2,
particularly smaller discretionary RMI work. However, the
inflationary environment continued throughout the year, and whilst
we continued to offset input cost inflation with selling price
increases and surcharges, we experienced margin pressure in the
second half, reflecting lower volumes and not all cost inflation
being fully recovered until early in 2023, when additional selling
price increases were implemented.
As reported at the Half Year, we experienced a cyber incident
towards the end of July, which resulted in some temporary
disruption. The incident was efficiently resolved, with the
business remaining operational throughout and trading normally from
mid-August. We have now partially resolved our cyber insurance
claim and recognised compensation of GBP1.1 million as underlying
other income in our 2022 financial statements, primarily for
business interruption. Work is ongoing with the insurer to resolve
the remaining aspects of the claim.
In anticipation of weaker markets in 2023, we completed a
restructuring programme in Q4 2022, which along with other cost
saving measures, will reduce operating costs by approximately GBP5
million per annum from the start of 2023. The programme included a
headcount reduction and closure of five underperforming branches.
The costs associated with this restructuring have been classified
as a non-underlying item.
Following a review, and to further streamline the business, in
December 2022 we completed the sale of Security Hardware to UAP
Limited for a total consideration of GBP1.2 million. Security
Hardware has been classified as a discontinued operation, as it
represents a major line of business, is material and was an
operating segment (reported as part of the Building Plastics
division). Discontinued operations are excluded from the results of
continuing operations and are presented in the income statement as
a single amount as profit or loss after tax from discontinued
operations. The loss after tax from discontinued operations was
GBP2.3 million, comprised of a trading loss of GBP1.1 million
(inclusive of costs incurred to prepare the business for sale) and
a loss on disposal of GBP1.2 million.
REVENUE
Revenue for 2022 was GBP381.2 million, 12% higher than 2021
(GBP339.8 million), with price the significant driver of sales
growth.
GROSS MARGIN
Gross margin for the year was 48.4%, down from 50.6% in 2021. As
described above, we experienced margin pressure in the second half,
reflecting lower volumes and not all cost inflation being fully
recovered until early in 2023. However, the cost of key raw
materials does now appear to be stabilising, and in some cases
beginning to fall.
DISTRIBUTION COSTS AND ADMINISTRATIVE EXPENSES (OVERHEADS) AND
OTHER INCOME
Underlying overheads were together GBP130.4 million, up 9% on
2021 (GBP119.7 million) reflecting the impact of inflation on our
cost base.
Other income is the amount received under our cyber insurance
policy in compensation for business interruption (lost sales)
suffered due to the cyber incident in July and August.
DEPRECIATION AND AMORTISATION
Depreciation and amortisation was GBP23.9 million compared to
GBP22.7 million in 2021.
ALTERNATIVE PERFORMANCE MEASURES
Alternative performance measures are used alongside statutory
measures to facilitate a better understanding of financial
performance and comparison with prior periods, and in order to
provide audited financial information against which the Group's
bank covenants, which are all measured on a pre-IFRS 16 basis, can
be assessed.
Adjusted EBITDA, adjusted operating profit and adjusted profit
before tax all exclude non-underlying items. Adjusted profit after
tax and adjusted earnings per share exclude non-underlying items
and the related tax effect.
Pre-IFRS 16 EBITDA is stated inclusive of operating lease
rentals under IAS 17 Leases. Pre-IFRS 16 net debt is defined as
total borrowings and lease liabilities less cash and cash
equivalents, excluding the impact of IFRS 16 Leases.
We classify some material items of income and expense as
non-underlying when the nature and infrequency merit separate
presentation. Alongside statutory measures, this facilitates a
better understanding of financial performance and comparison with
prior periods.
NON-UNDERLYING ITEMS
Non-underlying items for 2022 of GBP2.5 million included
restructuring costs of GBP2.2 million, comprising GBP1.6 million of
redundancy payments and GBP0.6 million of asset impairment charges.
Also included are finance costs of GBP0.3 million arising as a
result of the refinancing of our Revolving Credit Facility in May
(see below).
No non-underlying items were recognised in 2021.
FINANCE COSTS AND TAXATION
Underlying finance costs for 2022 were GBP2.6 million, compared
to GBP2.0 million in 2021. Total finance costs of GBP2.9 million
include GBP0.3 million of unamortised borrowing costs expensed to
the Consolidated Income Statement following the refinancing of the
Group's Revolving Credit Facility (see below).
The underlying tax charge for 2022 was GBP4.7 million (2021:
GBP6.1 million). The effective tax rate on underlying profit before
tax for 2022 of 16.4% is lower than the standard rate of
corporation tax of 19% due to the benefit of Patent Box relief.
We were pleased to retain the Fair Tax Mark accreditation in
2022, reflecting our commitment to paying the right amount of tax
at the right time.
PROFIT BEFORE TAX AND EARNINGS PER SHARE
Adjusted profit before tax for the year was GBP28.7 million
compared to GBP27.7 million in 2021, up 4% reflecting lower sales
volumes (including the impact of the cyber incident), cost control,
operating efficiencies and the recovery of significant cost
inflation.
Reported profit before tax in 2022 was GBP26.2 million (2021:
GBP27.7 million), reflecting the above, and GBP2.5 million of
non-underlying items.
Adjusted basic earnings per share for the year were 21.4 pence
(2021: 19.4 pence), reflecting the increased profitability and
lower tax charge. Adjusted diluted earnings per share for the year
were 21.3 pence (2021: 19.3 pence). Total basic and diluted
earnings per share were 19.6 pence and 19.5 pence respectively
(2021: 19.4 pence and 19.3 pence respectively).
DIVIDS
We paid an interim dividend of 3.5 pence per share in October
2022 (GBP3.9 million). The Board proposes a final dividend of 7.2
pence per share (2021: 6.4 pence per share), which results in total
dividends for the year of 10.7 pence per share, or GBP12.0 million,
up 11% (2021: 9.6 pence or GBP10.8 million). This reflects our
solid financial performance and a lower tax rate in 2022. The
dividend will be paid on 17 May 2023 to Shareholders registered at
the close of business on 21 April 2023. The ex-dividend date will
be 20 April 2023.
Retained earnings as at 31 December 2022 were GBP91.7 million
(2021: GBP83.1 million). The Company takes steps to ensure
distributable reserves are maintained at an appropriate level
through intra-Group dividend flows.
CAPITAL EXPITURE
Capital expenditure for 2022 was GBP12.3 million (2021: GBP16.7
million). 2022 includes c.GBP4 million to expand manufacturing
capacity across a number of key product lines and c.GBP2 million
for IT infrastructure improvements, our new website and HR
information system, both of which will be launched in the first
half of 2023. The remaining c.GBP6 million relates mostly to
maintenance capex, and includes warehouse improvements, branch
refurbishments and critical spares in recycling, as well as solar
panels for our primary manufacturing facilities.
CASH FLOW
Net cash generated from operating activities was GBP35.1 million
(2021: GBP29.6 million).
A net outflow from working capital for 2022 of GBP13.1 million
includes the substantial impact of inflation (c.GBP8 million net
across all working capital components). The outflow is comprised of
an increase in stocks of GBP5.7 million, an increase in trade and
other receivables of GBP5.6 million and a decrease in trade and
other payables of GBP1.8 million. For stocks, the inflation impact
alone is c.GBP7 million. This compares to a net outflow from
working capital of GBP19.4 million in 2021, which also included a
significant inflationary component (c.GBP8 million).
Other items include payments for capital investments of GBP12.4
million (2021: GBP15.5 million), net proceeds from the disposal of
Security Hardware of GBP0.3 million and financing costs paid of
GBP1.2 million (2021: GBP0.6 million). Tax paid in the year was
GBP3.6 million (2021: GBP3.5 million). Dividends of GBP11.1 million
were paid in the year (2021: GBP3.6 million).
The principal elements of lease payments of GBP13.3 million
(2021: GBP10.1 million) are presented within cash flows arising
from financing activities. The finance elements of lease payments
were GBP1.4 million (2021: GBP1.2 million).
NET DEBT
Net debt on a pre-IFRS 16 basis at 31 December 2022 was GBP14.4
million (31 December 2021: GBP11.0 million).
Lease liabilities increased by GBP5.0 million. Reported net debt
at 31 December 2022 was GBP78.1 million (31 December 2021: GBP69.7
million).
2022 2021 Change
GBPm GBPm GBPm
----------------------- ------ ------ ------
Cash 5.1 6.6 (1.5)
Deferred consideration 0.8 - 0.8
Bank overdrafts - (5.9) 5.9
Borrowings (20.3) (11.7) (8.6)
----------------------- ------ ------ ------
Net debt (pre-IFRS 16) (14.4) (11.0) (3.4)
----------------------- ------ ------ ------
Lease liabilities (63.7) (58.7) (5.0)
----------------------- ------ ------ ------
Net debt (reported) (78.1) (69.7) (8.4)
----------------------- ------ ------ ------
BANK FACILITY
We have an unsecured multi-currency Revolving Credit Facility
('RCF') of GBP75 million. In May 2022 the Group refinanced this
facility, with the key terms unchanged. The facility is held with
Barclays Bank plc, NatWest Bank plc and Bank of Ireland, and
expires in May 2026. The facility is a Sustainable RCF, where
modest adjustments to the margin are applied based on our
achievement against annual targets for usage of recycling in our
products, waste recycled and carbon emissions.
We operate comfortably within the terms of the facility and in
compliance with our financial covenants, which are measured on a
pre-IFRS 16 basis.
Michael Scott
Chief Financial Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
Year ended 31 December
2021
Year ended 31 December
2022 (re-presented(3) )
(1) Non- (1) Non-
Underlying underlying Total Underlying underlying Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ---- ---------- ----------- ------- ---------- ----------- -------
Revenue 3 381.2 - 381.2 339.8 - 339.8
Cost of sales (196.7) - (196.7) (167.7) - (167.7)
Gross profit 184.5 - 184.5 172.1 - 172.1
Distribution costs (23.9) (0.4) (24.3) (23.0) - (23.0)
Administrative expenses (130.4) (1.8) (132.2) (119.4) - (119.4)
Other income(2) 1.1 - 1.1 - - -
Operating profit 3 31.3 (2.2) 29.1 29.7 - 29.7
Finance expense (2.6) (0.3) (2.9) (2.0) - (2.0)
Profit before tax from continuing
operations 3 28.7 (2.5) 26.2 27.7 - 27.7
Taxation 4 (4.7) 0.5 (4.2) (6.1) - (6.1)
Profit after tax from continuing
operations 24.0 (2.0) 22.0 21.6 - 21.6
---------------------------------- ---- ---------- ----------- ------- ---------- ----------- -------
Discontinued operations
Loss after tax from discontinued
operations 5 (2.3) (0.5)
Profit for the year and total
comprehensive income 19.7 21.1
---------------------------------- ---- ---------- ----------- ------- ---------- ----------- -------
Basic earnings per share from
continuing operations 6 21.4p 19.6p 19.4p 19.4p
Diluted earnings per share from
continuing operations 6 21.3p 19.5p 19.3p 19.3p
---------------------------------- ---- ---------- ----------- ------- ---------- ----------- -------
(1) Non-underlying items in 2022 are detailed in Note 2.
(2) Other income is amounts received under the Group's cyber
insurance policy, net of excess paid, in respect of business
interruption to the Group's continuing trading activities as a
result of a cyber incident in July and August 2022.
(3) The prior year comparatives have been re-presented to remove
the results of Security Hardware, which have been presented as
discontinued operations in both the current and prior year
following the sale of the business on 2 December 2022.
Consolidated Statement of Financial Position
As at 31 December 2022
2022 2021
GBPm GBPm
---------------------------------------------------- ------- -------
Assets
Non-current assets
Property, plant and equipment 61.7 59.2
Right-of-use assets 59.7 54.8
Intangible assets 16.9 18.6
Total non-current assets 138.3 132.6
----------------------------------------------------- ------- -------
Current assets
Inventories 59.9 55.9
Trade and other receivables 50.0 44.5
Corporation tax 0.2 -
Deferred consideration 0.8 -
Cash and cash equivalents 5.1 6.6
Total current assets 116.0 107.0
----------------------------------------------------- ------- -------
Total assets 254.3 239.6
----------------------------------------------------- ------- -------
Liabilities
Current liabilities
Trade and other payables (47.4) (48.7)
Lease liabilities (13.0) (11.9)
Bank overdrafts - (5.9)
Provisions (0.2) (0.7)
Total current liabilities (60.6) (67.2)
----------------------------------------------------- ------- -------
Non-current liabilities
Borrowings (20.3) (11.7)
Trade and other payables - (0.3)
Lease liabilities (50.7) (46.8)
Provisions (1.0) (0.8)
Deferred tax (6.8) (6.6)
Total non-current liabilities (78.8) (66.2)
----------------------------------------------------- ------- -------
Total liabilities (139.4) (133.4)
----------------------------------------------------- ------- -------
Net assets 114.9 106.2
----------------------------------------------------- ------- -------
Equity attributable to equity holders of the parent
Share capital 0.1 0.1
Share premium account 22.2 21.9
Share-based payment reserve 0.9 1.1
Retained earnings 91.7 83.1
Total equity 114.9 106.2
----------------------------------------------------- ------- -------
Consolidated Cash Flow Statement
For the year ended 31 December 2022
Year ended Year ended
31 December 31 December
2022 2021
Note GBPm GBPm
-------------------------------------------------------- ---- ----------- -----------
Cash generated from operations 8 38.7 33.1
Income taxes paid (3.6) (3.5)
Net cash generated from operating activities 35.1 29.6
Investing activities
Purchase of property, plant and equipment (11.9) (15.1)
Purchase of intangible assets (0.5) (0.4)
Net cash flow arising on sale of business 0.3 -
Net cash used in investing activities (12.1) (15.5)
Financing activities
Proceeds from new share capital issued 0.2 0.5
Repayment of bank and other borrowings (22.0) (1.0)
Proceeds from bank borrowings 31.0 -
Bank borrowings arrangement costs (0.8) -
Principal elements of lease payments (13.3) (10.1)
Finance elements of lease payments (1.4) (1.2)
Finance expense paid (1.2) (0.6)
Dividends paid to equity Shareholders 7 (11.1) (3.6)
Net cash used in financing activities (18.6) (16.0)
Net increase/(decrease) in cash and cash equivalents(1) 4.4 (1.9)
-------------------------------------------------------- ---- ----------- -----------
Cash and cash equivalents (1) at beginning of year 0.7 2.6
Cash and cash equivalents(1) at end of year 5.1 0.7
-------------------------------------------------------- ---- ----------- -----------
(1) Cash and cash equivalents includes bank overdrafts.
(2) Cash flows arising on discontinued operations are outlined in Note 5.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2022
Share Share-based
Share premium payment Retained Total
capital account reserve earnings equity
GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------------- ------- ------- ----------- -------- ------
Balance at 1 January 2022 0.1 21.9 1.1 83.1 106.2
Comprehensive income for the year
Profit for the year - - - 19.7 19.7
Total comprehensive income for the year - - - 19.7 19.7
Contributions by and distributions to owners
Exercise of share options - 0.3 - - 0.3
Share-based payments - - (0.2) - (0.2)
Dividends paid - - - (11.1) (11.1)
Total transactions with owners recognised directly in equity - 0.3 (0.2) (11.1) (11.0)
------------------------------------------------------------- ------- ------- ----------- -------- ------
Balance at 31 December 2022 0.1 22.2 0.9 91.7 114.9
------------------------------------------------------------- ------- ------- ----------- -------- ------
Share Share-based
Share premium payment Retained Total
capital account reserve earnings equity
GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------------- ------- ------- ----------- -------- ------
Balance at 1 January 2021 0.1 21.1 0.5 65.5 87.2
Comprehensive income for the year
Profit for the year - - - 21.1 21.1
Total comprehensive income for the year - - - 21.1 21.1
Contributions by and distributions to owners
Exercise of share options - 0.8 (0.6) 0.1 0.3
Share-based payments - - 1.2 - 1.2
Dividends paid - - - (3.6) (3.6)
Total transactions with owners recognised directly in equity - 0.8 0.6 (3.5) (2.1)
------------------------------------------------------------- ------- ------- ----------- -------- ------
Balance at 31 December 2021 0.1 21.9 1.1 83.1 106.2
------------------------------------------------------------- ------- ------- ----------- -------- ------
1 BASIS OF PREPARATION
The financial information for the year ended 31 December 2022
was approved by the Board on 15 March 2023. This financial
information does not constitute the statutory accounts of the
Company within the meaning of Section 435 of the Companies Act
2006, but is derived from those accounts, which have been prepared
in accordance with UK-adopted international accounting standards
and with the requirements of the Companies Act 2006 as applicable
to companies reporting under those standards.
This information has been prepared under the historical cost
method, using all standards and interpretations required for
financial periods beginning 1 January 2022. The functional currency
is Sterling, and the Financial Statements are presented in
millions, unless otherwise stated. No standards or interpretations
have been adopted before the required implementation date.
Statutory accounts for the year ended 31 December 2021 have been
delivered to the Registrar of Companies. Statutory accounts for the
year ended 31 December 2022 will be delivered to the Registrar of
Companies following the Company's Annual General Meeting.
The auditors have reported on those accounts. Their reports were
not qualified, did not include a reference to any matters to which
the auditors drew attention by way of emphasis without qualifying
their report, and did not contain a statement under Section 498 (2)
or (3) of the Companies Act 2006.
Going concern
The Group funds its activities through a GBP75 million Revolving
Credit Facility, provided by Barclays, NatWest and Bank of Ireland,
which matures in May 2026. The facility includes two key financial
covenants, which are tested at 30 June and 31 December each year on
a pre-IFRS 16 basis. These are that net debt should not exceed
three times adjusted EBITDA (Leverage), and that adjusted EBITDA
should be at least four times the interest charge on the debt
(Interest Cover). Adjusted EBITDA is defined as operating profit
before depreciation, amortisation and non-underlying items. See
alternative performance measures (see Chief Financial Officer's
Review).
No covenants were breached during the year ended 31 December
2022. For the next measurement period, being 30 June 2023, and
going forward, the Group expects to comply with its covenants.
In assessing going concern, the Directors have considered
financial projections for the period to December 2024, which is
consistent with the Board's strategic planning horizons. These
forecasts have been compiled based on the best estimates of our
commercial and operational teams. This includes a severe but
plausible 'Downside' scenario, which reflects demand for our
products being severely weakened.
In all scenarios tested, including sensitivities reducing sales
forecasts to 10% below management's estimates for the period
2023-24, the Group operates with significant headroom on its RCF
facility and remains compliant with its original covenants.
After reviewing the Group's projected financial performance and
financing arrangements, the Directors consider that the Group has
adequate resources to continue operating and that it is therefore
appropriate to continue to adopt the going concern basis in
preparing the Financial Statements.
Changes in accounting policies and disclosures applicable to the
Company and the Group
The Group has applied the following amendments for the first
time for the financial reporting period commencing 1 January 2022,
with no material impact:
-- Property, Plant and Equipment: proceeds before intended use - amendments to IAS 16;
-- Reference to the Conceptual Framework - amendments to IFRS 3;
-- Onerous Contracts: cost of fulfilling a contract - amendments to IAS 37; and
-- Annual Improvements to IFRS Standards 2018 - 20.
The following new accounting standards, amendments to accounting
standards and interpretations have been published that are not
mandatory for 31 December 2022 reporting periods and have not been
early adopted by the Group:
-- IFRS 17 Insurance Contracts;
-- Classification of Liabilities as Current or Non-current - amendments to IAS 1;
-- Disclosure of Accounting Policies - amendments to IAS 1 and IFRS Practice Statement 2;
-- Definition of Accounting Estimates - amendments to IAS 8; and
-- Deferred Tax related to Assets and Liabilities arising from a
Single Transaction - amendments to IAS 12.
These standards, amendments or interpretations are not expected
to have a material impact on the Group in the current or future
reporting periods and on foreseeable future transactions.
2 NON-UNDERLYING ITEMS
Amounts included in the Consolidated Statement of Comprehensive
Income are as follows:
2022 2021
GBPm GBPm
---------------------------------- ----- ----
Restructuring costs 1.6 -
Asset impairment charges 0.6 -
Non-underlying operating expenses 2.2 -
Finance expense 0.3 -
Total non-underlying expenses 2.5 -
Taxation (0.5) -
Impact on profit after tax 2.0 -
---------------------------------- ----- ----
Restructuring costs
Restructuring costs relate to redundancies, with 63 roles
impacted at a one-off cost of GBP1.6 million. These costs are
classified as non-underlying as they relate to roles that no longer
exist within the organisation and therefore would not re-occur in
future reporting periods.
Assets impairment charges
Tangible fixed assets and right-of-use asset impairment charges
amounting to GBP0.6 million were recognised in respect of five
branches which, at 31 December 2022, the Group had announced its
intention to close in early 2023.
Finance expense
The Group refinanced its Revolving Credit Facility in May 2022.
Unamortised arrangement fees relating to the previous facility,
which had been due to expire in December 2023, were expensed to the
Consolidated Income Statement, and have been presented as
non-underlying as the facility to which they relate no longer
exists.
There were no non-underlying items in the prior year.
Of the GBP2.5 million non-underlying expenses, GBP1.1 million
was settled in cash at 31 December 2022, and GBP0.5 million will be
settled within 12 months of the balance sheet date. The remaining
GBP0.9 million relates to non-cash asset impairment charges.
3 SEGMENTAL INFORMATION
The Group organises itself into a number of operating segments
that offer different products and services. They are managed
separately because each business requires different technology and
marketing strategies. Internal reporting provided to the chief
operating decision-maker, which has been identified as the
executive management team including the Chief Executive Officer and
the Chief Financial Officer, reflects this structure.
The Group has aggregated its operating segments into three
reported segments, as these business units have similar products,
production processes, types of customer, methods of distribution,
regulatory environments, and economic characteristics:
-- Profiles - extrusion and sale of PVC window and building products to the new and replacement
window market across the UK. This segment includes Vista Panels, S&S Plastics and Eurocell
Recycle North.
-- Building Plastics - sale of building plastic materials across the UK. This segment includes
Kent Building Plastics and Trimseal.
-- Corporate - represents costs relating to the ultimate Parent Company and includes amortisation
in respect of acquired intangible assets.
Inter-segmental sales relate to manufactured products
distributed by the Building Plastics division.
2022 Profiles Building Plastics Corporate Total
GBPm GBPm GBPm GBPm
---------------------------------------------- -------- ----------------- --------- ------
Revenue
Total revenue 234.0 219.8 - 453.8
Inter-segmental revenue (72.3) (0.3) - (72.6)
Total revenue from external customers 161.7 219.5 - 381.2
---------------------------------------------- -------- ----------------- --------- ------
Adjusted EBITDA 32.7 21.0 1.5 55.2
Amortisation of intangible assets - - (1.8) (1.8)
Depreciation of property, plant and equipment (7.0) (1.1) (0.7) (8.8)
Depreciation of right-of-use assets (5.5) (7.7) (0.1) (13.3)
Adjusted operating profit/(loss) 20.2 12.2 (1.1) 31.3
---------------------------------------------- -------- ----------------- --------- ------
Non-underlying operating expenses (0.9) (1.3) - (2.2)
Operating profit/(loss) 19.3 10.9 (1.1) 29.1
Finance expense (2.9)
Profit before tax from continuing operations 26.2
---------------------------------------------- -------- ----------------- --------- ------
2021 (re-presented) Profiles Building Plastics Corporate Total
GBPm GBPm GBPm GBPm
---------------------------------------------- -------- ----------------- --------- ------
Revenue
Total revenue 204.6 199.6 - 404.2
Inter-segmental revenue (63.9) (0.5) - (64.4)
Total revenue from external customers 140.7 199.1 - 339.8
---------------------------------------------- -------- ----------------- --------- ------
EBITDA 31.8 21.5 (0.9) 52.4
Amortisation of intangible assets - - (1.9) (1.9)
Depreciation of property, plant and equipment (6.0) (1.0) (0.7) (7.7)
Depreciation of right-of-use assets (5.1) (7.9) (0.1) (13.1)
Operating profit/(loss) 20.7 12.6 (3.6) 29.7
Finance expense (2.0)
Profit before tax from continuing operations 27.7
---------------------------------------------- -------- ----------------- --------- ------
Building
Profiles Plastics Corporate Total
2022 2022 2022 2022
GBPm GBPm GBPm GBPm
-------------------------------------------------------------- -------- --------- --------- -------
Additions to plant, property, equipment and intangible assets 7.6 1.4 3.3 12.3
Segment assets 145.1 89.4 19.8 254.3
Segment liabilities (61.3) (43.2) (7.8) (112.3)
Borrowings (20.3)
Deferred tax liability (6.8)
Total liabilities (139.4)
-------------------------------------------------------------- -------- --------- --------- -------
Total net assets 114.9
-------------------------------------------------------------- -------- --------- --------- -------
Building
Profiles Plastics Corporate Total
2021 2021 2021 2021
GBPm GBPm GBPm GBPm
-------------------------------------------------------------- -------- --------- --------- -------
Additions to plant, property, equipment and intangible assets 13.2 2.5 1.0 16.7
Segment assets 132.6 87.9 19.1 239.6
Segment liabilities (61.2) (45.0) (8.9) (115.1)
Borrowings (11.7)
Deferred tax liability (6.6)
Total liabilities (133.4)
-------------------------------------------------------------- -------- --------- --------- -------
Total net assets 106.2
-------------------------------------------------------------- -------- --------- --------- -------
Geographical information
Revenue Non-current assets Revenue Non-current assets
2022 2022 2021(2) 2021
GBPm GBPm GBPm GBPm
------------------------ ------- ------------------ ------- ------------------
United Kingdom 379.3 138.3 338.3 132.6
Republic of Ireland (1) 1.9 - 1.5 -
Total 381.2 138.3 339.8 132.6
------------------------ ------- ------------------ ------- ------------------
(1) The net book value of non-current assets in the Republic of
Ireland was less than GBP50,000 in both years.
(2) Re-presented.
4 TAXATION
2022 2021
GBPm GBPm
-------------------------------------------------- ----- ----
Current tax expense
Current tax on profits for the year 3.2 2.7
Adjustment in respect of prior years 0.3 0.1
Total current tax 3.5 2.8
-------------------------------------------------- ----- ----
Deferred tax expense
Origination and reversal of temporary differences 0.7 2.2
Adjustment in respect of change in rates 0.2 0.9
Adjustment in respect of prior years (0.7) -
Total deferred tax 0.2 3.1
-------------------------------------------------- ----- ----
Total tax expense 3.7 5.9
-------------------------------------------------- ----- ----
2022 2021
GBPm GBPm
----------------------------------------------------- -------- --------
Continuing operations 4.2 6.1
Discontinued operations (0.5) (0.2)
Total tax expense 3.7 5.9
----------------------------------------------------- -------- --------
The reasons for the difference between the actual current tax
charge for the year and the standard rate of corporation tax in the
United Kingdom applied to profits for the year are as follows:
2022 2021
GBPm GBPm
-------------------------------------------------------------------------------------------- ----- -----
Profit before tax from continuing operations 26.2 27.7
Loss before tax from discontinued operations (2.8) (0.7)
Profit before tax 23.4 27.0
Expected tax charge based on the standard rate of corporation tax in the UK of 19.0% (2021:
19.0%) 4.4 5.1
Taxation effect of:
Expenses not deductible for tax purposes 0.4 0.5
Capital allowance super-deduction utilised (0.3) (0.7)
Patent Box claims (0.4) -
Deferred tax impact of share-based payments - 0.2
Adjustments in respect of prior years 0.3 0.1
Tax effect of accelerated capital allowances (0.9) (2.4)
Current tax expense 3.5 2.8
-------------------------------------------------------------------------------------------- ----- -----
The reasons for the difference between the total tax charge for
the year and the standard rate of corporation tax in the United
Kingdom applied to profits for the year are as follows:
2022 2021
GBPm GBPm
-------------------------------------------------------------------------------------------- ----- -----
Profit before tax from continuing operations 26.2 27.7
Loss before tax from discontinued operations (2.8) (0.7)
Profit before tax 23.4 27.0
Expected tax charge based on the standard rate of corporation tax in the UK of 19.0% (2021:
19.0%) 4.4 5.1
Taxation effect of:
Expenses not deductible for tax purposes 0.2 0.5
Capital allowance super-deduction utilised (0.3) (0.7)
Patent Box claims (0.4) -
Adjustments in respect of prior years (0.4) 0.1
Adjustment in respect of change in rates 0.2 0.9
Total tax expense 3.7 5.9
-------------------------------------------------------------------------------------------- ----- -----
Changes in tax rates and factors affecting the future tax
charge
An increase in the mainstream rate of UK corporation tax from
19% to 25% from April 2023 was enacted during 2021. Consequently,
deferred taxes were re-measured using a higher rate based on
expected reversal dates and reflected in the financial
statements.
There are no material uncertain tax provisions.
Tax included in Other Comprehensive Income
The tax credit arising on share-based payments within Other
Comprehensive Income is GBPnil (2021: GBPnil).
Based on the current investment plans of the Group, and assuming
the rates of capital allowances on capital expenditure continue
into the future, there is little prospect of any significant part
of the deferred tax liability becoming payable over the next three
years.
Tax residency
Eurocell plc and its subsidiaries are all registered in the
United Kingdom and are resident in the UK for tax purposes, except
as described below.
The Group has two branches in the Republic of Ireland, with
combined annual revenues of GBP1.9 million (2021: GBP1.5 million),
total assets of less than GBP50,000 (2021: less than GBP50,000) and
eight full time employees (2021: eight full time employees). For
tax purposes these two trading locations form a single branch
within Eurocell Building Plastics Limited, and therefore any
profits generated are subject to tax in the Republic of Ireland.
The tax charge in relation to the Group's Republic of Ireland
operations in 2022 is EURnil (2021: EURnil) and no tax payments
were made during the year (2021: EURnil). This is due to
utilisation of losses brought forward. No deferred tax assets are
recognised on unutilised losses due to the uncertainty of future
profits.
5 LOSS AFTER TAX FROM DISCONTINUED OPERATIONS
As part of a restructuring exercise, on 2 December 2022 the
Group completed the sale of the trade and assets of its Security
Hardware business for a total consideration of GBP1.2 million.
Security Hardware was a separate operating segment which had
previously been aggregated and presented as part of the Building
Plastics reported segment.
2022 2021
GBPm GBPm
--------------------------------------------- ----- -----
Revenue 2.9 3.3
Cost of sales (2.2) (2.0)
Gross profit 0.7 1.3
Distribution costs (0.8) (0.8)
Administrative expenses (1.2) (1.2)
Operating loss (1.3) (0.7)
Finance expense - -
Loss before tax from discontinued operations (1.3) (0.7)
Taxation 0.2 0.2
Loss after tax from discontinued operations (1.1) (0.5)
Loss on sale of trade and assets after tax (1.2) -
Loss from discontinued operations (2.3) (0.5)
--------------------------------------------- ----- -----
The loss on sale of GBP1.2 million is comprised of the
following:
2022
GBPm
---------------------------------- -----
Consideration received
Cash 0.4
Deferred consideration 0.8
Total consideration 1.2
Carrying value of net assets sold (2.6)
Transaction costs (0.1)
Loss on sale before tax (1.5)
Taxation 0.3
Loss on sale after tax (1.2)
----------------------------------- -----
The carrying values of assets and liabilities as at 2 December
2022 were as follows:
GBPm
---------------------------------- -----
Property, plant and equipment 0.4
Right-of-use assets 0.3
Intangible assets 0.3
Inventories 1.9
Lease liabilities (0.3)
Carrying value of net assets sold 2.6
----------------------------------- -----
The net cash flows arising were as follows:
2022 2021
GBPm GBPm
---------------------------------------------------------- ----- -----
Net cash outflow from operating activities (0.2) (0.6)
Net cash inflow from investing activities 0.1 -
Net cash outflow from financing activities - -
Net decrease in cash generated by discontinued operations (0.1) (0.6)
---------------------------------------------------------- ----- -----
Losses per share were as follows:
2022 2021
Pence Pence
------------------------------------------------------ ----- -----
Basic losses per share from discontinued operations (2.0) (0.5)
Diluted losses per share from discontinued operations (2.0) (0.5)
------------------------------------------------------ ----- -----
6 EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the net
profit for the year attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during the
year. Adjusted earnings per share excludes the impact of
non-underlying items. Earnings per share from continuing operations
excludes the impact of discontinued operations.
Diluted earnings per share is calculated by adjusting the
earnings and number of shares for the effects of dilutive options.
In the event that a loss is recorded for the period, share options
are not considered to have a dilutive effect.
2022 2021 (1)
GBPm GBPm
------------------------------------------------------------------------------------------------- ----- --------
Profit from continuing operations attributable to ordinary shareholders excluding non-underlying
items 24.0 21.6
Profit from continuing operations attributable to ordinary shareholders 22.0 21.6
Loss from discontinued operations (2.3) (0.5)
Profit attributable to ordinary shareholders 19.7 21.1
------------------------------------------------------------------------------------------------- ----- --------
Number Number
-------------------------------------------- ----------- -----------
Weighted average number of shares - basic 112,036,668 111,709,049
Dilutive impact of share options granted 747,137 510,270
Weighted average number of shares - diluted 112,783,805 112,219,319
-------------------------------------------- ----------- -----------
Pence Pence
------------------------------------ ----- -----
Continuing operations
Basic earnings per share 19.6 19.4
Adjusted basic earnings per share 21.4 19.4
Diluted earnings per share 19.5 19.3
Adjusted diluted earnings per share 21.3 19.3
------------------------------------ ----- -----
Discontinued operations
Basic losses per share (2.0) (0.5)
Diluted losses per share (2.0) (0.5)
------------------------------------ ----- -----
Total
Basic earnings per share 17.6 18.9
Diluted earnings per share 17.5 18.8
------------------------------------ ----- -----
(1) Re-presented.
7 DIVIDS
2022 2021
GBPm GBPm
------------------------------------------------------------------- ---- ----
Dividends paid during the year
Interim dividend for 2022 of 3.5p per share (2021: 3.2p per share) 3.9 3.6
Final dividend for 2021 of 6.4p per share 7.2 -
------------------------------------------------------------------- ---- ----
11.1 3.6
------------------------------------------------------------------- ---- ----
Dividends proposed
Final dividend for 2022 of 7.2p per share 8.1 -
Final dividend for 2021 of 6.4p per share - 7.2
------------------------------------------------------------------- ---- ----
8.1 7.2
------------------------------------------------------------------- ---- ----
8 RECONCILIATION OF PROFIT AFTER TAX TO CASH GENERATED FROM
OPERATIONS
2022 2021
GBPm GBPm
------------------------------------------------------------------------ ----- ------
Profit after tax from continuing operations 22.0 21.6
Loss after tax from discontinued operations (2.3) (0.5)
Profit after tax 19.7 21.1
Taxation (Note 4) 3.7 5.9
Finance expense 2.9 2.0
Operating profit 26.3 29.0
Adjustments for:
Depreciation of property, plant and equipment 8.8 7.7
Depreciation of right-of-use assets 13.3 13.1
Amortisation of intangible assets 1.8 1.9
Impairment/(reversal of impairment) of tangible and right-of-use assets 0.6 (0.4)
Loss on disposal of business 1.5 -
Share-based payments (0.2) 1.2
Increase in inventories (5.7) (17.8)
Increase in trade and other receivables (5.6) (6.0)
(Decrease)/increase in trade and other payables (1.8) 4.4
Decrease in provisions (0.3) -
Cash generated from operations 38.7 33.1
------------------------------------------------------------------------ ----- ------
9 EVENTS AFTER THE BALANCE SHEET DATE
The Directors are not aware of any material events that have
occurred after 31 December 2022 which would require disclosure
under IAS 10.
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END
FR NKPBNBBKBDND
(END) Dow Jones Newswires
March 16, 2023 03:00 ET (07:00 GMT)
Eurocell (LSE:ECEL)
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