20
March 2024
EUROCELL PLC (Symbol:
ECEL)
PRELIMINARY RESULTS FOR THE
YEAR ENDED 31 DECEMBER 2023
Profits in line with
expectations; strong cash flow
Eurocell
plc, the market leading, vertically integrated UK manufacturer,
distributor and recycler of innovative window, door and roofline
PVC products, today announces its preliminary results for the year
ended 31 December 2023.
Summary
•
|
Profits in line with expectations,
despite further market deterioration in the second half
|
•
|
Challenging backdrop, with weak
RMI(1) market and particularly severe decline in new
build housing
|
•
|
Early and decisive action taken on
cost in response to lower volumes and to position the business well
for when markets recover
|
•
|
Efficient inventory management
driving strong cash flow performance, maintaining strong balance
sheet and liquidity
|
•
|
Review of strategy complete, with
pathway to organic growth and improved margins
identified
|
Key
financial performance measures (2)
|
2023
|
2022
|
Change
|
Revenue (£ million)
|
364.5
|
381.2
|
(4)%
|
Underlying measures (3)
|
|
|
|
Adjusted operating profit (£
million)
|
18.4
|
31.3
|
(12.9)
|
Adjusted profit before tax (£
million)
|
15.2
|
28.7
|
(13.5)
|
Adjusted basic earnings per share
(pence)
|
11.0
|
21.4
|
(10.4)
|
Reported measures
|
|
|
|
Operating profit (£
million)
|
14.9
|
29.1
|
(14.2)
|
Profit before tax (£
million)
|
11.7
|
26.2
|
(14.5)
|
Basic earnings per share
(pence)
|
8.6
|
19.6
|
(11.0)
|
Capital investment (£
million)
|
8.9
|
12.3
|
(3.4)
|
Net cash
generated from operating activities
(£ million)
|
52.8
|
35.1
|
17.7
|
Net debt (£ million)
(4)
|
(58.2)
|
(78.1)
|
19.9
|
Net cash/(debt), pre-IFRS 16 (£
million) (4)
|
0.4
|
(14.4)
|
14.8
|
Total dividends per share for the
year (pence)
|
5.5
|
10.7
|
(5.2)
|
Financial headlines
•
|
Group sales down 4% on a strong 2022
comparative period, with volume 6% lower, including:
|
|
-
|
Profiles down 4%: reduced
RMI(1) and significantly weaker new build activity,
partially offset by benefit of market share gains, with volumes 7%
below 2022
|
|
-
|
Building Plastics down 4%: RMI
volumes in our branches 5% below 2022
|
•
|
Increased competition for limited
demand leading to pressure on margins in the branch
network
|
•
|
Continued input cost inflation,
offset with selling price increases where possible:
|
|
-
|
Particularly labour, recycling
feedstock and electricity, where we operate a rolling 12-month
forward hedging policy
|
|
-
|
Some easing on input cost pricing
through the second half of the year
|
•
|
Adjusted profit before tax from
continuing operations down 47% vs 2022
|
|
-
|
Lower sales volumes, input cost
inflation and margin pressure in the branches, partially offset by
selling price increases, operational improvements and cost
reduction
|
•
|
Net cash generated from operating
activities up 50% vs 2022
|
|
-
|
Efficient stock management driving a
net working capital inflow of £13.4 million (2022: net outflow
£13.1 million)
|
•
|
Strong balance sheet and liquidity,
with pre-IFRS 16 net cash of £0.4 million (31 December 2022: net
debt of £14.4 million)
|
|
-
|
Average pre-IFRS 16 net debt of £9.5
million in 2023 (2022: £17.3 million)
|
•
|
Proposed final dividend of 3.5 pence
per share, resulting in total dividends for the year of 5.5 pence
per share (2022: 10.7 pence per share)
|
•
|
£5 million share buyback programme
commenced in January 2024
|
|
-
|
As of 15 March 2024, 2.0 million
shares purchased under the programme at a cash cost of £2.5
million
|
Operational and sustainability headlines
•
|
Early and decisive action taken on
operating costs in response to lower volumes
|
|
-
|
Q4 2022 restructuring reduced
operating costs by £5 million per annum from the start of
2023
|
|
-
|
Further headcount reduction in Q2
2023 to deliver savings of c.£2 million in the second half and c.£4
million per annum thereafter, with the related redundancy costs
(£2.7 million) included as a non-underlying item
|
•
|
Continuing programme of operational
improvements
|
•
|
Strong on sustainability as the
leading UK-based recycler of PVC windows, with the proportion of
recycled material used improving to 32% (2022: 29%)
|
Review of strategy complete
•
|
Pathway identified to building a
£500 million revenue business generating a 10% operating margin
within 5 years
|
Darren Waters, Chief Executive of Eurocell plc
said:
"The trends reported at our half
year results in September continued for the remainder of 2023, with
some further modest weakening in our key markets. Against this
challenging backdrop, we are pleased to report profits for the year
in line with expectations and strong cash flow
generation.
"We took early and decisive action
on costs in response to lower volumes and have continued to focus
on efficient working capital management, driving a good cash flow
performance. Whilst the near-term outlook for our markets remains
challenging, these actions leave us well
placed to benefit from a market recovery when it comes.
"Our review of strategy is now
complete and I am very pleased with the outcome. Looking ahead,
we have identified a clear pathway to
building a £500m revenue business, generating a 10% operating
margin over a five-year period, built around four pillars; Customer
Growth, Business Effectiveness, People First and ESG Leadership.
This is an ambitious vision, but when we aggregate the growth
opportunities, and apply a degree of sensitivity, we believe it is
an achievable target, with the potential to create significant
shareholder value."
Notes
(1)
|
RMI is repair, maintenance and
improvement.
|
(2)
|
Stated on a continuing basis i.e.
excluding discontinued operations.
|
(3)
|
Non-underlying items of £3.5 million
in 2023 include restructuring costs of £2.7 million and £0.8
million of costs relating to strategic IT projects which are
classified as an expense as they use cloud computing.
Non-underlying items of £2.5 million in 2022 include restructuring
costs of £2.2 million (redundancy payments of £1.6 million and
tangible and right-of-use asset impairment charges of £0.6 million)
and £0.3 million of costs relating to the refinancing of the
Group's £75 million Revolving Credit Facility.
|
(4)
|
Net cash/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.
|
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/782-2007-39185/en
Alternatively, you can join via
conference call as follows:
Dial-in
|
+44 (0) 33 0551 0200
|
Toll free (UK)
|
0808 109 0700
|
Participant access code
|
0510
|
A copy of
the presentation will be made available from 7am on 20
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).
CHAIR'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 2023 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 difficult backdrop,
including a weak repair, maintenance and
improvement ('RMI') market and a severe decline in new build
housing, we delivered some resilience in
the Group's sales performance. Revenues for the year were £364.5
million, down 4% against a strong 2022 comparative
period.
Adjusted profit before tax from
continuing operations was down 47% at £15.2 million (2022: £28.7
million), reflecting the impact of lower volumes and margin
pressure.
In response, the business took
decisive action on costs, including a restructuring programme
completed in Q2, and continued to focus on efficient working
capital management, to drive a good cash flow performance and
maintain a strong balance sheet and liquidity.
Reported profit before tax, also on
a continuing basis, was down 55% at £11.7 million (2022: £26.2
million), reflecting the cost of the Q2 restructuring programme,
which will also benefit our financial results in 2024.
Net cash generated from operations
was £52.8 million, up 50% on 2022, including an inflow from working
capital of £13.4 million. As a result, net
cash at 31 December 2023 on a pre-IFRS 16 basis stood at £0.4
million (31 December 2022: net debt of £14.4 million).
Earnings per share and
dividends
Adjusted basic earnings per share
for the year were 11.0 pence (2022: 21.4 pence). Reported basic
earnings per share were 8.6 pence (2022: 19.6 pence).
We paid an interim dividend of 2.0
pence per share in October 2023. The Board proposes a final
dividend of 3.5 pence per share, which results in total dividends
for the year of 5.5 pence per share (2022: 10.7 pence per
share).
Capital allocation
The Board is focused on enhancing
shareholder returns and recognises the importance of our ordinary
dividend. We will periodically consider supplementary
distributions, whilst always seeking to maintain a strong financial
position.
Taking into account expected organic
investment requirements and our successful cash flow management in
2023, we launched a £5 million share buyback programme in January
2024. Following the Board's decision that employee incentivisations
by equity should be through shares acquired rather than issued, the
first 642,000 shares repurchased under the buyback programme will
be held in treasury and used to satisfy employee share options over
the next two years. All other shares repurchased will be
cancelled.
As of 15 March 2024, we had
purchased 2.0 million shares at a cash cost of £2.5 million under
the programme.
Strategy
Following the arrival of Darren
Waters as Chief Executive, the Board conducted a review of the
Group's strategy, including the optimisation and expansion of the
Branch Network, an enhanced customer proposition and simplified
business structures.
With this review now complete, we
have reset our ambition for the business and identified a clear
strategy for organic growth and improved operating margins, which
has the potential to create significant shareholder
value.
The headlines from our work on
strategy are summarised in the Chief Executive's Review.
Board changes and
governance
Following our AGM in May, Darren
Waters assumed the position of Chief Executive and Mark Kelly
retired. In addition, Martyn Coffey stood down from the Board and
Will Truman was appointed as an independent Non-executive Director
and member of the Audit and Risk, Nomination and ESG and Social
Values Committees. We were also pleased to announce the appointment
of Angela Rushforth as an independent Non-executive Director and
member of the Nomination and ESG and Social Values Committees in
January 2024.
Looking ahead, after nine years of
service, Frank Nelson intends to step down from the Board at the
2024 AGM and I would like to thank him for his significant
contribution to the Group. Alison Littley will be appointed
Senior Independent Non-executive Director when
Frank leaves.
Whilst this has been a period of
significant change for the Board, our new appointments bring
extensive experience and knowledge of the UK building materials and
fenestration sectors, as well as valuable commercial insight, and I
am very pleased that we have been able to attract such high-calibre
individuals into the Company.
In accordance with the UK Corporate
Governance Code ('the Code'), an external evaluation of the Board's
performance was conducted towards the end of 2023. The review
concluded that the composition of the Board, and its committees,
provides an appropriate balance of skills, experience, independence
and knowledge to allow the Board to discharge its responsibilities
effectively.
Finally, I can confirm that we aim
to comply with the 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'S REVIEW
INTRODUCTION
With demand softening towards the
end of 2022, we completed a restructuring programme in Q4 of that
year and entered 2023 prepared for tougher markets.
However, conditions in the first
half of 2023 were more challenging than we had anticipated, with
RMI activity impacted by low consumer confidence and higher costs
of living. In addition, a steep decline in new build activity
followed successive interest rate rises and falling house prices,
with housebuilders reducing build rates in anticipation of falling
sales. Thereafter, these trends continued for the remainder of
2023, with some further modest weakening in our key markets in
H2.
Input cost inflation also continued
through the first half, particularly for labour, electricity and
recycling feedstock prices, which we offset with selling price
increases where possible. As expected, we experienced some easing
of input cost pricing in H2.
In response to lower sales volumes,
we took further decisive action on costs, with a second
restructuring programme implemented in Q2 2023. We also continued
to focus on efficient cash and working capital management to drive
a good cash flow performance for the year.
As reported in September, we have
been reviewing our strategy. Through this work, we have identified
a route to organic growth and a healthy improvement in operating
margins over a five-year period. The headlines are summarised
below.
FINANCIAL RESULTS
Against the challenging market
backdrop, we have delivered some resilience in the Group's sales
performance. Revenues for the year were £364.5 million, down 4% on
2022, with volumes 6% lower against a strong 2022 comparative
period.
As expected, adjusted profit before
tax from continuing operations was £15.2 million, down £13.5
million on 2022, with the reduction driven by lower sales volumes, input cost inflation and margin pressure
in the branches, partially offset by selling price increases,
operational improvements and cost reduction.
Reported profit before tax was £11.7
million (2022: £26.2 million), after non-underlying costs totalling
£3.5 million (2022: £2.5 million), reflecting the impact of a
restructuring programme and cloud-based computing
expenses.
Reflecting our focus on cash
management, we delivered improved net cash generated from
operations of £52.8 million, up 50% on 2022, including an inflow
from working capital of £13.4 million, compared to an outflow of
£13.1 million in the previous year.
Detailed information on our Group
financial performance is set out in the Chief Financial Officer's
Review. A summary of divisional financial performance is included
below.
OPERATIONAL PERFORMANCE
Production
Overall Equipment Effectiveness
('OEE', a measure which takes into account machine availability,
performance and yield) was 78% in 2023, a significant improvement
on the 71% reported for 2022, and ahead of our target of 75%,
reflecting the benefit of improving manufacturing efficiencies and
a tighter conformance to production planning. As a result, having
built inventories to mitigate the impact of supply chain disruption
in 2021/22, we delivered a reduction of c.£13 million in 2023,
including the benefit of lower input costs.
Recycling
We are the leading UK-based recycler
of PVC windows, now saving the equivalent of c.3 million window
frames from landfill each year. We have made further progress in
2023, with usage increasing to 32% of materials consumed in
production, compared to 29% in 2022, driving lower carbon emissions
and cost savings compared to the use of virgin material.
A weaker RMI market and fewer window
replacements restricted feedstock availability for our recycling
business, resulting in a significant increase in purchase prices
(21%) compared to 2022. However, the impact was most significant in
the first half of the year and we are making good progress securing
additional sources of feedstock, which, alongside reduced demand
and lower virgin resin prices, saw prices beginning to ease in
H2.
Furthermore, we are finding more
ways of using all the waste product generated by our plants and
expect to progressively reduce waste sent to landfill.
Health and safety
The safety and well-being of our
employees, contractors and branch customers is our number one
priority, and we have delivered a significantly improved safety
performance in 2023. Our Lost Time Injury Frequency Rate ('LTIFR')
was 5.7 in 2023, compared to 10.0 in 2022. Our RIDDOR (Reporting of
Injuries, Diseases and Dangerous Occurrences Regulations 2013)
performance remains better than the industry average. There were no
major injuries and 11 minor accidents recorded under RIDDOR in the
year (2022: no major injuries and 23 minor injuries).
Health and Safety is now the first
agenda item for key internal meetings. We have enhanced 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, when combined
with the effective and timely implementation of corrective and
preventive action, supports our positive and improving safety
culture.
DIVISIONAL PERFORMANCE -
PROFILES
|
|
|
2023
£m
|
2022
£m
|
Change
%
|
Third-party revenue
|
|
|
154.9
|
161.7
|
(4)%
|
Inter-segmental revenue
|
|
|
64.9
|
72.3
|
(10)%
|
Total revenue
|
|
|
219.8
|
234.0
|
(6)%
|
Adjusted(1) operating profit
|
|
|
11.9
|
20.2
|
(41)%
|
Operating profit
|
|
|
10.1
|
19.3
|
(48)%
|
(1) Adjusted performance measures are stated before non-underlying
items.
Profiles third-party revenue for the
year was £154.9 million, 4% lower than 2022, with reduced RMI
activity and a significantly weaker new build market partially
offset by market share gains, leaving volumes 7% below
2022.
Cost of living pressures, successive
interest rate increases and falling house prices have all had a
significant adverse impact on demand for our products. However, we
have continued to acquire new fabricator accounts, supported by a
reduction in UK capacity following the closure of the Duraflex
extrusion business in September. In addition, some of our existing
fabricators have benefited from an increase in volume following the
administration of Safestyle in October.
Profiles adjusted operating profit
for 2023 of £11.9 million was 41% below the previous year (2022:
£20.2 million), reflecting lower sales volumes and input cost
inflation (particularly labour, recycling feedstock and
electricity), partially offset by selling price increases,
operational improvements and cost reduction.
Reported operating profit is stated
after non-underlying restructuring costs totalling £1.8 million
(2022: £0.9 million).
Further information on
non-underlying items is included in the Chief Financial Officer's
Review. A summary of our strategy for Profiles is set out
below.
DIVISIONAL PERFORMANCE - BUILDING
PLASTICS (BRANCH NETWORK)
|
|
|
2023
£m
|
2022
£m
|
Change
%
|
Third-party revenue
|
|
|
209.6
|
219.5
|
(4)%
|
Inter-segmental revenue
|
|
|
0.4
|
0.3
|
33%
|
Total revenue
|
|
|
210.0
|
219.8
|
(4)%
|
Adjusted(1) operating profit
|
|
|
8.9
|
12.2
|
(27)%
|
Operating profit
|
|
|
8.2
|
10.9
|
(25)%
|
(1) Adjusted performance
measures are stated before non-underlying items.
Third-party revenues in the Branch
Network were £209.6 million, 4% lower than 2022, with volume down
5%.
RMI volumes in the branches were
subdued throughout the year, as homeowners have pulled back on
discretionary expenditure, most likely in response to higher costs
of living and interest rates. However, we still see reasonable
volumes of high-value project work (such as our roof lanterns,
conservatory roofs, windows and bi-fold doors) and sales in our
outdoor living range (fencing, decking and garden rooms) of £11.6
million remain broadly consistent with 2022.
Branch Network adjusted operating
profit for 2023 was £8.9 million, 27% below the previous year
(2022: £12.2 million), reflecting lower sales volumes and pressure
on margins as a result of increased competition for limited demand,
partially offset by selling price increases and cost
reduction.
Reported operating profit is stated
after non-underlying restructuring costs totalling £0.7 million
(2022: £1.3 million).
Further information on
non-underlying items is included in the Chief Financial Officer's
Review. A summary of our strategy for the Branch Network is set out
below.
STRATEGY
We began a review of our strategy in
the summer. The review is now complete, with the headlines
summarised below.
By way of context, since Eurocell
listed on the London Stock Exchange in 2015, sales have more than
doubled, through a mixture of branch expansion, market share gains
and acquisitions. We have also significantly increased our use of
recycled PVC in primary manufacturing operations.
Whilst the business has done well
growing the top line, operating margins fell steadily down to 8% in
2022. This has been driven by operational issues, now fixed with
investment, and our ability to recover the full margin impact of
input cost increases with selling prices. Margins were lower again
in 2023, driven by higher input costs and the operational gearing
impact of declining volumes.
With this strategic review, we are
resetting the ambition for the business. Our new strategy
identifies a pathway to building a £500m revenue business,
generating a 10% operating margin over a five-year period. This is
an ambitious vision, but we believe it is an achievable
target.
Our strategy is built around four
strategic pillars: Customer Growth, Business Effectiveness, People
First and ESG Leadership. The following paragraphs describe these
pillars and the initiatives which support them.
Customer Growth
Our aim is to become the trade
customer's preferred choice, in all markets and segments where we
operate. We believe the biggest opportunity
for growth will come from expansion of the branch network,
including the sale of windows and doors, plus our extended living
spaces range of garden rooms and extensions. This is all underpinned by an increased investment in digital,
to raise awareness of our products and home improvement solutions
and thereby acquire new customers.
Branch Network
We have concluded that the optimum
branch network size is up to c.250 branches. Therefore, after a
two-year break, we are planning to recommence opening new branches
from Spring 2024 and expect to add c.30 new branches over the next
three to four years. We will supplement this with a number of
branch relocations, to optimise our existing footprint.
We are aiming to sell more doors,
windows and conservatory roofs through the branches. Following an
improvement in our window and door proposition, we ran a trial
across six branches in Q4 and the results exceeded our
expectations. We plan to add a further 24 branches progressively
into the trial in 2024, and if successful, we will complete the
roll-out across the remaining network through 2025.
Extended living spaces
Extended living spaces comprises
garden rooms and extensions. With our strong customer proposition,
experienced sales professionals and efficient end-to-end processes,
we believe there is a good opportunity to gain market share and
drive growth through this product range.
For example, since launching our
garden room range three years ago, we have steadily built a strong
market presence, competing well with the established market
participants.
With our extensions range, we are
using modern methods of construction that piece together in an
innovative kit form, thereby creating a cost-effective,
energy-efficient building solution for homeowners who are looking
to convert and extend their properties, with installation times of
weeks not months.
Profiles
In Profiles, following a period of strong growth, we believe we are now the
leading supplier of rigid PVC profile to the UK market. With
markets currently weak, we believe targeting further significant
share gains would lead to price erosion, which would have a
detrimental effect on our business.
Our strategy for Profiles is
therefore to protect our existing business and maintain our
value-added service propositions that support our customers. We
will continue to leverage our leading position with housebuilders
and commercial developers to ensure we maintain specifications to
support a robust pipeline of work for our fabricator customers. We
are recognised across the industry as the leading technical systems
house, and we will continue to leverage this advantage
too.
The planned growth in window sales
through our branch network provides incremental growth
opportunities for our fabricator partners, and we are proactively
working with them to secure additional capacity.
Business Effectiveness
Our objective is to make Eurocell a
lean and efficient business, therefore we are upgrading our
business systems and streamlining processes to increase
efficiencies and improve the customer experience.
As previously announced, we are in
the process of replacing our Enterprise Resource Planning ('ERP')
system. The first stage of this process is to implement a new trade
counter system in the branch network. Having now selected a new
system, we plan to transition at the beginning of 2025. This will
transform the way we interact and transact with our customers in
the branches.
The second stage is to select and
implement an ERP system to support all other functions of the
business, including manufacturing, recycling, warehousing,
distribution and finance. For ERP, we expect to select a system
later in 2024, with transition to be completed around
mid-2026.
We are also embedding a continuous
improvement philosophy, which is already highlighting significant
opportunities for efficiencies, particularly in our manufacturing
and recycling operations.
Our initiative to sell more doors
and windows through our branches will utilise spare capacity that
we have in our rigid extrusion manufacturing operations and
composite door business, thereby making us more
efficient.
People First
The objective of our People First
strategic pillar is to make Eurocell a great place to work, through
a relentless focus on health and safety, an enhanced employee value
proposition, improved levels of engagement and effective talent
management.
For health and safety, we are
focused on improving relevant leadership skills and providing
appropriate safety education. In terms of our employee value
proposition, we are developing a wellbeing framework, recognition
schemes and better induction and onboarding programmes. Key
priorities for employee engagement include a new internal
communications framework, colleague forums and stepping up
community and charity work. Finally, effective talent management
includes talent development, succession planning and an increasing
use of apprenticeships.
ESG Leadership
We want to earn a reputation for
being a truly responsible company. Eurocell is already a leader in
PVC recycling, which is preventing millions of windows being sent
to landfill. But that is just one aspect of ESG and, looking ahead,
we aim to excel in all areas.
We are now working with CEN-ESG, a
specialist ESG consultancy, to support the development of our ESG
strategy and improve our ESG data and disclosures. The results of
our work so far includes:
•
|
A materiality assessment, which
helped us determine the most important sustainability topics to the
business. With this analysis we have surveyed a selection of
employees, suppliers, customers, banks and shareholders
|
•
|
A baseline carbon footprint for the
business (Scope 1, 2 and 3), identifying key decarbonisation
levers
|
We have used the outputs from this
work to define ESG objectives and targets and develop a
sustainability strategy, supported by appropriate governance and
internal controls. Looking forward, a key focus for our work in
2024 will be to determine a path to reach Net Zero by our target
date of 2045, albeit this will be heavily dependent on reduced
emissions in our raw material supply chain.
SUMMARY AND OUTLOOK
The trends reported at our half year
results in September continued for the remainder of 2023, with some
further modest weakening in our key markets. Against this
challenging backdrop, we are pleased to report profits for the year
in line with expectations and strong cash flow
generation.
We took early and decisive action on
costs in response to lower volumes and have continued to focus on
efficient working capital management, driving a good cash flow
performance. Whilst the near-term outlook for our markets remains
challenging, these actions leave us well placed to benefit from a
market recovery when it comes.
Our review of strategy is now
complete and I am very pleased with the outcome. Looking ahead, we
have identified a clear pathway to building a £500m revenue
business, generating a 10% operating margin over a five-year
period, built around four pillars; Customer Growth, Business
Effectiveness, People First and ESG Leadership. This is an
ambitious vision, but when we aggregate the growth opportunities,
and apply a degree of sensitivity, we believe it is an achievable
target, with the potential to create significant shareholder
value.
Darren Waters
Chief
Executive
CHIEF FINANCIAL OFFICER'S
REVIEW
|
|
2023
|
2022
|
|
|
£m
|
£m
|
Revenue
|
|
364.5
|
381.2
|
Gross profit
|
|
173.8
|
184.5
|
Gross margin %
|
|
47.7%
|
48.4%
|
Overheads
|
|
(131.1)
|
(130.4)
|
Other income(3)
|
|
0.4
|
1.1
|
Adjusted(2) EBITDA
|
|
43.1
|
55.2
|
Depreciation and
amortisation
|
|
(24.7)
|
(23.9)
|
Adjusted(2) operating profit
|
|
18.4
|
31.3
|
Finance costs
|
|
(3.2)
|
(2.6)
|
Adjusted(2) profit before tax
|
|
15.2
|
28.7
|
Taxation
|
|
(2.9)
|
(4.7)
|
Adjusted(2) profit after tax
|
|
12.3
|
24.0
|
Adjusted(2) basic earnings per share
(pence)
|
|
11.0
|
21.4
|
Non-underlying overheads
|
|
(3.5)
|
(2.2)
|
Non-underlying finance
costs
|
|
-
|
(0.3)
|
Tax on non-underlying
items
|
|
0.8
|
0.5
|
Reported operating profit
|
|
14.9
|
29.1
|
Reported profit before tax
|
|
11.7
|
26.2
|
Reported profit after tax
|
|
9.6
|
22.0
|
Loss after tax from discontinued
operations
|
|
-
|
(2.3)
|
Profit for the year
|
|
9.6
|
19.7
|
Reported basic earnings per share (pence)
|
|
8.6
|
19.6
|
(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
Market conditions deteriorated
progressively through the first half of the year, driven by ongoing
cost inflation, successive base rate increases and falling real
wages, all of which put unprecedented pressure on household
budgets, resulting in lower levels of activity in the private
housing RMI market and reduced demand for new build housing. These
trends continued in the second half of the year, with some further
weakening in our key markets. However, we also experienced some
easing in input cost pricing in H2.
As expected, profits were down
compared to 2022, reflecting lower sales volumes,
input cost inflation and margin pressure in the branches, partially
offset by selling price increases, operational improvements and
cost reduction.
In response to lower sales volumes,
we acted quickly to reduce our cost base, securing savings of £7
million for the year. We also continued to focus on efficient
inventory management to drive good cash flow
performance.
We believe that these actions leave
us well placed to progress the strategic initiatives described in
the Chief Executive's Review, as well as benefit from a market
recovery when it comes.
REVENUE
Revenue for 2023 was £364.5 million,
4% lower than 2022 (£381.2 million), with volumes down 6% against a
strong 2022 comparative period, reflecting weak market
conditions.
GROSS MARGIN
Gross margin for the year was 47.7%,
down from 48.4% in 2022. Input cost inflation continued in the
first half of 2023, particularly for labour, recycling feedstock
and electricity (where we operate a rolling
12-month forward hedging policy, so were paying
rates locked in during H1 2022, when wholesale energy prices
peaked). We offset these higher costs with
selling price increases where possible. We also experienced some
progressive easing of input cost pricing throughout the second half
of the year and continued to deliver operational improvements. As a
result, gross margin increased to 49.5% in H2, compared to 46.0%
for H1.
DISTRIBUTION COSTS AND
ADMINISTRATIVE EXPENSES (OVERHEADS) AND OTHER INCOME
Underlying overheads were together
£131.1 million, up 1% on 2022 (£130.4 million). We experienced
general overhead and wage inflation in 2023, but this was also
recovered via selling prices increases where possible, and further
mitigated by operational improvements and our cost reduction
initiatives.
We completed a restructuring
programme in Q4 2022, which reduced operating costs by £5 million
per annum from the start of 2023. With end markets continuing to
weaken in the first half of 2023, and given the more challenging
outlook for the remainder of the year, we completed a further
headcount reduction in June, which reduced operating costs by c.£2
million in H2 and by c.£4 million per annum thereafter. Costs
associated with this restructuring have been presented as
non-underlying items (see below).
Other income is amounts received
under our cyber insurance policy in compensation for business
interruption (lost sales) suffered due to the cyber incident in
July and August 2022.
DEPRECIATION AND
AMORTISATION
Depreciation and amortisation was
£24.7 million compared to £23.9 million in 2022.
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 of the
circumstances 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 2023 of
£3.5 million included restructuring costs of £2.7 million,
comprising redundancy payments and related employee benefit
termination costs. Also included are £0.8 million of cloud
computing costs incurred on strategic IT projects involving
'Software as a Service' arrangements, which are expensed as
incurred rather than being capitalised as intangible assets. Such
items are considered to be non-underlying in nature because they
relate to multi-year programmes to deliver strategic IT
implementations which are material in size, with overall spend
estimated to be in the region of £8 -10 million over the next three
years. Our strategic IT projects comprise a new customer-facing
website, an employee management system and, most significantly, the
replacement of our Enterprise Resource Planning (ERP) system. We
expect these projects will drive major improvements in our
customers' experience and significantly increase the efficiency of
our operations.
Non-underlying items of £2.5 million
in 2022 include restructuring costs of £2.2 million (redundancy
payments of £1.6 million and tangible and right-of-use asset
impairment charges of £0.6 million) and £0.3 million of costs
relating to the refinancing of the Group's £75 million Revolving
Credit Facility.
FINANCE COSTS AND
TAXATION
Underlying finance costs for 2023
were £3.2 million, compared to £2.6 million in 2022. Total finance
costs in 2022 of £2.9 million included £0.3 million of unamortised
borrowing costs expensed to the Consolidated Income Statement
following the refinancing of the Group's Revolving Credit Facility,
which was classified as a non-underlying item.
The underlying tax charge for 2023
was £2.9 million (2022: £4.7 million). The total tax charge for
2023 was £2.1 million (2022: £4.2 million). The effective tax rate
on underlying profit before tax for 2023 of 18.8% is lower than the
standard rate of corporation tax of 23.5% due to Patent Box
relief.
We were pleased to retain the Fair
Tax Mark accreditation in 2023, 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 £15.2 million compared to £28.7 million in 2022, down
£13.5 million, reflecting lower sales volumes, input cost inflation
and margin pressure in the branches, partially offset by selling
price increases, operational improvements and cost
reduction. Reported profit
before tax in 2023 was £11.7 million (2022: £26.2 million),
reflecting the above, and £3.5 million of non-underlying items
(2022: £2.5 million).
Adjusted basic earnings per share
for the year were 11.0 pence (2022: 21.4 pence). Adjusted diluted
earnings per share for the year were 11.0 pence (2022: 21.3 pence).
Total basic and diluted earnings per share were both 8.6 pence
(2022: 19.6 pence and 19.5 pence respectively).
DIVIDENDS AND SHARE BUYBACK
PROGRAMME
We paid an interim dividend of 2.0
pence per share in October 2023 (£2.2 million). The Board proposes
a final dividend of 3.5 pence per share, which results in total
dividends for the year of 5.5 pence per share, or £6.0 million,
down 49% (2022: 10.7 pence or £12.0 million). The dividend will be
paid on 22 May 2024 to Shareholders registered at the close of
business on 26 April 2024. The ex-dividend date will be 25 April
2024.
The retained earnings of Eurocell
plc as at 31 December 2023 were £25.0 million (2022: £31.4
million). The Company takes steps to ensure distributable reserves
are maintained at an appropriate level through intra-Group dividend
flows.
The Board is focused on enhancing
shareholder returns and recognises the importance of our ordinary
dividend. We will also periodically consider supplementary
distributions, whilst always seeking to maintain a strong financial
position. Taking into account expected organic investment
requirements and our successful cash flow management in 2023 (see
below), we launched a £5 million share buyback programme in January
2024. As of 15 March 2024, we had purchased 2.0 million shares at a
cash cost of £2.5 million under the programme.
CAPITAL EXPENDITURE
Capital expenditure for 2023 was
£8.9 million (2022: £12.3 million). 2023
includes £1.5 million for site refurbishments and improved staff
welfare facilities across the branch network. Other capital
expenditure in the period is largely maintenance capex.
CASH FLOW
Net cash generated from operating
activities was £52.8 million (2022: £35.1 million), reflecting our
focus on efficient working capital management. This includes a net
inflow from working capital for 2023 of £13.4 million, comprised of
a decrease in inventories (£13.2 million), and decreases in trade
and other receivables (£6.0 million) and trade and other payables
(£5.8 million). This compares to a net outflow from working capital
of £13.1 million in 2022, which included a significant inflationary
component (c.£8 million).
The significant reduction in
inventories arose as a result of an optimisation programme,
commenced in H2 2022, and includes c.£5 million as a result of
lower raw material prices. The decreases in receivables and
payables since December 2022 are primarily a result of lower sales
and production volumes.
Other items include payments for
capital investments of £9.1 million (2022: £12.4 million),
including payments to capital creditors of £0.2 million, net
proceeds from the disposal in December 2022 of Security Hardware of
£0.8 million and financing costs paid of £1.4 million (2022: £1.2
million). Tax paid in the year was £1.4 million (2022: £3.6
million). Dividends paid in the year were £10.3 million (2022:
£11.1 million).
The principal elements of lease
payments of £13.8 million (2022: £13.3 million) are presented
within cash flows arising from financing activities. The finance
elements of lease payments were £1.8 million (2022: £1.4
million).
NET CASH/DEBT
Net cash on a pre-IFRS 16 basis at
31 December 2023 was £0.4 million (31 December 2022: net debt of
£14.4 million). Lease liabilities decreased by £5.1 million.
Reported net debt at 31 December 2023 was £58.2 million (31
December 2022: £78.1 million).
|
2023
|
2022
|
Change
|
|
£m
|
£m
|
£m
|
Cash
|
0.4
|
5.1
|
(4.7)
|
Deferred consideration
|
-
|
0.8
|
(0.8)
|
Borrowings
|
-
|
(20.3)
|
20.3
|
Net
cash/(debt) (pre-IFRS 16)
|
0.4
|
(14.4)
|
14.8
|
Lease liabilities
|
(58.6)
|
(63.7)
|
5.1
|
Net
debt (reported)
|
(58.2)
|
(78.1)
|
19.9
|
BANK FACILITY
In May, we completed a one-year
extension to our £75 million unsecured, sustainable Revolving
Credit Facility, which now matures in 2027. The facility is
provided by Barclays, NatWest and Bank of Ireland, and is
competitively priced with the key terms remaining unchanged. In
terms of sustainability, modest adjustments to the margin are
applied based on our achievement against annual targets for usage
of recycled material 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
2023
|
|
Year ended 31 December
2023
|
Year ended 31 December
2022
|
|
|
Underlying
|
(1)Non-
underlying
|
Total
|
Underlying
|
(1)Non-
underlying
|
Total
|
|
Note
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
|
|
|
|
|
|
Revenue
|
3
|
364.5
|
-
|
364.5
|
381.2
|
-
|
381.2
|
Cost of sales
|
|
(190.7)
|
-
|
(190.7)
|
(196.7)
|
-
|
(196.7)
|
|
|
|
|
|
|
|
|
Gross profit
|
|
173.8
|
-
|
173.8
|
184.5
|
-
|
184.5
|
|
|
|
|
|
|
|
|
Distribution costs
|
|
(25.3)
|
(0.1)
|
(25.4)
|
(23.9)
|
(0.4)
|
(24.3)
|
Administrative expenses
|
|
(130.5)
|
(3.4)
|
(133.9)
|
(130.4)
|
(1.8)
|
(132.2)
|
Other
income(2)
|
|
0.4
|
-
|
0.4
|
1.1
|
-
|
1.1
|
|
|
|
|
|
|
|
|
Operating profit
|
3
|
18.4
|
(3.5)
|
14.9
|
31.3
|
(2.2)
|
29.1
|
Finance expense
|
|
(3.2)
|
-
|
(3.2)
|
(2.6)
|
(0.3)
|
(2.9)
|
|
|
|
|
|
|
|
|
Profit before tax from continuing operations
|
3
|
15.2
|
(3.5)
|
11.7
|
28.7
|
(2.5)
|
26.2
|
|
|
|
|
|
|
|
|
Taxation
|
4
|
(2.9)
|
0.8
|
(2.1)
|
(4.7)
|
0.5
|
(4.2)
|
|
|
|
|
|
|
|
|
Profit after tax from continuing operations
|
|
12.3
|
(2.7)
|
9.6
|
24.0
|
(2.0)
|
22.0
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
Loss after tax from discontinued
operations
|
5
|
|
|
-
|
|
|
(2.3)
|
|
|
|
|
|
|
|
|
Profit for the year and total
comprehensive income
|
|
|
|
9.6
|
|
|
19.7
|
|
|
|
|
|
|
|
|
Basic earnings per share from continuing
operations
|
6
|
11.0p
|
|
8.6p
|
21.4p
|
|
19.6p
|
Diluted earnings per share from continuing
operations
|
6
|
11.0p
|
|
8.6p
|
21.3p
|
|
19.5p
|
(1) Non-underlying items
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.
Consolidated Statement of Financial Position
As at 31 December 2023
|
|
2023
|
2022
|
|
|
£m
|
£m
|
Assets
|
|
|
|
Non-current assets
|
|
|
|
Property, plant and
equipment
|
|
59.9
|
61.7
|
Right-of-use assets
|
|
55.1
|
59.7
|
Intangible assets
|
|
15.8
|
16.9
|
|
|
|
|
Total non-current assets
|
|
130.8
|
138.3
|
|
|
|
|
Current assets
|
|
|
|
Inventories
|
|
46.7
|
59.9
|
Trade and other
receivables
|
|
45.3
|
50.0
|
Corporation tax
|
|
0.6
|
0.2
|
Deferred consideration
|
|
-
|
0.8
|
Cash and cash equivalents
|
|
0.4
|
5.1
|
|
|
|
|
Total current assets
|
|
93.0
|
116.0
|
|
|
|
|
Total assets
|
|
223.8
|
254.3
|
|
|
|
|
Liabilities
|
|
|
|
Current liabilities
|
|
|
|
Trade and other payables
|
|
(41.6)
|
(47.4)
|
Lease liabilities
|
|
(12.9)
|
(13.0)
|
Provisions
|
|
(0.2)
|
(0.2)
|
|
|
|
|
Total current liabilities
|
|
(54.7)
|
(60.6)
|
|
|
|
|
Non-current liabilities
|
|
|
|
Borrowings
|
|
-
|
(20.3)
|
Lease liabilities
|
|
(45.7)
|
(50.7)
|
Provisions
|
|
(1.1)
|
(1.0)
|
Deferred tax
|
|
(8.0)
|
(6.8)
|
|
|
|
|
Total non-current liabilities
|
|
(54.8)
|
(78.8)
|
|
|
|
|
Total liabilities
|
|
(109.5)
|
(139.4)
|
|
|
|
|
Net
assets
|
|
114.3
|
114.9
|
|
|
|
|
Equity attributable to equity holders of the
parent
|
|
|
|
Share capital
|
|
0.1
|
0.1
|
Share premium account
|
|
22.2
|
22.2
|
Treasury shares
|
|
(0.1)
|
-
|
Share-based payment
reserve
|
|
0.9
|
0.9
|
Retained earnings
|
|
91.2
|
91.7
|
|
|
|
|
Total equity
|
|
114.3
|
114.9
|
Consolidated Cash Flow Statement
For the year ended 31 December
2023
|
|
Year ended
|
Year ended
|
|
|
31 December
|
31 December
|
|
|
2023
|
2022
|
|
Note
|
£m
|
£m
|
|
|
|
|
Cash generated from operations
|
8
|
54.2
|
38.7
|
Income taxes paid
|
|
(1.4)
|
(3.6)
|
|
|
|
|
Net
cash generated from operating activities
|
|
52.8
|
35.1
|
|
|
|
|
Investing activities
|
|
|
|
Purchase of property, plant and
equipment
|
|
(9.0)
|
(11.9)
|
Purchase of intangible
assets
|
|
(0.1)
|
(0.5)
|
Net cash flow arising on sale of
business
|
|
0.8
|
0.3
|
|
|
|
|
Net
cash used in investing activities
|
|
(8.3)
|
(12.1)
|
Financing activities
|
|
|
|
Proceeds from new share capital
issued
|
|
-
|
0.2
|
Purchase of own shares held as
treasury shares
|
|
(0.7)
|
-
|
Repayment of bank and other
borrowings
|
|
(21.0)
|
(22.0)
|
Proceeds from bank
borrowings
|
|
-
|
31.0
|
Bank borrowings arrangement
costs
|
|
(0.2)
|
(0.8)
|
Principal elements of lease
payments
|
|
(13.8)
|
(13.3)
|
Finance elements of lease
payments
|
|
(1.8)
|
(1.4)
|
Finance expense paid
|
|
(1.4)
|
(1.2)
|
Dividends paid to equity
Shareholders
|
7
|
(10.3)
|
(11.1)
|
|
|
|
|
Net
cash used in financing activities
|
|
(49.2)
|
(18.6)
|
|
|
|
|
Net
(decrease)/increase in cash and cash
equivalents(1)
|
|
(4.7)
|
4.4
|
|
|
|
|
Cash and cash
equivalents(1)
at beginning of year
|
|
5.1
|
0.7
|
|
|
|
|
Cash and cash equivalents(1) at end of
year
|
|
0.4
|
5.1
|
(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
2023
|
|
Share
|
|
Share-based
|
|
|
|
Share
|
premium
|
Treasury
|
payment
|
Retained
|
Total
|
|
capital
|
account
|
shares
|
reserve
|
earnings
|
equity
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
Balance at 1 January 2023
|
0.1
|
22.2
|
-
|
0.9
|
91.7
|
114.9
|
|
|
|
|
|
|
|
Comprehensive income for the year
|
|
|
|
|
|
|
Profit for the year
|
-
|
-
|
-
|
-
|
9.6
|
9.6
|
|
|
|
|
|
|
|
Total comprehensive income for the year
|
-
|
-
|
-
|
-
|
9.6
|
9.6
|
|
|
|
|
|
|
|
Contributions by and distributions to owners
|
|
|
|
|
|
|
Exercise of share options
|
-
|
-
|
0.6
|
(0.8)
|
0.2
|
-
|
Share-based payments
|
-
|
-
|
-
|
0.8
|
-
|
0.8
|
Purchase of own shares
|
-
|
-
|
(0.7)
|
-
|
-
|
(0.7)
|
Dividends paid
|
-
|
-
|
-
|
-
|
(10.3)
|
(10.3)
|
|
|
|
|
|
|
|
Total transactions with owners recognised directly in
equity
|
-
|
-
|
(0.1)
|
-
|
(10.1)
|
(10.2)
|
|
|
|
|
|
|
|
Balance at 31 December 2023
|
0.1
|
22.2
|
(0.1)
|
0.9
|
91.2
|
114.3
|
|
|
|
|
|
|
|
|
|
Share
|
|
Share-based
|
|
|
|
Share
|
premium
|
Treasury
|
payment
|
Retained
|
Total
|
|
capital
|
account
|
shares
|
reserve
|
earnings
|
equity
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
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
|
1 BASIS OF PREPARATION
The financial information for the
year ended 31 December 2023 was approved by the Board on 19 March
2024. 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
2023. 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 2022 have been delivered to the Registrar of
Companies. Statutory accounts for the year ended 31 December 2023
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 £75 million Revolving Credit Facility, provided by
Barclays, NatWest and Bank of Ireland, which matures in May 2027,
following a one year extension that was completed in May 2023. 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 2023. For the next measurement period,
being 30 June 2024, 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 2025, which is consistent with the Board's strategic
planning horizon and reflects a period of at least 12 months from
the date of approval of the Financial Statements. These forecasts
have been compiled based on the best estimates of the Group's
commercial and operational teams. This includes a severe but
plausible 'Downside' scenario, which reflects demand for the
Group's products being severely weakened.
In all scenarios tested, including
sensitivities reducing sales forecasts to 10% below management's
estimates for the period 2024 - 25, key raw material prices
increasing by 33% over that period and both scenarios combined. 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 2023, with no material impact:
● IFRS
17 Insurance Contracts;
●
Amendments to IFRS 17 Insurance Contracts (Amendments to IFRS 17
and IFRS 4);
●
Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12)
●
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2);
●
Definition of Accounting Estimates (Amendments to IAS 8);
and
●
International Tax Reform - Pillar Two Model Rules (Amendments to
IAS 12).
The following new accounting
standards, amendments to accounting standards and interpretations
have been published that are not mandatory for 31 December 2023
reporting periods and have not been early adopted by the
Group:
●
Classification of Liabilities as Current or Non-current (Amendments
to IAS 1);
● Lease
Liability in a Sale and Leaseback (Amendments to IFRS
16);
●
Supplier Finance Arrangements (Amendments to IAS 7 and IFRS
7);
●
Non-current Liabilities with Covenants (Amendments to IAS 1);
and
● Lack
of Exchangeability (Amendments to IAS 21).
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:
|
2023
|
2022
|
|
£m
|
£m
|
|
|
|
Restructuring costs
|
2.7
|
1.6
|
Asset impairment charges
|
-
|
0.6
|
Cloud computing expenses
|
0.8
|
-
|
|
|
|
Non-underlying operating expenses
|
3.5
|
2.2
|
|
|
|
Finance expense
|
-
|
0.3
|
|
|
|
Total non-underlying expenses
|
3.5
|
2.5
|
|
|
|
Taxation
|
(0.8)
|
(0.5)
|
|
|
|
Impact on profit after tax
|
2.7
|
2.0
|
Restructuring costs
Restructuring costs relate to
redundancy payments and related employee benefit termination costs,
with 119 roles impacted (2022: 63) at a one-off cost of £2.7
million (2022: £1.6 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. Included is a credit of £0.2 million in respect
of the release of a provision relating to a restructuring exercise
announced in 2022 and completed in early 2023.
Asset impairment charges
The 2022 charges of £0.6 million
relate to the closure of five branches in early 2023, which had
been announced as at 31 December 2022.
Cloud computing expenses
Cloud computing expenses relate to
costs incurred on strategic IT projects involving 'Software as a
Service' arrangements which are expensed as incurred rather than
being capitalised as intangible assets.
Such items are considered to be
non-underlying in nature because they relate to multi-year
programmes to deliver strategic IT implementations which are
material in size. Our strategic IT projects comprise a new
customer-facing website, an employee management system and, most
significantly, the replacement of the Group's Enterprise Resource
Planning ('ERP') system, with overall spend estimated to be in the
region of £8-10 million over the next three years.
Finance expense
The 2022 charges relate to the Group
having 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.
Impact on cash flow
Of the £3.5 million non-underlying
expenses recognised, £3.2 million was settled in cash at 31
December 2023. The remaining £0.3 million relates to non-cash asset
impairment charges.
Of the £2.5 million non-underlying
expenses recognised in 2022, £1.4 million had been settled in cash
at 31 December 2023, and £0.2 million had been credited to the
income statement. The remaining £0.9 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 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.
|
●
|
Corporate - represents costs
relating to the ultimate Parent Company and includes the assets and
related amortisation in respect of acquired intangible
assets.
|
Inter-segmental sales, which are
eliminated on consolidation, are transacted at an arms' length
basis and relate to manufactured products distributed by the
Building Plastics division.
2023
|
Profiles
|
Building
Plastics
|
Corporate
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
Revenue
|
|
|
|
|
Total revenue
|
219.8
|
210.0
|
-
|
429.8
|
Inter-segmental revenue
|
(64.9)
|
(0.4)
|
-
|
(65.3)
|
|
|
|
|
|
Total revenue from external customers
|
154.9
|
209.6
|
-
|
364.5
|
|
|
|
|
|
Adjusted EBITDA
|
25.5
|
17.4
|
0.2
|
43.1
|
Amortisation of intangible
assets
|
-
|
-
|
(1.7)
|
(1.7)
|
Depreciation of property, plant and
equipment
|
(7.3)
|
(1.2)
|
(0.8)
|
(9.3)
|
Depreciation of right-of-use
assets
|
(6.3)
|
(7.3)
|
(0.1)
|
(13.7)
|
|
|
|
|
|
Adjusted operating profit/(loss)
|
11.9
|
8.9
|
(2.4)
|
18.4
|
|
|
|
|
|
Non-underlying operating
expenses
|
(1.8)
|
(0.7)
|
(1.0)
|
(3.5)
|
|
|
|
|
|
Operating profit/(loss)
|
10.1
|
8.2
|
(3.4)
|
14.9
|
|
|
|
|
|
Finance expense
|
|
|
|
(3.2)
|
|
|
|
|
|
Profit before tax from continuing operations
|
|
|
|
11.7
|
2022
|
Profiles
|
Building
Plastics
|
Corporate
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profiles
|
Building
Plastics
|
Corporate
|
Total
|
|
2023
|
2023
|
2023
|
2023
|
|
£m
|
£m
|
£m
|
£m
|
Additions to plant, property,
equipment and intangible assets
|
6.9
|
1.5
|
0.5
|
8.9
|
|
|
|
|
|
Segment assets
|
126.9
|
78.5
|
18.4
|
224.3
|
Segment liabilities
|
(53.3)
|
(43.7)
|
(4.5)
|
(101.5)
|
Deferred tax liability
|
|
|
|
(8.0)
|
|
|
|
|
|
Total liabilities
|
|
|
|
(109.5)
|
|
|
|
|
|
Total net assets
|
|
|
|
114.3
|
|
|
|
|
|
|
|
| |
|
Profiles
|
Building
Plastics
|
Corporate
|
Total
|
|
2022
|
2022
|
2022
|
2022
|
|
£m
|
£m
|
£m
|
£m
|
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
|
Geographical information
|
Revenue
|
Non-current
assets
|
Revenue
|
Non-current
assets
|
|
2023
|
2023
|
2022
|
2022
|
|
£m
|
£m
|
£m
|
£m
|
|
|
|
|
|
United Kingdom
|
362.5
|
130.8
|
379.3
|
138.3
|
Republic of Ireland(1)
|
2.0
|
-
|
1.9
|
-
|
|
|
|
|
|
Total
|
364.5
|
130.8
|
381.2
|
138.3
|
(1) The net book value of
non-current assets in the Republic of Ireland was less than £50,000
in both years.
4 TAXATION
|
2023
|
2022
|
|
£m
|
£m
|
Current tax expense
|
|
|
Current tax on profits for the
year
|
2.0
|
3.2
|
Adjustment in respect of prior
years
|
(1.1)
|
0.3
|
|
|
|
Total current tax
|
0.9
|
3.5
|
|
|
|
Deferred tax expense
|
|
|
Origination and reversal of
temporary differences
|
0.4
|
0.7
|
Adjustment in respect of change in
rates
|
-
|
0.2
|
Adjustment in respect of prior
years
|
0.8
|
(0.7)
|
|
|
|
Total deferred tax
|
1.2
|
0.2
|
|
|
|
Total tax expense
|
2.1
|
3.7
|
|
2023
|
2022
|
|
£m
|
£m
|
Continuing operations
|
2.1
|
4.2
|
Discontinued operations
|
-
|
(0.5)
|
|
|
|
Total tax expense
|
2.1
|
3.7
|
|
|
|
| |
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:
|
2023
|
2022
|
|
£m
|
£m
|
Profit before tax from continuing
operations
|
11.7
|
26.2
|
Loss before tax from discontinued
operations
|
-
|
(2.8)
|
|
|
|
Profit before tax
|
11.7
|
23.4
|
|
|
|
Expected tax charge based on the
standard rate of corporation tax in the UK of 23.5% (2022:
19.0%)
|
2.7
|
4.4
|
|
|
|
Taxation effect of:
|
|
|
Expenses not deductible for tax
purposes
|
0.4
|
0.4
|
Capital allowance super-deduction
utilised
|
-
|
(0.3)
|
Patent Box claims
|
(0.5)
|
(0.4)
|
Deferred tax impact of share-based
payments
|
0.1
|
-
|
Adjustments in respect of prior
years
|
(1.1)
|
0.3
|
Tax effect of accelerated capital
allowances
|
(0.7)
|
(0.9)
|
|
|
|
Current tax expense
|
0.9
|
3.5
|
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:
|
2023
|
2022
|
|
£m
|
£m
|
Profit before tax from continuing
operations
|
11.7
|
26.2
|
Loss before tax from discontinued
operations
|
-
|
(2.8)
|
|
|
|
Profit before tax
|
11.7
|
23.4
|
|
|
|
Expected tax charge based on the
standard rate of corporation tax in the UK of 23.5% (2022:
19.0%)
|
2.7
|
4.4
|
|
|
|
Taxation effect of:
|
|
|
Expenses not deductible for tax
purposes
|
0.2
|
0.2
|
Capital allowance super-deduction
utilised
|
-
|
(0.3)
|
Patent Box claims
|
(0.5)
|
(0.4)
|
Adjustments in respect of prior
years
|
(0.3)
|
(0.4)
|
Adjustment in respect of change in
rates
|
-
|
0.2
|
|
|
|
Total tax expense
|
2.1
|
3.7
|
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. This gave rise to a blended standard rate of 23.5% in
2023.
There are no material uncertain tax
provisions.
Tax included in Other Comprehensive
Income
The tax charge arising on
share-based payments within Other Comprehensive Income is £nil
(2022: £nil).
Based on the current investment
plans of the Group, and assuming the rates of capital allowances on
capital expenditure continue into the future, the vast majority of
the deferred tax liability is expected to unwind over a period of
greater than one year.
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 £2.0 million
(2022: £1.9 million), total assets of less than £50,000 (2022: less
than £50,000) and eight full time employees (2022: 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 2023 is €nil (2022: €nil) and no
tax payments were made during the year (2022: €nil). 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 in the Republic of Ireland.
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 £1.2 million. Security Hardware was a separate operating segment
which had previously been aggregated and presented as part of the
Building Plastics reported segment.
The results of the business for the
prior year are set out below.
|
|
2022
|
|
|
£m
|
Revenue
|
|
2.9
|
Cost of sales
|
|
(2.2)
|
|
|
|
Gross profit
|
|
0.7
|
|
|
|
Distribution costs
|
|
(0.8)
|
Administrative expenses
|
|
(1.2)
|
|
|
|
Operating loss
|
|
(1.3)
|
|
|
|
Finance expense
|
|
-
|
|
|
|
Loss before tax from discontinued operations
|
|
(1.3)
|
|
|
|
Taxation
|
|
0.2
|
|
|
|
Loss after tax from discontinued operations
|
|
(1.1)
|
|
|
|
Loss on sale of trade and assets
after tax
|
|
(1.2)
|
|
|
|
Loss from discontinued operations
|
|
(2.3)
|
The loss on sale of £1.2 million,
recognised in the prior year, is comprised of the
following:
|
|
2022
£m
|
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:
|
|
£m
|
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:
|
2023
|
2022
|
|
£m
|
£m
|
Net cash outflow from operating
activities
|
-
|
(0.2)
|
Net cash inflow from investing
activities
|
0.8
|
0.1
|
|
|
|
Net
increase/(decrease) in cash generated by discontinued
operations
|
0.8
|
(0.1)
|
Losses per share were as
follows:
|
|
2022
|
|
|
Pence
|
Basic losses per share from
discontinued operations
|
|
(2.0)
|
Diluted losses per share from
discontinued operations
|
|
(2.0)
|
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, excluding treasury shares.
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.
|
2023
|
2022
|
|
£m
|
£m
|
Profit from
continuing operations attributable to ordinary shareholders
excluding non-underlying items
|
12.3
|
24.0
|
|
|
|
Profit from continuing operations
attributable to ordinary shareholders
|
9.6
|
22.0
|
Loss from discontinued
operations
|
-
|
(2.3)
|
|
|
|
Profit attributable to ordinary shareholders
|
9.6
|
19.7
|
|
Number
|
Number
|
Weighted average number of shares -
basic
|
111,885,083
|
112,036,668
|
Dilutive impact of share options
granted
|
53,451
|
747,137
|
|
|
|
Weighted average number of shares -
diluted
|
111,938,534
|
112,783,805
|
|
Pence
|
Pence
|
Continuing operations
Basic earnings per share
|
8.6
|
19.6
|
Adjusted basic earnings per
share
|
11.0
|
21.4
|
Diluted earnings per
share
|
8.6
|
19.5
|
Adjusted diluted earnings per
share
|
11.0
|
21.3
|
Discontinued operations
Basic losses per share
|
-
|
(2.0)
|
Diluted losses per share
|
-
|
(2.0)
|
Total
|
|
|
Basic earnings per share
|
8.6
|
17.6
|
Diluted earnings per
share
|
8.6
|
17.5
|
7 DIVIDENDS
|
2023
|
2022
|
|
£m
|
£m
|
Dividends paid during the year
|
|
|
Interim dividend for 2023 of 2.0p
per share (2022: 3.5p per share)
|
2.2
|
3.9
|
Final dividend for 2022 of 7.2p
(2021: 6.4p per share)
|
8.1
|
7.2
|
|
|
|
|
10.3
|
11.1
|
Dividends proposed
|
|
|
Final dividend for 2023 of 3.5p per
share
|
3.8
|
-
|
Final dividend for 2022 of 7.2p per
share
|
-
|
8.1
|
|
|
|
|
3.8
|
8.1
|
8 RECONCILIATION OF PROFIT AFTER TAX
TO CASH GENERATED FROM OPERATIONS
|
2023
|
2022
|
|
£m
|
£m
|
Profit after tax from continuing
operations
|
9.6
|
22.0
|
Loss after tax from discontinued
operations
|
-
|
(2.3)
|
|
|
|
Profit after tax
|
9.6
|
19.7
|
|
|
|
Taxation (Note 4)
|
2.1
|
3.7
|
Finance expense
|
3.2
|
2.9
|
|
|
|
Operating profit
|
14.9
|
26.3
|
|
|
|
Adjustments for:
|
|
|
Depreciation of property, plant and
equipment
|
9.3
|
8.8
|
Depreciation of right-of-use
assets
|
13.7
|
13.3
|
Amortisation of intangible
assets
|
1.7
|
1.8
|
Impairment of tangible and
right-of-use assets
|
0.3
|
0.6
|
Loss on disposal of
business
|
-
|
1.5
|
Share-based payments
|
0.8
|
(0.2)
|
Decrease/(increase) in
inventories
|
13.2
|
(5.7)
|
Decrease/(increase) in trade and
other receivables
|
6.0
|
(5.6)
|
Decrease in trade and other
payables
|
(5.8)
|
(1.8)
|
Increase/(decrease) in
provisions
|
0.1
|
(0.3)
|
|
|
|
Cash generated from operations
|
54.2
|
38.7
|
9 ALTERNATIVE PERFORMANCE
MEASURES
The Group uses alternative
performance measures 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.
EBITDA is defined as operating
profit before depreciation and amortisation charges. Pre-IFRS 16
EBITDA is stated inclusive of operating lease rentals under IAS 17
Leases.
Adjusted EBITDA, profits and
earnings per share exclude non-underlying items. Adjusted profit
measures allow users of the Financial Statements to better
understand financial performance in the year by removing certain
material items of income and expense that are unusual due to their
nature or infrequency, thus facilitating better comparison with
prior periods.
Covenants are assessed on a pre-IFRS
16 adjusted EBITDA, continuing basis.
|
2023
|
2022
|
|
£m
|
£m
|
Operating profit
|
14.9
|
29.1
|
Depreciation and
amortisation
|
24.7
|
23.9
|
|
|
|
EBITDA
|
39.6
|
53.0
|
|
|
|
Non-underlying items
|
3.5
|
2.2
|
|
|
|
Adjusted EBITDA
|
43.1
|
55.2
|
|
|
|
Operating lease rentals under IAS
17
|
(15.2)
|
(14.4)
|
|
|
|
Pre-IFRS 16 adjusted EBITDA
|
27.9
|
40.8
|
Pre-IFRS 16 total net (cash)/debt is
defined as total borrowings and lease liabilities less cash and
cash equivalents and deferred consideration, excluding the impact
of leases recognised under IFRS 16 Leases.
|
2023
|
2022
|
|
£m
|
£m
|
Total net debt
|
58.2
|
78.1
|
Lease liabilities
|
(58.6)
|
(63.7)
|
|
|
|
Pre-IFRS 16 net (cash)/debt
|
(0.4)
|
14.4
|
10 EVENTS AFTER THE BALANCE SHEET
DATE
In January 2024 the Group launched a
£5 million share buyback programme. As of 15 March 2024, 2.0
million shares had been purchased at a cash cost of £2.5 million
under the programme.