TIDMELM
RNS Number : 4651D
Elementis PLC
03 March 2022
3 March 2022
ELEMENTIS PLC
PRELIMINARY RESULTS FOR THE YEARED 31 DECEMBER 2021
Strong financial performance - new business momentum and
self-help actions
-- Revenue up 17% (14% underlying*) from $751m to $880m due to
strong new business momentum, targeted pricing actions and volume
recovery against a COVID-19 impacted prior year.
-- Adjusted operating profit up 31% (28% underlying*) to $107m,
modestly ahead of expectations. Strong Coatings performance,
pricing actions and efficiency savings more than offset higher
costs. Statutory profit after tax of $3m, up from a loss of $67m
with improved business performance partially offset by a $53m
non-cash Talc goodwill impairment linked to ongoing COVID-19
impacts.
-- Net debt of $401m, in line with prior year ($408m). Net cash
flow from operating activities reduced from $107m in the prior year
to $67m in 2021, primarily due to $32m working capital outflow to
support growth and a $20m one off EU state aid tax payment. Net
debt to EBITDA down from 3.2x (Dec. 2020) to 2.6x.
Further strategic progress supports sustainable growth and value
creation
-- Good progress on Innovation, Growth and Efficiency strategy
implementation to deliver medium term Group performance objectives.
Delivered $50m of new business opportunities with 21 new product
launches. New products** 14% of sales, on track towards target of
17% by 2025.
-- Proactive cash and cost management - $10m of cost savings
delivered in 2021, offsetting 2020 temporary cost reductions that
returned to the business as expected. Successful startup of the new
AP Actives plant in India and subsequent 12 month production ramp
up underpins an additional $10m of savings by 2023.
-- Good progress towards 2030 sustainability targets with a 25%
reduction in GHG intensity*** versus prior year and upgrades at
four rating agencies including EcoVadis "Gold" and MSCI "A".
2022 outlook - further performance improvement and deleveraging
expected
-- An encouraging start to 2022, although the external
environment remains challenging due to global supply chain
constraints and accelerating cost inflation.
-- Continued demand improvement, self-help focus and growth
initiatives anticipated to drive improved financial performance and
a reduction in leverage.
FINANCIAL SUMMARY
-------------------------------- ----- ------- --------
2021 2020 % Change
-------------------------------- ----- ------- --------
Revenue $880m $751m +17%
Adjusted operating profit(1) $107m $82m +31%
Adjusted profit before tax(1) $77m $53m +46%
Adjusted diluted earnings per
share(2) 10.6c 6.5c +63%
Adjusted operating cash flow(3) $76m $110m -31%
Net debt(4) $401m $408m -2%
Statutory results
-------------------------------- ----- ------- --------
Statutory profit/(loss) for
the period $3m $(67)m +104%
Statutory basic earnings/(loss)
per share(2) 0.4c (11.5)c +103%
-------------------------------- ----- ------- --------
Business performance overview
-- Personal Care revenue up 6% on an underlying basis* (9% on a
reported basis), from $161m to $175m. Adjusted operating profit up
6% on an underlying basis* (9% on a reported basis) from $34m to
$37m; adjusted operating margin of 21.0% vs 20.9% in 2020.
o Partial volume recovery in colour cosmetics and
anti-perspirant deodorants as social and travel restrictions begin
to ease; market demand still below pre COVID-19 levels.
o Adjusted margins stable at 21.0% with improved volumes and
price/mix partially offset by higher raw material costs and
investments for growth.
-- Coatings revenue up 17% on an underlying basis* (20% on a
reported basis), from $319m to $384m. Adjusted operating profit up
46% on an underlying basis* (49% reported) from $41m to $62m, with
adjusted operating margin up from 13.0% to 16.1%.
o Revenue growth driven by new business success, targeted
pricing actions and demand recovery in industrial applications such
as marine and protective coatings.
o Adjusted margins improved to 16.1% with underlying revenue
growth and fixed cost savings from Charleston/St Louis
consolidation more than offsetting raw material cost inflation.
-- Talc revenue up 9% on an underlying basis* (14% on a reported
basis), from $133m to $150m. Adjusted operating profit down 19% on
an underlying basis* (16% reported) from $17m to $14m, with
adjusted operating profit margin of 9.3%.
o New business success in coatings and technical ceramics,
partially offset by weaker long life plastics, linked to lower
global automotive production, and lower paper demand.
o Adjusted margins of 9.3%, down from 12.5% in 2020 due to
accelerating second half cost inflation ahead of associated pricing
actions towards the end of the year.
-- Chromium revenue up 16% from $147m to $171m; adjusted
operating profit up 152% from $6m to $14m.
o Revenue increase driven by stronger demand across industrial
end markets, including metal plating and construction
applications.
o Adjusted margins up from 3.8% to 8.3% with stronger volumes
partially offset by accelerating raw material cost inflation.
Commenting on the results, CEO, Paul Waterman said:
"In 2021 our financial performance was much improved,
benefitting from the combination of focused strategy execution and
improved industrial demand. In an environment of continued supply
chain challenges and accelerating inflation, the Group has
demonstrated its resilience and the importance of our continued
efficiency focus and targeted pricing actions.
We have made an encouraging start to 2022 and expect to deliver
an improved financial performance. Continued implementation of our
strategy will enable the delivery of $50m of new business
opportunities, the launch of 20 new products and progress towards
an additional $10m of cost savings by 2023.
The fundamentals of our business remain strong. We have a
talented team and high quality assets with enduring competitive
advantages. I am confident that the implementation of our
Innovation, Growth and Efficiency strategy, in combination with our
self-help actions, positions us well to deliver our medium term
financial objectives and generate significant shareholder
value".
Further information
A presentation for investors and analysts will be held at
10.30am GMT on 3 March 2022. The presentation will be webcast on
www.elementis.com. Conference call dial in details:
UK: 020 3936 2999 Other locations: +44 20 3936 2999
Participant access code: 884461
Enquiries
Elementis
James Curran, Investor Relations 020 7067 2994
Tulchan
Martin Robinson 020 7353 4200
Olivia Peters
Notes:
* Adjusted for constant currency impact. See Finance Report.
** New products defined as products launched within the last 5
years, patented and protected products (excluding Chromium).
*** GHG scope 1 and scope 2 (market based) emissions.
1 - See note 5.
2 - See note 7.
3 - See Finance Report.
4 - See alternative performance measures and unaudited
information.
Chairman's statement
It is a great honour to be serving as Elementis' new Chair and
to be working with a strong Board, an impressive team of leaders,
and many hugely dedicated and talented people all around the world.
Since joining the Board in 2020, I have found a group with a clear
strategy built on Innovation, Growth and Efficiency. It is well
managed and run by people who are hardworking, engaged and
enthusiastic. Elementis has significant potential and, having
witnessed the resilience of the business model over the last two
years, I am encouraged about its prospects.
BUSINESS PERFORMANCE
In 2021, our financial performance was much improved compared to
the prior year. Sales increased 17% to $880m, driven by strong new
business momentum, targeted pricing actions to offset inflationary
cost increases and volume recovery across most of our end
markets.
While this demand recovery is welcome, it has triggered well
documented supply chain challenges and accelerating cost inflation
across the globe. In response, the Group has demonstrated the
resilience and agility of its business model, the strength of its
global supply chain and the importance of its efficiency
improvement projects. In such an environment, I am encouraged by
the Group's performance and look forward to further improvement as
end markets continue to recover and we make further strategic and
operational progress.
STRATEGIC PRIORITIES
The Group's strategic priorities are clear and consistent.
Innovation, Growth and Efficiency are the pillars of our strategic
agenda. Execution of our priorities in these areas will drive the
delivery of our medium term financial ambitions, namely a 17%
adjusted operating profit margin, 90% operating cash conversion and
net debt/EBITDA of under 1.5x.
This year our strategic progress has been encouraging. We
launched 21 new products, all of which deliver enhanced product
performance, manufacturing efficiency and sustainability
credentials to our customers. The start-up of our new
anti-perspirant actives plant in India and the delivery of $10m of
cost savings were key efficiency milestones, and the achievement of
$50m of new business opportunities is a clear sign that our growth
platforms are well positioned for future success.
Although Talc recognised a $53m non-cash goodwill impairment,
linked primarily to delays in the recovery of automotive markets,
your Board believe the fundamentals of the business remain strong,
built on a fully integrated value chain supported by unique
processing and formulation capabilities. There are attractive
long-term opportunities to grow in Asia and the Americas, increase
market share in high value industrial applications and deliver
$20-25m of revenue synergies by 2023.
BALANCE SHEET & SHAREHOLDER RETURNS
Net debt of $401m was broadly unchanged on the prior year
($408m). Net cash flow from operating activities reduced from $107m
in the prior year to $67m in 2021, primarily due to $32m working
capital outflow to support growth and a $20m one off EU state aid
tax payment. The recovery in earnings resulted in the reduction of
our financial leverage ratio from 3.2x net debt to EBITDA (31
December 2020) to 2.6x. The Board and management remain focused on
reducing leverage as quickly as possible towards the medium term
target of 1.5x net debt to EBITDA.
In 2020, at the height of COVID-19 related uncertainty, the
Group took several steps to provide additional financial headroom
and preserve cash, one of which was the suspension of the dividend.
The Board recognises the value of dividends to shareholders and
will look to reinstate the dividend in the medium term, conditional
upon further financial deleveraging progress.
GOVERNANCE & BOARD
During 2021 Andrew Duff stepped down as Chairman and as a
Director. I would like to thank Andrew for his strong leadership
and guidance of the Board throughout his tenure. He left a Group
with high quality businesses, good market positions, and a strong
Board and Company leadership.
This year we completed an externally facilitated Board
evaluation. The overall result was positive, concluding that the
Board continues to perform effectively with good leadership,
competent and engaged members, and with the appropriate focus on
both in-year performance and strategy for the future.
Board succession planning is critical to ensure we have the
right skills and capabilities to support strategic delivery. In the
coming year, given the current Board size, we will look to appoint
two additional members to the Board who can help us achieve our
strategy and growth ambitions.
OUR PEOPLE
Elementis' core asset is its people and 2021 has once again
showcased the importance of this. Our colleagues around the world
have gone above and beyond to support our customers and provide
reliable supply. We value our people and have sought to recognise
their dedication throughout the year.
Employee engagement activities are crucial to understand what we
are doing well and where we can improve. I am pleased to report
positive trendlines, with our key engagement score rising from 55%
in 2020 to 63% in 2021. This is reflective of recent improvements
to digital communications, flexible working and an enhanced overall
engagement agenda, which included our inaugural Women in Leadership
forum led by Christine Soden, our Designated Non-Executive Director
for workforce engagement.
Talent is a key focus for the Board and during 2021 we continued
to monitor and track our talent development programmes, focusing on
ensuring that we have the right capabilities for the future and a
strong succession pipeline across leadership positions. The Group
is further developing its diversity programmes with unconscious
bias training initiatives launched across the globe. Whilst gender
is not the only focus for diversity, encouragingly the number of
women in the senior leadership team has increased from 24% in 2018
to 31% this year, and women currently represent over 40% of the
Board. We are committed to further developing programmes to support
a diverse workforce.
SUSTAINABILITY
For consumers the COVID-19 pandemic has brought the
environmental footprint of products and services into sharp focus.
With 53% of our revenue generated from naturally derived products*
that are also closely aligned to megatrends such as the switch to
natural personal care ingredients, water based industrial coatings
and vehicle weight reduction, we are strategically aligned for the
future and our innovation pipeline is positioned to further
increase this number.
We also recognise the importance of reducing the impact of our
global supply chain on the environment. This year we have made good
progress towards our 2030 targets thanks to multiple efficiency
initiatives throughout our operations.
STAKEHOLDER ENGAGEMENT
As a new Chair, I have sought to meet and get the views of our
shareholders and other stakeholders. This engagement is a valuable
way of assessing the success of our strategic delivery and where we
can improve. During the year we received another unsolicited
takeover offer, which we concluded significantly undervalued
Elementis and its prospects, and therefore rejected. The Board
appreciates the support of our shareholders and accepts the
continued performance expectations that come with that support.
LOOKING TO THE FUTURE
Elementis is well positioned; we have differentiated assets,
market leading positions and clear strategic priorities for growth.
We remain mindful of the continued uncertain external environment
and the ongoing challenges that the COVID-19 pandemic brings, but
we know that Elementis is heading in the right direction and well
positioned to take advantage of the opportunities we see.
The Board and I are thankful to all our people for their hard
work, commitment and passion in driving our business recovery and
positioning Elementis for future progress.
John O'Higgins
Chairman
3 March 2022
*Naturally derived products defined in accordance with IS0 16128
standard and explicitly excludes ingredients derived from fossil
fuels
Chief Executive Officer's overview
While the impact of COVID-19 has started to recede, 2021 was, in
many ways, as challenging as 2020. Strong and sharp demand recovery
across multiple end markets triggered significant global supply
chain challenges and material cost inflation. In such an
environment, the delivery of results modestly ahead of expectations
is testament to the resilience of our business model, the
commitment of our people and the importance of our self-help
agenda. This performance, combined with our continued strategic
progress, gives me confidence in our prospects and the delivery of
our medium term financial objectives.
PERFORMANCE
2021 saw an improved financial performance due to good new
business success and end market recovery from the weak demand
levels of the prior year, resulting in 17% sales growth. Coatings,
our biggest business, benefitted from strong new business activity,
continued growth in decorative paint and a recovery in industrial
coatings demand. In Personal Care, we saw a modest increase in
performance as improved demand for lipsticks, mascaras and
anti-perspirants was somewhat constrained by continued restrictions
on travel and social interaction. In Talc, sales grew 14%,
reflective of good strategic progress and a well positioned
business, but adjusted operating profit declined 16% due to weak
automotive production and accelerating second half cost inflation
ahead of pricing actions taken towards the end of the year. While
these near term headwinds resulted in a $53m non-cash Talc goodwill
impairment, the strong fundamentals of the business are unchanged
and there is scope for material performance improvement from price
actions, continued strategic momentum and market share gains, along
with the latent demand recovery in automotive markets. Finally in
Chromium, the business benefitted from stronger volumes linked to
the rebound in industrial activity.
While this demand recovery is welcome, it has created supply
challenges including raw material availability, logistical
disruptions and accelerating inflation. In response, we qualified
alternative suppliers, extended production runs and pursued
alternative transportation options. In addition, we were able to
put through price increases to fully offset material cost
inflation. These actions, combined with our ongoing self-help
agenda on costs and cash management, resulted in an adjusted
operating profit of $107m, modestly ahead of expectations.
SAFETY
Safety is the foundation of our business and at the heart of our
culture. This year we continued the TogetherSAFE safety campaign
roll out and held our inaugural global safety week, including
webinars from external speakers and multiple activities at our
sites around the world. Although our safety performance has been
somewhat disappointing, with 12 recordable injuries, I am confident
that the steps we have taken mean we are positioned for future
improvement.
Many sites achieved notable milestones during the year, and
while I cannot mention them all, let me highlight a few. In Mumbai,
our team working on the new anti-perspirant actives plant reached
over one million hours of safe working, overcoming multiple
obstacles including COVID-19 lockdowns and monsoons.
Congratulations also to our Corpus Christi and Milwaukee teams for
18 and nine years of safe working respectively - I am sure there
are many more to come.
OUR PEOPLE
Key to the strength of Elementis is the quality and commitment
of our people. Ongoing engagement surveys and outreach programmes
reflect a motivated and loyal workforce with improving engagement
metrics. During the COVID-19 pandemic, given the increased
prevalence of home working, one key area of focus has been global
communications. We have invested in digital capabilities, improved
our engagement activities, and increased our employee recognition
and reward schemes.
Elementis aims to be an open and inclusive workplace. This year
our Diversity and Inclusion Council continued to move forward in
shaping our culture for success through Women in Leadership events,
unconscious bias training and expert speakers addressing inclusive
leadership and active cultural advocacy skills.
I am incredibly proud of how strong our team is, both in the
care our people have shown each other, our customers, suppliers and
communities, and how they have responded so positively in such a
difficult environment.
SUSTAINABILITY
Sustainability is a key focus at Elementis and I am pleased to
report further progress. This year we launched 21 new products, all
of which have clear sustainability credentials, including hectorite
clay based additives that are 100% natural and castor wax derived
rheology modifiers for marine and protective coatings that are 75%
bio based. In addition, we have made good progress towards our 2030
environmental targets including significant reductions in GHG
(-25%) and water withdrawal (-26%) intensity versus the prior
year.
This progress has been recognised by external agencies. MSCI,
Sustainalytics, CDP and EcoVadis all raised their ESG ratings of
Elementis this year. I am also pleased we have been recognised with
the Responsible Chromium label, awarded by the International
Chromium Development Association (ICDA). As the only chromium
chemicals holder of this award, it highlights the market leading
standards of our operations in areas such as safety and
safeguarding of the environment.
While this progress and recognition are encouraging, it is only
the start of our journey. To accelerate our future progress, I am
pleased to welcome Phil Blakeman to Elementis as our first Global
Head of Sustainability.
INNOVATION, GROWTH AND EFFICIENCY
In the last few years, we have made significant progress
positioning Elementis as a premium performance additives company,
based on unique assets and value chains, and with clear
opportunities for growth. Innovation, Growth and Efficiency
represent our strategic pillars, and the delivery of our priorities
in each of these areas will ensure we create significant value for
all our stakeholders.
Our medium term Group performance objectives are unchanged:
- 17% adjusted operating profit margin: driven by Innovation, Growth and Efficiency
- 90% plus operating cash conversion: consistent with 5 year average track record
- Reduce leverage to under 1.5x net debt / EBITDA: consistent with debt reduction track record
1) INNOVATION
We are a global leader in performance driven additives and are
focused on creating solutions for our customers that deliver
product performance improvements, efficiency gains and enhanced
sustainability credentials. While customers have returned to their
laboratories, conditions are far from normalised, and so we
continued to leverage our relationships and digital capabilities to
drive the launch of 21 new products in 2021.
Our innovation focus is clear. We want to create solutions for
the biggest challenges that our customers face; and, in turn, these
are reflected in our growth platform focus. In Personal Care,
consumers want natural ingredients that deliver superior
performance to synthetic alternatives. In response, in 2021 we
launched Bentone Hydroclay(TM) 2100, a hectorite based rheology
modifier that is 100% natural, delivers improved touch and feel and
simplifies customer processing requirements. Likewise, the Coatings
industry wants additives that deliver enhanced one coat hide and
stain resistance for decorative paints. Our Rheolate HX(R) series,
which we expanded this year, delivers up to 50% better hide than
competitors, has helped our customers win awards and is now the
industry gold standard.
Innovation is interwoven with sustainability; all our new
product launches and pipeline projects must have clear
sustainability credentials. At present 53% of our revenue (up from
45% last year) is from natural or naturally derived chemistries* -
for example, castor wax based organic thixotropes. In addition, we
are conscious of the need for our products to contribute to the
overall wellbeing of society, whether it is through dry powder
additives that reduce transportation emissions or barrier coatings
that enable 100% recyclable food packaging.
We are also focused on the speed of innovation. The integration
of our R&D and technical support teams, along with fast
prototyping and technology transfers across segments, means we are
increasing our speed of innovation. In 2021, our average time from
concept to launch was 1.8 years - 30% faster than in 2016.
And finally, we value the role of open innovation in providing
differentiation and increased speed to market. During the year we
developed our partnerships with AQDOT and NXTLEVVEL Biochem,
rolling out novel odour capture technologies and biomass based
solvents for coatings. In addition, we have established cooperation
arrangements with Evolved by Nature, working on activated silk
technology to replace potentially toxic chemicals, and Allied
Microbiota, to enable advanced microbes to clean up environmental
contamination.
As result of this progress, our revenue from new products was
14% in 2021, up from 10% in 2017, and in line with 2020 as our base
business rebounded from the initial impact of COVID-19. Our
innovation pipeline is well positioned, with 60 projects in the
pipeline, of which approximately 20 are scheduled to launch in the
next 12 months, and this will support reaching our Group adjusted
operating profit margin target of 17%.
2) GROWTH
Around 90% of Elementis' earnings are generated by Personal
Care, Coatings and Talc. The value chains across these markets are
similar, transforming natural resources into high value additives
through distinctive science. Across these businesses we see clear
medium term structural growth opportunities, representing in total
over $100m of incremental revenue opportunities.
In Coatings, opportunities exist where our additives solve
specific market needs with clear sustainability credentials, for
instance waterborne industrial additives and premium decorative
paints. Such growth areas represent roughly one third of our
Coatings sales, and in 2021 they grew 37%, driven by $23m of new
business wins. Products such as our castor wax based organic
thixotropes for adhesives and sealants and non-ionic associative
thickeners (NiSATs) for premium decorative paints saw notable
growth and market share gains. Geographic expansion is an important
growth pillar in Coatings, and following recent sales and marketing
hires in South East Asia, we grew 30% compared to the prior
year.
In Personal Care, there are significant high margin growth
opportunities. While Asia represents 40% of the personal care
market, it represents under 20% of our sales, and our medium term
aim is to double our cosmetics sales in the region. In 2021, we
grew sales 44% in Asia versus the prior year, and to help drive
future growth we made several targeted investments. We opened our
first Personal Care technical service centre in Asia, located in
Shanghai, and more than doubled our local sales and marketing team.
Our new AP Actives plant in India will create a highly advantaged
global supply chain, help us grow in the region and drive a
material performance improvement in the business. The plant started
up in the third quarter and will ramp up production over the next
12 months. In skin care, a new application for our hectorite clay,
we aim to deliver $10m of incremental sales over the medium term.
In 2021, we launched three products building out our product
portfolio and helping deliver 41% skin care revenue growth.
In Talc, we are the second largest global producer, serving high
value industrial applications. Our growth strategy is based on
leveraging our global scope and scale, synergistically expanding
into new geographies and market sectors. In 2021, we grew 24% in
Asia and 62% in the Americas versus the prior year, driven by $13m
of new business wins across long life plastics, technical ceramics
and coatings applications. Despite this success, we remain
materially underweight in these regions, with considerable runway
for long term growth. We are on track for our goal of $20-25m of
revenue synergies by 2023, with $16m realised to date. Sales of
talc to coatings customers rose 8% in 2021, leveraging Elementis'
global key account network and strong presence in the coatings
market. We have also continued to develop new products and
applications. For example, barrier coating solutions for recyclable
food packaging is showing encouraging early progress, with 27
production and pilot scale trials and a $5m new business
pipeline.
3) EFFICIENCY
We are always seeking to improve our organisation, drive ongoing
efficiency gains and become more resilient. The 2021 demand rebound
unleashed significant global supply chain challenges resulting in
material cost inflation. We do not expect these pressures to abate
in 2022 but, through a mixture of price actions, agile supply chain
management and continued efficiency focus, we are confident of
protecting and improving margins moving forward.
In 2021, as part of our medium term efficiency programme, we
delivered $10m of supply chain savings, offsetting $10m of
temporary cost savings made last year which have, as expected,
returned to the business as the impact of COVID-19 has receded. A
significant driver of our $10m savings was the closure of our
Charleston, West Virginia, production plant and consolidation of
capacity at our St Louis, Missouri site. This improved efficiency
and utilisation levels across our North American organoclay
operations. Another notable milestone this year was the start-up of
our anti-perspirant actives plant in India, which will be a
significant enabler of an additional $10m of savings by 2023.
Following completion of the approximate 12 month production ramp up
and customer qualification period, this will create a cost
advantaged and resilient global supply position.
Sustainability and the reduction of our environmental footprint
are at the forefront of all operations decisions, and this year we
made considerable progress across our supply chain. Enhanced
temperature controls in our talc operations reduced our energy
consumption. Automatic sensors at our Newberry Spring processing
plant increased production yields and reduced waste, while
switching to water based quaternary amines (from solvent based) at
our Anji site reduced both our costs and environmental impact.
Throughout our operations, our global process excellence teams have
identified over 60 projects that are beneficial from both an
efficiency and environmental perspective. Their implementation will
drive delivery of both our cost saving ambitions and our 2030
sustainability targets.
Another key enabler of our efficiency and simplification drive
is our digital implementation programme. In 2021, our global
standard business management software went live in Asia, bringing
the region in line with Europe and the Americas and improving the
flow of data across the organisation. We also started the roll out
of fully online lead-to-order fulfilment cycles for customers. The
onboarding of customers to digital ordering systems will continue
in 2022 and it is already resulting in an improved customer
experience, enhanced new business success and more efficient
resource management.
OUTLOOK
While the last 12 months have been extremely challenging, the
Group has again demonstrated its resilience and responded with
speed and agility. The fundamentals of the business remain strong,
with high quality assets, differentiated technologies and a clear
strategy. We will continue to maintain our focus on Innovation,
Growth and Efficiency and in 2022 expect to deliver $50m of new
business opportunities, over 20 new products and progress towards
$10m of additional efficiency savings by 2023.
We have made an encouraging start to the year, although the
external environment remains challenging due to global supply
constraints and the impact of accelerating cost inflation. For the
year ahead, we are confident that with further steady demand
improvement, supported by our self-help actions, we will deliver an
improved financial performance and a reduction in leverage.
Paul Waterman
CEO
3 March 2022
*Naturally derived products defined in accordance with IS0 16128
standard and explicitly excludes ingredients derived from fossil
fuels
Business commentaries
Revenue
Effect of
Revenue exchange Increase Revenue
2020 rates 2021 2021
$m $m $m $m
-------------- ------- ---------- -------- -------
Personal Care 160.8 3.5 10.4 174.7
Coatings 319.1 9.3 55.9 384.3
Talc 132.5 6.1 11.8 150.4
Chromium 146.9 - 23.8 170.7
Inter-segment (8.0) - 8.0 -
-------------- ------- ---------- -------- -------
Revenue 751.3 18.9 109.9 880.1
-------------- ------- ---------- -------- -------
Adjusted operating profit
Operating Effect of Increase/ Operating
profit/(loss) exchange (decrease) profit/(loss)
2020(*) rates 2021 2021(*)
$m $m $m $m
-------------------------- --------------- ---------- ----------- ---------------
Personal Care 33.6 1.0 2.1 36.7
Coatings 41.4 0.8 19.6 61.8
Talc 16.6 0.6 (3.2) 14.0
Chromium 5.6 - 8.5 14.1
Central costs (15.6) (0.8) (3.6) (20.0)
-------------------------- --------------- ---------- ----------- ---------------
Adjusted operating profit 81.6 1.6 23.4 106.6
-------------------------- --------------- ---------- ----------- ---------------
* See note 5
Personal Care
Personal Care revenue in 2021 was $175m compared with $161m in
the prior year, a 9% increase on a reported basis. Excluding
currency impacts, revenue rose by 6% on an underlying basis * ,
driven by demand recovery in our two key end markets, colour
cosmetics and anti-perspirant deodorants. While these markets have
started to recover as COVID-19 related social and travel
restrictions have eased, they remain approximately 3-5 % below 2019
levels, thereby providing scope for further recovery.
Adjusted operating profit was 9% ahead of the prior year period
at $37m, with margins of 21.0% stable on the prior year (20.9%).
Improved volumes and product mix more than offset double running
costs associated with the ramp up of the new India manufacturing
plant, people investments in Asia to drive future growth and
increased raw material costs.
Coatings
Coatings revenue in 2021 was $384m compared with $3 19 m in the
prior year, a 20% increase on a reported basis. Excluding the
impact of currency, revenue rose 1 7 %, driven by new business
success , pricing actions and demand recovery from COVID-19 lows in
2020. Revenue from the Energy business, now reported as part of
Coatings, rose 21% on the prior year supported by higher oil prices
and increased drilling activity.
Excluding Energy, Coatings sales rose 17% on an underlying
basis* with strong growth in all regions as decorative activity
remained buoyant and industrial demand recovered. In EMEA, sales
rose 27% on an underlying basis*, with notable strength in
industrial coatings applications, reflective of new business
success, particularly for our Thixatrol(R) products which are also
used in high performance adhesives and sealants. In Americas, sales
rose 17%* driven by encouraging new business success for our
Rheolate(R) HX rheology series for premium decorative paint. In
Asia, where over 80% of our sales come from industrial activity,
underlying* sales rose 9% as strong growth in South East Asia was
partially offset by slowing market activity in China in the second
half of the year.
Adjusted operating profit rose by 49% from $41m to $62m, and 4 6
% on an underlying basis * , with volume growth, improved price/mix
and cost savings from the Charleston plant closure and St Louis
capacity consolidation more than offsetting raw material cost
inflation. As a result, adjusted operating profit margins rose from
13.0% in 2020 to 16. 1 % in 2021, a tremendous result in a
challenging global supply chain environment and reflective of a
business well positioned for future success.
Talc
Revenue in 2021 was $150m compared with $133m in the prior year,
a 1 4 % increase on a reported basis. Excluding the impact of
currency movements, revenue rose by 9%, with new business success
and pricing actions partially offset by weakness in automotive and
paper end markets.
Sales of industrial talc (representing over 85% of total Talc
revenue) rose 15% on an underlying basis * , driven by $13m of new
business, geographic expansion and demand recovery in several end
markets following a COVID-19 impacted 2020 . Sales to coatings
customers grew 8% on an underlying basis*, reflective of market
share gains as we gained new customers and entered new geographies,
taking our revenue synergies since acquisition to $1 6 m. Sales to
technical ceramics customers more than doubled on the prior year
due to market share gains , predominantly in Asia . This momentum
more than offset a weak performance in high value long life
plastics, due to a 6% decline in European automotive production
because of well document ed semi-conductor shortages.
Talc sales to the graphic paper market declined as expected by
over 30% on an underlying basis* driven by the ongoing shift to
non-print media. This market now represents just under 8% of total
Talc revenue.
Adjusted operating profit declined 16% on a reported basis (19%
on an underlying basis*) from $17m to $14m, with top line growth
more than offset by higher costs in the second half of the year due
to accelerating logistics and energy cost inflation, ahead of
pricing actions taken in response.
Chromium
Chromium revenue in 2021 was $17 1 m, up 16% from $147m in the
prior year driven by double digit volume growth. Due to the rebound
in industrial activity, demand for chromium chemicals increased
across a range of end markets including metal plating, leather
tanning and construction applications. While average unit pricing
modestly decreased in the year, the second half of the year showed
clear signs of recovery. As a result of demand improvements and
constrained supply, we estimate global chromium industry capacity
utilisation rose from approximately 75% in 2020 to 85% in 2021. In
turn, this tightness is positively impacting market prices .
Adjusted operating profit rose by 1 52 % , with improved volumes
and product mix more than offsetting accelerating raw material
costs. Adjusted operating profit margin rose from 3.8% to 8.3%.
* Adjusted for FX (where constant currency reflects prior year
results translated at current year exchange rates).
Finance report
Revenue
2021 2020 Change
$m $m
-------------- ----- ----- --------
Personal Care 174.7 160.8 9%
Coatings (1) 384.3 319.1 20%
Talc 150.4 132.5 14%
Chromium 170.7 146.9 16%
Inter-segment _ (8.0) N/A
-------------- ----- ----- --------
Total revenue 880.1 751.3 17%
-------------- ----- ----- --------
Operating profit
Adjusting 2021
Adjusted
operating 2020 Adjusted
2021 Operating profit/(loss) 2020 Operating Adjusting operating
profit/(loss) items (2) profit/(loss) items profit/(loss)(1)
$m $m $m $m $m $m
----------------------- -------------- --------- --------------- -------------- --------- -----------------
Personal Care 27.9 8.8 36.7 20.0 13.6 33.6
Coatings(1) 56.5 5.3 61.8 (4.9) 46.3 41.4
Talc (44.3) 58.3 14.0 (22.4) 39.0 16.6
Chromium 6.3 7.8 14.1 (3.6) 9.2 5.6
Central costs (20.0) _ (20.0) (17.3) 1.7 (15.6)
----------------------- -------------- --------- --------------- -------------- --------- -----------------
Total operating profit 26.4 80.2 106.6 (28.2) 109.8 81.6
----------------------- -------------- --------- --------------- -------------- --------- -----------------
(1) 2020 restated to include the Energy business which has been
reported as part of Coatings from 1 January 2021
(2) After adjusting items - see note 5.
Group results
In 2021, revenue increased 17% from $751m to $880m due to strong
new business success, targeted pricing actions and demand recovery
across most of our end markets following a COVID-19 impacted prior
year. Excluding the impact of currency translation, underlying
revenue increased 14%. Revenue in Personal Care rose 9% on a
reported basis and 6% on an underlying basis*, as demand showed
steady recovery due to the gradual easing of social interaction and
travel restrictions. In Coatings, revenue increased 20% on a
reported basis and 17% on an underlying basis* driven by strong new
business success and pricing actions in response to accelerating
cost inflation. In Talc, revenue increased 14% on a reported basis
and 9% on an underlying basis*, as geographic expansion outside of
Europe and delivery of revenue synergies more than offset weakness
in both long life plastics for automotive applications and paper
markets. Revenue in Chromium increased 16% due to strong volume
growth as demand increased across a range of industrial end
markets
Reported operating profit increased from a loss of $28m to a
profit of $26m with a strong performance improvement partially
offset by $80m of adjusting items, the largest of which was a $53m
non-cash Talc goodwill impairment (2020: Talc $33m and Energy $27m)
due to the continuing impact of COVID-19 on industrial activity and
global supply chains. Adjusted operating profit increased 28% on an
underlying basis* from $82m to $107m with the aforementioned higher
revenue and associated earnings more than offsetting cost inflation
primarily associated with global supply chain challenges. The
statutory result for the year was a profit of $3m compared with a
loss of $67m in 2020.
Adjusting items
In addition to the statutory results, the Group uses alternative
performance measures, such as adjusted operating profit and
adjusted diluted earnings per share, to provide additional useful
analysis of the performance of the business. The Board considers
these non-GAAP measures as an alternative way to measure the
Group's performance. Adjusting items in 2021 resulted in a charge
of $71.2m before tax, a decrease of $50.3m against last year. The
key categories of adjusting items are summarised below. For more
information on adjusting items and the Group's policy for adjusting
items, please see Note 5 and Note 1 to the financial statements
respectively.
Personal Central
Care Coatings Talc Chromium costs Total
Credit/(charge) $m $m $m $m $m $m
-------------------------------------- -------- -------- ------ -------- ------- ------
Business transformation (0.1) (4.2) - (0.3) - (4.6)
Environmental provisions - - - (8.3) - (8.3)
Impairment of goodwill - - (52.3) - - (52.3)
Amortisation of intangibles arising
on acquisitions (8.7) (1.1) (6.0) (0.2) - (16.0)
Sale of Montreal land - - - 1.0 - 1.0
-------------------------------------- -------- -------- ------ -------- ------- ------
Total charge to operating profit (8.8) (5.3) (58.3) (7.8) - (80.2)
-------------------------------------- -------- -------- ------ -------- ------- ------
Sale of businesses (1.7) - - - - (1.7)
Mark to market of derivatives - - - - 10.7 10.7
Total (10.5) (5.3) (58.3) (7.8) 10.7 (71.2)
-------------------------------------- -------- -------- ------ -------- ------- ------
Business transformation
In November 2020, the closure of the Charleston plant was
announced. Costs of $4.2m in 2021 (including $0.4m of depreciation)
associated with preparing the site for sale are classified as an
adjusting item and the site is planned to be disposed of in the
future. Further charges of $0.4m relate to the optimisation of the
supply chain footprint across our Personal Care and Chromium
businesses.
Environmental provisions
The Group's environmental provision is calculated on a
discounted cash flow basis, reflecting the time period over which
spending is estimated to take place. The movement in provision
relates to a change in discount rates that decreased the liability
by $1.3m in the year, and extra remediation work identified in the
year which resulted in a $9.6m increase to the liability. As these
costs relate to non-operational facilities they are classified as
adjusting items.
Impairment of goodwill
In Talc, while the business fundamentals are unchanged, the
continuing impact of COVID-19 on wider industrial activity and
global supply chains, especially affecting the automotive sector,
and the near term forecast profitability of the business has
resulted in a goodwill impairment of $53.1m. This impairment is
reflected as a P&L charge of $52.3m and $0.8m movement in
exchange differences on translation of foreign operations in other
comprehensive income.
Amortisation of intangibles arising on acquisitions
Amortisation of $16.0m (2020: $15.5m) represents the charge in
respect of the Group's acquired intangible assets. As in previous
years, these are included in adjusting items as they are a non-cash
charge arising from historical investment activities.
Sale of Montreal land
In 2021 the Group disposed of a non-core parcel of land in
Montreal, Canada. The profit on disposal has been treated as an
adjusting item.
Sale of businesses
The $1.7m loss on disposal of two non-core dental businesses,
Eisenbacher Dentalwaren ED GmbH and Adentatec GmbH, has been
treated as an adjusting item in 2021.
Mark to market of derivatives
The movements in the mark to market valuation of financial
instruments that are not in hedging relationships are treated as
adjusting items as they are non-cash fair value adjustments that
will not affect the cash flows of the Group.
Hedging
Cash flow hedges are used as part of a programme to manage our
exposure to interest rate risk and commodity price risk
particularly associated with USD and EUR interest payments and
aluminium pricing. In 2021, interest rate and commodity price
movements were such that the net impact of these hedge transactions
was a loss of $0.4m (2020: $0.9m) recycled to the income
statement.
Central costs
Central costs are those costs that are not identifiable as
expenses of a particular business and comprise expenditures of the
Board of Directors and corporate head office. In 2021, adjusted
central costs were $20.0m, up $4.4m on the previous year due to an
increase in variable remuneration and an investment in
capability.
COVID-19 assistance
The Group has accessed various government support schemes aimed
at mitigating the potential impact on individuals' job losses
resulting from the impact of COVID-19. The most significant amounts
received by the Group include the following:
- $0.4m in relation to government support under temporary wage
support schemes available in the Netherlands. The Group does not
have any unfulfilled obligations relating to these support
programmes. This amount has been offset against employee
remuneration costs.
- Agreement of payment plans with tax authorities in China to
defer payments of income taxes and payroll taxes resulting in $1.1m
payment deferrals across the Group.
Other expenses
Other expenses are administration costs incurred and paid by the
Group's pension schemes, which relate primarily to former employees
of legacy businesses, and were $2.1m in 2021 compared with $1.6m in
the previous year.
Net finance costs
2021 2020
$m $m
------------------------------------- ------- -------
Finance income 0.3 0.3
Finance cost of borrowings (23.3) (22.6)
------------------------------------- ------- -------
(23.0) (22.3)
Net pension finance costs (0.3) (0.6)
Discount unwind on provisions (2.6) (2.7)
Fair value movement on derivatives 10.7 (10.2)
Dividend currency hedge cancellation - (1.8)
Interest on lease liabilities (1.6) (1.7)
------------------------------------- ------- -------
Net finance costs (16.8) (39.3)
------------------------------------- ------- -------
Net finance costs for 2021 were $16.8m, a decrease of $22.5m on
last year. Finance costs comprise interest payable on borrowings
calculated using the effective interest rate method, facility
arrangement fees, the unwinding of discounts on the Group's
environmental provisions, fair value movement on derivatives and
interest charged on lease liabilities.
The decrease in net finance costs is primarily due to the fair
value movement on derivatives ($20.9m decrease) versus prior year
and the cancellation of the dividend currency hedge in 2020
following the suspension of the 2019 final ordinary dividend ($1.8m
decrease). Finance cost of borrowings was broadly in line with the
previous year.
Both pension finance costs, which are a function of discount
rates under IAS 19 and the value of schemes' deficit or surplus
positions, and the interest on lease liabilities, were broadly
consistent in 2021 compared with 2020.
The discount unwind on provisions relates to the annual time
value of the Group's environmental provisions which are calculated
on a discounted basis. The unwind of $2.6m in 2021 is in line with
the previous year.
Taxation
Tax charge
2021 Effective 2020 Effective
rate rate
$m % $m %
----------------------------- ---- -------------- ----- --------------
Reported tax charge/(credit) 3.3 (57.0) (1.8) (2.6)
Adjusting items tax credit 11.3 - 16.0 -
----------------------------- ---- -------------- ----- --------------
Underlying tax charge 14.6 19.0 14.2 26.9
----------------------------- ---- -------------- ----- --------------
The Group incurred a tax charge of $14.6m (2020: $14.2m) on
adjusted profit before tax, resulting in an effective tax rate of
19.0% (2020: 26.9%). The Group's effective tax rate in 2021 is
slightly lower than its usual range due to beneficial adjustments
in respect of prior years and the one-off impact of the UK rate
change on its deferred tax assets.
Tax on adjusting items relates primarily to the reversal of an
uncertain tax provision in the US and the amortisation of
intangible assets.
The expectation for the Group's effective P&L tax rate is
around 22-23% until 2023, after which it is anticipated to rise to
25-26% due to the previously announced increase in UK corporation
tax rates from April 2023. The enacted rate change increases the
Group's UK deferred tax assets by $1.2m, with the tax credit
reflected in the income statement. Furthermore, the enacted rate
change increases the Group's UK deferred tax liabilities by $2.5m,
with the tax charge reflected in other comprehensive income.
Following the European Commission's State Aid investigation into
the UK Finance Company Exemption (FCE) regime, Elementis received a
charging notice in February 2021 for the maximum exposure of $19m
(excluding interest). Elementis paid the notice amount to HMRC on 5
March 2021, as required, and has lodged an appeal. A charging
notice for associated interest of $1m was received on 24 June 2021
and paid on 7 July 2021.
Whilst Elementis has lodged an appeal against the charging
notice this does not defer the payment of the tax assessed. As
Elementis considers that the appeal will ultimately be successful,
at 31 December 2021 an asset has been recorded within non-current
assets in the accounts on the expectation that the charge will be
repaid in due course. The UK Government's appeal against the
European Commission's decision was heard by the General Court of
the European Union during October 2021 with a decision expected
during 2022.
Earnings per share
To aid comparability of the underlying performance of the Group,
earnings per share reported under IFRS is adjusted for items
classified as adjusting.
Adjusted diluted earnings per share was 10.6 cents for 2021
compared with 6.5 cents in the previous year, an increase of 63%
due to higher profit and a lower effective tax rate. Basic earnings
per share before adjusting items was a profit per share of 0.4
cents compared with a loss per share of 11.5 cents in 2020.
Note 7 provides disclosure of earnings per share calculations
both including and excluding the effects of adjusting items and the
potential dilutive effects of outstanding and exercisable
options.
Distributions to shareholders
Given the market and economic uncertainties, and the Board's
desire to provide additional financial headroom and preserve cash,
no dividend distributions to shareholders were made during the
year. The Board is also not recommending a final dividend for 2021.
The Board recognises the importance of dividends to shareholders
and will look to reinstate payments once further progress is made
on reducing financial leverage.
Cash flow
Net cash flow from operating activities decreased by $40.4m to
$66.7m in 2021, due to an increase in cash tax of $23.1m, the
majority of which relates to the ongoing EU state aid case, and
working capital outflow as a result of increased revenues.
Net cash outflow in relation to investing activities increased
by $25.8m to $65.0m following the successful conclusion of an
historic, pre-acquisition interest deductibility case ($13.2m
outflow) and also due to increased capital expenditure primarily
linked to the new AP Actives plant in India.
Net cash outflow in relation to financing activities reduced by
$39.4m to $25.3m in 2021 due to additional tax cash outflows
related to specific items as set out above limiting surplus cash to
pay down central borrowings.
The adjusted cash flow which excludes the effect of adjusting
items from operating cash flow is summarised below. A
reconciliation of statutory operating profit to EBITDA is shown in
the alternative performance measures information.
2021 2020
$m $m
----------------------------- -------- --------
EBITDA 158.5 132.8
Change in working capital (31.6) 18.8
Capital expenditure (52.8) (40.0)
Other 1.9 (1.8)
----------------------------- -------- --------
Adjusted operating cash flow 76.0 109.8
Pension payments (0.1) (0.1)
Interest (23.2) (23.4)
Tax (30.9) (8.5)
Adjusting items (20.4) (12.2)
Payment of lease liabilities (6.7) (6.7)
----------------------------- -------- --------
Free cash flow (5.3) 58.9
Issue of shares 0.1 0.1
Dividends paid - -
Acquisitions and disposals 0.3 0.5
Currency fluctuations 12.0 (13.4)
----------------------------- -------- --------
Movement in net debt 7.1 46.1
Net debt at start of year (408.1) (454.2)
----------------------------- -------- --------
Net debt at end of year (401.0) (408.1)
----------------------------- -------- --------
EBITDA - earnings before interest, tax, adjusting items,
depreciation and amortisation.
Adjusted operating cash flow decreased by $33.8m to $76.0m for
2021 as an increase of $25.7m in EBITDA was offset by $50.4m
movement in working capital and an increase in net capital
expenditure of $12.8m.
Free cash outflow of $5.3m in 2021 represents a reduction of
$64.2m on the prior year period. Cash tax outflows increased from
$8.5m to $30.9m, primarily due to the $19.5m charging notice
received for the ongoing EU state aid case. A further one off cash
outflow of $13.2m associated with an historic, pre-acquisition
interest deductibility tax case increased adjusting items cash
outflow from $12.2m in 2020 to $20.4m in 2021.
Net debt decreased from $408.1m in 2020 to $401.0m in 2021, a
reduction of $7.1m, and net debt to adjusted EBITDA decreased from
3.2x*** in 2020 to 2.6x*** in 2021. The decrease in leverage is due
to the improvement in adjusted EBITDA, reflective of the Group's
higher earnings.
Balance sheet
2021 2020
$m $m
---------------------------------------------- -------- --------
Intangible fixed assets 815.7 892.6
Tangible fixed assets 499.7 516.0
Working capital 164.0 141.4
Net tax liabilities (112.6) (132.2)
Provisions and retirement benefit obligations (22.5) (79.0)
Financial assets and liabilities (5.2) (30.7)
Lease liabilities (40.2) (44.4)
Unamortised syndicate fees 3.1 4.8
Net debt (401.0) (408.1)
---------------------------------------------- -------- --------
Total equity 901.0 860.4
---------------------------------------------- -------- --------
Group equity increased by $40.6m in 2021 (2020: decrease of
$45.8m). Intangible fixed assets decreased by $76.9m due to an
impairment of $52.3m, $16.6m of amortisation of intangibles and
$8.2m of foreign exchange. Tangible fixed assets decreased by
$16.3m, with gross PPE additions of $51.5m, right-of-use asset
capitalisation of $2.0m more than offset by exchange differences of
$18.7m and depreciation of $51.7m.
Working capital comprises inventories, trade and other
receivables and trade and other payables. Working capital
increased by $22.6m in 2021, a result of higher underlying
revenue.
Net tax liabilities of $112.6m decreased as a result of the EU
state aid payment which has been recognised as an asset based on
the expectation that the charge will be repaid in due course of the
broadly in line with the previous year.
Adjusted ROCE (excluding goodwill) increased to 13%** from 10%**
in 2020, due to increased adjusted operating profit.
The main dollar exchange rates relevant to the Group are set out
below.
2021 2020
Year end Average Year end Average
---------------- --------- --------- --------- ---------
Pounds sterling 0.74 0.73 0.73 0.78
Euro 0.88 0.84 0.82 0.88
---------------- --------- --------- --------- ---------
Provisions
The Group records a provision in the balance sheet when it has a
present obligation as a result of past events, which is expected to
result in an outflow of economic benefits in order to settle the
obligation and the amount can be reliably estimated. The Group
calculates provisions on a discounted basis. At the end of 2021 the
Group held provisions of $61.8m (2020: $58.8m) consisting of
environmental provisions of $58.7m (2020: $50.6m), self-insurance
provisions of $0.7m (2020: $1.5m) and restructuring and other
provisions of $2.4m (2020: $6.7m).
Environmental provisions have increased by $8.1m in 2021, with a
net $8.3m taken through adjusting items, $9.6m expense relates to
extra remediation work for additional closure and decommissioning
activities offset by $1.3m relating to a change in the discount
rate applied to the liabilities. The remaining movement relates to
$2.6m of unwind of discount in the year offset by $0.4m of currency
translation and $3.1m of utilisation. The self-insurance provision
represents the Group's estimate of its liability arising from
retained liabilities under the Group's insurance programme.
Within the restructuring and other provisions categories the
majority of the balance relates to payments to be made for right of
first refusal on a quarry, payments for which are linked to the
discharge of residue into another quarry owned by the same
counterparty.
Pensions and other post retirement benefits
2021 2020
$m $m
------------------------- ------- ------
Net (surplus)/liability:
UK (56.6) (7.9)
US 8.3 18.3
Other 9.0 9.8
------------------------- ------- ------
(39.3) 20.2
------------------------- ------- ------
UK plan
The largest of the Group's retirement plans is the UK defined
benefit pension scheme ('UK Scheme') which at the end of 2021 had a
surplus, under IAS 19, of $56.6m (2020: $7.9m). The UK Scheme is
relatively mature, with approximately two thirds of its gross
liabilities represented by pensions in payment, and is closed to
new members. Return on plan assets of $35.0m (2020: $75.2m) and
liability adjustments of $27.1m (2020: $59.5m) arising due to
higher discount rates based on real corporate bond yields increased
the surplus. Company contributions of $0.6m (2020: $nil) reflect
the funding agreement reached with the UK trustees following the
2020 triennial valuation which concluded in 2021.
US plan
In the US, the Group reports two post retirement plans under IAS
19: a defined benefit pension plan with a deficit value at the end
of 2021 of $1.7m (2020: $11.8m), and a post retirement medical plan
with a liability of $6.6m (2020: $6.5m). The US pension plans are
smaller than the UK plan and in 2021 the overall deficit value of
the US plans decreased by $10.0m due to actuarial decreases in the
liability of $6.3m (2020: $12.8m increase), return on plan assets
of $7.2m (2020: $15.8m) and employer contributions of $0.5m (2020
$0.5m).
Other plans
Other liabilities at 31 December 2021 amounted to $9.0m (2020:
$9.8m) and relate to pension arrangements for a relatively small
number of employees in Germany, certain UK legacy benefits and one
pension scheme acquired as part of the SummitReheis transaction in
2017.
Financial assets and liabilities
Financial liabilities at 31 December 2021 include $nil of
contingent consideration in respect of Talc (2020: $13.4m). This
balance was settled in 2021 following the successful conclusion of
an historic, pre-acquisition interest deductibility tax case
relating to Talc. Also included are net derivative financial
liabilities of $5.2m (2020: $15.9m) relating to the valuation of
various risk management instruments. The movements in the mark to
market valuation of financial instruments which are not in hedging
relationships do not form part of the underlying performance of the
business and thus are treated as adjusting items.
Events after the balance sheet date
The ongoing EU state aid case is discussed in the taxation
section of this finance report. There were no other significant
events after the balance sheet date.
1 After adjusting items - see note 5.
* Adjusted for FX (where constant currency reflects prior year
results translated at current year exchange rates).
** See alternative performance measures information.
*** See unaudited information.
Consolidated income statement
for the year ended 31 December 2021
2021 2020
$m $m
-------------------------------- ------- -------
Revenue 880.1 751.3
Cost of sales (545.2) (494.0)
-------------------------------- ------- -------
Gross profit 334.9 257.3
Distribution costs (151.9) (112.6)
Administrative expenses (156.6) (172.9)
Operating profit/(loss) 26.4 (28.2)
(Loss)/profit on disposal (1.7) 0.3
Other expenses(1) (2.1) (1.6)
Finance income 11.0 0.3
Finance costs (27.8) (39.6)
-------------------------------- ------- -------
Profit/(loss) before income tax 5.8 (68.8)
Tax (3.3) 1.8
-------------------------------- ------- -------
Profit/(loss) for the year 2.5 (67.0)
-------------------------------- ------- -------
Attributable to:
Equity holders of the parent 2.5 (67.0)
-------------------------------- ------- -------
Earnings per share
-------------------------------- ------- -------
Basic earnings/(loss) (cents) 0.4 (11.5)
Diluted earnings/(loss) (cents) 0.4 (11.3)
-------------------------------- ------- -------
1 Other expenses comprise administration expenses for the Group's pension schemes.
Consolidated statement of comprehensive income
for the year ended 31 December 2021
2021 2020
$m $m
-------------------------------------------------------------- --------------------- ------
Profit/(loss) for the year 2.5 (67.0)
-------------------------------------------------------------- --------------------- ------
Other comprehensive income:
Items that will not be reclassified subsequently
to profit and loss:
Remeasurements of retirement benefit obligations 63.5 (0.3)
Deferred tax associated with retirement benefit
obligations (14.6) (0.3)
Items that may be reclassified subsequently to profit
and loss:
Exchange differences on translation of foreign operations (29.1) 25.0
Effective portion of change in fair value of net
investment hedge 10.7 (3.6)
Tax associated with change in fair value of net
investment hedge 1.8 -
Tax associated with changes in cashflow hedges (0.4) -
Recycling of deferred foreign exchange (gains) on
disposal (0.4) (0.2)
Effective portion of changes in fair value of cash
flow hedges (0.1) (1.4)
Fair value of cash flow hedges transferred to income
statement 2.7 0.9
Exchange differences on translation of share options
reserves - (2.7)
-------------------------------------------------------------- --------------------- ------
Other comprehensive income 34.1 17.4
-------------------------------------------------------------- --------------------- ------
Total comprehensive income/(loss) for the year 36.6 (49.6)
-------------------------------------------------------------- --------------------- ------
Attributable to:
Equity holders of the parent 36.6 (49.6)
-------------------------------------------------------------- --------------------- ------
Total comprehensive income/(loss) for the year 36.6 (49.6)
-------------------------------------------------------------- --------------------- ------
Consolidated balance sheet
as at 31 December 2021
2021 2020
31 December 31 December
$m $m
--------------------------------------------------- -------------- -------------
Non-current assets
Goodwill and other intangible assets 815.7 892.6
Property, plant and equipment 499.7 516.0
ACT recoverable - 0.6
Tax recoverable 19.7 -
Deferred tax assets 28.0 26.3
Net retirement benefit surplus 56.6 7.9
--------------------------------------------------- -------------- -------------
Total non-current assets 1,419.7 1,443.4
--------------------------------------------------- -------------- -------------
Current assets
Inventories 186.1 164.3
Trade and other receivables 138.9 108.3
Derivative financial instruments 0.2 1.4
Current tax assets 7.1 7.2
Cash and cash equivalents 84.6 111.0
--------------------------------------------------- -------------- -------------
Total current assets 416.9 392.2
--------------------------------------------------- -------------- -------------
Total assets 1,836.6 1,835.6
--------------------------------------------------- -------------- -------------
Current liabilities
Bank overdrafts and loans - (3.7)
Trade and other payables (161.0) (132.6)
Financial liabilities (1.4) (17.3)
Current tax liabilities (17.4) (23.2)
Lease liabilities (6.4) (7.2)
Provisions (8.7) (9.6)
--------------------------------------------------- -------------- -------------
Total current liabilities (194.9) (193.6)
--------------------------------------------------- -------------- -------------
Non-current liabilities
Loans and borrowings (482.5) (510.6)
Retirement benefit obligations (17.3) (28.1)
Deferred tax liabilities (150.0) (143.1)
Lease liabilities (33.8) (37.2)
Provisions (53.1) (49.2)
Financial liabilities (4.0) (13.4)
--------------------------------------------------- -------------- -------------
Total non-current liabilities (740.7) (781.6)
--------------------------------------------------- -------------- -------------
Total liabilities (935.6) (975.2)
--------------------------------------------------- -------------- -------------
Net assets 901.0 860.4
--------------------------------------------------- -------------- -------------
Equity
Share capital 52.2 52.1
Share premium 240.8 237.7
Other reserves 90.7 108.6
Retained earnings 517.3 462.0
--------------------------------------------------- -------------- -------------
Total equity attributable to equity holders of the
parent 901.0 860.4
Total equity 901.0 860.4
--------------------------------------------------- -------------- -------------
Consolidated statement of changes in equity
for the year ended 31 December 2021
Share Share Translation Hedging Other Retained Total
capital premium reserve reserve reserves earnings equity
$m $m $m $m $m $m $m
======================================== ======== ======== =========== ======== ========= ========= =======
Balance at 1 January 2020 52.1 237.7 (69.0) (8.4) 168.5 525.3 906.2
---------------------------------------- -------- -------- ----------- -------- --------- --------- -------
Comprehensive income
---------------------------------------- -------- -------- ----------- -------- --------- --------- -------
Loss for the year - - - - - (67.0) (67.0)
Other comprehensive income
Exchange differences - - 21.4 - (2.7) - 18.7
Recycling of deferred foreign
exchange losses on disposal - - (0.2) - - - (0.2)
Fair value of cash flow hedges
transferred to the
income statement - - - 0.9 - - 0.9
Effective portion of changes
in fair value
of cash flow hedges - - - (1.4) - - (1.4)
Remeasurements of retirement
benefit obligations - - (1.1) - - 0.8 (0.3)
Deferred tax adjustment on pension
scheme deficit - - - - - (0.3) (0.3)
Transfer - - - - (2.9) 2.9 -
---------------------------------------- -------- -------- ----------- -------- --------- --------- -------
Total other comprehensive income/(loss) - - 20.1 (0.5) (5.6) 3.4 17.4
---------------------------------------- -------- -------- ----------- -------- --------- --------- -------
Total comprehensive income/(loss) - - 20.1 (0.5) (5.6) (63.6) (49.6)
---------------------------------------- -------- -------- ----------- -------- --------- --------- -------
Transactions with owners:
Issue of shares by the Company - - - - - 0.2 0.2
Share based payments - - - - 3.5 - 3.5
Deferred tax on share based payments
recognised within equity - - - - - 0.1 0.1
---------------------------------------- -------- -------- ----------- -------- --------- --------- -------
Total transactions with owners - - - - 3.5 0.3 3.8
---------------------------------------- -------- -------- ----------- -------- --------- --------- -------
Balance at 31 December 2020 52.1 237.7 (48.9) (8.9) 166.4 462.0 860.4
---------------------------------------- -------- -------- ----------- -------- --------- --------- -------
Balance at 1 January 2021 52.1 237.7 (48.9) (8.9) 166.4 462.0 860.4
Comprehensive income
Profit for the year - - - - - 2.5 2.5
Other comprehensive income
Exchange differences - - (18.4) - - - (18.4)
Recycling of deferred foreign
exchange gains on disposal - - (0.4) - - - (0.4)
Fair value of cash flow hedges
transferred to the
income statement - - - 2.7 - - 2.7
Effective portion of changes
in fair value
of cash flow hedges - - - (0.1) - - (0.1)
Tax associated with changes in
cashflow hedges - - - - - (0.4) (0.4)
Tax associated with change in
fair value of net
investment hedge - - - - - 1.8 1.8
Remeasurements of retirement
benefit obligations - - - - - 63.5 63.5
Deferred tax adjustment on pension
scheme deficit - - - - - (14.6) (14.6)
Transfer - - - - (1.4) 1.4 -
---------------------------------------- ---- ----- ------ ----- ----- ------ ------
Total other comprehensive income/(loss) - - (18.8) 2.6 (1.4) 51.7 34.1
---------------------------------------- ---- ----- ------ ----- ----- ------ ------
Total comprehensive income/(loss) - - (18.8) 2.6 (1.4) 54.2 36.6
---------------------------------------- ---- ----- ------ ----- ----- ------ ------
Transactions with owners:
Issue of shares by the Company 0.1 3.1 - - (3.1) - 0.1
Deferred tax on share based payments
recognised within equity - - - - - 1.1 1.1
Share based payments - - - - 5.1 - 5.1
Fair value of cash flow hedges
transferred to net assets - - - (2.3) - - (2.3)
Total transactions with owners 0.1 3.1 - (2.3) 2.0 1.1 4.0
---------------------------------------- ---- ----- ------ ----- ----- ------ ------
Balance at 31 December 2021 52.2 240.8 (67.7) (8.6) 167.0 517.3 901.0
---------------------------------------- ---- ----- ------ ----- ----- ------ ------
Consolidated cash flow statement
for the year ended 31 December 2021
2021 2020
$m $m
------------------------------------------------------- ------ ------
Operating activities:
Profit for the year 2.5 (67.0)
Adjustments for:
Other expenses 2.1 1.6
Finance income (11.0) (0.3)
Finance costs 27.8 39.6
Tax charge 3.3 (1.8)
Depreciation and amortisation 68.3 66.7
Impairment loss on property, plant and equipment - 11.7
(Decrease)/increase in provisions and financial
liabilities 0.8 3.7
Pension payments net of current service cost (0.1) 1.1
Share based payments expense 5.1 3.5
Impairment of goodwill 52.3 60.3
Loss/(profit) on disposal of business 1.7 (0.3)
------------------------------------------------------- ------ ------
Operating cash flow before movement in working capital 152.8 118.8
(Increase)/decrease in inventories (24.2) 7.8
(Increase)/decrease in trade and other receivables (33.8) 13.3
Increase/(decrease) in trade and other payables 26.3 (0.6)
------------------------------------------------------- ------ ------
Cash generated by operations 121.1 139.3
Income taxes paid (30.9) (8.5)
Interest paid (23.5) (23.7)
------------------------------------------------------- ------ ------
Net cash flow from operating activities 66.7 107.1
------------------------------------------------------- ------ ------
Investing activities:
Interest received 0.3 0.3
Disposal of property, plant and equipment 0.7 1.8
Purchase of property, plant and equipment (52.7) (41.5)
Purchase of business (0.2) -
Disposal of business 0.5 0.5
Acquisition of intangible assets (0.4) (0.3)
Contingent consideration paid (13.2) -
------------------------------------------------------- ------ ------
Net cash flow from investing activities (65.0) (39.2)
------------------------------------------------------- ------ ------
Financing activities:
Issue of shares by the Company and the ESOT net
of issue costs 0.1 0.1
Outflow of cancelled dividend hedge - (1.8)
Net movement on existing debt (18.7) (56.3)
Payment of lease liabilities (6.7) (6.7)
------------------------------------------------------- ------ ------
Net cash used in financing activities (25.3) (64.7)
------------------------------------------------------- ------ ------
Net increase in cash and cash equivalents (23.6) 3.2
Cash and cash equivalents at 1 January 111.0 103.9
Foreign exchange on cash and cash equivalents (2.8) 3.9
------------------------------------------------------- ------ ------
Cash and cash equivalents at 31 December 84.6 111.0
------------------------------------------------------- ------ ------
Notes to the financial statements
1. Preparation of the preliminary announcement
The financial information in this statement does not constitute
the Company's statutory accounts for the years ended 31 December
2021 or 2020 but is derived from those accounts. Statutory accounts
for 2020 have been delivered to the Registrar of Companies, and
those for 2021 will be delivered in due course. The auditor has
reported on those accounts; their reports were (i) unqualified,
(ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their
report and (iii) did not contain a statement under section 498(2)
or (3) of the Companies Act 2006.
This preliminary announcement was approved by the Board of
Directors on 3 March 2022.
2. Basis of preparation
Elementis plc (the "Company") is incorporated in the UK. The
information within this document has been prepared based on the
Company's consolidated financial statements which are prepared in
accordance with International Financial Reporting Standards as
adopted by the UK (adopted IFRS) and consistent with the accounting
policies as set out in the previous consolidated financial
statements.
The Group's financial statements have been prepared on the
historical cost basis except that derivative financial instruments
are stated at their fair value. Non-current assets held for sale
are stated at the lower of carrying amount and fair value less
costs to sell. The preparation of financial statements requires the
application of estimates and judgements that affect the reported
amounts of assets and liabilities, revenues and costs and related
disclosures at the balance sheet date.
The accounting policies adopted are consistent with those of the
previous financial year.
Going concern
The Group and Company financial statements have been prepared on
the going concern basis, as the directors are satisfied that the
Group and Company have adequate resources to continue to operate
for at least a period of 12 months from the date of approval of the
financial statements. An explanation of the directors' assessment
of using the going concern basis is given in the Directors' report
in the Annual Report and Accounts 2021 which will be made available
to shareholders on 22 March 2022.
Reporting currency
As a consequence of the majority of the Group's sales and
earnings originating in US dollars or US dollar linked currencies,
the Group has chosen the US dollar as its presentational currency.
This aligns the Group's external reporting with the profile of the
Group, as well as with internal management reporting.
3. Finance income
2021 2020
$m $m
----------------------------------- ----- -----
Interest on bank deposits 0.3 0.3
Fair value movement on derivatives 10.7 -
----------------------------------- ----- -----
11.0 0.3
----------------------------------- ----- -----
4. Finance costs
2021 2020
$m $m
---------------------------------------------- ----- -----
Interest on bank loans 23.3 22.6
Pension and other post retirement liabilities 0.3 0.6
Unwind of discount on provisions 2.6 2.7
Fair value movement on derivatives - 10.2
Dividend currency hedge cancellation - 1.8
Interest on lease liabilities 1.6 1.7
---------------------------------------------- ----- -----
27.8 39.6
---------------------------------------------- ----- -----
5. Adjusting items and alternative performance measures
2021 2020
$m $m
-------------------------------------------------------------- ------ ------
Restructuring - 0.9
Business transformation 4.6 22.7
Environmental provisions
Increase in provisions due to additional remediation
work identified 9.6 5.6
(Decrease)/Increase in provisions due to change in discount
rate (1.3) 1.1
M&A and disposal costs - 3.7
Impairment of goodwill 52.3 60.3
Sale of Montreal land (1.0) -
Amortisation of intangibles arising on acquisition 16.0 15.5
80.2 109.8
Sale of Business 1.7 (0.3)
Mark to market of derivative financial instruments (10.7) 10.2
Currency hedge due to dividend cancellation - 1.8
Tax credit in relation to adjusting items (11.3) (16.0)
59.9 105.5
-------------------------------------------------------------- ------ ------
A number of items have been recorded under 'adjusting items' by
virtue of their size and/or one time nature, in line with our
accounting policy in Note 1, in order to provide additional useful
analysis of the Group's results. The Group considers the adjusted
results to be an important measure used to monitor how the
businesses are performing as they achieve consistency and
comparability between reporting periods. The net impact of these
items on the Group profit before tax for the year is a debit of
$71.2m (2020: $121.5m). The items fall into a number of categories,
as summarised below:
Restructuring - In 2020, restructuring costs relate
predominantly to the organisational efficiency programme commenced
in late 2019, which eliminated duplicate roles, reduced management
layers and increased spans of control in order to realise cost
savings and efficiencies across the Group.
Business transformation - In November 2020, the closure of the
Charleston plant was announced. Costs of $4.2m in 2021 (including
$0.4m of depreciation) associated with preparing the site for sale
are classified as an adjusting item and the site is planned to be
disposed of in the future. Further charges of $0.4m relate to the
optimisation of the supply chain footprint across our Personal Care
and Chromium businesses.
Environmental provisions - The Group's environmental provision
is calculated on a discounted cash flow basis, reflecting the time
period over which spending is estimated to take place. The movement
in provision relates to a change in discount rates that has
decreased the liability by $1.3m in the year, extra remediation
work identified in the year which has resulted in a $9.6m increase
to the liability. As these costs relate to non-operational
facilities they are classified as adjusting items.
M&A and disposal costs - Charges of $3.7m in 2020 represent
costs relating to the disposal of small, non-core businesses in the
Personal Care business segment and advisory fees incurred in
response to an unsolicited takeover approach received in the
previous year.
Impairment of goodwill - In Talc, while the business
fundamentals are unchanged, the continuing impact of COVID-19 on
wider industrial activity and global supply chains, especially
affecting the automotive sector, and the near term forecast
profitability of the business has resulted in a goodwill impairment
of $53.1m. This impairment is reflected as a P&L charge of
$52.3m and $0.8m movement in exchange differences on translation of
foreign operations in other comprehensive income.
Sale of Montreal land - In 2021 the Group disposed of a non-core
parcel of land in Montreal, Canada. The profit on disposal has been
treated as an adjusting item.
Amortisation of intangibles arising on acquisition -
Amortisation of $16.0m (2020: $15.5m) represents the charge in
respect of the Group's acquired intangible assets. As in previous
years, these are included in adjusting items as they are a non-cash
charge arising from historical investment activities.
Sale of Business - The $1.7m loss on disposal of two non-core
dental businesses, Eisenbacher Dentalwaren ED GmbH and Adentatec
GmbH, has been treated as an adjusting item in 2021.
Mark to market of derivatives - The movements in the mark to
market valuation of financial instruments that are not in hedging
relationships are treated as adjusting items as they are non-cash
fair value adjustments that will not affect the cash flows of the
Group.
Currency hedge due to dividend cancellation - The charge of
$1.8m in 2020 relates to the cancellation of currency hedges
following the suspension of the 2019 final ordinary dividend that
provided additional financial headroom in response to COVID-19.
Tax on adjusting items - this is the net impact of tax relating
to the adjusting items listed above.
To support comparability with the financial statements as
presented in 2021 the reconciliation to the adjusted consolidated
income statement is shown below.
2021
Profit
2021 and loss
Profit 2021 Adjusting after adjusting
and loss items items
$m $m $m
-------------------------- --------- -------------- ----------------
Revenue 880.1 - 880.1
Cost of sales (545.2) - (545.2)
----------------------------- --------- -------------- ----------------
Gross profit 334.9 - 334.9
Distribution costs (151.9) - (151.9)
Administrative expenses (156.6) 80.2 (76.4)
----------------------------- --------- -------------- ----------------
Operating profit 26.4 80.2 106.6
(Loss)/profit on disposal (1.7) 1.7 -
Other expenses (2.1) - (2.1)
Finance income 11.0 (10.7) 0.3
Finance costs (27.8) - (27.8)
----------------------------- --------- -------------- ----------------
Profit before income
tax 5.8 71.2 77.0
Tax (3.3) (11.3) (14.6)
----------------------------- --------- -------------- ----------------
Profit for the year 2.5 59.9 62.4
----------------------------- --------- -------------- ----------------
Attributable to:
Equity holders of
the parent 2.5 59.9 62.4
----------------------------- --------- -------------- ----------------
Earnings per share
Basic earnings (cents) 0.4 10.3 10.7
Diluted earnings (cents) 0.4 10.2 10.6
----------------------------- --------- -------------- ----------------
2020
Profit
2020 and loss
Profit 2020 Adjusting after adjusting
and loss items items
$m $m $m
-------------------------- --------- -------------- ----------------
Revenue 751.3 - 751.3
Cost of sales (494.0) - (494.0)
----------------------------- --------- -------------- ----------------
Gross profit 257.3 - 257.3
Distribution costs (112.6) - (112.6)
Administrative expenses (172.9) 109.8 (63.1)
Operating profit (28.2) 109.8 81.6
Profit/(loss) on disposal 0.3 (0.3) -
Other expenses (1.6) - (1.6)
Finance income 0.3 - 0.3
Finance costs (39.6) 12.0 (27.6)
----------------------------- --------- -------------- ----------------
(Loss)/profit before
income tax (68.8) 121.5 52.7
Tax 1.8 (16.0) (14.2)
----------------------------- --------- -------------- ----------------
(Loss)/profit for
the year (67.0) 105.5 38.5
----------------------------- --------- -------------- ----------------
Attributable to:
Equity holders of
the parent (67.0) 105.5 38.5
----------------------------- --------- -------------- ----------------
Earnings per share
Basic (cents) (11.5) 18.1 6.6
Diluted (cents) (11.3) 17.8 6.5
----------------------------- --------- -------------- ----------------
To support comparability with the financial statements as
presented in 2021, a reconciliation from reported profit/(loss)
before interest to adjusted profit before income tax by segment is
shown below for each year.
2021
Personal Segment Central
Care Coatings Talc Chromium totals costs Total
$m $m $m $m $m $m $m
----------------------------------- -------- -------- ------ -------- ------- -------- ------
Reported operating profit/(loss) 27.9 56.5 (44.3) 6.3 46.4 (20.0) 26.4
----------------------------------- -------- -------- ------ -------- ------- -------- ------
Adjusting Items
Business transformation 0.1 4.2 - 0.3 4.6 - 4.6
Increase in environmental
provisions due to additional
remediation work identified - - - 9.6 9.6 - 9.6
Increase in environmental
provisions due to change in
discount rate - - - (1.3) (1.3) - (1.3)
Impairment of goodwill - - 52.3 - 52.3 - 52.3
Sale of Montreal land - - - (1.0) (1.0) - (1.0)
Amortisation of intangibles
arising on acquisition 8.7 1.1 6.0 0.2 16.0 - 16.0
Adjusted operating profit
/(loss) 36.7 61.8 14.0 14.1 126.6 (20.0) 106.6
----------------------------------- -------- -------- ------ -------- ------- -------- ------
Other expenses - - - - - (2.1) (2.1)
Finance income - - - - - 0.3 0.3
Finance costs - - - - - (27.9) (27.9)
----------------------------------- -------- -------- ------ -------- ------- -------- ------
Adjusted profit /(loss) before
income tax 36.7 61.8 14.0 14.1 126.6 (49.7) 76.9
----------------------------------- -------- -------- ------ -------- ------- -------- ------
2020
Personal Segment Central
Care Coatings Talc Chromium totals costs Total
$m $m* $m $m $m $m $m
----------------------------------------- -------- -------- ------ -------- ------- -------- ------
Reported operating profit/(loss) 20.0 (4.9) (22.4) (3.6) (10.9) (17.3) (28.2)
----------------------------------------- -------- -------- ------ -------- ------- -------- ------
Adjusting Items
Restructuring - 0.9 - - 0.9 - 0.9
Business transformation 3.0 17.4 - 2.3 22.7 - 22.7
Increase in environmental provisions
due to additional remediation
work identified - - - 5.6 5.6 - 5.6
Increase in environmental provisions
due to change in discount rate - - - 1.1 1.1 - 1.1
M&A and disposal costs 2.0 - - - 2.0 1.7 3.7
Impairment of goodwill - 26.9 33.4 - 60.3 - 60.3
Amortisation of intangibles
arising on acquisition 8.6 1.1 5.6 0.2 15.5 - 15.5
----------------------------------------- -------- -------- ------ -------- ------- -------- ------
Adjusted operating profit /(loss) 33.6 41.4 16.6 5.6 97.2 (15.6) 81.6
----------------------------------------- -------- -------- ------ -------- ------- -------- ------
Other expenses - - - - - (1.6) (1.6)
Finance income - - - - - 0.3 0.3
Finance costs - - - - - (27.6) (27.6)
----------------------------------------- -------- -------- ------ -------- ------- -------- ------
Adjusted profit /(loss) before
income tax 33.6 41.4 16.6 5.6 97.2 (44.5) 52.7
----------------------------------------- -------- -------- ------ -------- ------- -------- ------
*Restated for the amalgamation of the Energy business into the
Coatings segment
6. Income tax expense
2021 2020
$m $m
------------------------------------------------------ ------ ------
Current tax on continuing operations:
------------------------------------------------------ ------ ------
UK corporation tax 12.2 6.5
Overseas corporation tax on continuing operations 5.8 8.6
Adjustments in respect of prior years:
United Kingdom (1.0) 0.1
Overseas (7.2) (8.3)
------------------------------------------------------ ------ ------
Total current tax 9.8 6.9
------------------------------------------------------ ------ ------
Deferred tax:
United Kingdom (2.8) (1.0)
Overseas (3.2) (11.1)
Adjustment in respect of prior years:
United Kingdom - -
Overseas (0.5) 3.4
------------------------------------------------------ ------ ------
Total deferred tax (6.5) (8.7)
------------------------------------------------------ ------ ------
Income tax (credit)/expense for the year 3.3 (1.8)
------------------------------------------------------ ------ ------
Comprising:
------------------------------------------------------ ------ ------
Income tax (credit)/expense for the year 3.3 (1.8)
------------------------------------------------------ ------ ------
Adjusting items (1)
Overseas taxation on adjusting items (12.2) (12.4)
UK taxation on adjusting items 0.9 (3.6)
Taxation on adjusting items (11.3) (16.0)
------------------------------------------------------ ------ ------
Income tax expense for the year after adjusting items 14.6 14.2
------------------------------------------------------ ------ ------
(1) See Note 5 for details of adjusting items.
The tax charge on profits represents an effective rate of 56.9%
(2020: 2.6%) and an effective tax rate after adjusting items of
19.0% (2020: 26.9%).
The tax impact of the adjusting items outlined within note 5 and
within the Consolidated income statement relates to the
following:
2021 2021 2020 2020
Gross Tax impact Gross Tax impact
$m $m $m $m
--------------------------------------------------- ------ ----------- ------ -----------
Restructuring - - 0.9 -
Business transformation 4.6 1.0 22.7 6.3
Environmental provisions 8.3 1.6 6.7 1.0
M&A and disposal costs 1.7 - 3.7 -
Impairment of goodwill 52.3 - 60.3 5.6
Mark to market of derivative financial instruments (10.7) (2.0) 10.2 1.9
Sale of Montreal land (1.0) - - -
Amortisation of intangibles arising on acquisition 16.0 3.5 15.5 1.2
Currency hedge due to dividend cancellation - - 1.8 -
Sale of Elementis Specialties (Changxing) Ltd - - (0.3) -
Reversal of uncertain tax provision - 7.2 - -
--------------------------------------------------- ------ ----------- ------ -----------
Total 71.2 11.3 121.5 16.0
--------------------------------------------------- ------ ----------- ------ -----------
The Group is international and has operations across a range of
jurisdictions. Accordingly, tax charges of the Group in future
periods will be affected by the profitability of operations in
different jurisdictions and changes to tax rates and regulations in
the jurisdictions within which the Group has operations. The Group
's effective tax rate in 2021 is slightly lower than its usual
range due to beneficial adjustments in respect of prior years and
the one-off impact of the UK rate change on its deferred tax
assets. The medium-term expectation for the Group's adjusted
effective tax rate is around 22-23% until 2023, after which it is
anticipated to rise to 25-26% due to the previously announced
increase in UK corporation tax rates from April 2023.
On 20 December 2021 the OECD published its Global Anti-Base
Erosion Model Rules (Pillar Two). The report provides a model for a
coordinated system of taxation that imposes a top-up tax on profits
arising in a jurisdiction whenever the effective tax rate,
determined on a jurisdictional basis, is below the minimum tax rate
of 15%. Each OECD member nation has begun consultations on the
implementation of these model rules into local legislation, with
the expectation that they will be enshrined into law in 2023. The
Group is currently considering the impact of the announcements on
its tax position.
The total charge for the year can be reconciled to the
accounting profit as follows:
2021 2021 2020 2020
$m % $m %
----------------------------------------- ------ -------- ------- -------
Profit/(loss) before tax 5.8 (68.8)
----------------------------------------- ------ -------- ------- -------
Tax at 19.0% (2020: 19.0%) 1.1 19.0 (13.1) 19.0
Difference in overseas effective tax
rates 1.5 25.9 4.0 (5.8)
Income not taxable and impact of tax
efficient financing (0.9) (15.5) (4.7) 6.8
Expenses not deductible for tax purposes 12.0 206.9 11.5 (16.7)
Adjustments in respect of prior years (8.7) (150.0) (4.8) 7.0
Tax rate changes (1.2) (20.7) 1.3 (1.9)
Movement in unrecognised deferred tax (0.5) (8.7) 4.0 (5.8)
Total charge/(credit) and effective
tax rate for the year 3.3 56.9 (1.8) 2.6
----------------------------------------- ------ -------- ------- -------
7. Earnings per share
The calculation of the basic and diluted earnings per share
attributable to the ordinary equity holders of the parent is based
on the following:
2021 2020
$m $m
-------------------------------------------------- ----- ------
Earnings:
Earnings/(loss) for the purpose of basic earnings
per share 2.5 (67.0)
Adjusting items net of tax 59.9 105.5
-------------------------------------------------- ----- ------
Adjusted earnings 62.4 38.5
-------------------------------------------------- ----- ------
2021 2020
m m
--------------------------------------------------- ----- -----
Number of shares:
Weighted average number of shares for the purposes
of basic earnings per share 581.0 580.1
Effect of dilutive share options 7.8 13.6
--------------------------------------------------- ----- -----
Weighted average number of shares for the purposes
of diluted earnings per share 588.8 593.7
--------------------------------------------------- ----- -----
2021 2020
cents cents
------------------------------ ------ ------
Earnings per share:
Basic earnings / (loss) 0.4 (11.5)
Diluted earnings / (loss) 0.4 (11.3)
Basic after adjusting items 10.7 6.6
Diluted after adjusting items 10.6 6.5
------------------------------ ------ ------
8. Contingent liabilities
As is the case with other chemical companies, the Group
occasionally receives notice of litigation relating to regulatory
and legal matters. A provision is recognised when the Group
believes it has a present legal or constructive obligation as a
result of a past event, and it is probable that an outflow of
economic benefits will be required to settle the obligation. Where
it is deemed that an obligation is merely possible and that the
probability of a material outflow is not remote, the Group would
disclose a contingent liability.
The Group has not received any notice of litigation relating to
events arising prior to the balance sheet date that is expected to
lead to a material exposure.
In 2013 the UK Government (through HMRC) introduced the UK
Finance Company Exemption ('FCE') regime. Elementis entered into
the FCE regime during 2014. In October 2017 the European Commission
opened a State Aid investigation into the regime. In April 2019 the
European Commission concluded that the FCE regime constituted State
Aid in circumstances where Groups had accessed the regime using a
financing company with UK significant people functions; the
European Commission therefore instructed the UK Government to
collect any relevant State Aid amounts. The UK government and other
UK-based international companies, including Elementis, appealed to
the General Court of the European Union against the decision in
2019. In Spring 2020 HMRC requested that affected Groups submit
their UK significant people function analysis. The deadline for
submission of these analyses was delayed due to the impact of
COVID-19 and Elementis submitted its analysis to HMRC in July 2020.
In December 2020 the UK government introduced legislation to
commence collection proceedings. Elementis received a charging
notice from HMRC on 5 February 2021 which assessed for the maximum
exposure of $19m (excluding interest). This was paid to HMRC on 5
March 2021. A charging notice for associated interest of $1m was
received on 24 June 2021 and paid on 7 July 2021. Whilst Elementis
has lodged an appeal against the charging notice this does not
defer the payment of the tax assessed. As Elementis considers that
the appeal will ultimately be successful, at 31 December 2021 an
asset has been recorded within non current assets in the accounts
on the expectation that the charge will be repaid in due course.
The UK Government's appeal against the European Commission's
decision was heard by the General Court of the European Union
during October 2021 with a decision expected during 2022.
9. Events after the balance sheet date
There were no other significant events after the balance sheet
date.
10. Goodwill and other intangible assets
2021 2020
$m $m
---------------------------------------------- ------ ------
1 January 668.0 725.7
Exchange differences (2.2) 2.6
Acquisitions 0.5 -
Disposals (1.0) -
Impairment (52.3) (60.3)
---------------------------------------------- ------ ------
31 December 613.0 668.0
---------------------------------------------- ------ ------
Other intangible assets 202.7 224.7
---------------------------------------------- ------ ------
Total goodwill and intangibles at 31 December 815.7 892.7
---------------------------------------------- ------ ------
At 31 December 2021 we considered the continuing impact of
COVID-19 on wider industrial activity and global supply chains,
especially affecting the automotive sector, which has impacted
current year performance and the near term forecast profitability
of the Talc business to be an indicator of impairment of goodwill
for the Talc CGU. As a result, an impairment test was performed
which resulted in recognition of an impairment of $53.1m to the
goodwill of the Talc CGU as at 31 December 2021 based on a
recoverable amount of $440.7m. Due to the currency of the entity in
which the goodwill is held, this impairment is reflected as a
P&L charge of $52.3m and $0.8m movement in exchange differences
on translation of foreign operations in other comprehensive
income.
In reaching the impairment charge the forecast period included
revenue growth of between 5% and 8%. A pre-tax discount rate of
10.0% was applied. The outcome of the impairment review was most
sensitive to changes to forecast revenues and discount rate. A 0.5%
increase in the pre-tax discount rate would have increased the
impairment charge by $29.2m and a 3% decrease in forecast revenues
in each year of the five year forecast period would have increased
the impairment charge by $43.6m.
No impairment was identified for the Personal Care, Coatings and
Chromium CGUs.
Alternative performance measures and unaudited information
Alternative performance measures
A reconciliation from reported profit for the year to earnings
before interest, tax, depreciation and amortisation (EBITDA) is
provided to support understanding of the summarised cash flow
included within the Finance report.
2021 2020
Profit Profit
and and
loss loss
$m $m
------------------------------------------------- ------- -------
Profit/(loss) for the year 2.5 (67.0)
--------------------------------------------------- ------- -------
Adjustments for
Finance income (11.0) (0.3)
Finance costs and other expenses after
adjusting items 29.9 41.2
Tax (credit)/charge 3.3 (1.8)
Depreciation and amortisation 68.3 66.7
Excluding intangibles arising on acquisition (16.0) (15.5)
Adjusting items before finance costs
and depreciation 81.5 109.5
--------------------------------------------------- ------- -------
Adjusted EBITDA 158.5 132.8
--------------------------------------------------- ------- -------
There are also a number of key performance indicators (KPIs)
used in this report. The reconciliations to these are given
below.
Adjusted operating cash flow
Adjusted operating cash flow is defined as the net cash flow
from operating activities less net capital expenditure but
excluding income taxes paid or received, interest paid or received,
pension contributions net of current service cost and adjusting
items.
2021 2020
$m $m
-------------------------------------------------- ------ ------
Net cash flow from operating activities 66.7 107.1
-------------------------------------------------- ------ ------
Less: Capital expenditure (52.4) (40.0)
Add:
Income tax paid or received 30.9 8.5
Interest paid or received 23.5 23.7
Pension contributions net of current service cost 0.1 0.1
Adjusting items - non cash (13.2) (1.8)
Adjusting items - cash 20.4 12.2
-------------------------------------------------- ------ ------
Adjusted operating cash flow 76.0 109.8
-------------------------------------------------- ------ ------
Adjusted operating cash conversion
Adjusted operating cash conversion is defined as operating cash
flow (as defined above) excluding payments for provisions and share
based pay, divided by operating profit from total operations after
adjusting items.
2021 2020
$m $m
---------------------------------------- ----- -----
Operating profit after adjusting items 106.6 81.6
---------------------------------------- ----- -----
Operating cash flow 76.0 109.8
Add:
Provision and share based payments (1.9) 1.7
---------------------------------------- ----- -----
74.1 111.5
---------------------------------------- ----- -----
Adjusted operating cash flow conversion 70% 137%
---------------------------------------- ----- -----
Contribution margin
The Group's contribution margin, which is defined as sales less
all variable costs, divided by sales and expressed as a
percentage.
2021 2020
$m $m
--------------------- ------- -------
Revenue 880.1 751.3
--------------------- ------- -------
Variable costs (479.2) (410.8)
Non variable costs (66.0) (83.2)
--------------------- ------- -------
Cost of sales (545.2) (494.0)
--------------------- ------- -------
Adjusted Group profit before tax
Adjusted Group profit before tax is defined as the Group profit
before tax from total operations (both continuing and discontinued)
after adjusting items, excluding adjusting items relating to
tax.
Adjusted return on operating capital employed
The adjusted return on operating capital employed (ROCE) is
defined as operating profit from total operations after adjusting
items divided by operating capital employed, expressed as a
percentage. Operating capital employed comprises fixed assets
(excluding goodwill), working capital and operating provisions.
Operating provisions include self insurance and environmental
provisions but exclude retirement benefit obligations.
2021 2020
$m $m
------------------------------------------------------- ------ ------
Operating profit from total operations after adjusting
items 106.6 81.6
------------------------------------------------------- ------ ------
Fixed assets excluding goodwill 722.1 740.7
Working capital 164.0 141.4
Operating provisions (61.8) (58.8)
------------------------------------------------------- ------ ------
Operating capital employed 824.3 823.3
Adjusted return on capital employed 13% 10%
------------------------------------------------------- ------ ------
Average trade working capital to sales ratio
The trade working capital to sales ratio is defined as the 12
month average trade working capital divided by sales, expressed as
a percentage. Trade working capital comprises inventories, trade
receivables (net of provisions) and trade payables. It specifically
excludes repayments, capital or interest related receivables or
payables, changes due to currency movements and items classified as
other receivables and other payables.
Adjusted operating profit/operating margin
Adjusted operating profit is the profit derived from the normal
operations of the business. Adjusted operating margin is the ratio
of operating profit, after adjusting items, to sales.
Unaudited information
To support a full understanding of the performance of the Group,
the information below provides the calculation of Net Debt/EBITDA
as per our banking covenants.
2021 2020
$m $m
---------------------------- ----- -----
Revenue 880.1 751.3
Adjusted operating profit 106.6 81.6
Adjusted operating margin 12.1% 10.9%
Adjusted EBITDA 158.5 132.8
IFRS 16 adjustment (6.8) (6.4)
---------------------------- ----- -----
Adjusted EBITDA pre IFRS 16 151.7 126.4
Net Debt 401.0 408.1
Net Debt/EBITDA* 2.64 3.23
---------------------------- ----- -----
* Net Debt/EBITDA, where EBITDA is the Adjusted EBITDA on
continuing operations of the Group on a pre IFRS16 basis, is the
definition of Net Debt/EBITDA for Elementis' core banking
covenants.
*****************************************************
Related party transactions
The Company is a guarantor to the UK pension scheme under which
it guarantees all current and future obligations of UK subsidiaries
currently participating in the pension scheme to make payments to
the scheme, up to a specified maximum amount. The maximum amount of
the guarantee is that which is needed (at the time the guarantee is
called on) to bring the scheme's funding level up to 105 per cent
of its liabilities, calculated in accordance with section 179 of
the Pensions Act 2004. This is also sometimes known as a Pension
Protection Fund ("PPF") guarantee, as having such a guarantee in
place reduces the annual PPF levy on the scheme.
Directors' responsibility statement
The following is an extract of the full statement prepared in
connection with the Company's Annual Report and Accounts
(comprising both consolidated and parent company financial
statements) for the year ended 31 December 2021. The full text of
the Directors' responsibility statement will appear in the 2021
Annual Report and Accounts.
The Directors of the Company confirm that to the best of their
knowledge:
-- The financial statements, which have been prepared in
accordance with the relevant financial reporting framework, give a
true and fair view of the assets, liabilities, financial position
and profit or loss of the Company and the undertakings included in
the consolidation taken as a whole.
-- The strategic report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
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END
FR JJMBTMTJMMTT
(END) Dow Jones Newswires
March 03, 2022 02:01 ET (07:01 GMT)
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