TIDMELM
RNS Number : 5286U
Elementis PLC
02 August 2022
2 August 2022
ELEMENTIS plc
INTERIM RESULTS FOR THE SIX MONTHSED 30 JUNE 2022
Strong financial performance, adjusted operating profit up 21%
to $66m
-- Revenue up 6% (up 9% on an underlying basis*) to $478m driven
primarily by successful pricing actions to address rapid cost
inflation, as well as improved mix.
-- Adjusted operating profit up 21% (25% on an underlying
basis*) to $66m, with adjusted operating margin up from 12.0% to
13.7%, as improved price/mix offset continued cost inflation.
Profit after tax of $21m compared to $28m in prior year period,
with improved performance offset by higher adjusting items(6) .
-- Leverage ratio(5) down from 3.0x (H1 21) to 2.4x net
debt/EBITDA and further progress expected at the year end, in line
with typical cash flow seasonality. Net debt of $393m down on the
prior year (30 June 21: $415m), with increased earnings partially
offset by working capital outflow to secure adequate supplies of
critical inventory and to fund growth.
Further strategic progress, well positioned for sustainable
growth and value creation
-- Record Coatings performance, reflective of a higher quality
business with further growth potential. Strong Personal Care
performance linked to demand recovery and encouraging strategic
momentum. As expected, Talc performance was impacted by auto and
paper demand related market headwinds - self-help actions,
including the full benefit of price increases, to drive improved
second half.
-- Continued progress on Innovation, Growth and Efficiency
strategy to deliver medium term Group performance objectives.
Delivered $36m of revenue from new business opportunities, 10 new
product launches with new product revenues up from 13% to 14% of
sales. On course for targeted $10m of annual cost savings by 2023,
with new India AP Actives plant on track for full start up.
-- Strategic review of Chromium progressing - further update expected around calendar year end.
Upgrade to guidance - strength in a challenging environment
-- Steady demand coupled with self-help actions are anticipated
to drive an improved full year financial performance and further
deleveraging.
-- While mindful of macroeconomic headwinds, the Group's
financial performance is expected to be towards the top end of
consensus expectations^.
FINANCIAL SUMMARY
Six months Six months ended % Change
ended 30 June 30 June 2021 Reported
2022
Revenue $478m $452m +6%
Profit for the period $21m $28m -25%
Basic earnings per share(2) 3.6c 4.8c -25%
Adjusted operating profit(1) $66m $54m +21%
Adjusted profit before tax(1) $53m $40m +34%
Adjusted diluted earnings
per share(2) 7.1c 5.5c +29%
Adjusted operating cash flow(3) $19m $30m -37%
Net debt(4) $393m $415m -5%
Ordinary dividend per share - - -
Business performance overview
-- Personal Care revenue up 23% on an underlying basis* (up 19%
on a reported basis) at $106m. Adjusted operating profit up 42% on
an underlying basis* (up 35% on a reported basis) to $26m, with
adjusted operating margin of 24.5%, up from 21.6% in the prior
year.
o Strong performance against a weak prior year comparative
driven by improved category demand as COVID-19 restrictions ease,
pricing actions and continued new business success in skin care and
Asia.
o Margins at 24.5%, back towards historical levels, with
underlying growth offsetting input cost inflation.
-- Coatings revenue up 9% on an underlying basis* (up 6% on a
reported basis), from $197m to $209m. Adjusted operating profit of
$44m significantly up on prior year ($33m), with adjusted operating
profit margins of 20.9%, up from 16.7% in the prior year.
o Strong new business momentum, particularly in North America,
and successful pricing actions partially offset by China volume
weakness and normalisation of European decorative demand.
o Continued margin improvement despite accelerating input cost
inflation, reflective of improved product portfolio, new business
wins and pricing actions.
-- Talc revenue up 4% on an underlying basis* to $73m (down 5%
on a reported basis). As expected, adjusted operating profit down
from $8m to $3m, with adjusted operating margin of 3.7%, down from
10.3% in the prior year.
o Successful pricing actions offset by particularly weak
European automotive demand and strike at a major paper customer
(since resolved).
o Margins impacted by short term volume impact, while pricing
actions fully mitigate variable cost increases.
-- Chromium revenue up 1% to $91m. Adjusted operating profit down 9% to $4m.
o Modest revenue improvement, with strong pricing actions and
better mix partially offset by lower volumes due to reduced
production at Castle Hayne (now resolved).
o Adjusted operating margin down from 5.1% to 4.6%, with
variable cost inflation fully offset by price increases, but
outweighed by reduced plant production and associated maintenance
costs.
Commenting on the results, CEO, Paul Waterman said:
"We have made a strong start to the year, benefiting from the
combination of focused strategy execution and proactive price
management. Whilst we are mindful of the continued macroeconomic
risks, the Group has demonstrated the attractiveness of its
business model and is well positioned to manage these impacts. We
expect that steady demand coupled with our self-help agenda will
drive an improved financial performance, towards the top end of
expectations, alongside further deleveraging.
The fundamentals of our business remain strong. We have high
quality assets with enduring competitive advantages and strong
pricing power, and I am confident that the implementation of our
Innovation, Growth and Efficiency strategy will position Elementis
to deliver our medium term financial ambitions and generate
significant shareholder value".
Notes:
^ Based on company compiled consensus, the Board believes
current market forecast for 2022 adjusted operating profit to be in
the range of $107m to $125m with an average of $115m.
* Adjusted for constant currency. See Finance Report.
** New products defined as products launched within the last 5
years that are patented and protected products (excluding
Chromium)
1 - See note 5
2 - See note 9
3 - See Finance report
4 - See note 12
5 - See unaudited pro forma information
6 - As detailed in note 5, including a $23m non-cash impairment
in respect of non-operational nickel bio-leaching PPE
Further information
A virtual presentation for investors and analysts will be held
at 09:30 BST on 2 August 2022. The presentation will be webcast on
www.elementis.com and a copy of this Interim Results announcement
can also be found on this website. Conference call dial in
details:
UK: 020 3936 2999 Other locations: +44 20 3936 2999
Participant access code: 530093
Enquiries
Elementis
James Curran, Investor Relations 020 7067 2994
Tulchan
Martin Robinson 020 7353 4200
Olivia Peters
-S -
Business review
CEO's report
The Group delivered a strong financial performance in the first
six months of the year, despite global supply chains remaining
stretched, inflation surging and pockets of soft demand. This is
testament to the attractiveness of our business model and the
importance of our self-help agenda. Coatings and Personal Care
performed particularly well, and while Talc's financial performance
was as expected disappointing due to market related headwinds, the
fundamentals of the business are unchanged and with clear
opportunities for margin recovery and growth. The Group's
performance, combined with continued strategic momentum as part of
our Innovation, Growth and Efficiency agenda, has put us in a good
position to make further progress towards our medium term
performance objectives.
Group performance
In the six months to 30 June 2022, revenue rose 9% on an
underlying basis* (up 6% on a reported basis) as strong pricing and
mix improvements more than offset weaker volumes linked to
unplanned maintenance in Chromium, China coatings softness and
automotive and paper related headwinds in Talc. Adjusted operating
profit rose 21% on a reported basis to $66m, with successful
pricing actions and improved mix more than offsetting cost
inflation linked to global supply chain challenges. As a result,
margins improved from 12.0% to 13.7%. Reported operating profit
decreased from $45m to $32m because of increased adjusting items,
as detailed in Note 5.
Personal Care
In the six months to 30 June 2022, Personal Care revenue
increased 23% on an underlying basis* (up 19% on a reported basis)
against a weak prior year comparative driven by demand recovery,
pricing actions and continued strategic progress. As COVID-19
related social and travel restrictions further eased, particularly
in the western hemisphere, retail demand in our two key end
markets, colour cosmetics and anti-perspirant deodorants, continued
to recover. Asia and skin care, two areas of strategic focus, also
showed good momentum. Despite lockdowns in China, sales into Asia
grew 18% driven by recent capability investments, while skin care
sales grew 23% supported by new product launches.
Adjusted operating profit for Personal Care increased 42% on an
underlying basis* (up 35% on a reported basis) to $26m, with an
adjusted operating margin of 24.5% versus 21.6% in the prior year.
Improved volumes and successful pricing actions more than offset
increased input costs.
Coatings
In Coatings, revenue rose 9% on an underlying basis* (up 6% on a
reported basis) to $209m with successful pricing actions and
improved mix offsetting lower volumes. All regional performance
commentary is on an underlying basis* unless otherwise stated.
-- Americas revenue rose 47% on the back of strong new business
success and pricing actions. In the US, decorative demand remained
healthy, driven by steady construction and residential property
activity, and continued new business momentum for our Rheolate(R)
HX rheology series. Revenue from industrial coatings was higher
than the prior year period as underlying demand improved in areas
such as maintenance and protective coatings.
-- EMEA revenue rose 20% on the prior year period as improved
pricing and robust industrial demand more than offset a
normalisation in decorative activity. Industrial coatings demand
improved, reflective of new business success, particularly for our
Thixatrol(R) (organic thixotrope) products for adhesive and
sealants applications.
-- In Asia, where approximately 80% of our sales come from
industrial coatings, revenue declined 27% because of weaker
industrial activity in China, our largest market (70% of regional
sales), due to COVID-19 lockdowns. Outside of China, performance
was much stronger in South East Asia as markets such as India and
Vietnam experienced resilient demand and our recent sales and
marketing investments in the region benefited performance.
Adjusted operating profit rose 37% on an underlying basis* (33%
on a reported basis) from $33m to a record level of $44m with
improved price/mix and new business success partially offset by
accelerating raw material cost inflation and volume weakness in
China. As a result, adjusted operating profit margins increased
from 16.7% to a record high of 20.9%.
Talc
In Talc, revenue rose 4% on an underlying basis* (down 5% on a
reported basis from $77m to $73m) with successful pricing actions
offset as expected by volume weakness in plastic and paper
applications.
Revenue from industrial talc (representing over 85% of total
Talc revenue) rose 7% on an underlying basis*, with successful
price increases in response to variable cost inflation partially
offset by volume declines. Long life plastics sales were impacted
by continued European automotive production declines (-12% vs prior
year period(+/-) ) linked to semi-conductor and Russia/Ukraine
related production issues. Sales to coatings customers grew double
digits on the prior year period driven by successful pricing
actions and growth in Asia as we continue expand the geographic
presence of the business via cross selling to existing Coatings
customers.
Outside of industrial talc, sales to the graphic paper market
declined by 41% following the temporary shutdown (January-April) of
our main customer's production plant in Finland due to strike
action.
Adjusted operating profit declined from $8m to $3m (margins down
from 10.3% to 3.7%), as pricing actions to mitigate variable cost
inflation were more than offset by lower volumes due to challenging
market demand conditions. Second half performance is expected to be
stronger driven by the full benefit of implemented price increases,
new business wins, technical ceramics order timing and the restart
of production at our customer's paper plant.
In the first half of 2022 the Group recognised a non-cash $23m
impairment in respect of non-operational nickel bioleaching
property, plant and equipment. Elementis determined that the
operational, HSE and financial commitments required were not the
best use of the Group's resources. This has been treated as an
adjusting item.
Chromium
Revenue in the period was $91m, up 1% from $90m in the first six
months of 2021 with improved year on year average pricing largely
offset by weaker volumes due to reduced production at our Castle
Hayne plant following unplanned maintenance.
Due to improved industrial activity following the COVID-19
related lows in 2020, demand for chromium chemicals has increased
across a range of end markets including North American automotive,
leather tanning and protective applications. As a result, we
estimate global chromium industry capacity utilisation reached
approximately 90% in the first half of 2022, compared to 85% in the
prior year. It is anticipated this will result in further spot
market price increases that should benefit our revenue and margin
performance in the second half of the year and into 2023.
Adjusted operating profit for the first six months of the year
was $4m, down 9% on the prior year period with pricing actions to
offset variable cost increases outweighed by the volume declines.
Adjusted operating profit margin fell from 5.1% to 4.6%.
Balance sheet
At 30 June 2022 net debt was $393m compared to $415m at 30 June
2021, with improved earnings partially offset by working capital
requirements to secure adequate supplies of critical inventory
items and to fund growth, representing a net debt to adjusted
EBITDA ratio** of 2.4x (3.0x at 30 June 2021). Further progress on
debt and leverage reduction is expected in the second half, driven
by earnings and strong underlying cashflow generation, in line with
typical seasonality.
The Group successfully refinanced its term loans effective 1
July 2022. The Group took the opportunity to reduce the overall
term loan commitment from $400m to $300m, split between USD and
Euro tranches. The new term loans have a maturity of June 2026 with
the option of a one year extension. The terms of the existing $375m
revolving credit facility are unchanged with maturities in
September 2024 ($72m) and September 2025 ($303m).
Interim dividend
We recognise the importance of a dividend to our shareholders.
However, given the Group's financial leverage and the continued
macroeconomic uncertainty, the Board has decided it is prudent not
to declare an interim dividend for 2022. The Board will keep future
dividends under review and will restart payments as soon as it is
appropriate to do so.
Strategic progress
In recent years, we have made significant progress positioning
Elementis as a premium performance additives company, based on
unique assets, value chains, and with clear opportunities for
growth. Our strategic pillars of Innovation, Growth and Efficiency
are designed to leverage this differentiated portfolio and the
execution of our strategic priorities will deliver our medium term
performance objectives of:
- 17% adjusted operating profit margin: driven by Innovation, Growth, Efficiency
- 90% plus adjusted operating cash conversion: consistent with 5
year average historical performance
- Leverage under 1.5x net debt / EBITDA: consistent with debt reduction track record
1. Innovation
We are a global leader in performance additives. Across
decorative coatings, premium skin creams and recyclable food
packaging, our additives are integral to performance, and our
global team of scientists are continually driving the creation of
more effective and sustainable solutions to address the needs of
our customers and consumers globally.
Our innovation agenda is clear. Firstly, we want to create
distinctive new technologies that deliver both improved performance
and sustainability benefits. At present, 55% of our revenue (H1
2021: 53%) is from products that are natural or naturally derived ,
building on our progress in recent years. Platforms such as our
castor wax based organic thixotropes for high performance adhesives
and hectorite derived skin care ingredients provide a great
foundation from which to drive this higher.
Secondly, we are focused on the key innovation challenges that
our customers face. Consumers are increasingly aware of the impact
their buying decisions have on the environment, and as a result,
major Personal Care brands are, for example, seeking to reduce the
amount of water used in their production systems. Our growing range
of skin care products including Thixcin(R) R PC and Bentone
Hydroclay(TM) are well positioned to help; they are natural, water
free and can be used to create luxury products such as cleansers,
face masks and balms. Customer uptake and feedback has been strong
and we are progressing well in delivering our ambition of $10m
incremental skin care sales over the medium term.
Open innovation is also an important enabler of our strategic
ambitions and in the first half we launched several products in
partnership with NXTLEVVEL Biochem. Revenue from new products***
rose from 13% in the prior year period to 14%, progressing towards
our goal of 17% by 2025. Our innovation pipeline is well positioned
and in 2022 we are on track to bring more than 20 new products to
the market.
2. Growth
Across Personal Care, Coatings and Talc we transform natural and
long-life resources into high value additives through distinctive
processing, chemistry and formulation. These segments represent
over 90% of Group earnings and collectively we see over $100m of
medium term incremental growth opportunities.
In Coatings, our "growth platforms" are based on differentiated
technologies that respond to specific market needs or trends and
currently account for approximately one third of our revenue. In
the first half, these platforms grew 23% driven by $17m of new
business wins. Our Rheolate HX(R) series of NiSATs for premium
decorative paints continue to experience significant customer
momentum, particularly in North America, and are being supported by
capacity debottlenecking and investment at our New Martinsville and
Livingston plants, alongside new product launches. In addition, the
successful expansion of capacity in Hsinchu, Taiwan is supporting
the growth of our new castor wax based rheology modifiers for use
in adhesives and sealants. This innovation focus and customer
centric attitude, combined with reliable supply, has driven notably
strong new business momentum with our global key accounts. These
accounts represent the largest coatings companies in the world and
sales to them grew by 45% in the first half of the year. Recent
investments in our global key
account, innovation and technical services teams will ensure we
remain close to our customers and continue to build mutually
beneficial long term partnerships.
In Personal Care, we see significant scope to expand our scale,
and to do so at high margins. Asia represents under 20% of our
sales and the medium term aim is to double our cosmetics sales in
the region. Despite lockdowns in China, in the first half we grew
18% in Asia, benefitting from recent investments in local
resources, including a new technical service centre in Shanghai and
recent product launches. To drive further growth, we have continued
to invest, with new sales capabilities in India, and the launch of
hectorite gels approved for use in Japan, providing access to a
large and growing market. In skin care, we aim to deliver $10m of
incremental sales over the medium term, and with 23% growth in the
first half we are approximately two thirds of the way to our
target. Finally, in anti-perspirant actives, we experienced a
strong first half performance improvement and our new plant in
India is on course for full start up later this year, delivering
significant cost savings and enhancing our access to fast growing
markets in Asia.
In Talc, while our near-term performance has, as expected, been
impacted by weak demand in automotive applications and customer
specific issues in paper, the strong fundamentals of the business
are unchanged. We are the second largest global producer of
talc-based additives, and our growth strategy is focused on
expanding into new geographies and markets. In the first half of
2022, while sales in America were broadly flat, we grew 36% in Asia
driven by $8m of new business wins across long life plastics,
technical ceramics and coatings applications. We remain materially
underweight in both these regions and with considerable runway for
long term growth. We also are on track for our ultimate goal of
$20-25m of revenue synergies by 2023, reaching $21m in the first
half of the year, driven by 11% growth in sales to coatings
customers, leveraging Elementis' global key account network and
strong presence in the coatings market.
3. Efficiency
At Elementis we are always seeking to reduce the impact of our
operations on the environment and lower our cost to serve. Due to
ongoing global supply chain challenges the Group is experiencing
approximately 20% unit cost inflation across raw materials,
logistics and energy in 2022. We have responded by focusing on what
we can control - running our plants effectively and providing
security of supply to customers. In the first half of the year our
technical service team helped rapidly qualify over 20 alternative
raw materials and manufacturing processes, enabling our systems to
continue operating and supplying our customers. In addition, we
deployed raw material hedging strategies and implemented price
increases where necessary. These actions, combined with further
self-help, mean we are confident of defending our margins and
making progress towards our $10m of savings by 2023.
A key enabler of $10m supply chain savings by 2023 are our
global process improvement projects led by our team of engineers.
In the first half we completed 45 projects including the
installation of enhanced water monitoring systems in Vuonos,
Finland, reducing water usage at the site by over 80%, and the
re-engineering of our AP Actives production in New York state to
use alternative raw materials that are equally effective but 20%
cheaper.
Our process engineers also support our growth ambitions.
Following the commercial success of our premium decorative rheology
modifiers, and ahead of new capacity installation later this year,
our team in Livingston, Scotland successfully debottlenecked 20%
extra capacity thanks to optimised reaction times and increased
production staffing. These continuous improvement initiatives are
delivering significant efficiency, growth and sustainability
benefits across the Group, and with 70 further projects in the
pipeline we are well positioned for further progress.
Sustainability and the reduction of our environmental footprint
is at the forefront of all operational decisions. Our new
anti-perspirant actives plant in India, which is on track for full
start up in late third quarter, is an additional enabler of our
$10m of supply chain savings. This facility will create a cost
advantaged global supply chain that is well positioned to serve
fast growth markets, and, being a closed water production system,
is an incredibly environmentally friendly facility.
Chromium
In April 2022, we announced a strategic review of Chromium to
establish whether the full potential of the business can be best
delivered as part of Elementis or via a full or partial divestment.
The review is progressing as planned and a further update is
anticipated around the year end.
Outlook
While supply chain conditions remain extremely challenging and
global economic risks are elevated, the Group has again
demonstrated resilience and the importance of its self-help agenda.
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.
For the rest of the year, we are confident that our self-help
actions and a steady demand environment will deliver an improved
financial performance, towards the top end of consensus
expectations^, and a further reduction in leverage.
Notes:
Where we refer to adjusted performance measures (e.g. adjusted
operating profit), see note 5.
* Adjusted for FX (where constant currency reflects prior year
results translated at current year exchange rates). See Finance
report for the constant currency impact at a business unit
level.
** Excluding the impact of IFRS 16
*** New products defined as products launched within the last 5
years, patented and protected products (excluding Chromium)
Naturally derived products defined in accordance with IS0 16128
standard and explicitly excludes ingredients derived from fossil
fuels
(+/-) Source: IHS Automotive
^ Based on company compiled consensus, the Board believes
current market forecast for 2022 adjusted operating profit to be in
the range of $107m to $125m with an average of $115m.
Finance report
Effect
of
Revenue exchange Increase Revenue
Revenue for the six months 2021 rates 2022 2022
ended 30 June $m $m $m $m
--------------------------- ------- ---------- -------- -------
Personal Care 88.8 (2.6) 19.4 105.6
Coatings 196.6 (5.4) 18.1 209.3
Talc 76.5 (6.9) 2.9 72.5
Chromium 90.2 _ 0.7 90.9
Revenue 452.1 (14.9) 41.1 478.3
------------------------------- ------- ---------- -------- -------
Effect
of Increase/
Adjusted Adjusted
operating operating
profit exchange (decrease) profit
Adjusted operating profit for the
six months 2021 rates 2022 2022
ended 30 June $m $m $m $m
---------------------------------- ---------- ---------- ----------- ----------
Personal Care 19.2 (0.9) 7.6 25.9
Coatings 32.9 (1.0) 11.9 43.8
Talc 7.9 (0.6) (4.6) 2.7
Chromium 4.6 _ (0.4) 4.2
Central costs (10.3) 0.5 (1.2) (11.0)
Adjusted operating profit 54.3 (2.0) 13.3 65.6
-------------------------------------- ---------- ---------- ----------- ----------
Adjusting 2022
Operating profit for the Adjusted 2021 Adjusted
six months 2022 Operating operating 2021 Operating Adjusting operating
profit/(loss) items profit/(loss)(*) profit/(loss) items profit/(loss)*
ended 30 June $m $m $m $m $m $m
-------------------------- -------------- --------- ------------------ -------------- --------- ---------------
Personal Care 21.7 4.2 25.9 14.7 4.5 19.2
Coatings 42.6 1.2 43.8 30.1 2.8 32.9
Talc (23.3) 26.0 2.7 4.9 3.0 7.9
Chromium 2.1 2.1 4.2 5.7 (1.1) 4.6
Central costs (11.0) _ (11.0) (10.3) _ (10.3)
-------------------------- -------------- --------- ------------------ -------------- --------- ---------------
Total operating profit 32.1 33.5 65.6 45.1 9.2 54.3
-------------------------- -------------- --------- ------------------ -------------- --------- ---------------
*See note 5
Group results
Group revenue for the first six months of 2022 was $478.3m,
compared to $452.1m in the same period last year, an increase of
$26.2m (5.8%). Excluding the impact of currency, Group revenue rose
by 9.4%, driven by particularly strong performance in the Personal
Care and Coatings as a result of new business wins, improved mix
and successful pricing actions.
Group adjusted operating profit was $65.6m, compared to $54.3m
in the same period last year, an increase of 20.8%, and 25.4%
excluding currency movements representing an adjusted operating
profit margin of 13.7% well up from the 2021 margin of 12.0%. Cost
inflation was more than offset by sales price increases. Operating
profit decreased from $45.1m in the prior year period to $32.1m
with the strong operating performance being more than offset by the
impact of the adjusting items, specifically the $23m impairment of
the nickel bioleaching property, plant and equipment in the Talc
business (see note 5).
Central costs
Central costs are costs that are not identifiable as expenses of
a particular business and comprise the global corporate offices in
the UK and US which include the Board of Directors, executive and
senior management. The increase in central costs for the first half
of 2022 was primarily due to underlying cost inflation.
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 the 6 months ended June
2022 resulted in a charge of $25.8m before tax, an increase of
$20.5m against the same period 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.
2022 2021 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
------------------------------------------------------- ----------- ----------- ------------
Charge/(credit)
------------------------------------------------------- ----------- ----------- ------------
Adjusting items:
Business transformation 3.1 2.7 4.6
Environmental provisions (0.3) (1.5) 8.3
Impairment of property, plant and equipment 23.0 - -
Amortisation of intangibles arising on acquisition 7.7 8.0 16.0
Impairment of goodwill - - 52.3
Sale of Montreal land - - (1.0)
Total charge to operating profit 33.5 9.2 80.2
------------------------------------------------------- ----------- ----------- ------------
Sale of business - 1.1 1.7
Mark to market of derivatives (7.7) (5.0) (10.7)
Tax credit in relation to adjusting items (5.1) (0.6) (11.3)
------------------------------------------------------- ----------- ----------- ------------
Total adjusting items 20.7 4.7 59.9
------------------------------------------------------- ----------- ----------- ------------
In the first half of 2022, $33.5m of charges to operating profit
were classified as adjusting items. Of these items, $7.7m relates
to the amortisation of intangibles arising on acquisitions.
Business transformation costs of $3.1m represent costs relating to
previously initiated programmes to optimise our supply chain and
manufacturing footprint, and costs incurred in relation to the
Chromium strategic review announced in April 2022. A credit of
GBP0.3m to the environmental provision is comprised of a credit of
$5.9m related to the impact of changes in discount rates and a
charge of $5.6m related to changes in inflation assumptions. An
impairment of $23.0m relates to a non-operational nickel
bioleaching plant in Finland following management's decision not to
operate the plant for operational, HSE and financial reasons.
The credit to finance income of $7.7m represents movements in
mark to market valuation of financial instruments which are not in
hedging relationships.
An explanation of other adjusting items relating to the previous
period can be found within the Finance report of the 2021 Annual
report and accounts.
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 $0.7m in the period compared to
$1.0m in the previous year.
Net finance costs
30 June 30 June
2022 2021
$m $m
------------------------------------- ------- --------------
Finance income 0.1 0.3
Finance cost of borrowings (10.6) (12.1)
------------------------------------- ------- --------------
(10.5) (11.8)
Net pension finance income/(expense) 0.3 (0.3)
Unwind of discount on provisions (0.6) (0.6)
Fair value movement on derivatives 7.7 5.0
Interest on lease liabilities (0.7) (0.8)
------------------------------------- ------- --------------
Net finance costs (3.8) (8.5)
------------------------------------- ------- --------------
Net finance costs for the first six months of the year of $3.8m
were $4.7m lower than the same period last year. Within this total,
net interest costs were $1.3m lower at $10.5m due to a reduced
level of borrowings. Net pension finance costs were a $0.3m credit
in 2022 compared with a $0.3m debit in 2021 due an increase in the
discount rates. The unwind of discount on provisions and interest
on lease liabilities in the period remained in line with the
previous year. The fair value movement on derivatives which are not
in hedging relationships is credited to finance income.
Tax
The Group reports an adjusted tax charge for the first half of
2022 of $11.9m (2021: $7.5m); giving rise to an adjusted effective
tax rate of 22.3% (2021: 18.7%). The adjusted effective tax rate is
higher than the prior year due to the loss of benefit from the
Group's tax efficient financing structure, which was unwound during
2021.
Tax on adjusting items for the first half of 2022 amounts to a
credit of $5.1m (2021: credit of $0.6m); resulting in a total
statutory tax charge for the period of $6.8m (2021 charge of $6.9m)
and a reported effective tax rate of 24.6% (2021: 19.9%).
For the full year 2022, we currently forecast an adjusted
effective tax rate of around 23%.
Earnings per share
Statutory basic earnings per share was 3.6 cents for the period
compared to basic earnings per share of 4.8 cents in the prior
period.
Basic adjusted and diluted adjusted earnings per share for the
first half of 2022, calculated on the adjusted earnings of $41.5 m
(2021: $32.3 m ), were both 7.1 cents compared to 5.6 cents and 5.5
cents respectively for the same period last year.
Note 9 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.
Adjusted cash flow
Cash flow is summarised below:
30 June 30 June
2022 2021
$m $m
----------------------------------------------------------- ---------------------- -------
Profit before interest, tax, depreciation and amortisation
(Adjusted EBITDA)* 90.2 80.2
Change in working capital (48.8) (26.5)
Net capital expenditure (21.9) (24.2)
Other (0.5) 0.6
----------------------------------------------------------- ---------------------- -------
Adjusted operating cash flow 19.0 30.1
Pension contribution net of current service cost 0.4 0.5
Net interest paid (9.2) (11.8)
Tax (11.1) (24.0)
Adjusting items (1.1) (5.5)
Payment of lease liabilities (3.8) (3.3)
----------------------------------------------------------- ---------------------- -------
Free cash flow (5.8) (14.0)
Acquisitions and disposals - 1.9
Currency fluctuations 13.4 4.9
----------------------------------------------------------- ---------------------- -------
Decrease/(increase) in net debt 7.6 (7.2)
Net debt at start of period (401.0) (408.1)
----------------------------------------------------------- ---------------------- -------
Net debt as at end of period (393.4) (415.3)
----------------------------------------------------------- ---------------------- -------
* See alternative performance measures on page 32
Net debt as at 30 June 2022 of $393.4m is slightly down on the
2021 year end position of $401.0m, and down $21.9m compared with 30
June 2021. Adjusted operating cash flow in the period of $19.0m was
lower than the $30.1m in the comparative 2021 period, with higher
earnings partially offset by an increased working capital outflow
as a result of revenue growth and as a response to supply chain
challenges.
Net capital expenditure in the period was $21.9m, $2.3 m lower
than the previous year. Capital spending for the whole year is
expected to be between $50-55m. Key areas of growth spend are the
new plant in India, which is on course for full start up later this
year, NiSAT capacity expansion in Livingston, UK and low
temperature organic thixotrope investment in Asia. In addition
there has been spend in Chromium on the replacement of equipment
and investment in ERP systems for the Talc business.
There were no pension payments to the UK pension scheme in the
period (2021: nil). The most recent triennial review was completed
in November 2021 and as a result of the surplus identified no top
up contributions are required. The next review is due in September
2023.
Tax payments in the period of $11.1m were much lower than those
in 2021 due to the one off $20m payment (at the exchange rate on
the date of the transaction) in 2021 in respect of EU state aid
which we expect to be repaid in due course.
Dividend payments were nil in the first six months of 2022
(2021: nil). Despite the improvement in operating results and the
net debt position, there is still significant market uncertainty
and the Board believe it appropriate to continue to reduce net
debt. The Board will continue to monitor the situation and will
review the dividend position in the second half of the year.
Overall the Group had a net debt position at 30 June 2022 of
$393.4m, representing a net debt/EBITDA ratio of 2.4x on a pre-IFRS
16 basis (2.6x at December 2021). Further reduction in leverage is
expected by the year end, driven by improved trailing months
earnings and robust cash conversion. In the first half of 2022 the
Group successfully completed the refinancing of its Term Loan
facility. The new $300m Term Loan facility extends to June 2026
with a one year extension option.
Working capital
30 June 30 June 31 December
Working capital days 2022 2021 2021
------------------------------------- ------- ------- -----------
Inventory 121 96 105
------------------------------------- ------- ------- -----------
Debtors 43 44 42
------------------------------------- ------- ------- -----------
Creditors 73 66 71
------------------------------------- ------- ------- -----------
Average working capital to sales (%) 21.7 21.7 20.0
------------------------------------- ------- ------- -----------
Total working capital for the Group of $202.2m was $38.2m higher
than at 31 December 2021, driven by higher sales and higher
inventory levels to secure adequate supplies of critical inventory
. As a result, inventory days increased from 105 (December 2021) to
121 days. Debtor days and creditor days have remained reasonably
stable.
Balance sheet
30 June 30 June
31 December
2022 2021 2021
$m $m $m
------------------------------ ------- ------- -----------
Property, plant and equipment 452.6 506.5 499.7
Other net assets 840.2 832.6 802.3
Net debt (393.4) (415.3) (401.0)
------------------------------ ------- ------- -----------
Equity 899.4 923.8 901.0
------------------------------ ------- ------- -----------
Property, plant and equipment decreased by $47.1m compared to
the value at 31 December 2021, $23.0m as a result of the impairment
of the nickel bioleaching equipment in the Talc business, $23.3m as
a result of currency translation and depreciation of $24.4m for the
6 months running ahead of net capital expenditure of $21.9m. Other
net assets increased by $37.9m primarily as a result of working
capital increases.
Equity decreased by $1.6m compared to the value at 31 December
2021 as a result of the statutory profit in the period of $20.8m,
actuarial gains on pensions of $9.8m offset by deferred tax on
actuarial movements of $2.2m and a loss of $39.3m due to foreign
exchange impact on other comprehensive income. The remainder of the
movement relates primarily to share based payment provisions and
movements in derivatives.
The main dollar currency exchange rates as at 30 June 2022 and
average rates in the period were:
2022 2022 2021 2021
30 June Average 30 June Average
--------- --------- --------- --------- ---------
Sterling 0.82 0.77 0.72 0.72
--------- --------- --------- --------- ---------
Euro 0.96 0.91 0.84 0.83
--------- --------- --------- --------- ---------
Pensions and post retirement plans
UK US Other Total
$m $m $m $m
---------------------------------------------- ----- ----- ----- -----
Movement in net deficit
Net surplus/(deficit) in schemes at 1 January
2022 56.6 (8.3) (9.0) 39.3
Current service cost (0.3) (0.4) (0.2) (0.9)
Contributions - 0.2 0.3 0.5
Administration costs (0.5) (0.2) - (0.7)
Net interest expense 0.5 (0.1) (0.1) 0.3
Actuarial gain 8.3 1.3 0.2 9.8
Currency translation difference (6.1) - 0.7 (5.4)
Net surplus/(deficit) in schemes at 30
June 2022 58.5 (7.5) (8.1) 42.9
---------------------------------------------- ----- ----- ----- -----
During the period the surplus, under IAS 19, on the Group's
pension and post-retirement medical plans improved by $3.6m to a
net surplus of $42.9m. During the first six months of 2022 the UK
scheme had an annualised return on scheme assets of 35.8% (2021:
(2.1%)), liabilities decreased by 23% (2021: decreased by 8%) and
the net surplus increased by $1.9m. This movement was driven by
actuarial changes due predominantly to an increase in the discount
rate which more than offset a decrease in scheme assets over the
period. Within the US schemes the net deficit decreased by $0.8m
mainly due to an increase in the discount rate. Contributions in
the period totalled $0.5m (2021: $0.6m), all to the US plans. There
were no pension payments to the UK pension scheme in the period
(2021: nil). The most recent triennial review was completed in
November 2021 and as a result of the surplus identified no top up
contributions are required. The next review is due in September
2023.
Related party transactions
There were no material related party transactions entered into
during the first half of the year and there have been no material
changes to the related party transactions disclosed in the
Company's 2021 Annual report and accounts on
page 181.
Conflict between Russia and Ukraine
The conflict between Russia and Ukraine has had a major impact
on global economic and financial markets. Elementis has not been
directly impacted to a material extent by the conflict and the
resulting trade sanctions implemented against Russia and Belarus -
Elementis has no operational assets or staff in Russia, Belarus or
the Ukraine, no material individual customers in Russia or Belarus
nor any single-point supply exposure.
Elementis did respond immediately to the sanctions introduced
and ceased all supply of product to Russia and Belarus. An estimate
of the impact of the revenues lost from this is c.$12 million on an
annualised basis, impacting Personal Care, Coatings and Talc to
similar degrees. There are no receivables of note due from any
Russian or Belarus customers.
Elementis does not single source any product directly from
Russia or Ukraine but the Group, like all other companies, has been
impacted by the global supply challenges and the inflationary
impact of the conflict. Energy and key raw material inputs have
increased significantly in price during H1 and Elementis has
responded to this with sales price increases and a hedging strategy
for energy and key raw materials such as aluminum. In response to
the Global supply chain challenges, Elementis has increased its
strategic inventory levels to ensure continuity of production and
supply to our customers.
Elementis will continue to monitor the impact of the conflict
and respond appropriately to impacts on the business.
Cautionary statement
The Elementis plc interim results announcement for the half year
ended 30 June 2022, which comprises the CEO's report, Finance
report and the Directors' responsibility statement (which taken
together constitute the Interim management report) and the interim
financial statements and accompanying notes (incorporating a
Condensed consolidated balance sheet at 30 June 2022, Condensed
consolidated income statement, Condensed consolidated statement of
comprehensive income, Condensed consolidated cash flow statement
and Condensed consolidated statement of changes in equity, each for
the six months ended 30 June 2022) (altogether 'Half yearly
financial report'), contains information which viewers or readers
might consider to be forward looking statements relating to or in
respect of the financial condition, results, operations or
businesses of Elementis plc. Any such statements involve risk and
uncertainty because they relate to future events and circumstances.
There are many factors that could cause actual results or
developments to differ materially from those expressed or implied
by any such forward looking statements. Nothing in this Half yearly
financial report should be construed as a profit forecast.
Directors' responsibility statement
A full list of the Directors can be found on the Elementis
corporate website at: www.elementis.com .
The Directors confirm that to the best of their knowledge:
-- The condensed set of financial statements set out in this
Half-yearly financial report has been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted by the United
Kingdom.
-- The condensed set of consolidated financial statements, which
has been prepared in accordance with the applicable set of
accounting standards, gives a true and fair view of the assets,
liabilities, financial position and profit or loss of the issuer,
or the undertakings included in the consolidation as a whole as
required by DTR 4.2.4R; and
-- The interim management report contained in this Half-yearly
financial report includes a fair review of the information required
by:
- DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of the important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year.
- DTR 4.2.8R of the Transparency Rules, being related party
transactions that have taken place in the first six months of the
current financial year and that have materially affected the
financial position or performance of the entity during that period;
and any changes in related party transactions described in the 2021
Annual report and accounts that could have a material effect on the
financial position or performance of the entity during the first
six months of the current financial year.
Approved by the Board on 2 August 2022 and signed on its behalf
by:
Paul Waterman Ralph Hewins
CEO CFO
2 August 2022 2 August 2022
INDEPENT REVIEW REPORT TO ELEMENTIS PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2022 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated balance sheet,
the condensed consolidated cashflow statement, the condensed
consolidated statement of changes in equity, and related notes 1 to
16.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2022 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council for use in the
United Kingdom. A review of interim financial information consists
of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 2, the annual financial statements of the
group will be prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE (UK), however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the group a conclusion on the
condensed set of financial statement in the half-yearly financial
report. Our conclusion, including our Conclusions Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council. Our work
has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the
conclusions we have formed .
Deloitte LLP
Statutory Auditor
London, United Kingdom
2 August 2022
Condensed consolidated income statement
for the six months ended 30 June 2022
2022 2021 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
Note (unaudited) (unaudited) (audited)
------------------------------ ---- ------------ --------------- ------------
Revenue 4 478.3 452.1 880.1
Cost of sales (293.8) (283.8) (545.2)
------------------------------ ---- ------------ --------------- ------------
Gross profit 184.5 168.3 334.9
Distribution costs (76.8) (73.9) (151.9)
Administrative expenses (75.6) (49.3) (156.6)
Operating profit 4 32.1 45.1 26.4
Loss on disposal - (1.1) (1.7)
Other expenses (0.7) (1.0) (2.1)
Finance income 6 7.8 5.3 11.0
Finance costs 7 (11.6) (13.8) (27.8)
------------------------------ ---- ------------ --------------- ------------
Profit before tax 4 27.6 34.5 5.8
------------------------------ ---- ------------ --------------- ------------
Tax 8 (6.8) (6.9) (3.3)
------------------------------ ---- ------------ --------------- ------------
Profit for the period 20.8 27.6 2.5
------------------------------ ---- ------------ --------------- ------------
Attributable to:
Equity holders of the parent 20.8 27.6 2.5
------------------------------ ---- ------------ --------------- ------------
Earnings per share
Basic earnings (cents) 9 3.6 4.8 0.4
------------------------------ ---- ------------ --------------- ------------
Diluted earnings (cents) 9 3.5 4.7 0.4
------------------------------ ---- ------------ --------------- ------------
Condensed consolidated statement of comprehensive income for the
six months ended 30 June 2022
2022 2021 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
(unaudited) (unaudited) (audited)
---------------------------------------------------- ------------ ------------ -----------------------
Profit for the period 20.8 27.6 2.5
---------------------------------------------------- ------------ ------------ -----------------------
Other comprehensive income:
Items that will not be reclassified subsequently
to profit or loss:
Remeasurement of retirement benefit obligations 9.8 48.5 63.5
Deferred tax associated with retirement
benefit obligations (2.2) (11.8) (14.6)
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on translation of foreign
operations 0.3 (16.7) (29.1)
Effective portion of change in fair value
of net investment hedge (38.6) 12.3 10.7
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 losses
on disposal - (0.4) (0.4)
Effective portion of changes in fair value
of cash flow hedges 5.9 1.5 (0.1)
Fair value of cash flow hedges transferred
to income statement 1.8 (0.2) 2.7
Exchange differences on translation of share
options reserves (1.0) 0.1 -
---------------------------------------------------- ------------ ------------ -----------------------
Other comprehensive (loss)/income, net of
tax (24.0) 33.3 34.1
---------------------------------------------------- ------------ ------------ -----------------------
Total comprehensive (loss)/income for the
period (3.2) 60.9 36.6
---------------------------------------------------- ------------ ------------ -----------------------
Attributable to:
---------------------------------------------------- ------------ ------------ -----------------------
Equity holders of the parent (3.2) 60.9 36.6
---------------------------------------------------- ------------ ------------ -----------------------
Total comprehensive (loss)/income for the
period (3.2) 60.9 36.6
---------------------------------------------------- ------------ ------------ -----------------------
Condensed consolidated balance sheet
at 30 June 2022
2022 2021 2021
30 June 30 June 31 December
$m $m $m
(unaudited) (unaudited) (audited)
---------------------------------------------------- ------------ ------------ -------------
Non-current assets
Goodwill and other intangible assets 785.2 882.9 815.7
Property, plant and equipment 452.6 506.5 499.7
Tax recoverable 17.7 20.1 19.7
Deferred tax assets 28.0 26.3 28.0
Net retirement benefit surplus 58.5 45.2 56.6
Derivative financial instruments 4.0 - -
---------------------------------------------------- ------------ ------------ -------------
Total non-current assets 1,346.0 1,481.0 1,419.7
---------------------------------------------------- ------------ ------------ -------------
Current assets
Inventories 218.8 160.9 186.1
Trade and other receivables 152.0 155.2 138.9
Derivative financial instruments 7.0 1.5 0.2
Current tax asset 7.1 7.2 7.1
Cash and cash equivalents 76.7 93.6 84.6
---------------------------------------------------- ------------ ------------ -------------
Total current assets 461.6 418.4 416.9
---------------------------------------------------- ------------ ------------ -------------
Total assets 1,807.6 1,899.4 1,836.6
---------------------------------------------------- ------------ ------------ -------------
Current liabilities
Bank overdrafts and loans (5.3) - -
Trade and other payables (168.6) (152.9) (161.0)
Financial liabilities (0.8) (11.5) (1.4)
Current tax liabilities (14.3) (27.1) (17.4)
Lease liabilities (6.8) (7.3) (6.4)
Provisions (7.9) (6.2) (8.7)
---------------------------------------------------- ------------ ------------ -------------
Total current liabilities (203.7) (205.0) (194.9)
---------------------------------------------------- ------------ ------------ -------------
Non-current liabilities
Loans and borrowings (463.2) (505.2) (482.5)
Retirement benefit obligations (15.7) (19.4) (17.3)
Deferred tax liabilities (146.7) (151.1) (150.0)
Lease liabilities (31.1) (34.2) (33.8)
Provisions (47.8) (47.2) (53.1)
Financial liabilities - (13.5) (4.0)
---------------------------------------------------- ------------ ------------ -------------
Total non-current liabilities (704.5) (770.6) (740.7)
---------------------------------------------------- ------------ ------------ -------------
Total liabilities (908.2) (975.6) (935.6)
---------------------------------------------------- ------------ ------------ -------------
Net assets 899.4 923.8 901.0
---------------------------------------------------- ------------ ------------ -------------
Equity
Share capital 52.2 52.2 52.2
Share premium 243.0 240.5 240.8
Other reserves 58.5 104.8 90.7
Retained earnings 545.7 526.3 517.3
---------------------------------------------------- ------------ ------------ -------------
Equity attributable to equity holders of the parent 899.4 923.8 901.0
---------------------------------------------------- ------------ ------------ -------------
Total equity and reserves 899.4 923.8 901.0
---------------------------------------------------- ------------ ------------ -------------
Condensed consolidated cash flow statement
for the six months ended 30 June 2022
2022 2021 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
(unaudited) (unaudited) (audited)
Operating activities:
Profit for the period 20.8 27.6 2.5
Adjustments for:
Other expenses 0.7 1.0 2.1
Finance income (7.8) (0.3) (11.0)
Finance costs 11.6 8.8 27.8
Tax charge 6.8 6.9 3.3
Depreciation and amortisation 32.5 33.9 68.3
(Decrease)/increase in provisions and financial
liabilities (3.3) (6.1) 0.8
Pension payments net of current service cost 0.4 0.5 (0.1)
Share based payments expense 2.1 2.5 5.1
Impairment of goodwill - - 52.3
Loss on disposal of business - 1.1 1.7
Impairment of property, plant and equipment 23.0 - -
---------------------------------------------------- ------------ ------------ ------------
Operating cash flows before movements in working
capital 86.8 75.9 152.8
Increase in inventories (40.3) 3.0 (24.2)
Increase in trade and other receivables (19.3) (46.8) (33.8)
Decrease in trade and other payables 13.0 17.3 26.3
---------------------------------------------------- ------------ ------------ ------------
Cash generated by operations 40.2 49.4 121.1
Income taxes paid (11.1) (24.0) (30.9)
Interest paid (9.3) (12.1) (23.5)
---------------------------------------------------- ------------ ------------ ------------
Net cash flow from operating activities 19.8 13.3 66.7
---------------------------------------------------- ------------ ------------ ------------
Investing activities:
Interest received 0.1 0.3 0.3
Disposal of property, plant and equipment 0.5 - 0.7
Purchase of property, plant and equipment (22.3) (24.3) (52.7)
Purchase of business - - (0.2)
Disposal of business - 1.9 0.5
Acquisition of intangible assets (0.1) (0.1) (0.4)
Contingent consideration paid - - (13.2)
Net cash flow from investing activities (21.8) (22.2) (65.0)
---------------------------------------------------- ------------ ------------ ------------
Financing activities:
Issue of shares by the Company and the ESOT net
of issue costs - - 0.1
Net movement on existing debt 0.6 (3.7) (18.7)
Payment of lease liabilities (3.8) (3.3) (6.7)
---------------------------------------------------- ------------ ------------ ------------
Net cash used in financing activities (3.2) (7.0) (25.3)
---------------------------------------------------- ------------ ------------ ------------
Net decrease in cash and cash equivalents (5.2) (15.9) (23.6)
Cash and cash equivalents at beginning of period 84.6 111.0 111.0
Foreign exchange on cash and cash equivalents (2.7) (1.5) (2.8)
---------------------------------------------------- ------------ ------------ ------------
Cash and cash equivalents at end of period 76.7 93.6 84.6
---------------------------------------------------- ------------ ------------ ------------
Condensed consolidated statement of changes in equity
for the six months ended 30 June 2022
Share Share Translation Hedging Other Retained Total
capital premium reserve reserve reserves earnings equity
$m $m $m $m $m $m $m
--------------------------------- -------- -------- ----------- -------- --------- --------- -------
At 1 January 2022 52.2 240.8 (67.7) (8.6) 167.0 517.3 901.0
--------------------------------- -------- -------- ----------- -------- --------- --------- -------
Profit for the period - - - - - 20.8 20.8
Other comprehensive income:
Exchange differences - - (38.3) - (1.0) - (39.3)
Movement in cash flow hedges - - - 7.7 - - 7.7
Remeasurement of retirement
benefit obligations - - - - - 9.8 9.8
Deferred tax adjustment
on pension scheme deficit - - - - - (2.2) (2.2)
Transactions with owners:
Issue of shares by the
Company - 2.2 - - (2.2) - -
Share based payments - - - - 2.1 - 2.1
Fair value of cash flow
hedges transferred to net
assets - - - (0.5) - - (0.5)
At 30 June 2022 52.2 243.0 (106.0) (1.4) 165.9 545.7 899.4
--------------------------------- -------- -------- ----------- -------- --------- --------- -------
Share Share Translation Hedging Other Retained Total
capital premium reserve reserve reserves earnings equity
$m $m $m $m $m $m $m
---------------------------------- -------- ---------- ----------- -------- --------- --------- -------
At 1 January 2021 52.1 237.7 (48.9) (8.9) 166.4 462.0 860.4
---------------------------------- -------- ---------- ----------- -------- --------- --------- -------
Profit for the period - - - - - 27.6 27.6
Other comprehensive income:
Exchange differences - - (4.4) - 0.1 - (4.3)
Recycling of foreign exchange
gains on disposal - - (0.4) - - - (0.4)
Movement in cash flow
hedges - - - 1.3 - - 1.3
Remeasurement of retirement
benefit obligations - - - - - 48.5 48.5
Deferred tax adjustment
on pension scheme deficit - - - - - (11.8) (11.8)
Transactions with owners:
Issue of shares by the
Company 0.1 2.8 - - (2.9) - -
Share based payments - - - - 2.5 - 2.5
At 30 June 2021 52.2 240.5 (53.7) (7.6) 166.1 526.3 923.8
---------------------------------- -------- ---------- ----------- -------- --------- --------- -------
Notes to the interim financial statements for the six months
ended 30 June 2022
1. General Information
Elementis plc (the 'Company') and its subsidiaries (together,
the 'Group') manufacture specialty chemicals. The Group has
operations in the US, UK, Brazil, Germany, Finland, The
Netherlands, China, Taiwan, Malaysia and India. The Company is a
limited liability company incorporated and domiciled in England, UK
and is listed on the London Stock Exchange.
2. Accounting policies
Basis of preparation
The annual financial statements of Elementis plc will be
prepared in accordance with United Kingdom adopted International
Financial Reporting Standards. This condensed set of financial
statements (also referred to as 'interim financial statements' in
this announcement) has been prepared in accordance with IAS 34
Interim Financial Reporting as adopted by the United Kingdom.
As required by the Disclosure and Transparency Rules of the
Financial Conduct Authority, the condensed set of financial
statements has been prepared applying the same accounting policies
and presentation that were applied in the preparation of the
Company's published consolidated financial statements for the year
ended 31 December 2021 except for the adoption of new standards
effective as of 1 January 2022. The Group has not early adopted any
standard, interpretation or amendment that has been issued but is
not yet effective. Several amendments apply for the first time in
2022, but do not have an impact on the interim condensed
consolidated financial statements of the Group. During the period,
as discussed in note 5, an impairment of $23.0m was made within the
Talc business relating to the nickel bioleaching plant in Finland.
Other key judgements and sources of estimation uncertainty remain
unchanged from those as set in the Annual Report and Accounts at 31
December 2021.
The information for the year ended 31 December 2021 does not
constitute statutory accounts as defined in section 434 of the
Companies Act 2006. A copy of the statutory accounts for that year
has been delivered to the Registrar of Companies. The auditor's
report on those accounts was not qualified, did not include a
reference to any matters to which the auditors drew attention by
way of emphasis without qualifying the report and did not contain
statements under section 498(2) or (3) of the Companies Act
2006.
3. Going concern
Given the continuing uncertainties resulting from the
macro-economic environment in which the Group operates, the
directors have placed a particular focus on the appropriateness of
adopting the going concern basis in preparing the condensed
consolidated financial statements for the six months ended 30 June
2022.
The Group's going concern assessment covers the period of at
least 12 months from the date of authorisation of these
consolidated half year financial statements (the "going concern
period"), and takes into account its substantial liquidity,
committed expenditure, likely ongoing levels of costs and the new
banking facilities as disclosed in note 15.
In preparing the assessment, alongside the most likely "base
case" forecast, the Board has considered a "reverse stress test
case" which flexes sales and costs to determine what circumstances
would be required to breach banking covenants. This assessment
shows the Group has sufficient liquidity to discharge its
liabilities as they fall due throughout the going concern period
under the base case, assuming continued access to our revolving
credit facilities. Access to these credit facilities is dependent
on the Group operating within its financial covenants.
Testing up to 30 June 2022 confirmed that the Group operated
within these covenants and under the base case the Group is
expected to remain within its financial covenants throughout the
going concern period and the conditions necessary for the reverse
stress scenario to be applicable were deemed remote.
The directors also considered factors likely to affect future
performance and development, the Group's financial position,
current excess liquidity position, high level of cash conversion
and the principal risks and uncertainties facing the Group,
including the Group's exposure to credit, liquidity and market risk
and the mechanisms for dealing with these risks.
In conclusion, after reviewing the base case and considering the
remote likelihood of the scenario in the reverse stress test case
occurring as well as having considered the uncertainty relating to
the macro-economic environment and the mitigating actions
available, the directors have formed the judgement that, at the
time of approving the consolidated financial statements, there are
no material uncertainties that cast doubt on the Group's going
concern status and that it is appropriate to prepare the
consolidated accounts on the going concern basis.
4. Segment reporting
Personal Care - production of rheological modifiers and
compounded products, including active ingredients for
anti-perspirant deodorants, for supply to Personal Care
manufacturers
Coatings - production of rheological modifiers and additives for
decorative and industrial coatings
Talc - production and supply of talc for use in plastics,
coatings, technical ceramics and paper sectors
Chromium - production of chromium chemicals
2021
2022 Six 2021
Six months months Year
ended ended ended
3 0 June 30 June 31 December
-------------- ----------- -------- ------------
Revenue
Personal Care 105.6 88.8 174.7
Coatings 209.3 196.6 384.3
Talc 72.5 76.5 150.4
Chromium 90.9 90.2 170.7
-------------- ----------- -------- ------------
Total revenue 478.3 452.1 880.1
-------------- ----------- -------- ------------
All r evenues are external and relate to the sale of goods.
Revenue and operating profit in Coatings (Decorative Paints) and
Personal Care (AP Actives) are marginally impacted by seasonal
influences. Revenue and operating profit tend to be higher in the
first half of the year as our customers ramp up production ready to
meet end-customer demand in the summer months, when weather
conditions are favourable for painting and when anti-perspirants
are in greater demand.
Reported profit before tax for Personal Segment Central
the six months Care Coatings Talc Chromium totals costs Total
ended 30 June 2022 $m $m $m $m $m $m $m
-------------------------------------------- -------- -------- ------ -------- ------- ------- ------
Adjusted operating profit/(loss) 25.9 43.8 2.7 4.2 76.6 (11.0) 65.6
-------------------------------------------- -------- -------- ------ -------- ------- ------- ------
Adjusting Items
Business transformation - (0.6) (0.2) (2.3) (3.1) - (3.1)
Increase in environmental provisions
due to a change in cost of remediation
work identified - - - (5.6) (5.6) - (5.6)
De crease in environmental provisions
due to change in discount rate - - - 5.9 5.9 - 5.9
Impairment of goodwill - - - - - - -
Write-off of plant and equipment - - (23.0) - (23.0) - (23.0)
Amortisation of intangibles
arising on acquisition (4.2) (0.6) (2.8) (0.1) (7.7) - (7.7)
Reported operating profit 21.7 42.6 (23.3) 2.1 43.1 (11.0) 32.1
-------------------------------------------- -------- -------- ------ -------- ------- ------- ------
Other expenses - - - - - (0.7) (0.7)
Finance income - - - - - 7.8 7.8
Finance costs(1) - - - - - (11.6) (11.6)
-------------------------------------------- -------- -------- ------ -------- ------- ------- ------
Reported profit /(loss) before
income tax 21.7 42.6 (23.3) 2.1 43.1 (15.5) 27.6
-------------------------------------------- -------- -------- ------ -------- ------- ------- ------
(1) Finance income of $7.8m includes the mark to market on
derivatives of $7.7m.
Adjusted profit before tax for Personal Segment Central
the six months Care Coatings Talc Chromium totals costs Total
ended 30 June 2021 $m $m $m $m $m $m $m
----------------------------------------- -------- -------- ----- -------- ------- -------- ------
Adjusted operating profit/(loss) 19.2 32.9 7.9 4.6 64.6 (10.3) 54.3
----------------------------------------- -------- -------- ----- -------- ------- -------- ------
Adjusting Items
Business transformation (0.1) (2.3) - (0.3) (2.7) - 2.7
Increase in environmental provisions
due to additional remediation
work identified - - - (0.5) (0.5) - 0.5
Increase in environmental provisions
due to change in discount rate - - - 2.0 2.0 - (2.0)
Amortisation of intangibles
arising on acquisition (4.4) (0.5) (3.0) (0.1) (8.0) - 8.0
Reported operating profit /(loss) 14.7 30.1 4.9 5.7 55.4 (10.3) 45.1
----------------------------------------- -------- -------- ----- -------- ------- -------- ------
Loss on disposal - - - - - (1.1) (1.1)
Other expenses - - - - - (1.0) (1.0)
Finance income(1) - - - - - 5.3 5.3
Finance costs - - - - - (13.8) (13.8)
----------------------------------------- -------- -------- ----- -------- ------- -------- ------
Reported profit /(loss) before
income tax 14.7 30.1 4.9 5.7 55.4 (20.9) 34.5
----------------------------------------- -------- -------- ----- -------- ------- -------- ------
(1) Adjusted finance income of $5.3m includes the mark to market
on derivatives of $5.0m.
5. Adjusting items and alternative performance measures
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 the 6 months ended June
2022 resulted in a charge of $25.8m before tax, an increase of
$20.5m against the same period from last year. The key categories
of adjusting items are summarised below.
2022 2021 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
------------------------------------------------------- ----------- ----------- ------------
Operating profit 32.1 45.1 26.4
------------------------------------------------------- ----------- ----------- ------------
Adjusting items:
Business transformation 3.1 2.7 4.6
Environmental provisions
Increase in provisions due to change in cost
of remediation work identified 5.6 0.5 9.6
Decrease in provisions due to change in discount
rate (5.9) (2.0) (1.3)
Impairment of property, plant and equipment 23.0 - -
Sale of Montreal land - - (1.0)
Impairment of goodwill - - 52.3
Amortisation of acquired intangibles 7.7 8.0 16.0
Net adjusting items 33.5 9.2 80.2
------------------------------------------------------- ----------- ----------- ------------
Adjusted operating profit 65.6 54.3 106.6
Adjusting items:
Sale of business - 1.1 1.7
Mark to market of derivative financial instruments (7.7) (5.0) (10.7)
------------------------------------------------------- ----------- ----------- ------------
Net adjusting items on profit before tax 25.8 5.3 71.2
------------------------------------------------------- ----------- ----------- ------------
2022 2021 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
--------------------------- --------------- ----------- ------------
Adjusted operating profit
Personal Care 25.9 19.2 36.7
Coatings 43.8 32.9 61.8
Talc 2.7 7.9 14.0
Chromium 4.2 4.6 14.1
Central costs (11.0) (10.3) (20.0)
--------------------------- --------------- ----------- ------------
Adjusted operating profit 65.6 54.3 106.6
Other expenses (0.7) (1.0) (2.1)
Finance income(1) 0.1 0.3 0.3
Finance costs (11.6) (13.7) (27.9)
--------------------------- --------------- ----------- ------------
Adjusted profit before tax 53.4 39.9 76.9
--------------------------- --------------- ----------- ------------
(1) Adjusted finance income of $0.1m excludes the mark to market
on derivatives of $7.7m.
Adjusting items in the period fall into the following
categories:
Business transformation
As announced in April 2022, the Group has initiated a strategic
review of its Chromium business. The review will establish whether
the full potential of Chromium can best be delivered as part of
Elementis, or via a full or partial divestment. Costs of $2.3m have
been incurred in the 6 months to 30 June 2022 in respect of this
review. In addition to this, costs of $0.8m have been incurred in
other businesses relating to optimisation of the supply chain.
Environmental provision
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 net movement on the
provision for the period to 30 June 2022 is $0.3m. This is
comprised of an income statement credit of $5.9m due to a change in
discount rates and an income statement charge of $5.6m due to the
impact of inflation assumptions. As the provision relates to
non-operational facilities these movements are classified as
adjusting items.
Impairment of property, plant and equipment
In the first half of 2022 the Group recognised a non-cash $23.0m
impairment in respect of non-operational nickel bioleaching
property, plant and equipment in the Talc business. Elementis
determined that the operational, HSE and financial commitments
required were not the best use of the Group's resources.
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.
Impairment of goodwill
In 2021 in Talc, while the business fundamentals were unchanged,
the significant impact of COVID-19 on wider industrial activity and
global supply chain issues, especially affecting the automotive
sector, and the near term forecast profitability of the business,
resulted in a goodwill impairment of $53.1m. This impairment was
reflected as a P&L charge of $52.3m and a $0.8m movement in
exchange differences on translation of foreign operations in other
comprehensive income.
Amortisation of intangibles arising on acquisition
Amortisation of $7.7m represents the charge in respect of the
Group's acquired intangible assets. As in previous periods, these
are included in adjusting items as they are a non-cash charge
arising from historical investment activities.
An explanation of other adjusting items relating to the full
year 2021 can be found within the 2021 Annual Report and
Accounts.
6. Finance income
2022 2021 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
----------------------------------- ----------- ----------- ------------
Interest on bank deposits 0.1 0.3 0.3
Fair value movement on derivatives 7.7 5.0 10.7
----------------------------------- ----------- ----------- ------------
7.8 5.3 11.0
----------------------------------- ----------- ----------- ------------
7. Finance costs
2022 2021 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
---------------------------------------------- ----------- ----------- ------------
Interest on bank loans 10.6 12.1 23.3
Unwind of discount on provisions 0.6 0.6 2.6
Pension and other post-retirement liabilities (0.3) 0.3 0.3
Interest on lease liabilities 0.7 0.8 1.6
---------------------------------------------- ----------- ----------- ------------
11.6 13.8 27.8
---------------------------------------------- ----------- ----------- ------------
8. Tax
The charge for tax on profits of $6.8m or 24.6% ( 2021: charge
of $6.9m, or 19.9%) is based on the probable tax charge in those
jurisdictions where profits arise. Within this figure is a tax
credit of $5.1m (2021: $0.6m) in respect of adjusting items .
9. Earnings per share
2022 2021 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
------------------------------------------------ ----------- ----------- ------------
Earnings for the purposes of basic earnings
per share 20.8 27.6 2.5
Adjusting items net of tax 20.7 4.7 59.9
------------------------------------------------ ----------- ----------- ------------
Adjusted earnings 41.5 32.3 62.4
------------------------------------------------ ----------- ----------- ------------
Number(m) Number(m) Number(m)
------------------------------------------------ ----------- ----------- ------------
Weighted average number of shares for the
purposes of basic
earnings per share 582.1 580.6 581.0
Effect of dilutive share options 5.3 8.7 7.8
------------------------------------------------ ----------- ----------- ------------
Weighted average number of shares for the
purposes of diluted
earnings per share 587.4 589.3 588.8
------------------------------------------------ ----------- ----------- ------------
2022 2021 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
cents cents cents
----------------------------- ----------- ----------- ------------
Earnings per share:
Basic 3.6 4.8 0.4
----------------------------- ----------- ----------- ------------
Diluted 3.5 4.7 0.4
----------------------------- ----------- ----------- ------------
Adjusted earnings per share:
----------------------------- ----------- ----------- ------------
Basic 7.1 5.6 10.7
----------------------------- ----------- ----------- ------------
Diluted 7.1 5.5 10.6
----------------------------- ----------- ----------- ------------
10. Dividends
The following dividends were declared and paid by the Group:
2022 2021 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
--------------------------------- ----------- ----------- ------------
Dividends paid on ordinary shares - - -
--------------------------------- ----------- ----------- ------------
11. Pension
Valuations for IAS 19 purposes were conducted as of 30 June
2022. At this date the Group is reporting a surplus on its UK
scheme of $58.5m (30 June 2021: surplus of $45.2m) and a deficit on
all other schemes of $15.6m (30 June 2021: deficit of $19.4m).
Additional commentary is included in the Finance Report.
12. Movement in net borrowings
2022 2021 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
---------------------------------------------------- --------------- -------------- ------------
Change in net borrowings resulting from cash flows:
Decrease in cash and cash equivalents (5.2) (15.9) (23.6)
Increase in bank overdrafts and loans (5.6) - -
Decrease in borrowings 5.0 3.7 18.7
---------------------------------------------------- --------------- -------------- ------------
(5.8) (12.2) (4.9)
Currency translation differences 13.4 5.0 12.0
(Decrease)/increase in net debt (7.6) (7.2) 7.1
Net debt at beginning of period (401.0) (408.1) (408.1)
---------------------------------------------------- --------------- -------------- ------------
Net debt at end of period (393.4) (415.3) (401.0)
---------------------------------------------------- --------------- -------------- ------------
13. Financial risk management
The Group has exposure to the following financial risks:
-- credit risk;
-- liquidity risk; and
-- market risk.
The Board of Directors has overall responsibility for the
establishment and oversight of the Group's risk management
framework. The Group's risk management policies are established to
identify and analyse the risks faced by the Group, to set
appropriate risk limits and controls, and to monitor risks and
adherence to limits. Risk management policies and systems are
reviewed regularly to reflect changes in market conditions and the
Group's activities. The Group's Audit Committee, assisted by
Internal Audit, oversees how management monitors compliance with
the Group's risk management policies and procedures and reviews the
adequacy of the risk management framework in relation to the risks
faced by the Group. These interim financial statements do not
include all the financial risk management information and
disclosures that are required in the Annual report and accounts and
should be read in conjunction with the financial statements for the
year ended 31 December 2021. The Group's risk management policies
have not changed since the year end.
The Group measures fair values in respect of financial
instruments in accordance with IFRS 13, using the following fair
value hierarchy that reflects the significance of the inputs used
in making the measurements:
Level 1: Quoted market price (unadjusted) in an active market
for an identical instrument.
Level 2: Valuation techniques based on observable inputs, either
directly or indirectly.
Level 3: Valuation techniques using significant unobservable
inputs.
Derivatives are held at fair value and are categorised within
Level 2. All other financial instruments are held at amortised
cost, which is assumed to approximate their fair values. All the
fair values of financial assets and liabilities carried at
amortised cost are considered to be Level 2 valuations which are
determined using directly or indirectly observable inputs other
than unadjusted quoted prices.
14. Contingent liabilities
As is the case with other chemical companies, the Group
occasionally receives notices 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.
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 lodged an appeal against the
charging notices that did not defer the payment of the tax
assessed.
The UK Government's appeal against the European Commission's
decision was heard by the General Court of the European Union
during October 2021 and on 8 June 2022 the General Court of the
European Union ruled against the UK Government. The UK Government
has communicated that it is preparing a further appeal to the
European Court of Justice. As Elementis continues to consider that
the appeal process will ultimately be successful at 30 June 2022 an
asset of $17.7m has been recorded within non current assets on the
expectation that the charge will be repaid in due course.
As part of an agreement entered into in 2002 on the acquisition
of the Chromium operations at Castle Hayne, the Group would be
liable for part of the cost of the closure of a quarry which is
currently used for the deposit of solid, non-toxic, waste materials
from its manufacturing operations in the event of such a closure.
There are a number of potential options available to management to
either extend the current life of the quarry or to effect closure
of the quarry. Management have engaged third party engineers to
explore, evaluate and quantify the options available for the future
use and/or closure of the quarry and expect this work to conclude
during Q3 2022. Management's assessment is that at this stage
whilst there is a present obligation, there is not a probable
outflow of resources associated with the closure of the quarry and
even in the event of a probable outflow it is not possible at this
stage to determine a reliable estimate.
15. Events after balance sheet date
The Group successfully refinanced its term loans effective 1
July 2022. The Group took the opportunity to reduce the overall
term loan commitment from $400m to $300m, split between USD and
Euro tranches. The new term loans have a maturity of June 2026 with
the option of a one year extension. The terms of the existing $375m
revolving credit facility are unchanged with maturities in
September 2024 ($72m) and September 2025 ($303m).
16. Related party transactions
Management have performed a review for any related party
transactions and have concluded that position remains unchanged
from the year ended 31 December 2021 and is consistent with the
information disclosed on page 181 of the Company's 2021 Annual
report and accounts .
Principal risks and uncertainties
The Group has policies, processes and systems in place to help
identify, evaluate and manage risks throughout the organisation
that may have a material effect on its business operations and the
delivery of its strategic objectives, including its business model,
future performance, solvency, liquidity and / or reputation. The
Board continues to take a proactive approach to recognising and
mitigating risk with the aim of protecting its employees and
safeguarding the interests of the Group, its shareholders,
employees, customers, suppliers and all other stakeholders.
The principal risks and uncertainties facing the Group have not
substantively changed from those set out in the Annual Report and
Accounts for the 12 months ended 31 December 2021 (pages 68 to 72),
however some of the principal risks and uncertainties identified
are trending upwards and further details on these are provided
below.
More generally, with respect to COVID-19, whilst there remains
some ongoing impact on the Group in terms of staff absences, as
people continue to contract the disease and behave responsibly,
most of the Group's businesses are now operating largely
unimpeded.
Global economic conditions and competitive market pressures
The global economy continues to experience significant
inflation, driven principally by a shortage of supply from the
restart of the global economy post COVID-19 and the ramifications
of the conflict between Russia and Ukraine. The inflationary
environment has had a significant impact on the price of key raw
materials, logistics and energy. There is a risk that the
continuing inflationary pressures, combined with the response of
central banks to raise interest rates, could lead to a slowdown in
the global economy or even a global recession. These dynamics could
lead to increased competitive pressures in the marketplace,
resulting in a loss of market share and / or reduced margins.
In response, the Group continues to focus on developing high
quality businesses that have enduring competitive advantages in
structural growth markets, serving a customer base that provides
the widest spread of geographical and end market applications as
possible. The rising cost of key raw materials, logistics and
energy are being closely monitored and the Group continues to
implement price increases where necessary in order to protect
margins. In addition, where appropriate, forward contracts are in
place to provide future certainty. The impact of interest rate
rises on the Group's interest expense is mitigated by the hedging
arrangements in place.
Business interruption as a result of supply chain failure of key
raw materials
The restart of the global economy post-COVID 19, combined with
the recent lockdowns in China and the impact of the conflict
between Russia and Ukraine, has created significant global supply
chain challenges with respect to the reliability and availability
of raw materials. The Group is dependent on numerous raw materials
from various sources and has therefore faced, and continues to
face, challenges in securing supplies on a timely basis. In
response the Group has continued to work at pace to identify and
qualify new and alternative sources of supply. The Group also
continues to recalibrate inventory levels to ensure that they are
appropriate for current supplier lead times.
IT networks, data security and privacy
Consistent with wider developments, the Group is increasingly
relying on IT systems for its relationships with customers and
suppliers, controls, reporting and internal communications. Any
significant disruption could cause delays to key operations and an
inability to meet customers' requirements, resulting adverse
financial consequences. Ensuring compliance with data protection
legislation is also critical, as failure to do so would expose the
Group to financial and reputational costs. Since the outbreak of
the conflict between Russia and Ukraine there have been an
increased level of cyber attacks globally and such events pose a
significant risk to the Group.
In response the Group continues to focus on and invest in IT
security controls, as well as ensuring that there are robust
emergency response and business continuity plans in place. Data
management is supported by a focus on processes and controls and
the implementation of a privacy and data protection management
platform.
In summary, the Group continues to maintain appropriate
mitigation strategies to minimise any potential business disruption
and will continue to carry out regular and robust assessment and
management of the Group's risks.
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 on pages 9 to 13.
2022 2021 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
---------------------------------------------- ----------- ----------- ------------
Profit for the period 20.8 27.6 2.5
---------------------------------------------- ----------- ----------- ------------
Adjustments for:
Finance income after adjusting items (0.1) (0.3) (11.0)
Finance costs and other expenses after
adjusting items 12.3 9.8 29.9
Tax charge 6.8 6.9 3.3
Depreciation and amortisation 32.5 33.9 68.3
Excluding intangibles arising on acquisition (7.7) (8.0) (16.0)
Adjusting items impacting operating profit 25.6 10.3 81.5
---------------------------------------------- ----------- ----------- ------------
Adjusted EBITDA 90.2 80.2 158.5
---------------------------------------------- ----------- ----------- ------------
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 tax paid or received, interest paid or received,
pension contributions net of current service cost and adjusting
items.
2022 2021 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
---------------------------------------------- ----------- ----------------- ------------
Net Cash flow from operating activities 19.8 13.3 66.7
---------------------------------------------- ----------- ----------------- ------------
Less:
Net capital expenditure (21.9) (24.2) (52.4)
Add:
Income tax paid or received 11.1 24.0 30.9
Interest paid or received 9.2 11.8 23.5
Pension contributions net of current service
cost (0.4) (0.5) 0.1
Adjusting items - non cash 0.1 0.2 (13.2)
Adjusting items - cash 1.1 5.5 20.4
---------------------------------------------- ----------- ----------------- ------------
Adjusted operating cash flow 19.0 30.1 76.0
---------------------------------------------- ----------- ----------------- ------------
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.
2022 2021 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
---------------------------------------- ----------- ----------- ------------
Operating profit after adjusting items 65.6 54.3 106.6
---------------------------------------- ----------- ----------- ------------
Operating cash flow 19.0 30.1 76.0
Add/(deduct):
Provisions and share based pay 0.5 (0.6) (1.9)
---------------------------------------- ----------- ----------- ------------
19.5 29.5 74.1
---------------------------------------- ----------- ----------- ------------
Adjusted operating cash flow conversion 30% 54% 70%
---------------------------------------- ----------- ----------- ------------
Average trade working capital to sales ratio
The trade working capital to sale 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.
$m
-------------------------------------------------- -----
EBITDA for the last twelve months to 30 June 2022 168.5
IFRS 16 adjustment (6.6)
-------------------------------------------------- -----
Adjusted EBITDA pre IFRS 16 161.9
-------------------------------------------------- -----
Net Debt 393.4
Net Debt / EBITDA* 2.43
-------------------------------------------------- -----
*Where EBITDA is the adjusted EBITDA on continuing operations of
the Group on a pre IFRS 16 basis.
- ENDS -
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IR EAPPFEDDAEFA
(END) Dow Jones Newswires
August 02, 2022 02:00 ET (06:00 GMT)
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