TIDMELM
RNS Number : 0759S
Elementis PLC
07 March 2023
ELEMENTIS PLC
PRELIMINARY RESULTS FOR THE YEARED 31 DECEMBER 2022
Improved financial performance driven by sales growth and
disciplined margin management
-- Revenue from continuing operations up 4% (+10% underlying(1)
) from $709m to $736m driven by strong new business momentum,
targeted pricing actions and improved product mix.
-- Adjusted(2) operating profit from continuing operations up
14% (23% underlying(1) ) to $101m, with strong performances in both
our Coatings and Personal Care businesses and significantly weaker
demand impacting Talc profitability.
-- Statutory loss for the year of $51m, including a $103m
non-cash goodwill impairment charge in the Talc business linked to
macro related discount rate increases and demand conditions.
-- Net debt(3) of $367m, down by $34m from prior year ($401m).
Net debt(3) to EBITDA(4) down from 2.6x to 2.2x as at the year end
and leverage now stands at 1.9x pro forma(5) post the disposal of
Chromium.
Significant strategic progress; Chromium disposal, new business
wins and the formation of Performance Specialties
-- Successful sale of Chromium business for an enterprise value
of $170m post year end and completed 31 January 2023; proceeds of
$119m(6) to reduce the Group's net debt.
-- Delivered record $59m revenues from new business
opportunities with 18 new product launches. New products (7) 13% of
sales and we are on track towards target of 17% of sales by
2025.
-- Transformed business focused on specialty chemicals with
leading positions in attractive markets:
-- Substantially enhances margin and growth characteristics
-- Improves earnings resilience
-- Transforms sustainability profile
-- Talc combined with Coatings business, effective from January
2023, to create new Performance Specialties business. Combination
will create greater market focus, enhanced growth opportunities and
reduced costs.
2023 Outlook - further deleveraging - continued financial
progress
-- An encouraging start to 2023, well positioned to make continued financial progress.
-- Phasing of customer demand anticipated to be stronger in the second half of the year.
-- Strong pipeline of new business and efficiency opportunities.
-- Given stronger balance sheet and expected good cash
generation, we will look to reinstate the payment of ordinary
dividends to shareholders later in 2023.
-- We remain confident of the delivery of our medium term target of 17% operating margin.
Financial Summary
Continuing operations Total operations
--------------------------------- ------------------------
$m 2022 2021 % Change 2022 2021 % Change
--------------------------------- ------- ------ --------- ------ ----- ---------
Revenue 736 709 +4% 921 880 +5%
Adjusted (2) operating profit 101 88 +14% 124 107 +16%
Adjusted(2) diluted earnings/
per share (cents) 10.9 8.3 +31% 13.9 10.6 +31%
Net debt (3*) 367 401 -9% 367 401 -9%
Statutory results
--------------------------------- ------- ------ ------ ----- ---------
Statutory/(loss)/profit (63) (8) (51) 3
Statutory basic (loss) earnings
per share (10.7) (1.4) (8.8) 0.4
--------------------------------- ------- ------ --------- ------ ----- ---------
(*) - Net debt(3) to EBITDA(4) from total operations was 2.2x in
2022 versus 2.6x in 2021
Commenting on the results, Paul Waterman, CEO, said:
"In 2022 we made significant progress towards our strategic and
financial goals. The sale of our Chromium business enhances
portfolio quality - reducing the volatility of our earnings,
improving margins, and transforming the sustainability profile of
our business.
Despite a volatile macroeconomic environment with significant
cost inflation and supply chain challenges, Elementis delivered
resilient revenue growth and higher adjusted(2) operating margins.
This was driven by the implementation of our Innovation, Growth and
Efficiency strategy across our portfolio of advantaged, high-value
specialty products, delivering new product launches, new business
wins, and our continued focus on improving operational
efficiency.
Our more market focused operating structure simplifies
Elementis. We have two divisions, Personal Care and Performance
Specialties, both with attractive growth opportunities and margin
profiles.
Trading conditions remain subdued in many of our markets, and we
therefore anticipate that demand phasing will be stronger in the
second half of the year. Energy prices are also moderating from the
peaks of last year. We have a strong pipeline of sales
opportunities and are applying our Innovation, Growth and
Efficiency strategy to drive further improvement. Despite the
continued uncertainty in global demand, we remain confident that
Elementis is well placed for future growth and margin
improvement."
Further information
A presentation for investors and analysts will be held at 09.00
am GMT on 7 March 2023. The presentation will be webcast on
www.elementis.com , followed by live question session. Conference
call dial in details:
UK: +44 20 3936 2999 Other locations: +44 800 640 6441 Participant access code: 166552
Enquiries:
Elementis
Paul Waterman, President and Chief Executive
Officer
Ralph Hewins, Chief Financial Officer
Cynthia Alers, Director, Investor Relations
and M&A +44 (0)774 831 2690
Tulchan +44 (0)20 7353 4200
Martin Robinson
Olivia Peters
Notes:
(1) - Underlying figures exclude currency effects and
M&A
(2) - Adjusted figures exclude the adjusting items set out in
note 5
(3) - Pre IFRS 16 basis, refer to unaudited information on page
34 for further information
(4) - Earnings before interest, tax, depreciation and
amortization, refer to unaudited information on page 34 for further
information
(5) - Reflecting the sale of the Chromium business and assumed
elimination of $7m stranded costs in 2023/24
(6) - After transaction costs and working capital
adjustments
(7) - Products launched within the last 5 years, patented and
protected products (excluding Chromium)
-S -
BUSINESS PERFORMANCE OVERVIEW
Revenue
Effect of
Revenue exchange Increase Revenue
2021 rates 2022 2022
$m $m $m $m
----------------------------------- ------- ---------- -------- -------
Personal Care 174.7 (7.4) 44.2 211.5
Coatings 384.3 (14.9) 19.7 389.1
Talc 150.4 (16.9) 2.3 135.8
Inter-segment - - - -
----------------------------------- ------- ---------- -------- -------
Revenue from continuing operations 709.4 (39.2) 66.2 736.4
Revenue from discontinued
operations 170.7 - 14.3 185.0
----------------------------------- ------- ---------- -------- -------
Revenue from total operations 880.1 (39.2) 80.5 921.4
----------------------------------- ------- ---------- -------- -------
Adjusted operating profit
Operating Effect of Increase/ Operating
profit/(loss) exchange (decrease) profit/(loss)
2021* rates 2022 2022*
$m $m $m $m
------------------------------ --------------- -------------- ----------- ---------------
Personal Care 36.7 (2.6) 18.7 52.8
Coatings 61.8 (3.1) 14.6 73.3
Talc 14.0 (1.7) (12.7) (0.4)
Central costs (24.5) 1.0 (1.7) (25.2)
------------------------------ --------------- -------------- ----------- ---------------
Adjusted operating profit
from continuing operations 88.0 (6.4) 18.9 100.5
Adjusting operating profit
from discontinued operations 18.6 - 4.6 23.2
------------------------------ --------------- -------------- ----------- ---------------
Adjusted operating profit
from total operations 106.6 (6.4) 23.5 123.7
------------------------------ --------------- -------------- ----------- ---------------
(*) After adjusting items - see Note 5
Elementis delivered a good financial performance despite
challenging markets, with reported revenue from continuing
operations growing 4% to $736m (10% on an underlying (1) basis).
Adjusted (2) operating profit increased 14% (23% underlying) from
$88m to $101m. Adjusted (2) operating margin on continuing
operations improved to 13.6% from 12.4% in the prior year. Over 80%
of the sales of Elementis are accounted for by the Personal Care
and Coatings businesses which generated adjusted (2) operating
margins of 25.0% and 18.8% respectively.
Including discontinued operations, Group revenue grew 5% (10%
underlying (1) ) to $921m from $880m in 2021, and adjusted (2)
operating profit increased 16% to $124m compared with $107m in the
prior year.
In 2022 we made significant progress towards our strategic and
financial goals. The sale of the Chromium business and the creation
of our Performance Specialties business streamlines our operating
structure and focuses the Group on higher value added products in
attractive growth markets. We are confident that continued
application of our Innovation, Growth and Efficiency strategy will
enable us to make further progress in 2023.
Personal Care
Revenue in our Personal Care business increased 21% on a
reported basis (26% on an underlying (1) basis), from $175m to
$212m. Adjusted (2) operating profit increased 44% on a reported
basis (55% underlying (1) ) from $37m to $53m. The strong business
performance resulted in a record adjusted (2) operating profit and
an adjusted(2) operating margin of 25.0% vs 21.0% in 2021.
Both our Cosmetics and AP Actives businesses delivered record
sales as consumers in many of our end markets enjoyed a return to
life without Covid restrictions. Volume growth was particularly
strong in Europe, as demand recovered to pre-Covid levels, and AP
Actives volumes in the Americas also experienced exceptional
growth. Pricing actions and a higher value product mix more than
offset higher costs, in particular for raw materials, as well as
manufacturing costs.
We have introduced 25 new products since 2020, with sales from
new and innovation products growing 47% since 2019. Skincare, AP
Actives and Colour Cosmetics all represent future growth
opportunities with a $50m pipeline of new business opportunities
established. Our plant in Taloja, which completed customer
certifications at the end of 2022, will further strengthen our
competitive position and lower production and distribution
costs.
Coatings
Revenue in our Coating and Energy business increased 1% on a
reported basis (5% on an underlying (1) basis), from $384m to
$389m. Adjusted (2) operating profit increased 19% on a reported
basis (25% underlying (1) ) from $62m to $73m. Our focus on higher
value ingredients and a better product mix, combined with
price/cost initiatives, resulted in a record adjusted(2) operating
margin of 18.8% vs 16.1% in 2021.
There were significant differences in performance between our
regions and end-markets. Coatings revenue, particularly in the
premium decorative market in the Americas, reported robust growth,
reflecting healthy construction and housing market activity and new
business wins. By contrast, European revenues were impacted by the
war in Ukraine and inflationary pressures depressing customer
demand in both the decorative and industrial coatings markets. In
Asia, more than 80% of our business is industrial coatings. The
industrial market in China, our biggest Asian market, was weak
throughout the year, due to the impact of continued Covid
restrictions, which had a material impact on our performance.
Energy, comprising less than 10% of division revenues, benefited
from increased levels of drilling activity in the oil and gas
sector.
Revenues from new and innovation products generated over $33m in
sales, with nine new products launched over the year, building on
our market strengths in premium decorative coatings and waterborne
coatings for industrial applications, both growing markets.
Talc
Revenue in our Talc business fell 10% on a reported basis
(growth of 2% on an underlying (1) basis), from $150m to $136m. The
business reported a small adjusted (2) operating loss of $0.4m
versus a reported operating profit of $14m in the prior year. As
Talc is primarily a European-based business, it was severely
impacted by the Russia/Ukraine war, the resulting loss of our
Eastern European markets and depressed customer demand in our key
markets. In addition, the Ukraine conflict triggered substantial
energy price inflation, increasing our costs in what is an energy
intensive process. The resulting combination of weak demand and
rapidly rising costs impacted performance. These factors, as well
as discount rate increases, led to an impairment of the business's
value of $103m.
Over the year we implemented both cost control measures and a
series of substantial pricing actions. With actions we have taken,
combined with energy prices moderating and demand conditions
modestly improving, we are confident of a material recovery in our
Talc business in 2023.
At the end of the 2022, we took further strategic action to
streamline our business, with a focus on common end markets. As
Talc and Coatings share many distribution channels and end markets,
we have combined these two businesses into one operating division,
Performance Specialties. This will enable a stronger end market
focus on attractive growth opportunities. We will continue to
report Talc performance for transparency.
We remain confident of the growth potential of the Talc
business. Talc is well positioned to benefit from several
fundamental growth drivers, such as vehicle light-weighting, and
barrier coatings in recyclable food packaging. These are markets
with major growth potential, where the ability of talc to add
strength to plastics and ceramics, without adding unnecessary
weight, can create attractive sustainable solutions in these
industries.
Chromium
Revenue in our Chromium business increased 8% on a reported and
underlying (1) basis, from $171m to $185m. Adjusted (2) operating
profit increased 25% on a reported and underlying basis, from $19m
to $23m, resulting in an operating margin of 12.5% vs 10.9% in 2021
excluding stranded costs in 2022 of $7m which reverted to Group.
Market demand overall was stronger in 2022, in particular in the
first half, as industrial activity increased across a range of our
North American end markets, such as automotive and leather tanning.
At the end of the year we announced that we had agreed to sell the
Chromium business for an enterprise value of $170m. This followed
our strategic review of Chromium, announced in April 2022, which
concluded that the interests of all stakeholders would now be best
served by a sale of the business.
STRATEGY REVEIW
The Group has a clear and consistent strategy, built around the
three pillars of Innovation, Growth and Efficiency. Effective
execution of this strategy delivered the strong performance we saw
in 2022, and the Group remains on course to achieve the medium-term
financial targets of 17% adjusted (2) operating profit margin, 90%
cash conversion and net debt/ EBITDA of under 1.5x.
In line with this strategy, in 2022 our Personal Care, Coatings
and Talc businesses continued to develop and launch new,
distinctive, high-value products, and to identify and convert
attractive new business opportunities. Our focus on continuous
operational improvement delivered sustainable cost savings during
the year, helping to offset the cost inflation that all our
businesses faced.
Chromium is an attractive business with a strong market
position, but the business no longer sat strategically within our
Group structure. The Board therefore concluded that the Chromium
business should be divested, and we announced in November 2022 that
agreement had been reached to sell the business to the Yildirim
Group for an enterprise value of $170m. The transaction completed
in January 2023, resulting in total cash proceeds of $119m after
the transfer to the buyer of all material liabilities and after
transaction costs. The proceeds of the Chromium business
divestiture will significantly reduce the Group's net debt and will
enable Elementis to deliver higher margins with lower
cyclicality.
Following the divestment of the Chromium business, Elementis is
a more focused specialty chemicals business. To capitalise on this
streamlined structure, we are combining our Coating and Talc
businesses under one management team. These businesses share common
customers, distributors and end markets, and these synergies will
benefit both businesses.
Our continuing portfolio of businesses have a compelling purpose
and strategic rationale. Elementis is a specialty chemicals
company, focused on adding value by making our customers'
formulations look, feel and perform better. This focus on
advantaged, high value products will enable us to deliver higher
quality earnings and margins, with lower volatility, and generate
significant shareholder value. We continue to make progress towards
our medium term goal of 17% operating margin and expect to
accelerate our progress through our product growth platforms. As a
naturally cash generative business,
combined with the sale of our Chromium business, we continue to
make progress towards our medium term leverage goal of 1.5x
EBITDA.
Innovation, Growth and Efficiency
Innovation is a key pillar for the growth of Elementis. We are
recognised as a global leader in developing performance driven
additives that address unmet consumer and market needs. We continue
to focus on creating solutions for our customers that deliver
product performance improvements, efficiency gains while always
focusing on how sustainability can be improved for our customers.
We leverage our strong customer relationships with industry
technology leaders and strive to become the partner of choice when
new developments present themselves.
We are targeting a wide range of attractive growth opportunities
in both Personal Care and our new Performance Specialties business,
applying our unique chemistry to develop sustainable solutions for
customers in markets where demand is growing.
New products and new business will drive continuing growth. We
see long-term sustainable growth across all of our personal care
and coatings markets, with attractive incremental revenue
opportunities.
Our target over the medium term is to launch 15-20 new products
annually and to generate 17% of total sales from new products. In
Personal Care we will continue to target the skin care market and
colour cosmetics markets in Asia, where we remain
under-represented, as well as further grow our position in AP
Actives. In Performance Specialties we will maintain our investment
in our growth platforms: premium decorative paints, waterborne
industrial coatings, and adhesives and sealants, seeking to
leverage our advantaged products and access to unique materials. We
will also focus on the growth opportunity for talc in the
automotive sector especially, as the trend towards lighter weight
vehicles sees metal components continuing to be replaced by strong,
durable plastic equivalents. We also have good market positions in
added value products in long life plastics for household and
automotive, technical ceramics and barrier coatings which are
attractive niche sectors in this industry.
In 2022 Elementis was faced with exceptional conditions in
needing to recover soaring input costs. Not only did we see severe
inflation in our raw material costs, but we were also impacted by
greatly increased costs impacts in logistics and energy costs.
Energy costs in Europe significantly increased in response to the
Russia/Ukraine conflict.
Our proactive response to severe inflation has involved
disciplined action on pricing, but also steps to improve our
efficiency. In response to raw material inflation and disruption,
we found alternative suppliers, rapidly qualifying more than ten
suppliers in the first half of the year alone. In seeking to manage
energy costs, we benefited from hedging strategies, although these
could not fully mitigate the impacts of such rapidly rising market
prices.
Another key efficiency response, which will be seen over the
course of 2023/24 is the continued ramp up of our anti-perspirant
actives plant in India, which will be a significant enabler of an
additional $10m of savings by 2023. Alongside the production ramp
up, we have completed customer qualification. The cost advantaged
and resilient global supply position that this new plant gives us
will enable us to access future savings.
A key enabler of our efficiency and simplification drive is our
digital implementation programme. In 2022 we laid the foundation
for the completion of a multi-year programme to consolidate all our
ERPs onto one platform. This is set to be complete in 2023 and will
provide both efficiency and effectiveness benefits. Our team of
global process engineers are also driving our continuous
improvement programme.
The inflation environment in 2023 remains uncertain but we are
confident that through a mixture of targeted price actions, agile
supply chain management and continued efficiency focus, we can
defend and improve margins over time.
Safety
Safety is fundamental to the success of Elementis and a core
value in our culture. Our goal is to eliminate injuries completely
and we continue to drive our TogetherSAFE campaign across the Group
to achieve this. In 2022, we made progress on this Journey to Zero,
reporting an improvement in our safety performance compared with
the previous year, with 75% of our facilities reporting no
injuries. The number of recorded employee injuries fell by 25% to
9, with the number of hand injuries falling to 3, from 6 in the
prior year.
Our new Taloja anti-perspirant actives plant in India was
completed and brought into production having recorded more than
1.56 million safe working hours.
People
In 2022, we took further action to embed our culture and made
good progress in living our Values, launching a new Code of Conduct
and revitalising our approach to compliance and ethics, to maintain
and improve employee engagement and commitment.
During the year we launched our Employee Value Proposition,
'Connect. Grow. Make a Difference', based on employee input, and
supported the rollout with a series of workshops. We continued to
drive Diversity, Equity and Inclusion across the Group, through a
DE&I Leadership Council, training programmes and specialist
external trainers, and employee resource groups, such as the global
Women in Leadership group. We also held a series of events in
October focusing on inclusion, followed up by the launch of an
inclusion newsletter.
People are the bedrock upon which our success depends and the
past three years have been challenging for everyone, firstly
managing the impact of the COVID pandemic, then navigating our way
out of this and learning to live with a 'new normal'. We thank the
whole Elementis team for their fortitude, adaptability and
commitment during this period, and look forward to together
creating a successful future for the Company.
Sustainability
Our aim is to develop high performance additives that deliver
positive, sustainable outcomes for the environment and for society.
To this end we seek to design products that use fewer resources and
create less pollution. Our areas of focus include reducing GHG
emissions with an ambition to reach Net Zero by 2050; water, waste
and energy management; and product design for better lifecycle
impacts.
Specific sustainability related applications benefits delivered
by Elementis products include additives working at lower
temperatures, which reduce customers' energy consumption; additives
supporting formulation of low VOC paints, which create less air
pollution; and the use of talc in lightweight plastics in vehicles,
which improves their energy efficiency.
We continue to better understand our carbon footprint and the
value-creating opportunities reducing it can unlock. We completed
our first assessment of value-chain (Scope 3) GHG emissions in 2022
and committed to adopt a science-based target via the Science Based
Targets initiative, aligning our strategy to reduce GHG emissions
across our operations and value chains with the 2015 Paris
Agreement. In 2022, 69% of our revenue for our continuing
operations came from natural or naturally derived chemistries,
while we increased our electricity from renewable or low carbon
sources to 77%, contributing to our 50% reduction in Scope 1 and 2
(market based) GHG emissions per tonne since 2019. Since 2019, we
have reduced water withdrawal per tonne of product made by 15%, and
waste sent to third parties per tonne of product made by 13% across
our operations.
We believe clear disclosure of our ESG data is important, and in
2022, we improved our climate rating at the Climate Disclosure
Project (CDP) to B in 2022, and increased our EcoVadis Gold rating
score compared with the prior year.
Notes:
(1) - Underlying figures exclude currency effects and
M&A.
(2) - Adjusted figures exclude the adjusting items set out in
Note 5.
FINANCE REPORT
Revenue
2022 2021
$m $m Change
------------------------------------- ----- ----- --------
Personal Care 211.5 174.7 36.8
Coatings 389.1 384.3 4.8
Talc 135.8 150.4 (14.6)
Inter-segment _ _ _
------------------------------------- ----- ----- --------
Revenue from continuing operations 736.4 709.4 27.0
Revenue from discontinued operations 185.0 170.7 14.3
------------------------------------- ----- ----- --------
Revenue from total operations 921.4 880.1 41.3
------------------------------------- ----- ----- --------
Operating profit
2022 Adjusting 2022
Adjusted
operating 2021 Adjusted
Operating profit/(loss) 2021 Operating Adjusting operating
profit/(loss) items (1) profit/(loss) items profit/(loss)(1)
$m $m $m $m $m $m
--------------------------- --------------- --------- --------------- -------------- --------- -----------------
Personal Care 44.4 8.4 52.8 27.9 8.8 36.7
Coatings 69.2 4.1 73.3 56.5 5.3 61.8
Talc (134.0) 133.6 (0.4) (44.3) 58.3 14.0
Central costs(2) (21.4) (3.8) (25.2) (28.2) 3.7 (24.5)
--------------------------- --------------- --------- --------------- -------------- --------- -----------------
Operating (loss)/profit
from continuing operations (41.8) 142.3 100.5 11.9 76.1 88.0
Operating profit from
discontinued operations 15.2 8.0 23.2 14.5 4.1 18.6
--------------------------- --------------- --------- --------------- -------------- --------- -----------------
Operating (loss)/profit
from total operations (26.6) 150.3 123.7 26.4 80.2 106.6
--------------------------- --------------- --------- --------------- -------------- --------- -----------------
(1) - After adjusting items - see note 5.
(2) - Central costs include $6.8m (2021: $4.5m) of stranded
costs in relation to the Chromium business following the
discontinued operations classification.
Group results
In 2022, revenue from continuing operations increased 4% from
$709m to $736m due to strong new business success, targeted pricing
actions and demand recovery across most of our end markets.
Excluding the impact of currency translation, underlying revenue
from continuing operations increased 10%. Revenue in Personal Care
rose 21% on a reported basis and 26% on an underlying basis*,
delivering record sales in both AP Actives and Cosmetics. In
Coatings, revenue increased 1% on a reported basis and 5% on an
underlying basis*, with pricing actions and a better product mix
offsetting lower volumes. In Talc, revenue decreased 10% on a
reported basis and increased 2% on an underlying basis*, with a
decline in volumes partially offset by pricing actions and an
improved product mix. Revenue in Chromium, a discontinued
operation, increased 8% due to strong volume growth as demand
increased across a range of industrial end markets.
Reported operating profit/loss from continuing operations
decreased from a profit of $12m to a loss of $42m with a strong
performance improvement partially offset by $142m of adjusting
items; the largest of which was a $103m non-cash Talc goodwill
impairment (2021: Talc $52m) due to the lower demand environment,
global inflationary pressures and the rising cost of capital in the
second half of 2022. Adjusted operating profit from continuing
operations increased 23% on an underlying basis* from $82m to $101m
with the aforementioned higher revenue and associated earnings more
than offsetting cost inflation. The loss before income tax from
continuing operations for the year was $63m compared with $8m in
2021.
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 2022 resulted in a charge
of $135.7m before tax, an increase of $68.6m against last year. The
key categories of adjusting items are summarised below. For more
information on adjusting items and the Group's policy for adjusting
items, please see Note 5 and Note 1 to the financial statements
respectively.
Personal Central Continuing Discontinued
Care Coatings Talc costs operations operations Total
Credit/(charge) $m $m $m $m $m $m $m
------------------------------ -------- -------- ------- ------- ----------- ------------ -------
Business transformation - (2.9) (1.9) - (4.8) - (4.8)
Environmental provisions - - - 3.8 3.8 (2.2) 1.6
Impairment of property,
plant, and equipment - - (23.0) - (23.0) - (23.0)
Impairment of goodwill - - (103.4) - (103.4) - (103.4)
Costs associated
with Chromium disposal - - - - - (5.6) (5.6)
Amortisation of intangibles
arising on acquisitions (8.4) (1.2) (5.3) - (14.9) (0.2) (15.1)
Total charge to operating
profit (8.4) (4.1) (133.6) 3.8 (142.3) (8.0) (150.3)
Unrealised mark to
market of derivatives - - - 6.6 6.6 - 6.6
------------------------------ -------- -------- ------- ------- ----------- ------------ -------
Total (8.4) (4.1) (133.6) 10.4 (135.7) (8.0) (143.7)
------------------------------ -------- -------- ------- ------- ----------- ------------ -------
Business transformation
In November 2020, the closure of the Charleston plant was
announced. Costs of $2.9m in 2022 (including $0.4m of depreciation)
associated with preparing the site for sale are classified as an
adjusting item and the site is planned to be disposed of in the
future. Since November 2020, costs of $22.7m have been incurred in
relation to the closure of this site. Further charges of $1.9m
relate to the Talc integration and synergy projects. This project
was completed in 2022.
Environmental provisions
The Group's environmental provision is calculated on a
discounted cash flow basis, reflecting the time period over which
spending is estimated to take place. The movement in continuing
provisions relates to a change in discount rates that has decreased
the liability by $7.2m (2021: $0.6m) in the year, and extra
remediation work identified in the year which has resulted in a
$3.4m (2021: $5.3m) increase to the liability. As these costs
relate to non-operational facilities they are classified as
adjusting items.
Impairment of goodwill
The performance of the Talc business was adversely impacted in
the second half of 2022 by a lower demand environment, global
inflationary pressures, higher energy costs and the Russia/Ukraine
conflict. These factors, as well as a reduction in the near term
forecasted profitability of the Talc business and a rise in the
pre-tax discount rate resulted in an impairment charge of $103.4m
being recognised (2021: $52.3m), to reduce the remaining Talc
goodwill to $nil. Due to the currency in which the goodwill was
held, this impairment also gave rise to a $8.0m (2021: $0.8m)
movement in exchange differences on translation of foreign
operations within other comprehensive income.
Impairment of property plant and equipment
In 2022 the Group recognised a non-cash $23.0m impairment in
respect of non-operational bioleaching property, plant and
equipment in the Talc business. The Group determined that the
operational, health and safety and financial commitments required
to operate the equipment were not the best use of the Group's
resources.
Costs associated with Chromium disposal
As announced in November 2022, the Group signed a sale and
purchase agreement for the divestment of its Chromium business. The
transaction completed in January 2023. Costs totalling $5.6m were
incurred during 2022 as part of the divestiture process.
Amortisation of intangibles arising on acquisitions
Amortisation of $14.9m (2021: $15.8m) represents the charge in
respect of the Group's acquired intangible assets. As in previous
years these are included in adjusting items as they are a non-cash
charge arising from historical investment activities.
Unrealised mark to market of derivatives
The unrealised movements in the mark to market valuation of
financial instruments that are not in hedging relationships are
treated as adjusting items as they are unrealised non-cash fair
value adjustments that will not affect the cash flows of the
Group.
Hedging
Cash flow hedges are used as part of a programme to manage our
exposure to interest rate risk and commodity price risk,
particularly those associated with US dollar and euro interest
payments and aluminium and nickel pricing. In 2022 interest rate
and commodity price movements were such that the net impact of the
hedge transactions was a gain of $1.6m (2021: gain of $2.7m)
recycled to the income statement.
Central costs
Central costs are those costs that are not identifiable as
expenses of a particular business and comprise expenditures of the
Board of Directors and corporate head office. In 2022, adjusted
central costs were $25.2m, an increase of $0.7m on the previous
year primarily due to cost movements between continuing and
discontinued operations offset by favourable exchange rate
movements and a reduction in variable remuneration.
COVID-19 assistance
The Group has accessed in China and Taiwan various government
support schemes aimed at mitigating the impact losses resulting
from COVID-19. During the year payment plans were agreed with the
tax authorities in China and Taiwan to defer payment of income
taxes and payroll taxes, resulting in $1.6m of payment
deferrals.
Other expenses
Other expenses are administration costs incurred and paid by the
Group's pension schemes that relate primarily to former employees
of legacy businesses. These costs were $1.3m in 2022 compared with
$2.0m in the previous year.
Net finance costs
2022 2021
$m $m
----------------------------------- ------- -------
Finance income 0.2 0.3
Finance cost of borrowings (19.5) (23.2)
----------------------------------- ------- -------
(19.3) (22.9)
Net pension finance income/(costs) 0.6 (0.2)
Discount unwind on provisions (0.7) (1.7)
Fair value movement on derivatives 9.1 10.7
Interest on lease liabilities (1.4) (1.6)
----------------------------------- ------- -------
Net finance costs (11.7) (15.7)
----------------------------------- ------- -------
Net finance costs for 2022 were $11.7m, a decrease of $4.0m on
last year. Net finance costs comprise interest payable on
borrowings, calculated using the effective interest rate method,
facility arrangement fees, the unwinding of discounts on the
Group's environmental provisions, net pension interest income/
(costs), fair value movement on derivatives and interest charged on
lease liabilities.
The decrease in net finance costs is primarily due lower
interest payable on borrowings following the refinancing of the
Group's term loans on 1 July 2022 ($3.6m decrease).
The fair value movement on derivatives, which are unrealised
mark to market on derivatives that are not in hedging relationships
decreased by $1.6m in 2022.
Net pension finance income/(costs), which are a function of
discount rates under IAS 19, and the value of schemes' deficit or
surplus positions, changed from a net finance cost of $0.2m in 2021
to a net finance income of $0.6m in 2022.
The discount unwind on provisions relates to the annual time
value of the Group's environmental provisions which are calculated
on a discounted basis. The unwind of $0.7m in 2022 compared to an
unwind of $1.7m in 2021.
Both finance income and the interest on lease liabilities, were
broadly consistent in 2022 compared with 2021.
Taxation
Tax charge
2022 Effective 2021 Effective
rate rate
$m % $m %
----------------------------- ----- -------------- ------ --------------
Reported tax charge/(credit) 7.8 (14.2) 0.4 (5.3)
Adjusting items tax credit (8.3) - (10.5) -
----------------------------- ----- -------------- ------ --------------
Adjusted tax charge 16.1 20.0 10.9 18.3
----------------------------- ----- -------------- ------ --------------
The Group incurred a tax charge of $16.1m (2021: $10.9m) on
adjusted profit before tax, resulting in an effective tax rate of
20.0% (2021: 18.3%). The Group's effective tax rate in 2022 is
slightly lower than its usual range due to beneficial adjustments
in respect of prior years and the recognition of previously
unrecognised deferred tax assets.
Tax on adjusting items relates primarily to the amortisation of
intangible assets and the impairment of the bioleaching plant.
The medium-term expectation for the Group's adjusted effective
tax rate is around 25-26% due to the previously announced increase
in UK corporation tax rates from April 2023.
Earnings per share
Note 7 sets out a number of calculations of earnings per share.
To aid comparability of the underlying performance of the Group,
earnings per share reported under IFRS is adjusted for items
classified as adjusting.
Adjusted diluted earnings from continuing operations per share
was 10.9 cents for 2022 compared with 8.3 cents in the previous
year, an increase of 31% due to a higher adjusted profit after tax.
Basic earnings per share from continuing operations before
adjusting items was a loss per share of 10.7 cents compared with a
loss per share of 1.4 cents in the previous year.
Note 7 provides disclosure of earnings per share calculations
both including and excluding the effects of adjusting items and the
potential dilutive effects of outstanding and exercisable
options.
Distributions to shareholders
Given the market and economic uncertainties, and the Board's
desire to provide additional financial headroom and preserve cash,
no dividend distributions to shareholders were made during the
year. The Board is not recommending a final dividend for 2022. The
Board recognises the importance of dividends to shareholders and
will look to reinstate payments during 2023 .
Cash flow
As per the statutory cash flow statement, net cash flow from
operating activities increased by $10.3m to $77.0m in 2022,
primarily due to lower cash taxes and interest paid, offset by an
increase in working capital outflow as a result of movement in
inventories and debtors.
Net cash outflow in relation to investing activities decreased
by $18.1m to $46.9m primarily due to lower capital expenditure and
no contingent consideration payable in 2022.
Net cash outflow in relation to financing activities increased
by $32.5m to $57.8m in 2022 primarily due to the repayment of
borrowings as part of the refinancing completed on 1 July 2022.
The adjusted cash flow, which excludes the effect of adjusting
items from operating cash flow and is therefore distinct from the
statutory cash flow referenced above, is summarised below. A
reconciliation between statutory operating profit to EBITDA is
shown in the Alternative Performance Measures section in this
report.
2022 2021
$m $m
----------------------------- -------- --------
EBITDA 173.1 158.5
Change in working capital (58.8) (31.6)
Capital expenditure (46.5) (52.8)
Other (3.6) 1.9
----------------------------- -------- --------
Adjusted operating cash flow 64.2 76.0
Pension payments (1.0) (0.1)
Interest (14.6) (23.2)
Tax (13.4) (30.9)
Adjusting items (5.2) (20.4)
Payment of lease liabilities (7.1) (6.7)
----------------------------- -------- --------
Free cash flow 22.9 (5.3)
Issue of shares 0.9 0.1
Dividends paid - -
Acquisitions and disposals - 0.3
Currency fluctuations 10.4 12.0
----------------------------- -------- --------
Movement in net debt 34.2 7.1
Net debt at start of year (401.0) (408.1)
----------------------------- -------- --------
Net debt at end of year (366.8) (401.0)
----------------------------- -------- --------
EBITDA - earnings before interest, tax, adjusting items,
depreciation, and amortisation
Adjusted operating cash flow decreased by $11.8m to $64.2m in
2022. An increase in EBITDA of $14.6m and a decrease in net capital
expenditure of $6.3m was offset by a $27.2m increase in working
capital outflow.
Free cash flow of $22.9m in 2022 represents an increase of
$28.2m on the prior year period. Cash tax outflows decreased from
$30.9m to $13.4m, primarily due to the one-off nature of the $19m
charging notice received for the ongoing EU state aid case in 2021.
That, combined with a further one-off cash outflow in 2021 of
$13.2m in respect of a historic, pre-acquisition interest
deductibility tax case is the primary driver of the decrease in
adjusting items cash outflow in 2022.
Net debt decreased from $401.0m in 2021 to $366.8m in 2022, a
reduction of $34.2m. Net debt to adjusted EBITDA decreased from
2.6x in 2021 to 2.2x in 2022 on a pre-IFRS 16 basis. The decrease
in leverage was driven by the improvement in adjusted EBITDA,
reflective of the Group's higher earnings during 2022.
Balance sheet
2022 2021
$m $m
---------------------------------------------- -------- --------
Intangible fixed assets 660.2 815.7
Tangible fixed assets 386.4 499.7
Working capital 141.5 164.0
Net tax liabilities (102.2) (112.6)
Provisions and retirement benefit obligations (12.2) (22.5)
Financial assets and liabilities 5.9 (5.2)
Lease liabilities (36.3) (40.2)
Unamortised syndicate fees 4.3 3.1
Net debt (366.8) (401.0)
Net assets held for sale 103.1 -
---------------------------------------------- -------- --------
Total equity 783.9 901.0
---------------------------------------------- -------- --------
Group equity decreased by $117.1m in 2022 (2021: increase of
$40.6m). Intangible fixed assets decreased by $155.5m due to an
impairment of $103.4m, $15.7m of amortisation of intangibles,
$35.6m of foreign exchange, $0.2m of additions and $1.0m being
transferred to assets held for sale. Tangible fixed assets
decreased by $113.3m, due to gross additions of $46.9m and
right-of-use asset capitalisation of $5.3m more than offset by
exchange differences of $19.9m, depreciation of $49.3m, the
impairment of the bioleaching plant of $23.0m, $3.0m of net
disposals and $70.3m being transferred to assets held for sale.
Working capital comprises inventories, trade and other
receivables and trade and other payables. Working capital decreased
by $22.5m in 2022, primarily as a result of the classification of
Chromium working capital as held for sale offset by inventory
movements during the year.
Net tax liabilities decreased by $10.4m primarily as a result of
the amortisation of the intangible fixed assets leading to a
reduction in the associated deferred tax liability, and the
recognition of previously unrecognised deferred tax assets.
Adjusted ROCE (excluding goodwill) increased from 13% to 15%,
with increased adjusted operating profit partially offsetting
increased total operating capital employed (see the section on
Alternative Performance Measures in this report).
The main dollar exchange rates relevant to the Group are set out
below.
2022 2021
Year end Average Year end Average
---------------- --------- --------- --------- ---------
Pounds sterling 0.83 0.81 0.74 0.73
Euro 0.94 0.95 0.88 0.84
---------------- --------- --------- --------- ---------
Provisions
The Group records a provision in the balance sheet when it has a
present obligation as a result of past events, which is expected to
result in an outflow of economic benefits in order to settle the
obligation and the amount can be reliably estimated. The Group
calculates provisions on a discounted basis. At the end of 2022,
the Group held provisions of $29.7m (2021: $61.8m) consisting of
environmental provisions of $27.5m (2021: $58.7m), self-insurance
provisions of $0.5m (2021: $0.7m) and restructuring and other
provisions of $1.7m (2021: $2.4m).
Environmental provisions have decreased by $31.2m in 2022, of
which $19.5m was transferred to liabilities held for sale. An
expense of $8.7m (of which $3.4m relates to continuing operations)
which relates to extra remediation work required was offset by a
$10.3m credit (of which $7.2m relates to continuing operations)
related to a change in the discount rate applied to the
liabilities; leading to a reduction of $1.6m. The remaining
movement relates to the unwind of the discount in the year ($1.3m)
offset by currency translation of $3.5m and utilisation of $7.9m.
The self-insurance provision represents the Group's estimate of its
liability arising from retained liabilities under the Group's
insurance programme and decreased by $0.2m in the period.
The restructuring and other provisions categories relate
primarily to restructuring provisions made for adjusting head count
and other costs of restructuring where a need to do so has been
identified by management.
Pensions and other post retirement benefits
2022 2021
$m $m
------------------------- ------- -------
Net (surplus)/liability:
UK (26.4) (56.6)
US 3.5 8.3
Other 5.4 9.0
------------------------- ------- -------
(17.5) (39.3)
------------------------- ------- -------
UK plan
The largest of the Group's retirement plans is the UK defined
benefit pension scheme (UK Scheme), which at the end of 2022 had a
surplus, under IAS 19, of $26.4m (2021: $56.6m). The UK Scheme is
relatively mature, with approximately two thirds of its gross
liabilities represented by pensions in payment and it is closed to
new members. Losses on plan assets of $200.4m (2021: return of
$24.9m) and liability adjustments of $176.8m (2021: $27.1m) arising
due to higher discount rates decreased the net surplus for the
year. Company contributions of $0.5m (2021: $0.6m) reflect the
funding agreement reached with the UK trustees following the 2020
triennial valuation which concluded in 2021.
US plan
In the US, the Group reports two post retirement plans under IAS
19: a defined benefit pension plan with a liability at the end of
2022 of $nil (2021: $1.7m), and a post retirement medical plan with
a liability of $3.5m (2020: $6.6m). The US pension plans are
smaller than the UK plan and in 2022 the overall deficit of the US
plans decreased by $4.8m due to transfers to liabilities held for
sale of $2.4m and actuarial decreases in the liability of $28.7m
(2021: $6.3m), losses on plan assets of $26.1m (2021: return of
$4.4m) and employer contributions of $1.2m (2021 $1.0m).
Other plans
Other liabilities at 31 December 2022 amounted to $5.4m (2021:
$9.0m) and relate to pension arrangements for a relatively small
number of employees in Germany, certain UK legacy benefits and one
pension scheme acquired as part of the SummitReheis transaction in
2017.
Financial assets and liabilities
Net financial assets at 31 December 2022 are net derivative
financial assets of $5.9m (2021: net liability of $5.2m) relating
to the valuation of various risk management instruments.
The movements in the mark to market valuation of cross currency
swaps that are not in hedging relationships are treated as
adjusting items as they are non-cash fair value adjustments that
will not affect the cash flows of the Group.
Events after the balance sheet date
On 1 January 2023 the Talc and Coatings segments merged to form
a new segment called Performance Specialties.
On 31 January 2023 the Group completed the sale of its Chromium
business to the Yildirim Group for an enterprise value of $170m, of
which total cash proceeds of $119m were received.
On 31 January 2023 the Group repaid $83.0m of its US dollar
borrowings and EUR31.4m of its euro borrowings.
During February 2023 the Group was notified that the
Administrative Court in Finland had revoked its permit for the
expansion of mining operations at the Uutela mine located in
Sotkamo, Finland. The permit was previously issued by the Finnish
Safety and Chemicals Agency; the body empowered to issue such
permits. The Group intends to appeal the decision. If the appeal
were to be unsuccessful the impact would be to reduce the Talc ore
available to the Group by approximately 6%.
There were no other significant events after the balance sheet
date.
Consolidated income statement
for the year ended 31 December 2022
2022 2021(1)
$m $m
-------------------------------------------- ------- -------
Revenue 736.4 709.4
Cost of sales (437.5) (420.4)
-------------------------------------------- ------- -------
Gross profit 298.9 289.0
Distribution costs (125.0) (126.1)
Administrative expenses (215.7) (151.0)
Operating profit/(loss) (41.8) 11.9
(Loss)/profit on disposal - (1.7)
Other expenses(2) (1.3) (2.0)
Finance income 9.9 11.0
Finance costs (21.6) (26.7)
-------------------------------------------- ------- -------
(Loss)/profit before income tax (54.8) (7.5)
Tax (7.8) (0.4)
-------------------------------------------- ------- -------
Loss from continuing operations (62.6) (7.9)
Profit from discontinued operations 11.5 10.4
-------------------------------------------- ------- -------
(Loss)/profit for the year (51.1) 2.5
-------------------------------------------- ------- -------
Attributable to:
Equity holders of the parent (51.1) 2.5
-------------------------------------------- ------- -------
Earnings per share
-------------------------------------------- ------- -------
From continuing operations
Basic loss (cents) (10.7) (1.4)
Diluted loss (cents) (10.7) (1.4)
From continuing and discontinued operations
Basic (loss)/earnings (cents) (8.8) 0.4
Diluted (loss)/earnings (cents) (8.8) 0.4
-------------------------------------------- ------- -------
1 2021 has been represented following the classification of the
Chromium business as a discontinued operation.
2 Other expenses comprise administration expenses for the Group's pension schemes.
Consolidated statement of comprehensive income
for the year ended 31 December 2022
2022 2021
$m $m
-------------------------------------------------------------- ------- ------
(Loss)/Profit for the year (51.1) 2.5
-------------------------------------------------------------- ------- ------
Other comprehensive income:
Items that will not be reclassified subsequently
to profit and loss:
Remeasurements of retirement benefit obligations (18.5) 64.3
Deferred tax associated with retirement benefit
obligations 5.3 (14.6)
Items relating to discontinued operations, net of
tax 0.3 (0.8)
Items that may be reclassified subsequently to profit
and loss:
Exchange differences on translation of foreign operations (100.9) (29.1)
Effective portion of change in fair value of net
investment hedge 46.2 10.7
Tax associated with change in fair value of net
investment hedge (2.8) 1.8
Tax associated with changes in cashflow hedges 0.8 (0.4)
Recycling of deferred foreign exchange gains on
disposal - (0.4)
Effective portion of changes in fair value of cash
flow hedges (2.6) (0.1)
Fair value of cash flow hedges transferred to income
statement 1.6 2.7
Exchange differences on translation of share options
reserves (0.9) -
-------------------------------------------------------------- ------- ------
Other comprehensive (loss)/income (71.5) 34.1
-------------------------------------------------------------- ------- ------
Total comprehensive (loss)/income for the year (122.6) 36.6
-------------------------------------------------------------- ------- ------
Attributable to:
Equity holders of the parent (122.6) 36.6
-------------------------------------------------------------- ------- ------
Consolidated balance sheet
as at 31 December 2022
2022 2021
31 December 31 December
$m $m
-------------------------------------------- -------------- -------------
Non-current assets
Goodwill and other intangible assets 660.2 815.7
Property, plant, and equipment 386.4 499.7
Tax recoverable 17.5 19.7
Financial assets 1.3 -
Deferred tax assets 24.8 28.0
Net retirement benefit surplus 26.4 56.6
-------------------------------------------- -------------- -------------
Total non-current assets 1,116.6 1,419.7
-------------------------------------------- -------------- -------------
Current assets
Inventories 182.0 186.1
Trade and other receivables 94.9 138.9
Financial assets 10.7 0.2
Current tax assets 7.0 7.1
Cash and cash equivalents 54.9 84.6
-------------------------------------------- -------------- -------------
Total current assets 349.5 416.9
Assets classified as held for sale 160.9 -
-------------------------------------------- -------------- -------------
Total assets 1,627.0 1,836.6
-------------------------------------------- -------------- -------------
Current liabilities
Bank overdrafts and loans (2.7) -
Trade and other payables (135.4) (161.0)
Financial liabilities (3.3) (1.4)
Current tax liabilities (20.2) (17.4)
Lease liabilities (6.1) (6.4)
Provisions (5.8) (8.7)
-------------------------------------------- -------------- -------------
Total current liabilities (173.5) (194.9)
-------------------------------------------- -------------- -------------
Non-current liabilities
Loans and borrowings (414.7) (482.5)
Retirement benefit obligations (8.9) (17.3)
Deferred tax liabilities (131.3) (150.0)
Lease liabilities (30.2) (33.8)
Provisions (23.9) (53.1)
Financial liabilities (2.8) (4.0)
-------------------------------------------- -------------- -------------
Total non-current liabilities (611.8) (740.7)
Liabilities classified as held for sale (57.8) -
-------------------------------------------- -------------- -------------
Total liabilities (843.1) (935.6)
-------------------------------------------- -------------- -------------
Net assets 783.9 901.0
-------------------------------------------- -------------- -------------
Equity
Share capital 52.3 52.2
Share premium 238.7 240.8
Other reserves 42.1 90.7
Retained earnings 450.8 517.3
-------------------------------------------- -------------- -------------
Total equity attributable to equity holders
of the parent 783.9 901.0
-------------------------------------------- -------------- -------------
Total equity 783.9 901.0
-------------------------------------------- -------------- -------------
Consolidated statement of changes in equity
for the year ended 31 December 2022
Share Share Translation Hedging Other Retained Total
capital premium reserve reserve reserves earnings equity
$m $m $m $m $m $m $m
---------------------------------- -------- -------- ----------- -------- --------- --------- -------
Balance at 1 January 2021 52.1 237.7 (48.9) (8.9) 166.4 462.0 860.4
---------------------------------- -------- -------- ----------- -------- --------- --------- -------
Comprehensive income
Profit for the year - - - - - 2.5 2.5
Other comprehensive income
Exchange differences - - (18.4) - - - (18.4)
Recycling of deferred foreign
exchange gains on disposal - - (0.4) - - - (0.4)
Fair value of cash flow hedges
transferred to the
income statement - - - 2.7 - - 2.7
Effective portion of changes
in fair value
of cash flow hedges - - - (0.1) - - (0.1)
Tax associated with changes
in cash flow hedges - - - - - (0.4) (0.4)
Tax associated with changes
in fair value of net investment
hedge - - - - - 1.8 1.8
Remeasurements of retirement
benefit obligations - - - - - 63.5 63.5
Deferred tax adjustment on
pension scheme deficit - - - - - (14.6) (14.6)
Transfer - - - - (1.4) 1.4 -
---------------------------------- -------- -------- ----------- -------- --------- --------- -------
Total other comprehensive
income/(loss) - - (18.8) 2.6 (1.4) 51.7 34.1
---------------------------------- -------- -------- ----------- -------- --------- --------- -------
Total comprehensive income/(loss) - - (18.8) 2.6 (1.4) 54.2 36.6
---------------------------------- -------- -------- ----------- -------- --------- --------- -------
Transactions with owners:
Issue of shares by the Company 0.1 3.1 - - (3.1) - 0.1
Deferred tax on share based
payments recognised within
equity - - - - - 1.1 1.1
Share based payments - - - - 5.1 - 5.1
Fair value of cash flow hedges
transferred to net assets - - - (2.3) - - (2.3)
---------------------------------- -------- -------- ----------- -------- --------- --------- -------
Total transactions with owners 0.1 3.1 - (2.3) 2.0 1.1 4.0
---------------------------------- -------- -------- ----------- -------- --------- --------- -------
Balance at 31 December 2021 52.2 240.8 (67.7) (8.6) 167.0 517.3 901.0
---------------------------------- -------- -------- ----------- -------- --------- --------- -------
Balance at 1 January 2022 52.2 240.8 (67.7) (8.6) 167.0 517.3 901.0
Comprehensive income
Loss for the year - - - - - (51.1) (51.1)
Other comprehensive income
Exchange differences - - ( 54 .7) - (0.9) - (55.6)
Fair value of cash flow hedges
transferred to the
income statement - - - 1.6 - - 1.6
Effective portion of changes
in fair value
of cash flow hedges - - - (2.6) - - (2.6)
Tax associated with changes
in cashflow hedges - - - - - 0.8 0.8
Tax associated with change
in fair value of net
investment hedge - - - - - (2.8) (2.8)
Remeasurements of retirement
benefit obligations - - - - - (18.2) (18.2)
Deferred tax adjustment on
pension scheme deficit - - - - - 5.3 5.3
Transfer - - - 7.8 (4.0) (3.8) -
---------------------------------- ---- ----- -------- ----- ----- ------ -------
Total other comprehensive
income/(loss) - - (54.7) 6.8 (4.9) (18.7) (71.5)
---------------------------------- ---- ----- -------- ----- ----- ------ -------
Total comprehensive income/(loss) - - ( 54 .7) 6.8 (4.9) (69.8) (122.6)
---------------------------------- ---- ----- -------- ----- ----- ------ -------
Transactions with owners:
Issue of shares by the Company 0.1 0.8 - - - - 0.9
Deferred tax on share based
payments recognised within
equity - - - - - 0.4 0.4
Share based payments - - - - 3.4 - 3.4
Fair value of cash flow hedges
transferred to net assets - - - 0.8 - - 0.8
Reserve reclassification(1) - (2.9) - - - 2.9 -
---------------------------------- ---- ----- -------- ----- ----- ------ -------
Total transactions with owners 0.1 (2.1) - 0.8 3.4 3.3 5.5
---------------------------------- ---- ----- -------- ----- ----- ------ -------
Balance at 31 December 2022 52.3 238.7 (122.4) (1.0) 165.5 450.8 783.9
---------------------------------- ---- ----- -------- ----- ----- ------ -------
1 Reclassification adjustments to correct share premium and
retained earnings reserves as at 31 December 2022.
Consolidated cash flow statement
for the year ended 31 December 2022
2022 2021
$m $m
--------------------------------------------------- ------ ------
Operating activities:
(Loss)/profit for the year (51.1) 2.5
Adjustments for:
Other expenses 1.4 2.1
Finance income (9.9) (11.0)
Finance costs 22.3 27.8
Tax charge 10.7 3.3
Depreciation and amortisation 65.0 68.3
Impairment loss on property, plant, and equipment 23.0 -
(Decrease)/increase in provisions and financial
liabilities (9.3) 0.8
Pension payments net of current service cost (1.0) (0.1)
Share based payments expense 3.4 5.1
Impairment of goodwill 103.4 52.3
Loss on disposal of business - 1.7
--------------------------------------------------- ------ ------
Operating cash flow before movement in working
capital 157.9 152.8
Increase in inventories (72.1) (24.2)
Decrease/(increase) in trade and other receivables 4.6 (33.8)
Increase in trade and other payables 14.8 26.3
--------------------------------------------------- ------ ------
Cash generated by operations 105.2 121.1
Income taxes paid (13.4) (30.9)
Interest paid (14.8) (23.5)
--------------------------------------------------- ------ ------
Net cash flow from operating activities 77.0 66.7
--------------------------------------------------- ------ ------
Investing activities:
Interest received 0.2 0.3
Disposal of property, plant and equipment - 0.7
Purchase of property, plant and equipment (46.9) (52.7)
Purchase of business - (0.2)
Disposal of business - 0.5
Acquisition of intangible assets (0.2) (0.4)
Contingent consideration paid - (13.2)
--------------------------------------------------- ------ ------
Net cash flow from investing activities (46.9) (65.0)
--------------------------------------------------- ------ ------
Financing activities:
Issue of shares by the Company and the ESOT
net of issue costs 0.9 0.1
Net movement on existing debt (51.6) (18.7)
Payment of interest on lease liabilities (1.4) (1.6)
Payment of gross lease liabilities (5.7) (5.1)
Net cash used in financing activities (57.8) (25.3)
--------------------------------------------------- ------ ------
Net decrease in cash and cash equivalents (27.7) (23.6)
Cash and cash equivalents at 1 January 84.6 111.0
Foreign exchange on cash and cash equivalents (2.0) (2.8)
Less: cash and cash equivalents classified - -
as held for sale
--------------------------------------------------- ------ ------
Cash and cash equivalents at 31 December 54.9 84.6
--------------------------------------------------- ------ ------
Notes to the financial statements
1. Preparation of the preliminary announcement
The financial information in this statement does not constitute
the Company's statutory accounts for the years ended 31 December
2022 or 2021 but is derived from those accounts. Statutory accounts
for 2021 have been delivered to the Registrar of Companies, and
those for 2022 will be delivered in due course. The auditor has
reported on those accounts; their reports were (i) unqualified,
(ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their
report and (iii) did not contain a statement under section 498(2)
or (3) of the Companies Act 2006.
This preliminary announcement was approved by the Board of
Directors on 6 March 2023.
2. Basis of preparation
Elementis plc (the "Company") is incorporated in the UK. The
information within this document has been prepared based on the
Company's consolidated financial statements which are prepared in
accordance with International Financial Reporting Standards as
adopted by the UK (adopted IFRS) and consistent with the accounting
policies as set out in the previous consolidated financial
statements.
The Group's financial statements have been prepared on the
historical cost basis except that derivative financial instruments
are stated at their fair value. Non-current assets held for sale
are stated at the lower of carrying amount and fair value less
costs to sell. The preparation of financial statements requires the
application of estimates and judgements that affect the reported
amounts of assets and liabilities, revenues and costs and related
disclosures at the balance sheet date.
The accounting policies adopted are consistent with those of the
previous financial year.
Going concern
The Group and Company financial statements have been prepared on
the going concern basis, as the directors are satisfied that the
Group and Company have adequate resources to continue to operate
for at least a period of 12 months from the date of approval of the
financial statements. An explanation of the directors' assessment
of using the going concern basis is given in the Directors' report
in the Annual Report and Accounts 2022 which will be made available
to shareholders on 22 March 2023.
Reporting currency
As a consequence of the majority of the Group's sales and
earnings originating in US dollars or US dollar linked currencies,
the Group has chosen the US dollar as its presentational currency.
This aligns the Group's external reporting with the profile of the
Group, as well as with internal management reporting.
3. Finance income
2022 2021
$m $m
--------------------------------------------- ----- -----
Interest on bank deposits 0.2 0.3
Penson and other post retirement liabilities 0.6 -
Fair value movement on derivatives 9.1 10.7
--------------------------------------------- ----- -----
9.9 11.0
--------------------------------------------- ----- -----
4. Finance costs
2022 2021
$m $m
---------------------------------------------- ----- -----
Interest on bank loans 19.5 23.2
Pension and other post retirement liabilities - 0.2
Unwind of discount on provisions 0.7 1.7
Interest on lease liabilities 1.4 1.6
---------------------------------------------- ----- -----
21.6 26.7
---------------------------------------------- ----- -----
5. Adjusting items and alternative performance measures
2022 2021
2021 Discontinued
2022 Total 2021 operations Total
2022 Discontinued
operations
$m $m $m $m $m $m
--------------------------------- ----- ------------------ ------- ------ ------------------ -------
Business transformation 4.8 - 4.8 4.3 0.3 4.6
Environmental provisions
Increase in provisions
due to additional remediation
work identified 3.4 5.3 8.7 5.3 4.3 9.6
(Decrease)/Increase
in provisions due to
change in discount
rate (7.2) (3.1) (10.3) (0.6) (0.7) (1.3)
Impairment of property,
plant and equipment 23.0 - 23.0 - - -
Impairment of goodwill 103.4 - 103.4 52.3 - 52.3
Costs associated with
Chromium disposal - 5.6 5.6 - - -
Sale of Montreal land - - - (1.0) - (1.0)
Amortisation of intangibles
arising on acquisition 14.9 0.2 15.1 15.8 0.2 16.0
142.3 8.0 150.3 76.1 4.1 80.2
Sale of Business - - - 1.7 - 1.7
Unrealised mark to
market of derivative
financial instruments (6.6) - (6.6) (10.7) - (10.7)
Tax credit in relation
to adjusting items (8.3) (1.7) (10.0) (10.5) (0.8) (11.3)
--------------------------------- ----- ------------------ ------- ------ ------------------ -------
127.4 6.3 133.7 56.6 3.3 59.9
--------------------------------- ----- ------------------ ------- ------ ------------------ -------
A number of items have been recorded under adjusting items by
virtue of their size and/or one time nature, in line with our
accounting policy in Note 1 to the consolidated financial
statements, in order to provide additional useful analysis of the
Group's results. The Group considers the adjusted results to be an
important measure used to monitor how the businesses are performing
as they achieve consistency and comparability between reporting
periods. The net impact of these items on the Group profit before
tax for the year is a debit of $135.7m (2021: $67.1m). The items
fall into a number of categories, as summarised below:
Business transformation - In November 2020, the closure of the
Charleston plant was announced. Costs of $2.9m ($4.2m in 2021)
including $0.4m of depreciation ($0.4m in 2021) associated with the
closure of the site are classified as an adjusting item and the
site is planned to be disposed of in the future. Since November
2020, costs of $22.7m have been incurred in relation to the closure
of the site. In addition to this, costs of $1.9m have been incurred
in relation to the Talc integration and synergy projects. This
project was completed in 2022.
Environmental provisions - The Group's environmental provision
is calculated on a discounted cash flow basis, reflecting the time
period over which spending is estimated to take place. The movement
in the provision relates to a change in discount rates that has
decreased the liability by $7.2m in the year (2021: $0.6m) and
extra remediation work identified in the year which has resulted in
a $3.4m increase to the liability (2021: $5.3m). As these costs
relate to non-operational facilities they are classified as
adjusting items.
Impairment of property, plant and equipment - In 2022 the Group
recognised a non-cash $23.0m impairment in respect of
non-operational bioleaching property, plant and equipment in the
Talc business. The Group determined that the operational, health
and safety and financial commitments required to operate the
equipment were not the best use of the Group's resources.
Impairment of goodwill - The performance of the Talc business
was adversely impacted by a lower demand environment, global
inflationary pressures, higher energy costs and the Russia/Ukraine
conflict. These factors, as well as a reduction in the near term
forecasted profitability of the Talc business and a rise in the
pre-tax discount rate resulted in an impairment charge of $103.4m
being recognised (2021: $52.3m). Due to the currency in which the
goodwill was held, this impairment also gave rise to a $8.0m (2021:
$0.8m) movement in exchange differences on translation of foreign
operations within other comprehensive income.
Costs associated with Chromium disposal - As announced in
November 2022, the Group signed a sale and purchase agreement for
the divestment of its Chromium business. The transaction completed
in January 2023. Costs totalling $5.6m were incurred during 2022 as
part of the divestiture process.
Sale of Montreal land - In 2021 the Group disposed of a non-core
parcel of land in Montreal, Canada. The profit on disposal has been
treated as an adjusting item.
Amortisation of intangibles arising on acquisition -
Amortisation of $14.9m (2021: $15.8m) represents the charge in
respect of the Group's acquired intangible assets. As in previous
years, these are included in adjusting items as they are a non-cash
charge arising from historical investment activities.
Sale of Business - In 2021, the $1.7m loss on disposal of two
non-core dental businesses, Eisenbacher Dentalwaren ED GmbH and
Adentatec GmbH, was treated as an adjusting item.
Unrealised mark to market of derivatives - The unrealised
movements in the mark to market valuation of financial instruments
that are not in hedging relationships are treated as adjusting
items as they are unrealised non-cash fair value adjustments that
will not affect the cash flows of the Group.
Tax on adjusting items - this is the net impact of tax relating
to the adjusting items listed above.
To support comparability with the financial statements as
presented in 2022 the reconciliation to the adjusted consolidated
income statement is shown below.
2022 2021
Profit Profit
and loss and loss
2022 after 2021 2021 after
Profit 2022 Adjusting adjusting Profit Adjusting adjusting
and loss items items and loss items items
$m $m $m $m $m $m
--------------------------------- --------- -------------- ---------- --------- ---------- ----------
Revenue 736.4 - 736.4 709.4 - 709.4
( 437
Cost of sales (437.5) - .5) (420.4) - (420.4)
--------------------------------- --------- -------------- ---------- --------- ---------- ----------
Gross profit 298.9 - 298.9 289.0 - 289.0
Distribution costs (125.0) - (125.0) (126.1) - (126.1)
Administrative expenses (215.7) 142.3 (73.4) (151.0) 76.1 (74.9)
--------------------------------- --------- -------------- ---------- --------- ---------- ----------
Operating (loss)/profit (41.8) 142.3 100.5 11.9 76.1 88.0
Loss on disposal - - - (1.7) 1.7 -
Other expenses (1.3) - (1.3) (2.0) - (2.0)
Finance income 9.9 (6.6) 3.3 11.0 (10.7) 0.3
Finance costs (21.6) - (21.6) (26.7) - (26.7)
--------------------------------- --------- -------------- ---------- --------- ---------- ----------
(Loss)/profit before income
tax (54.8) 135.7 80.9 (7.5) 67.1 59.6
Tax (7.8) (8.3) (16.1) (0.4) (10.5) (10.9)
--------------------------------- --------- -------------- ---------- --------- ---------- ----------
(Loss)/profit from continuing
operations (62.6) 127.4 64.8 (7.9) 56.6 48.7
Profit from discontinued
operations 11.5 6.3 17.8 10.4 3.3 13.7
--------------------------------- --------- -------------- ---------- --------- ---------- ----------
(Loss)/profit for the year (51.1) 133.7 82.6 2.5 59.9 62.4
--------------------------------- --------- -------------- ---------- --------- ---------- ----------
Attributable to:
Equity holders of the parent (51.1) 133.7 82.6 2.5 59.9 62.4
--------------------------------- --------- -------------- ---------- --------- ---------- ----------
Earnings per share
From continuing operations
Basic (loss)/earnings (cents) (10.7) 21.8 11.1 (1.4) 9.8 8.4
Diluted (loss)/earnings
(cents) (10.7) 21.6 10.9 (1.4) 9.7 8.3
From continuing and discontinued
operations
Basic (loss)/earnings (cents) (8.8) 23.0 14.2 0.4 10.3 10.7
Diluted (loss)/earnings
(cents) (8.8) 22.7 13.9 0.4 10.2 10.6
--------------------------------- --------- -------------- ---------- --------- ---------- ----------
To support comparability with the financial statements as
presented in 2022, a reconciliation from reported profit/(loss)
before interest to adjusted operating profit/(loss) by segment is
shown below for each year.
Personal Segment Central
Care Coatings Talc totals costs Total
2022 $m $m $m $m $m $m
--------------------------------------- -------- -------- ------- ------- ------- ------
Reported operating profit/(loss) 44.4 69.2 (134.0) (20.4) (21.4) (41.8)
--------------------------------------- -------- -------- ------- ------- ------- ------
Adjusting Items
Business transformation - 2.9 1.9 4.8 - 4.8
Increase in environmental
provisions due to additional
remediation work identified - - - - 3.4 3.4
Increase in environmental
provisions due to change
in discount rate - - - - (7.2) (7.2)
Impairment of property, plant
and equipment - - 23.0 23.0 - 23.0
Impairment of goodwill - - 103.4 103.4 - 103.4
Amortisation of intangibles
arising on acquisition 8.4 1.2 5.3 14.9 - 14.9
Adjusted operating profit
/(loss) 52.8 73.3 (0.4) 125.7 (25.2) 100.5
--------------------------------------- -------- -------- ------- ------- ------- ------
Operating profit from discontinued
operations 15.2
Adjusting items from discontinued
operations 8.0
--------------------------------------- -------- -------- ------- ------- ------- ------
Adjusted operating profit
from discontinued operations 23.2
--------------------------------------- -------- -------- ------- ------- ------- ------
Adjusted operating profit
from total operations 123.7
--------------------------------------- -------- -------- ------- ------- ------- ------
Personal Segment Central
Care Coatings Talc totals costs Total
2021 $m $m $m $m $m $m
----------------------------------- -------- -------- ------ ------- ------- -----
Reported operating profit/(loss) 27.9 56.5 (44.3) 40.1 (28.2) 11.9
----------------------------------- -------- -------- ------ ------- ------- -----
Adjusting Items
Business transformation 0.1 4.2 - 4.3 - 4.3
Increase in environmental
provisions due to additional
remediation work identified - - - - 5.3 5.3
Increase in environmental
provisions due to change
in discount rate - - - - (0.6) (0.6)
Impairment of goodwill - - 52.3 52.3 - 52.3
Sale of Montreal land - - - - (1.0) (1.0)
Amortisation of intangibles
arising on acquisition 8.7 1.1 6.0 15.8 - 15.8
Adjusted operating profit
/(loss) 36.7 61.8 14.0 112.5 (24.5) 88.0
----------------------------------- -------- -------- ------ ------- ------- -----
Operating profit from discontinued
operations 14.5
Adjusting items from discontinued
operations 4.1
----------------------------------- -------- -------- ------ ------- ------- -----
Adjusted operating profit
from discontinued operations 18.6
----------------------------------- -------- -------- ------ ------- ------- -----
Adjusted operating profit
from total operations 106.6
----------------------------------- -------- -------- ------ ------- ------- -----
6. Income tax expense
2022 2021
$m $m
-------------------------------------------------- ----- ------
Current tax:
UK corporation tax 11.2 12.5
Overseas corporation tax on continuing operations 6.5 4.2
Adjustments in respect of prior years:
United Kingdom (0.6) (1.0)
Overseas (3.8) (7.2)
-------------------------------------------------- ----- ------
Total current tax 13.3 8.5
-------------------------------------------------- ----- ------
Deferred tax:
United Kingdom 3.1 (2.8)
Overseas (8.4) (4.8)
Adjustment in respect of prior years:
United Kingdom - -
Overseas (0.2) (0.5)
-------------------------------------------------- ----- ------
Total deferred tax (5.5) (8.1)
-------------------------------------------------- ----- ------
Income tax (credit)/expense for the year 7.8 0.4
-------------------------------------------------- ----- ------
Comprising:
-------------------------------------------------- ----- ------
Income tax (credit)/expense for the year 7.8 0.4
-------------------------------------------------- ----- ------
Adjusting items (1)
Overseas taxation on adjusting items (6.3) (11.4)
UK taxation on adjusting items (2.0) 0.9
Taxation on adjusting items (8.3) (10.5)
-------------------------------------------------- ----- ------
Income tax expense for the year after adjusting
items 16.1 10.9
-------------------------------------------------- ----- ------
(1) See Note 5 for details of adjusting items.
The tax charge on profits represents an effective rate of 14.2%
(2021: 5.3%) and an effective tax rate after adjusting items of
20.0% (2021: 18.3%).
The tax impact of the adjusting items outlined within note 5 and
within the consolidated income statement relates to the
following:
2022 2022 2021 2021
Gross Tax impact Gross Tax impact
$m $m $m $m
--------------------------------------------------- ------ ----------- ------ -----------
Business transformation 4.8 1.1 4.3 0.9
Environmental provisions (3.8) (0.7) 4.7 0.9
M&A and disposal costs - - 1.7 -
Impairment of property, plant and equipment 23.0 4.9 - -
Impairment of goodwill 103.4 - 52.3 -
Mark to market of derivative financial instruments (6.6) (1.3) (10.7) (2.0)
Sale of Montreal land - - (1.0) -
Amortisation of intangibles arising on acquisition 14.9 2.9 15.8 3.5
Reversal of uncertain tax provision - 1.4 - 7.2
--------------------------------------------------- ------ ----------- ------ -----------
Total 135.7 8.3 67.1 10.5
--------------------------------------------------- ------ ----------- ------ -----------
The Group is international and has operations across a range of
jurisdictions. Accordingly, tax charges of the Group in future
periods will be affected by the profitability of operations in
different jurisdictions and changes to tax rates and regulations in
the jurisdictions within which the Group has operations. The
Group's adjusted effective tax rate in 2022 is slightly lower than
its usual range due to beneficial adjustments in respect of prior
years and the recognition of previously unrecognised deferred tax
assets. The medium-term expectation for the Group's adjusted
effective tax rate is around 25-26% due to the previously announced
increase in UK corporation tax rates from April 2023.
On 20 December 2021 the OECD published its Global Anti-Base
Erosion Model Rules (Pillar Two). The report provides a model for a
coordinated system of taxation that imposes a top-up tax on profits
arising in a jurisdiction whenever the effective tax rate,
determined on a jurisdictional basis, is below the minimum tax rate
of 15%. Each OECD member nation is implementing Pillar Two on
slightly different timescales but certain jurisdictions have
announced their intentions to implement for accounting periods
beginning on or after 31 December 2023. The Group continues to
consider the impact of the announcements on its tax position.
The total charge for the year can be reconciled to the
accounting profit as follows:
2022 2022 2021 2021
$m % $m %
----------------------------------------- ------- ------- ------ --------
Profit/(loss) before tax (54.8) (7.5)
----------------------------------------- ------- ------- ------ --------
Tax at 19.0% (2021: 19.0%) (10.4) (19.0) (1.4) (19.0)
Difference in overseas effective tax
rates 2.3 4.2 1.5 20.0
Income not taxable and impact of tax
efficient financing (0.4) (0.7) (1.0) (13.3)
Expenses not deductible for tax purposes 21.8 39.7 12.0 160.0
Adjustments in respect of prior years (4.6) (8.4) (8.8) (117.2)
Tax rate changes 0.2 0.4 (1.3) (17.2)
Movement in unrecognised deferred tax (1.1) (2.0) (0.6) (8.0)
Total charge/(credit) and effective
tax rate for the year 7.8 14.2 0.4 5.3
----------------------------------------- ------- ------- ------ --------
The adjustment in respect of prior years relates primarily to
the release of uncertain tax provisions.
7. Earnings per share
The calculation of the basic and diluted earnings per share
attributable to the ordinary equity holders of the parent is based
on the following:
2022 Discontinued 2021 Discontinued
2022 operations 2022 2021 operations 2021
$m $m $m $m $m $m
--------------------------- ------ ------------------ ------ ----- ------------------ -----
Earnings:
(Loss)/earnings for the
purpose of basic earnings
per share (62.6) 11.5 (51.1) (7.9) 10.4 2.5
Adjusting items net of
tax 127.4 6.3 133.7 56.6 3.3 59.9
--------------------------- ------ ------------------ ------ ----- ------------------ -----
Adjusted earnings 64.8 17.8 82.6 48.7 13.7 62.4
--------------------------- ------ ------------------ ------ ----- ------------------ -----
2022 2021
m m
--------------------------------------------------- ----- -----
Number of shares:
Weighted average number of shares for the purposes
of basic earnings per share 582.6 581.0
Effect of dilutive share options 9.7 7.8
--------------------------------------------------- ----- -----
Weighted average number of shares for the purposes
of diluted earnings per share 592.3 588.8
--------------------------------------------------- ----- -----
The dilutive (loss)/earnings per share calculation in the table
below, does not include the impact of the 9.7m dilutive share
options (2021: 7.8m dilutive share options), as the inclusion of
these potential shares would have an anti-dilutive impact on the
diluted loss per share from continuing operations; it would
decrease the diluted loss per share from continuing operations.
2022 Discontinued 2021 Discontinued
2022 operations 2022 2021 operations 2021
cents cents cents cents cents cents
------------------------ ------- ------------------- ------ ------- ------------------- ------
Earnings per share:
Basic (loss)/earnings (10.7) 2.0 (8.8) (1.4) 1.8 0.4
Diluted (loss)/earnings (10.7) 2.0 (8.8) (1.4) 1.8 0.4
Basic after adjusting
items 11.1 3.1 14.2 8.4 2.4 10.7
Diluted after adjusting
items 10.9 3.0 13.9 8.3 2.3 10.6
------------------------ ------- ------------------- ------ ------- ------------------- ------
8. Contingent liabilities
As is the case with other chemical companies, the Group
occasionally receives notice of litigation relating to regulatory
and legal matters. A provision is recognised when the Group
believes it has a present legal or constructive obligation as a
result of a past event, and it is probable that an outflow of
economic benefits will be required to settle the obligation. Where
it is deemed that an obligation is merely possible and that the
probability of a material outflow is not remote, the Group would
disclose a contingent liability.
The Group has not received any notice of litigation relating to
events arising prior to the balance sheet date that is expected to
lead to a material exposure.
In 2013 the UK Government (through HMRC) introduced the UK
Finance Company Exemption ('FCE') regime. Elementis entered into
the FCE regime during 2014. In October 2017 the European Commission
opened a State Aid investigation into the regime. In April 2019 the
European Commission concluded that the FCE regime constituted State
Aid in circumstances where Groups had accessed the regime using a
financing company with UK significant people functions; the
European Commission therefore instructed the UK Government to
collect any relevant State Aid amounts. The UK government and other
UK based international companies, including Elementis, appealed to
the General Court of the European Union against the decision in
2019.
In Spring 2020 HMRC requested that affected Groups submit their
UK significant people function analysis. The deadline for
submission of these analyses was delayed due to the impact of
COVID-19 and Elementis submitted its analysis to HMRC in July 2020.
In December 2020 the UK government introduced legislation to
commence collection proceedings.
Elementis received a charging notice from HMRC on 5 February
2021 which assessed for the maximum exposure of $19m (excluding
interest). This was paid to HMRC on 5 March 2021. A charging notice
for associated interest of $1m was received on 24 June 2021 and
paid on 7 July 2021. Whilst Elementis 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
lodged a further appeal to the European Court of Justice during Q3
2022. As Elementis continues to consider that the appeal process
will ultimately be successful, at 31 December 2022 an asset has
been recorded within non-current assets in 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. The Group entered into a share purchase agreement
with Yildirim Group during November 2022 to divest its Chromium
operations; as part of that share purchase agreement the Yildirim
Group will take on any future liability associated with the closure
of the quarry. The transaction to divest the Chromium operations
closed on 31 January 2023. Management's assessment is therefore
that as at 31 December 2022 while 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 to determine a reliable estimate.
In August 2022 the Brazilian tax authorities opened a tax audit
into the Group's Brazilian entity. The audit is focused on the
customs classification code used since 2017 for one of the entity's
imported raw materials. The potential exposure is $3.1m. Management
have obtained legal advice on the matter and, based on the advice
received, management believes that the customs classification
coding used is correct. Management therefore concluded that as at
31 December 2022 it is not probable that an outflow of economic
resources will be required to settle the matter.
9. Events after the balance sheet date
On 1 January 2023 the Talc and Coatings segments merged to form
a new segment called Performance Specialties.
On 31 January 2023 the Group completed the sale of its Chromium
business to the Yildirim Group for an enterprise value of $170m, of
which total cash proceeds of $119m were received.
On 31 January 2023 the Group repaid $83m of its US dollar
borrowings and EUR31.4m of its euro borrowings.
During February 2023 the Group was notified that the
Administrative Court in Finland had revoked its permit for the
expansion of mining operations at the Uutela mine located in
Sotkamo, Finland. The permit was previously issued by the Finnish
Safety and Chemicals Agency; the body empowered to issue such
permits. The Group intends to appeal the decision. If the appeal
were to be unsuccessful the impact would be to reduce the Talc ore
available to the Group by approximately 6%.
There were no other significant events after the balance sheet
date.
10. Goodwill and other intangible assets
2022 2021
$m $m
---------------------------------------------- ------- ------
Goodwill at 1 January 613.0 668.0
Exchange differences (28.7) (2.2)
Acquisitions - 0.5
Disposals - (1.0)
Impairment (103.4) (52.3)
---------------------------------------------- ------- ------
Goodwill at 31 December 480.9 613.0
Other intangible assets at 31 December 179.3 202.7
---------------------------------------------- ------- ------
Total goodwill and intangibles at 31 December 660.2 815.7
---------------------------------------------- ------- ------
The performance of the Talc business was adversely impacted in
the second half of 2022 by a lower demand environment, global
inflationary pressures, higher energy costs and the Russia/Ukraine
conflict. These factors, as well as a reduction in the near term
forecasted profitability of the Talc business and a rise in the
pre-tax discount rate resulted in an impairment charge of $103.4
million being recognised (2021: $52.3m). Due to the currency in
which the goodwill was held, this impairment also gave rise to a
$8.0 million (2021: $0.8m) movement in exchange differences on
translation of foreign operations within other comprehensive
income.
The recoverable amount of $244.6m (2021: $440.7m) for the CGU
was calculated using forecasted cash flows based on budgets and
plans for 2023 to 2027, a pre-tax discount rate of 12.0% (2021:
10.0%), a long-term growth rate of 3.0% (2021: 3.0%), and revenue
growth of between 4.1% and 12.8% (2021: 5.0% and 8.0%). The pre-tax
discount rate is based on the geographies in which the Talc CGU
operates. The increase in the pre-tax discount rate used in 2022 as
compared to 2021, was primarily driven by the increase in risk-free
rates and the pre-tax cost of debt. The long-term growth rates are
supported by third party studies which consider the long-term
growth prospects for the Talc industry. The revenue growth
forecasts reflect market and independent data as well as
management's estimates regarding medium term growth in the Talc
industry. The movement in the revenue growth forecasts for 2022 as
compared to 2021 reflects a steady recovery of the Talc business
following the lower demand noted in the second half of 2022.
The high end of reasonably possible changes, all in isolation,
would have the following impact: increasing the discount rate by
0.5% would result in a further impairment charge $13.4m to
amortising intangible assets; decreasing the long-term growth rate
by 1.0% would result in a further impairment charge of $17.5m to
amortising intangible assets; and decreasing the forecasted revenue
by 2.5%, yearly over each year in the 5 year forecasting model,
would result in a further impairment charge of $24.8m to amortising
intangible assets.
No impairment was identified for the Personal Care, Coatings and
Chromium CGUs.
ALTERNATIVE PERFORMANCE MEASURES AND UNAUDITED INFORMATION
Alternative performance measures
A reconciliation from reported profit for the year to earnings
before interest, tax, depreciation and amortisation (EBITDA) is
provided to support understanding of the summarised cash flow
included within the Finance report.
2022 2021
Profit Profit
and and
loss loss
$m $m
----------------------------------------- ------- --------
(Loss)/profit for the year (51.1) 2.5
------------------------------------------- ------- --------
Adjustments for
Profit from discontinued operations (11.5) ( 10 .4)
Finance income (9.9) (11.0)
Finance costs and other expenses 22.9 28.7
Tax charge 7.8 0.4
Depreciation and amortisation 56.6 58.3
Excluding intangibles arising on
acquisition (14.9) (15.8)
Loss on disposal - 1.7
Adjusting items before finance costs
and depreciation 141.9 75.7
------------------------------------------- ------- --------
Adjusted EBITDA from continuing
operations 141.8 130.1
Adjusted EBITDA from discontinued
operations 31.3 28 .4
------------------------------------------- ------- --------
Adjusted EBITDA from total operations 173.1 158 .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 taxes paid or received, interest paid or received,
pension contributions net of current service cost and adjusting
items.
2022 2021
$m $m
--------------------------------------------------- ------ ------
Net cash flow from operating activities from
total operations 77.0 66.7
--------------------------------------------------- ------ ------
Less: Capital expenditure (47.1) (52.4)
Add:
Income tax paid or received 13.4 30.9
Interest paid or received 14.8 23.5
Pension contributions net of current service
cost 1.0 0.1
Adjusting items - non cash (0.1) (13.2)
Adjusting items - cash 5.2 20.4
--------------------------------------------------- ------ ------
Adjusted operating cash flow from total operations 64.2 76.0
--------------------------------------------------- ------ ------
Adjusted operating cash conversion
Adjusted operating cash conversion is defined as adjusted
operating profit divided by adjusted operating cash flow plus
provisions and share based payments.
2022 2021
$m $m
-------------------------------------------------- ----- -----
Operating profit after adjusting items from total
operations 123.7 106.6
-------------------------------------------------- ----- -----
Operating cash flow 64.2 76.0
Add:
Provisions and share based payments 3.6 (1.9)
-------------------------------------------------- ----- -----
67.8 74.1
-------------------------------------------------- ----- -----
Adjusted operating cash flow conversion from
total operations 55% 70%
-------------------------------------------------- ----- -----
Contribution margin
The Group's contribution margin, which is defined as sales less
all variable costs, divided by sales and expressed as a
percentage.
2022 2021
$m $m
-------------------- -------------------------------------- -------------------------------------------
Continuing Discontinued Total Continuing Discontinued Total operations
operations operations operations operations operations
-------------------- ----------- ------------ ----------- ----------- ------------ ----------------
Revenue 736.4 185 .0 921 .4 709.4 170.7 880.1
-------------------- ----------- ------------ ----------- ----------- ------------ ----------------
Variable costs (388.3) (100.8) ( 489 .1) (379.0) (100.2) (479.2)
Non variable costs (49.2) (34.2) (83.4) (41.4) (24.6) (66.0)
-------------------- ----------- ------------ ----------- ----------- ------------ ----------------
Cost of sales (437.5) (135.0) ( 572 .5) (420.4) (124.8) (545.2)
-------------------- ----------- ------------ ----------- ----------- ------------ ----------------
Adjusted Group profit before tax
Adjusted Group profit before tax is defined as the Group profit
before tax from total operations (both continuing and discontinued)
after adjusting items, excluding adjusting items relating to
tax.
Adjusted return on operating capital employed
The adjusted return on operating capital employed (ROCE) is
defined as operating profit from total operations after adjusting
items divided by operating capital employed, expressed as a
percentage. Operating capital employed comprises fixed assets
(excluding goodwill), working capital and operating provisions.
Operating provisions include self-insurance and environmental
provisions but exclude retirement benefit obligations.
2022 2021
$m $m
------------------------------------------------------- ------ ------
Operating profit from total operations after adjusting
items 123.7 106.6
------------------------------------------------------- ------ ------
Fixed assets excluding goodwill 654.5 722.1
Working capital 231.9 164.0
Operating provisions (48.7) (61.8)
------------------------------------------------------- ------ ------
Operating capital employed 837.7 824.3
Adjusted return on capital employed 15% 13%
------------------------------------------------------- ------ ------
Average trade working capital to sales ratio
The trade working capital to sales ratio is defined as the 12
month average trade working capital divided by sales, expressed as
a percentage. Trade working capital comprises inventories, trade
receivables (net of provisions) and trade payables. It specifically
excludes repayments, capital or interest related receivables or
payables, changes due to currency movements and items classified as
other receivables and other payables.
Adjusted operating profit/operating margin
Adjusted operating profit is the profit derived from the normal
operations of the business. Adjusted operating margin is the ratio
of operating profit, after adjusting items, to sales.
Unaudited information
To support a full understanding of the performance of the Group,
the information below provides the calculation of Net Debt/EBITDA
on a pre-IFRS 16 basis.
2022 2021
$m $m
------------------------------------------------ ----- -----
Revenue 921.4 880.1
Adjusted operating profit from total operations 123.7 106.6
Adjusted operating margin from total operations 13.4% 12.1%
Adjusted EBITDA from total operations 173.1 158.5
IFRS 16 adjustment (7.1) (6.8)
------------------------------------------------ ----- -----
Adjusted EBITDA pre-IFRS 16 166.0 151.7
Net Debt* 366.8 401.0
Net Debt/EBITDA** 2.2 2.6
------------------------------------------------ ----- -----
* Net debt excludes lease liabilities.
** Net Debt/EBITDA, where EBITDA is the adjusted EBITDA on total
operations of the Group on a pre IFRS16 basis.
*****************************************************
Related party transactions
The Company is a guarantor to the UK pension scheme under which
it guarantees all current and future obligations of UK subsidiaries
currently participating in the pension scheme to make payments to
the scheme, up to a specified maximum amount. The maximum amount of
the guarantee is that which is needed (at the time the guarantee is
called on) to bring the scheme's funding level up to 105 per cent
of its liabilities, calculated in accordance with section 179 of
the Pensions Act 2004. This is also sometimes known as a Pension
Protection Fund (PPF) guarantee, as having such a guarantee in
place reduces the annual PPF levy on the scheme.
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END
FR JFMBTMTTMTIJ
(END) Dow Jones Newswires
March 07, 2023 02:00 ET (07:00 GMT)
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