TIDMELM
RNS Number : 1235T
Elementis PLC
23 March 2021
23 March 2021
ELEMENTIS plc
PRELIMINARY RESULTS FOR THE YEARED 31 DECEMBER 2020
Self-help actions partially offset COVID-19 related volume
impacts
-- Despite demand recovery in H2, revenue down 14% (12%
underlying*) from $874m to $751m principally due to COVID-19
related volume impact across industrial and consumer end
markets.
-- Statutory loss after tax of $67m, primarily due to non-cash
goodwill impairments across Energy and Talc assets booked in the
first half due to COVID-19 impacts. Adjusted operating profit down
34% (33% underlying*) to $82m, in line with expectations, with good
Coatings performance, pricing resilience and cost savings offset by
lower volumes.
-- Net debt reduced by $46m from $454m (December 2019) to $408m,
due to strong operating cash conversion (4) of 137% and the
suspension of the dividend, representing a year end financial
leverage (4) of 3.2x. The Group continues to have significant
liquidity, with over $350m immediately available.
Further strategic progress, well positioned for sustainable
growth and value creation
-- Business fundamentals remain strong - a higher quality,
advantaged portfolio with material growth and self-help
opportunities. Personal Care, Coatings and Talc represent over 90%
of earnings.
-- Good progress on Innovation, Growth and Efficiency strategy
to deliver medium term Group performance objectives. Delivered $30m
of new business opportunities, 12 new product launches and
increased new products** from 12% to 14% of sales.
-- Proactive cash and cost management - $15m of cost savings
($10m temporary) and $7m of working capital reduction delivered in
2020. Accelerated delivery of $10m of supply chain savings for
2021. New 2023 targets of $10m cost savings and $10m working
capital reduction.
2021 outlook - improved financial performance and deleveraging
expected
-- An encouraging start to 2021, but cautious on outlook due to COVID-19 dynamic.
-- Continued demand improvement from H2 20 activity levels,
linked to COVID-19 recovery, and self-help focus anticipated to
drive improved financial performance and a reduction in
leverage.
FINANCIAL SUMMARY
-------------------------------- ------- ----- --------
2020 2019 % Change
-------------------------------- ------- ----- --------
Revenue $751m $874m -14%
Adjusted operating profit(1) $82m $123m -34%
Adjusted profit before tax(1) $53m $94m -44%
Adjusted diluted earnings per
share(2) 6.5c 12.4c -48%
Adjusted operating cash flow(3) $110m $155m -29%
Net debt(4) $408m $454m -10%
Ordinary dividend per share - 2.8c n/a
Statutory results
-------------------------------- ------- ----- --------
Statutory (loss)/profit for
the period $(67)m $46m n/a
Statutory basic (loss)/earnings
per share(2) (11.5)c 8.0c n/a
-------------------------------- ------- ----- --------
Business performance overview
-- Personal Care revenue down 9% on an underlying basis* (18% on
a reported basis), from $195m to $161m. Adjusted operating profit
down 20% on an underlying basis* (21% on a reported basis) from
$43m to $34m; adjusted operating margin of 20.9% vs 21.9% in
2019.
o Volumes impacted by demand weakness in colour cosmetics and
anti-perspirant deodorants due to COVID-19 related social and
travel restrictions.
o Adjusted margins solid at 20.9% despite weaker volumes and
relatively lower sales of higher margin hectorite based cosmetics
ingredients.
-- Coatings revenue down 7% on an underlying basis* (8% on a
reported basis), from $320m to $296m. Adjusted operating profit
down 2% on an underlying* and reported basis from $48m to $47m,
with adjusted operating margin up from 15.1% to 15.9%.
o Revenue impacted by weak demand in industrial markets, such as
automotive and protective coatings, partially offset by robust
decorative activity.
o Despite volume headwinds, adjusted margins improved to 15.9%,
reflective of an improved underlying cost position, enhanced
product portfolio and new business wins.
-- Talc revenue down 13% on an underlying basis* (12% on a
reported basis), from $151m to $133m. Adjusted operating profit
down 35% from $26m to $17m, with adjusted operating profit margin
of 12.5%.
o Revenue impacted by Q2 automotive shutdowns and reduced paper
demand, partially offset by coatings growth and geographic
expansion. Strong H2 recovery with Q4 volumes above the prior year
period.
o Adjusted margins of 12.5%, down from 17.1% in 2019 due to
lower volumes and reduced fixed cost absorption.
-- Chromium revenue down 14% from $171m to $147m; adjusted
operating profit down 69% from $18m to $6m.
o Revenue impacted by lower volumes due weaker industrial
production, particularly in Q2 and Q3, and pricing declines
principally outside of North America.
o Adjusted operating profit margin down from 10.6% to 3.8% due
to weaker volumes and pricing, partially offset by efficiency
gains.
-- Energy revenue down 49% from $47m to $24m. Adjusted operated
profit down from $4m to a $6m loss in 2020.
o Lower drilling activity (c. 50% lower in North America vs
2019) drives revenue decline.
o Charleston plant closure and consolidation of capacity at St
Louis to restore future profitability.
Commenting on the results, CEO, Paul Waterman said:
"In 2020 we faced challenging demand conditions due to the
unprecedented impact of COVID-19 on communities around the world. I
am grateful for the support of all our stakeholders during this
period, and I am proud of the way our people have remained focused
on safe, reliable operations and taking care of our customers
through such a difficult time.
We have made an encouraging start to 2021, and for the full year
expect improved financial performance and deleveraging, linked to
COVID-19 developments. We will continue to maintain our focus on
self-help actions to optimise performance, and in 2021 expect to
deliver more than $30m of new business opportunities, over 20 new
products and $10m of cost savings.
The fundamentals of our business remain strong and we have high
quality assets with enduring competitive advantages . I am
confident that the implementation of our Innovation, Growth and
Efficiency strategy, in combination with our self-help actions,
will position Elementis to capture growth, deliver our medium term
financial ambitions and generate significant shareholder
value".
Further information
A presentation for investors and analysts will be held at 11am
GMT on 23 March 2021. The presentation will be webcast on
www.elementis.com. Conference call dial in details:
UK: 020 3936 2999 Other locations: +44 20 3936 2999
Participant access code: 259529
Enquiries
Elementis
James Curran, Investor Relations 020 7067 2994
Tulchan
Martin Robinson 020 7353 4200
David Allchurch
Olivia Peters
Notes:
* Adjusted for constant currency and M&A. Previously
referred to as 'organic'. See Finance Report.
** New products defined as products launched within the last 5
years, patented and protected products (excluding Chromium)
1 - See note 5.
2 - See note 7.
3 - See Finance Report.
4 - See alternative performance measures and unaudited
information.
-S -
Chairman's statement
This year has posed unprecedented challenges for all of us. The
COVID-19 pandemic has brought personal hardship and suffering to
many of our communities, colleagues and customers. Paul Waterman,
his Leadership Team and everyone at Elementis has risen to the task
- their rapid and decisive actions have helped the Company to
navigate safely through these turbulent times.
Our greatest concern has been the safety and welfare of our
employees and I am immensely grateful for the efforts of every
single one of them. Through their hard work we have maintained
effective operations in our supply chain, manufacturing, innovation
and customer support, such that every customer has continued to
receive the products they need. This has been achieved with
unprecedented levels of digitally enabled remote working and
enhanced safe working practices. I have been impressed by the
resilience of the organisation; it is a testament to the quality of
our people and the work that has been done over recent years in
transforming the business.
Looking to the future, we have a clearer path towards returning
to a more normal environment with the vaccine roll out, although
uncertainties remain including the impact on the way we live and
work. Our strong values have supported us well and we all look
forward to re-establishing personal contact and relationships with
colleagues and customers.
BUSINESS PERFORMANCE
In 2020, our financial performance was materially impacted by
COVID-19, with weaker demand across all our businesses, although
encouragingly, we have seen quarter-on-quarter recovery from the
lows of Q2. While Personal Care has been affected by restrictions
limiting social interaction and travel, our more industrial focused
businesses were impacted by weak demand in areas such as industrial
coatings, manufacturing and long life plastics.
In response, we have focused on the things that we can control
through active cost and cash management, while continuing to
innovate for our customers. As a result, we have delivered a
resilient level of performance and cash flow in 2020, while
continuing to invest in growth projects and improvements to our
supply chain. It is expected that further benefits from these
improvements will be evident in 2021 and beyond, and that they will
be reinforced by our structural growth opportunities as we emerge
from COVID-19. Despite the economic challenges in our end markets,
it has been particularly pleasing to see our Coatings business
respond so effectively to the management changes implemented over
recent years with an encouraging increase in operating profit
margins.
OUR STRATEGY
Over the last few years, we have made significant progress
repositioning Elementis as a premium performance additives business
with advantaged positions in growing markets such as Personal Care,
Coatings and Talc. The delivery of the benefits of recent
acquisitions has been held back by business specific challenges and
the impact of COVID-19. However, we have a clear strategic
framework and set of priorities in place to improve returns and
create shareholder value.
In November 2019, we outlined Innovation, Growth and Efficiency
as the pillars of our new strategic agenda. They remain our core
drivers. In 2020 we captured new business representing $30m of
revenue, launched 12 new products and delivered $15m of cost
savings. These successes demonstrate our strategy in action.
Elementis is fit for the future and well positioned to deliver
sustainable long term growth through our distinctive and
competitively advantaged assets and technologies. Our strategic
priorities and medium term Group performance objectives remain
unchanged albeit delayed by the impact of the pandemic.
BALANCE SHEET
During the year the Group took several steps to provide
additional financial headroom and preserve cash, including the
suspension of the dividend, thus contributing to a significant
reduction in net debt from $454m to $408m. The management team also
accelerated cost reduction and working capital improvement
programmes while continuing to drive new business opportunities.
These measures contributed to a resilient performance in the most
challenging of circumstances and give confidence in the outlook for
the business. The Board recognises the importance of dividends to
shareholders and will look to reinstate payments once material
progress is made on reducing financial leverage.
Looking forward, our capital allocation priorities are clear:
investment to drive organic growth, further debt reduction and,
when appropriate, the resumption of dividends to our
shareholders.
ENVIRONMENTAL, SOCIAL AND CORPORATE GOVERNANCE
Commitment to our purpose of developing products which help our
customers respond to their biggest challenges was never more
important than in 2020. Building our product portfolio to address
sustainable megatrends such as natural personal care ingredients,
vehicle light weighting, recyclable food packaging and water based
industrial coatings contributed to a resilient performance in 2020.
They also provide the platform for our strategy of Innovation,
Growth and Efficiency.
In 2020 the Board, in conjunction with our executives and our
employees, developed a set of new sustainability objectives for the
next decade, through to 2030. Our ambition is to deliver material
reductions in areas including greenhouse gas emissions (GHG),
energy, waste and water usage. We are excited about these ambitious
targets because improving our sustainability is the right thing to
do and it is fully aligned with the delivery of superior
performance for stakeholders through innovation and the increasing
use of natural ingredients.
Our culture, values and a diverse management team and workforce
are all key to achieving our goals. Our values - Safety, Solutions,
Ambition, Respect and Team - have been critical in maintaining
resilient and safe operations throughout the pandemic and also in
sustaining a shared commitment while working remotely over a
prolonged period of time. I would like to thank every one of our
team members for their efforts on the Company's behalf and
appreciate that many employees have had to manage challenging
circumstances at home as well.
GOVERNANCE AND BOARD
At this time of change and volatility, compounded by the
COVID-19 pandemic, where we need to maintain financial strength,
your Board has continued to prioritise good governance and dynamic
risk management. This focus ensures that we ask the right questions
of Paul and his team, supporting them in driving results for the
short and medium term.
Board succession planning is something in which we have invested
time to ensure that we have the depth of leadership capability to
support strategic delivery. We have a good breadth of experience
which brings richness to our discussions. During the last 12 months
I am pleased to have welcomed John O'Higgins as Senior Independent
Director and Christine Soden as a Non-Executive Director, further
strengthening the experience and diversity of the Board as well as
strengthening succession options within the Board. I am pleased to
be able to say that we have achieved gender diversity of 38% in our
Board and 27% in our Executive Leadership team and direct reports.
We are building a pipeline of diverse executive talent to ensure
that we have strong succession plans for all of our executives.
It has been a privilege to serve as Chair of Elementis during
its transformation over recent years. Paul has assembled a strong
management team over this time and it has been a pleasure to
support them and their colleagues as they met the challenges
presented by the pandemic. There is good momentum in the business
and deleveraging and strategic progress will continue to be key
priorities. I believe that this is therefore the right time to step
down and allow a new Chair to lead the Board and the Company into
this important next phase, building on its high quality assets and
market positions. The Nomination Committee has initiated a process
to identify a successor which will be announced in due course.
STAKEHOLDER ENGAGEMENT
The Board greatly values the views of shareholders, customers
and our other stakeholders, and makes it a priority to meet as many
of our employees as we can. While COVID-19 has limited our ability
to visit Elementis' global sites, virtual contact has to some
extent filled the gap. This engagement is a valuable way of
assessing the success of strategy delivery and getting a real feel
for the culture of the organisation.
I've also met many of our shareholders this year. Discussions
have focused on our strategic progress and financial strength, but
also on the prospects for the business in the context of the
unsolicited takeover offer received towards the end of the year.
The Board appreciates the support of shareholders and accepts the
expectations for performance that come with that support. The Board
will continue to remain highly engaged with our shareholders as we
strive to deliver sustained value creation.
OUR PEOPLE
In such a challenging environment, our collaborative team of
people and the culture they embody has been key to the resilience
of our business. The way that our employees around the world have
risen to the challenge of maintaining supply and support to our
customers despite the huge difficulties faced has made me immensely
proud. On behalf of the Board, I would like to thank them again for
their professionalism, dedication and understanding during this
most challenging year.
LOOKING AHEAD
Elementis' strong businesses, market leading positions and clear
strategic priorities provide a solid foundation for recovery as we
transition from the COVID-19 pandemic towards a 'new normal'. Our
business continues to act with discipline, and we are confident
that the growth opportunities for Elementis are very attractive.
Your Board and Leadership Team will ensure that Elementis continues
to focus on long term value creation for all our stakeholders.
Andrew Duff
Chairman
23 March 2021
Chief Executive Officer's overview
The world is in a very different place compared with 12 months
ago; COVID-19 has brought significant challenges to individuals and
all businesses. In early 2020, we started to see the virus spread
through China. The actions we put in place there, to look after our
people, manage our operations and reliably supply our customers,
stood us in good stead as the virus then spread around the world
during the rest of the year.
Our priority was, and remains, the health and safety of our
people, and we have reacted to ensure these are protected. I am
proud of the way our people responded to keep the business
operating largely uninterrupted throughout the crisis and I would
like to thank all our employees for their dedication and efforts
during the year.
The Group has demonstrated its resilience in the most
challenging of situations and that gives me significant confidence
regarding our future prospects.
COVID-19 RESPONSE
Our top priority is to do the right thing for our people, in the
knowledge that they will look after our customers. In 2020, most of
our office based staff (approximately 25-30% of our workforce)
successfully switched to home working. Their ability to do so was
significantly enabled by our digital technology investments over
recent years. At our 23 global manufacturing plants, employee
wellness protocols, hygiene and social distancing measures helped
to keep our people safe. Enhanced employee communications, improved
health benefits and well-being resources ensured continued
engagement and close collaboration across the organisation. Many of
these changes have been beneficial from an efficiency perspective -
for instance increased flexible working and digital connectivity -
and it is anticipated some will continue into 2021 and beyond.
We continued to provide a reliable service for our customers
throughout 2020. Except for temporary closures at two sites in
China and one site each in Brazil and the US, the Company's
production sites operated continuously, with no raw material
shortages. This performance is partly reflective of recent
operating improvements. For instance, reducing our single sourced
raw materials from 40% in 2016 to 25% and increasing operational
automation has made our supply chain more efficient and resilient.
It is also a credit to our people who worked tirelessly with
suppliers, logistics partners and customers to ensure adequate
plans were in place for all contingencies. We have also continued
to support our partners' innovation efforts. Through the delivery
of virtual innovation and technical support sessions to over 10,000
customer employees, we helped our partners develop new products and
grow their industry and application knowledge, in spite of COVID-19
restrictions.
As demand quickly declined, we took swift and decisive action to
reduce costs, conserve cash and strengthen our balance sheet. While
the Group benefited from $5m of headcount related cost reductions
taken in late 2019, and accelerated progress towards our 2021
target of $10m in supply chain savings, in year mitigation focused
on the cessation of discretionary expenditure in areas such as
marketing and travel. This saved approximately $10m in 2020.
Coordination between our global supply chain, sales and finance
teams also delivered $7m of sustainable working capital savings in
2020, bringing our total working capital reduction to $30m since
2017. In addition, given the market and economic uncertainties, the
Group took steps to provide additional financial headroom and
preserve cash. Firstly, we secured a relaxation of our banking
covenants from 3.25x to 3.75x net debt/EBITDA for 2020 and 2021;
and secondly, the 2019 final dividend was suspended in March 2020
and the Board decided not to declare an interim or final dividend
for 2020.
PERFORMANCE
The year was challenging from a financial performance
perspective, as weak demand and destocking impacted most of our end
markets, particularly in Q2. While Coatings, our biggest business,
benefited to some extent from increased DIY activity, albeit more
than offset by weaker industrial demand, Personal Care and Talc
were both negatively impacted by COVID-19. In Personal Care,
restrictions on social interaction and travel resulted in the
cosmetics and anti-perspirant deodorant markets declining
significantly as 2020 progressed. In Europe, it is estimated retail
sales of cosmetics fell by 21% and deodorants by 8%. Likewise, in
Talc, a 16% decline in global light vehicle production was a
material headwind to performance. Results in Chromium and Energy
were impacted by weak industrial production and lower oil prices
respectively.
In response to economic and market uncertainties, we took
several steps to reduce costs and control cash. Savings of $15m, of
which $10m are temporary, protected earnings, whilst tight control
of capital expenditure and working capital management drove a $46m
reduction in net debt to $408m, representing a leverage ratio of
3.2x*.
Elementis has a strong track record of cash conversion and our
focus remains on reducing our financial leverage as quickly as
possible. This will be driven by delivery of our strategic
priorities, continued efficiency programmes and further demand
recovery as the impact of COVID-19 recedes.
HEALTH AND SAFETY
Health and safety are the bedrock of our licence to do business
and I am pleased to report another year of good performance
relative to both the industry and our medium term track record.
However, with nine recordable injuries we recognise we still have
more to do to ensure all our employees go home safely every
day.
Many of our sites achieved notable milestones this year and
deserve recognition - for instance, Corpus Christi recorded its
17th year of no recordable injuries. The recent launch of our
TogetherSAFE safety campaign and the introduction of enhanced
supervisor training and audits, mean we are well placed to drive
future improvement.
SUSTAINABILITY
Sustainability progress is a major focus at Elementis. This is
reflected in both how we run our operations and the benefits our
products bring to customers and wider society. This year we
introduced sustainability targets for 2030 and are now focused on
actions to progress towards these goals. Our ultimate goal is to be
carbon neutral and delivering on our 2030 sustainability targets is
a step towards this.
Our ambitious targets are based on clear operational improvement
programmes. The installation of solar panels at our Newberry,
California site and ensuring that our new site in India will
operate a closed loop water system are examples of projects that
make both great business sense and are much better for the
environment.
INNOVATION, GROWTH AND EFFICIENCY
In the last few years, we have made significant progress
transforming our portfolio and have repositioned Elementis as a
premium performance additives business, based on unique assets with
clear opportunities for growth. Our strategic pillars of
Innovation, Growth and Efficiency are designed to leverage this
differentiated portfolio and create significant value for our
shareholders. Our medium term Group performance objectives are
unchanged:
- 17% adjusted operating profit margin: driven by Innovation,
Growth, Efficiency and COVID-19 recovery
- 90% plus operating cash conversion: consistent with 5 year average track record
- Reduce leverage to under 1.5x net debt / EBITDA: consistent with debt reduction track record
1) INNOVATION
Innovation excellence is critical for any specialty chemicals
company and targeted innovation drives both growth and efficiency.
In 2020 our revenue from new products** rose from 12% to 14%,
progressing towards our goal of 17% by 2025 and driven by 12 new
products in areas such as natural personal care ingredients and
premium decorative coatings. Our innovation pipeline is well
positioned and in 2021 we plan to bring more than 20 new products
to the market.
While COVID-19 reduced the physical time spent in laboratories
with our customers during 2020, we continued to deliver innovation
excellence via virtual interaction. Starting with our established
customer relationships and using digital platforms, we delivered
virtual training and technical workshops to over 10,000 employees
at 500 customers in 60 countries around the world. This innovation
support allowed our customers to grow and develop their industry
and application knowledge even while working remotely.
Our innovation priorities are clear. Firstly, we want to create
distinctive new technologies that deliver both improved performance
and sustainability benefits. At present 45% of our revenue is from
products that are natural or naturally derived - for example,
hectorite based skin care ingredients or organic thixotropes
derived from castor wax - and our aim is to drive this higher in
coming years.
Secondly, we are focused on the material innovation challenges
that face our customers and the industries in which they operate.
In the last 12 months we have launched solutions for recyclable
food packaging, waterborne industrial coatings and natural skin
care ingredients. This focus ensures our resources are directed to
the biggest, most impactful opportunities.
Thirdly, the integration of our technology and commercial teams,
and a focus on fast prototyping and technology transfer across
segments means we are increasing the speed of our innovation. In
2020, products such as high surface area talc for food products,
preservative free thickeners for decorative coatings and
dispersants for waterborne industrial coatings were all
commercialised within 12 months of customer request or project
start.
Lastly, we also understand that a collaborative and open
approach to innovation often accelerates time to market and
provides differentiation. Our new partnership with NXTLEVVEL
Biochem is developing biomass derived products that protect our
environment, starting with two biobased solvents for industrial
coatings in early 2021. In addition, with AQDOT, a supramolecular
chemtech company, we are combining their novel odour capture and
smart fragrance release solutions with our market leading
anti-perspirant deodorant formulation capabilities to enhance our
customer value proposition.
2) GROWTH
Our Personal Care, Coatings and Talc operations transform
natural and long life resources into high value additives through
distinctive processing and formulation, and have clear medium term
structural growth opportunities. While our financial performance
was materially impacted in 2020 by COVID-19, we continued to
execute against our strategic priorities and captured around $30m
of new business opportunities, building on the $25m delivered in
2019. This focus, combined with further investment in key sales and
technology resources in emerging markets, means we expect to
deliver over $30m of opportunities in 2021 and are well set to
capture medium term revenue growth opportunities of over $100m.
In Coatings, we are a leading supplier of high value, premium
additives, critical to performance. As a result of our
transformation programme the business is simpler, more efficient
and performance focused - with higher operating margins. Growth
opportunities exist where our technologies play into specific
market needs or trends with clear sustainability benefits - areas
such as premium decorative coatings and waterborne (as opposed to
solvent based) industrial additives. In aggregate, such growth
platforms represent roughly one third of our Coatings revenue. In
2020, they grew 6% by volume - a good result in a very tough market
environment, and a clear indication of the potential for further
profitable, high margin, growth in these differentiated technology
areas.
We also see significant opportunities in Personal Care. Despite
double digit average annual cosmetics growth in Asia since 2015,
the region represents under 20% of our global business. Aiming to
double our sales in the region over the medium term, we have
invested in a new dedicated technical service centre in Shanghai,
China, due to open in the first half of 2021. Progress in the
construction of our AP Actives plant in India was slowed by the
COVID-19 pandemic; however we are on track for a mid-2021 start up.
This will build on our global leadership position as we will have
the most advantaged global supply chain while simultaneously
providing better access to faster growing Asian markets. Skin care
is an attractive market for our natural solutions, and here our
ambition is to add $10m of sales over the medium term. In 2020, our
new skin care ingredients showed encouraging early growth,
appearing in new products such as Tula Serum and GlamGlow's
water-gel moisturiser, and we have a growing new business pipeline
already worth $8m of revenue.
In Talc we are the second largest global producer, serving high
value industrial applications. While customer demand was lower in
2020 due to the impact of COVID-19, we continued to make
encouraging progress. Our growth strategy is based on leveraging
our global scope and scale, synergistically expanding into new
geographies and market sectors. In 2020 we grew sales by 6% in
Asia, predominantly in long life plastics applications as we
increased our market share. Sales of talc to coatings customers
rose 1%, as we expanded into 13 new countries such as Brazil and
South Africa - driving our revenue synergies since acquisition to
$7m, and on track for $20-25m by the end of 2023. We are also
expanding into new applications. In barrier coatings, where our
natural talc ingredients help replace single use plastics in food
packaging we have over 30 live customer projects and further
commercial roll out planned for 2021.
3) EFFICIENCY
Improving efficiency is an ongoing focus at Elementis. We are
always seeking to improve our organisation, drive ongoing
efficiency gains and become more agile. We are currently focused on
three areas: organisational structure, operational efficiency and
digitalisation.
In 2020, we implemented a new organisational structure, better
aligned to our improved portfolio. The creation of a flatter
organisational structure with fewer layers has facilitated faster
decision making and more efficient execution. At the same time we
embedded our newly aligned job levels on a global basis. These
steps resulted in $5m of cost savings in the year. In addition, in
response to COVID-19, short term cost mitigation has focused on the
cessation of discretionary expenditure in areas such as marketing
and travel, saving approximately $10m in 2020.
Ongoing work in our global supply chain is focused on volume
reallocation across our asset footprint, efficiency gains in
Chromium and developing key capabilities to underpin future
improvements. We are aiming to deliver $10m of supply chain savings
in 2021. A key driver of these savings will be improved efficiency
and capacity utilisation across our North American operations
following the recent closure of our Charleston, West Virginia,
production plant and consolidation of capacity at our St Louis,
Missouri, site. In addition, enhanced key capabilities such as
global procurement, continuous improvement of operations and
capital project management will support future efficiency
gains.
Sustainability and the reduction of our environmental footprint
are at the forefront of all operational decisions. We have made
considerable progress across our supply chain with increased
feedstock recycling and the conversion to more sustainable raw
materials. In 2021, we will install solar panels at our Newberry
site, start our zero-water discharge plant in India and drive
further efficiency gains in our Chromium operations. These
decisions are appropriate from both an efficiency and environmental
perspective and are the first steps on the road to fulfilling our
newly adopted 2030 sustainability targets.
Digitalisation is a key enabler of our efficiency and
simplification drive. In 2020, the investments in modern tools and
system integration, in areas such as data management and
infrastructure, proved crucial to our ability to remotely manage
the Company, interact with our customers, and for many of our
people to switch to online working through the COVID-19
pandemic.
Our website and digital tool-set are ready to deliver online
ordering for customers. This capability will launch in 2021 as part
of our multi-channel customer engagement offering and will result
in an improved customer experience.
CHROMIUM
It is worth noting the quality of Chromium and the role it holds
in our portfolio. Our Chromium business holds significant
competitive advantages. We are the only producer of chromium
chemicals in North America and we utilise a proprietary delivery
system that eliminates both operational and safety risks associated
with handling these chemicals. This has resulted in a very high and
resilient market share accompanied by attractive cash flows and
returns on invested capital. Due to the COVID-19 related industrial
shutdowns, global industry capacity utilisation of chromium
chemicals and rest of the world pricing were the weakest since
2009. That said, as the pandemic abates and conditions improve, we
expect demand recovery to positively impact volumes, pricing
conditions and, ultimately, materially improve operating cash flow;
a key attribute as the Group focuses on quickly reducing debt
levels.
OUR PEOPLE AND CULTURE
Elementis aims to be an open and inclusive workplace. We
continue to move forward in shaping our culture for success,
engaging our people at all levels in conversations. The feedback we
receive is incredibly helpful, highlighting both what we do well
and what we can do better. Everyone at Elementis understands our
values, the behaviours expected and actions we must take to ramp up
the delivery of our business strategy.
We are fortunate to have developed a deeply experienced and
highly committed leadership team. Their contribution in this
particularly challenging year was crucial to our performance.
During the year I was pleased to welcome Stijn Dejonckheere as SVP
Personal Care replacing Marci Brand who retired after a long and
distinguished career. Stijn is an accomplished leader who has
thoroughly demonstrated an ability to lead high performing Personal
Care teams during his career at Elementis.
OUTLOOK
While the last 12 months have been uniquely challenging, the
transformation of the business in recent years has created a solid
foundation and enabled the Group to respond with speed and
resilience. The fundamentals of our business remain strong, with
high quality assets and a clear strategy for value creation.
We will continue to maintain our focus on delivering our
Innovation, Growth and Efficiency strategy, and self-help actions
to optimise performance. In 2021 we expect to deliver more than
$30m of new business opportunities, over 20 new products and $10m
of additional cost savings. Also, as previously communicated we
expect to see the impact of the reversal of temporary cost savings
from last year alongside ongoing growth investment
We have made an encouraging start to 2021 but remain cautious on
the outlook given the COVID-19 dynamic. For the full year, we are
confident that further steady demand improvement from H2 2020
levels, augmented by our self help actions will drive improved
financial performance and a reduction in leverage.
Paul Waterman
CEO
23 March 2021
* See alternative performance measures information.
** New products defined as products launched within the last 5
years, patented and protected products (excluding Chromium)
Business commentaries
Revenue
Effect
of (Decrease)/
Revenue exchange increase Revenue
Impact
2019 rates of M&A** 2020 2020
$m $m $m $m $m
-------------- ------- ---------- --------- ----------- -------
Personal Care 195.0 (0.8) (18.0) (15.4) 160.8
Coatings 320.1 (1.6) - (23.0) 295.5
Talc 150.7 1.3 - (19.5) 132.5
Chromium 171.0 - - (24.1) 146.9
Energy 46.6 - - (23.0) 23.6
Inter-segment (9.8) - - 1.8 (8.0)
-------------- ------- ---------- --------- ----------- -------
Revenue 873.6 (1.1) (18.0) (103.2) 751.3
-------------- ------- ---------- --------- ----------- -------
Adjusted operating profit
Effect
Operating of Operating
profit/(loss) exchange (Decrease)/ profit/(loss)
Impact increase
2019(*) rates of M&A** 2020 2020(*)
$m $m $m $m $m
-------------------------- --------------- ---------- --------- ------------ ---------------
Personal Care 42.7 (0.1) (0.6) (8.4) 33.6
Coatings 48.3 - - (1.2) 47.1
Talc 25.7 0.1 - (9.2) 16.6
Chromium 18.2 - - (12.6) 5.6
Energy 3.8 - - (9.5) (5.7)
Central costs (15.7) 0.1 - - (15.6)
-------------------------- --------------- ---------- --------- ------------ ---------------
Adjusted operating profit 123.0 0.1 (0.6) (40.9) 81.6
-------------------------- --------------- ---------- --------- ------------ ---------------
* See note 5
** M&A includes the sale of a non-core gypsum plant
(previously part of the Dental business)
Personal Care
Personal Care revenue in 2020 was $161m compared with $195m in
the prior year, an 18% decline on a reported basis. Of this
reported decline, $18m was due to the sale of a non-core dental
gypsum plant in December 2019 and $1m was due to adverse currency
movements. Excluding these impacts, revenue fell by 9% on an
underlying basis*.
This decline was primarily a result of demand weakness in our
two key end markets, colour cosmetics and anti-perspirant
deodorants. Due to COVID-19 related social and travel restrictions,
it is estimated that retail sales of cosmetics and deodorants fell
by 21% and 8% respectively in Europe during 2020. While these
markets will rebound once life starts to normalise, weak consumer
demand significantly impacted our performance. Actions taken to
expand our presence in Asia, grow in skin care and increase our
market share in anti-perspirant deodorants helped to partially
offset the decline in industry demand.
Adjusted operating profit fell by 21% from $43m to $34m, with
adjusted operating margins solid at 20.9% (21.9% in the prior year
period). This decline was primarily a result of weaker volumes and
unfavourable mix, due to relatively lower sales of our higher
margin hectorite based ingredients for use in colour cosmetics
applications such as lipsticks and mascaras.
Coatings
Coatings revenue in 2020 was $296m compared with $320m in the
prior year, an 8% decline on a reported basis. On an underlying*
basis revenue fell by 7%, primarily due to weak demand in
industrial markets, such as automotive and protective coatings, as
a result of the macroeconomic impacts of COVID-19.
Europe and the Americas reported a resilient performance, with
sales falling 4% on an underlying* basis in both regions. While
demand from industrial markets was weak, decorative demand, which
represents approximately 40% of our sales in both regions, was
relatively strong as consumers used COVID-19 lockdowns as an
opportunity to undertake home improvements. In Asia, industrial end
markets represent around 90% of our sales, and as a result
underlying* revenue declined by 12%.
Adjusted operating profit declined by 2% from $48m to $47m,
representing an adjusted operating profit margin of 15.9%, up from
the 15.1% reported in 2019. This degree of margin improvement is an
encouraging result in a tough demand environment and reflects an
improved underlying cost position, enhanced product portfolio and
new business wins.
Talc
Revenue in 2020 was $133m compared with $151m in the prior year,
a 12% decline on a reported basis. Excluding the impact of currency
movements, revenue fell by 13% due to weak demand in industrial
markets, primarily talc for use in automotive applications.
Performance in the second half of the year improved substantially,
with fourth quarter revenue above the prior year period, driven by
a rebounding plastics market, market share gains and geographic
expansion.
Despite a strong track record of underlying* sales growth,
averaging 8% over the decade to 2019, industrial talc sales
declined by 6% in 2020 primarily due to automotive market weakness
as global light vehicle production declined 16%. This was partially
offset by growth in Asia and revenue synergy delivery. In Asia, our
sales grew 6% as we increased market share, primarily in long life
plastics applications. Sales of talc for coatings applications rose
1% as we gained new customers and entered new geographies, in line
with our strategy to grow Talc outside our core European market,
taking our revenue synergies since acquisition to $7m.
Outside of industrial talc, sales to the graphic paper market
declined significantly as retailers cancelled the printing of
catalogues in response to COVID-19 lockdowns. Though representing
just over 10% of total Talc revenue, we continue to expect our
sales to the paper market to decline in the medium term driven by
the ongoing structural shift to digital media platforms.
Adjusted operating profit declined by 35% from $26m to $17m,
with adjusted operating margins of 12.5% down from 17.1% in the
prior year period. This decline in earnings and margin was
primarily a result of lower volumes and lower fixed cost
absorption.
Chromium
Revenue in 2020 was $147m compared with $171m in the prior year
period, a decrease of 14% driven by weak global industrial demand
and pricing for chromium chemicals. Despite a pick up in activity
in Q4, our volumes declined by 10% on the prior year period due to
lower demand from industrial applications such as metal plating and
leather tanning. Average pricing was also lower, reflective of
weaker global industry capacity utilisation which we estimate fell
from 80% on average in 2019 to 70% in 2020.
While our North American volumes were impacted by the global
industrial production slowdown and customer plant shutdowns due to
COVID-19, compared with the rest of the world our margins in the
region were relatively robust, protected by our strong market share
and differentiated customer delivery system. Outside North America,
our performance was more materially impacted by lower unit
pricing.
Adjusted operating profit declined by 69% from $18m to $6m, with
lower volumes and pricing partially offset by efficiency gains.
Energy
Energy revenue in 2020 declined by 49% from $47m to $24m as a
result of lower drilling activity. A decline in the oil price, due
to COVID-19 and OPEC supply decisions, along with cash constraints
for exploration and discovery companies, resulted in notably weaker
demand for our products. In North America the rig count fell by
approximately 50% versus 2019.
Adjusted operating profit declined from $4m in 2019 to a loss of
$6m in 2020. This swing was primarily a result of lower volumes and
therefore weaker fixed cost absorption. Going forward, the closure
of our Charleston facility and consolidation of production at our
St Louis site, announced in November 2020, will restore future
profitability, even at a 2020 level of sales.
For future external reporting purposes, Energy will be absorbed
within Coatings, with which it shares a senior management structure
and a global production network.
* Adjusted for FX (where constant currency reflects prior year
results translated at current year exchange rates) and the impact
of M&A. Previously referred to as 'organic'.
Finance report
Revenue
2020 2019 Change
$m $m
-------------- ----- ----- --------
Personal Care 160.8 195.0 -18%
Coatings 295.5 320.1 -8%
Talc 132.5 150.7 -12%
Chromium 146.9 171.0 -14%
Energy 23.6 46.6 -49%
Inter-segment (8.0) (9.8) -18%
-------------- ----- ----- --------
Total revenue 751.3 873.6 -14%
-------------- ----- ----- --------
Operating profit
Adjusting 2020
Adjusted
operating 2019 Adjusted
2020 Operating profit/(loss) 2019 Operating Adjusting operating
profit/(loss) items (1) profit/(loss) items profit/(loss)(1)
$m $m $m $m $m $m
----------------------- -------------- --------- --------------- -------------- --------- -----------------
Personal Care 20.0 13.6 33.6 29.1 13.6 42.7
Coatings 43.3 3.8 47.1 43.7 4.6 48.3
Talc (22.4) 39.0 16.6 19.9 5.8 25.7
Chromium (3.6) 9.2 5.6 12.6 5.6 18.2
Energy (48.2) 42.5 (5.7) 3.8 - 3.8
Central costs (17.3) 1.7 (15.6) (8.2) (7.5) (15.7)
----------------------- -------------- --------- --------------- -------------- --------- -----------------
Total operating profit (28.2) 109.8 81.6 100.9 22.1 123.0
----------------------- -------------- --------- --------------- -------------- --------- -----------------
(1) After adjusting items - see note 5.
Group results
In 2020, revenue declined 14% from $874m to $751m principally
due to COVID-19 related impact on volumes across both industrial
and consumer markets. Excluding the impact of currency translation
and business disposals, underlying revenue declined 12%. Revenue in
Personal Care fell 18% on a reported basis and 9% on an underlying
basis*, with demand impacted by restrictions limiting social
interaction and travel. In Coatings, revenue declined 8% on a
reported basis and 7% on an underlying basis*, with resilient DIY
decorative demand more than offset by weaker industrial activity.
In Talc, revenue declined 12% on a reported basis and 13% on an
underlying basis*, with a strong second half demand recovery and
encouraging revenue synergy progress offset by automotive plant
shutdowns in the second quarter. Revenue in Chromium decreased 14%
due to weaker volumes and pricing, primarily outside of North
America. Energy revenue declined by 49% as a result of the lower
oil price and weaker drilling activity in North America.
Reported operating profit declined from $101m to a loss of $28m
due to a reduction in revenue and associated earnings as well as an
$88m increase in adjusting items, mostly due to the $60m non-cash
impairment of Energy and Talc goodwill recognised in the first half
of the year. Adjusted operating profit declined 33% on an
underlying basis* from $123m to $82m with the aforementioned lower
revenue and associated earnings partially offset by $15m of cost
savings delivered in the year. The statutory result for the year
was a loss of $67m compared to a profit of $46m in 2019.
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 2020 resulted in a charge of $121.5m before tax,
an increase of $89.0m 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.
Personal Central
Care Coatings Talc Chromium Energy costs Total
Credit/(charge) $m $m $m $m $m $m $m
--------------------------------- -------- -------- ------ -------- ------ ------- -------
Restructuring - (0.9) - - - - (0.9)
Business transformation (3.0) (1.8) - (2.3) (15.6) - (22.7)
Environmental provisions - - - (6.7) - - (6.7)
M&A and disposal costs (2.0) - - - - (1.7) (3.7)
Impairment of goodwill - - (33.4) - (26.9) - (60.3)
Amortisation of intangibles
arising on acquisition (8.6) (1.1) (5.6) (0.2) - - (15.5)
--------------------------------- -------- -------- ------ -------- ------ ------- -------
Total charge to operating
profit (13.6) (3.8) (39.0) (9.2) (42.5) (1.7) (109.8)
--------------------------------- -------- -------- ------ -------- ------ ------- -------
Sale of Elementis Specialties
(Changxing) Ltd 0.3 - - - - - 0.3
Charge to finance costs
Mark to market of derivatives - - - - - (10.2) (10.2)
Currency hedge due to dividend
cancellation - - - - - (1.8) (1.8)
--------------------------------- -------- -------- ------ -------- ------ ------- -------
Total (13.3) (3.8) (39.0) (9.2) (42.5) (13.7) (121.5)
--------------------------------- -------- -------- ------ -------- ------ ------- -------
Restructuring
In 2020, restructuring costs relate predominantly to the
organisational efficiency programme commenced in late 2019 which
eliminated duplicate roles, reduced management layers and increased
spans of control in order to realise cost savings and efficiencies
across the Group. The restructuring programme concluded in
2020.
Business transformation
In November 2020, in line with Elementis' ongoing strategy to
optimise its footprint, the closure of the Charleston plant was
announced resulting in a one-off charge of $15.6m. Further charges
of $7.1m relate to the continuation of the programme to review and
optimise the supply chain and manufacturing footprint across our
Coatings, Personal Care, Energy and Chromium businesses.
Environmental provisions
The Group's environmental provision is calculated on a
discounted cash flow basis, reflecting the time period over which
spending is estimated to take place. The movement in provision
relates to a change in discount rates that has increased the
liability by $1.1m in the year, extra remediation work identified
in the year which has resulted in a $6.1m increase to the liability
offset by unused amounts reversed in the year of $0.5m. As these
costs relate to non-operational facilities they are classed as
adjusting items.
M&A and disposal costs
Charges of $3.7m represent costs relating to the disposal of
small, non-core businesses in the Personal Care business segment
and advisory fees incurred in response to an unsolicited takeover
approach received in the year.
Impairment of goodwill
As a result of the low average oil price in 2020 and the
expected ongoing challenging outlook for the Energy sector, in
particular the North American shale market, a $26.9m impairment has
been recognised in Energy. In Talc, while the business fundamentals
are unchanged and the medium term growth outlook attractive, the
significant impact of COVID-19 on wider industrial activity and the
near term profitability of the business combined with an increase
in the pre-tax discount rate has resulted in a $33.4m goodwill
impairment charge.
Amortisation of intangibles arising on acquisition
Amortisation of $15.5m (2019: $18.6m) represents the charge in
respect of the Group's acquired intangible assets. As in previous
years, these are included in adjusting items in order to present a
more reflective view of the Group's overall performance and the key
business drivers that underpin it.
Sale of Elementis Specialties (Changxing) Ltd
The profit on the exit of a non-core plant (previously part of
the Coatings business) has been treated as an adjusting item in
2020.
Mark to market of derivatives
The movements in the mark to market valuation of financial
instruments which are not in hedging relationships do not form part
of the underlying performance of the business and thus are treated
as adjusting items.
Currency hedge due to dividend cancellation
The charge of $1.8m relates to the cancellation of currency
hedges following the suspension of the 2019 final ordinary dividend
that provided additional financial headroom in response to
COVID-19.
Hedging
Cash flow hedges are used as part of a programme to manage our
exposure to interest rate risk and commodity price risk
particularly associated with USD and EUR interest payments and
aluminium pricing. In 2020, interest rate and commodity price
movements were such that the net impact of these hedge transactions
was a loss of $0.9m (2019: $0.0m) 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 2020, adjusted
central costs of $15.6m were broadly similar to the $15.7m for the
previous year.
COVID-19 assistance
The Group has accessed various government support schemes aimed
at mitigating the potential impact on individuals' job losses
resulting from the impact of COVID-19. The most significant amounts
received by the Group include the following:
- $0.9m in relation to government support under temporary wage
support schemes available in the Netherlands and China. The Group
does not have any unfulfilled obligations relating to these support
programmes. This amount has been offset against employee
remuneration costs.
- Agreement of payment plans with tax authorities in the US and
China to defer payments of corporation taxes and payroll taxes
resulting in $3.0m payment deferrals across the Group.
Other expenses
Other expenses are administration costs incurred and paid by the
Group's pension schemes, which relate primarily to former employees
of legacy businesses, and were $1.6m in 2020 compared with $1.5m in
the previous year.
Net finance costs
2020 2019
$m $m
------------------------------------- ------- -------
Finance income 0.3 0.4
Finance cost of borrowings (22.6) (23.7)
------------------------------------- ------- -------
(22.3) (23.3)
Net pension finance costs (0.6) (0.5)
Discount unwind on provisions (2.7) (2.4)
Fair value movement on derivatives (10.2) (1.4)
Dividend currency hedge cancellation (1.8) -
Interest on lease liabilities (1.7) (1.8)
------------------------------------- ------- -------
Net finance costs (39.3) (29.4)
------------------------------------- ------- -------
Net finance costs for 2020 were $39.3m, an increase of $9.9m on
last year. Finance costs comprise interest payable on borrowings
calculated using the effective interest rate method, facility
arrangement fees, the unwinding of discounts on the Group's
environmental provisions, fair value movement on derivatives and
interest charged on lease liabilities.
The increase in net finance costs is primarily due to the fair
value movement on derivatives ($8.8m increase) and the cancellation
of the dividend currency hedge following the suspension of the 2019
final ordinary dividend ($1.8m increase). Finance cost of
borrowings decreased by $1.1m due to lower average net borrowing in
the year.
Both pension finance costs, which are a function of discount
rates under IAS 19 and the value of schemes' deficit or surplus
positions, and the interest on lease liabilities, were broadly
consistent in 2020 compared with 2019.
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 small increase to the provision in 2019
has resulted in a higher discount unwind in 2020.
Taxation
Tax charge
2020 Effective 2019 Effective
rate rate
$m % $m %
----------------------------- ----- -------------- ---- --------------
Reported tax (credit)/charge (1.8) (2.6) 14.6 23.9
Adjusting items tax credit 16.0 - 6.1 -
----------------------------- ----- -------------- ---- --------------
Underlying tax charge 14.2 26.9 20.7 22.1
----------------------------- ----- -------------- ---- --------------
The Group incurred a tax charge of $14.2m (2019: $20.7m) on
adjusted profit before tax, resulting in an effective tax rate of
26.9% (2019: 22.1%). As previously guided, the Group's effective
tax rate in 2020 is slightly above its usual range due to
withholding tax incurred on the repatriation of profits from Asia
and the derecognition of a deferred tax asset in the US. Tax on
adjusting items, which in 2019 primarily related to the
amortisation of intangible assets, was further impacted in 2020 by
the consequences of the impairment of goodwill associated with the
Energy business, the closure of the Charleston plant and other
restructuring actions.
The expectation for the Group's effective P&L tax rate is
around 22-23% until 2023, after which it is anticipated to rise to
25-26% due to the recently announced increase in UK corporation tax
rates from April 2023.
Following the European Commission's State Aid investigation into
the UK Finance Company Exemption ('FCE') regime, Elementis received
a charging notice in February 2021 for the maximum exposure of $19m
(excluding interest). Elementis paid the notice amount to HMRC on 5
March 2021, as required, and has lodged an appeal. As Elementis
considers that the appeal will ultimately be successful, an asset
will be recorded in the 2021 accounts on the expectation that the
charge will be repaid in due course.
Earnings per share
To fully understand the underlying performance of the Group,
earnings per share reported under IFRS is adjusted for items
classified as adjusting.
Adjusted diluted earnings per share was 6.5 cents for 2020
compared with 12.4 cents in the previous year, a decrease of 48%
due to lower profit and a higher effective tax rate. Basic earnings
per share before adjusting items was a loss per share of 11.5 cents
compared to a profit per share of 8.0 cents in 2019.
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 during the year, and
the Board's desire to provide additional financial headroom and
preserve cash, no dividend distributions to shareholders were made
during in 2020. The Board is also not recommending a final dividend
for 2020. The Board recognise the importance of dividends to
shareholders and will look to reinstate payments once material
progress is made on reducing financial leverage.
Cash flow
Net cash flow from operating activities decreased by $36.3m to
$107.1m in 2020, as a result of lower operating profits in the
year. Net cash outflow in relation to investing activities
decreased by $9.8m to $39.2m in 2020, due to disciplined cash
management of capital expenditure. Net cash outflow in relation to
financing activities reduced by $20.9m to $64.7m in 2020,
predominantly due to the suspension of the dividend.
The adjusted cash flow which excludes the effect of adjusting
items from operating cash flow is summarised below. A
reconciliation of statutory operating profit to EBITDA is shown in
the alternative performance measures information.
2020 2019
$m $m
----------------------------- -------- --------------
EBITDA 132.8 174.5
Change in working capital 18.8 33.0
Capital expenditure (40.0) (47.3)
Other (1.8) (5.4)
----------------------------- -------- --------------
Adjusted operating cash flow 109.8 154.8
Pension payments (0.1) (1.2)
Interest (23.4) (24.6)
Tax (8.5) (2.2)
Adjusting items (12.2) (30.4)
Payment of lease liabilities (6.7) (6.0)
----------------------------- -------- --------------
Free cash flow 58.9 90.4
Issue of shares 0.1 0.1
Dividends paid - (49.3)
Acquisitions and disposals 0.5 (2.1)
Currency fluctuations (13.4) 4.8
----------------------------- -------- --------------
Movement in net debt 46.1 43.9
Net debt at start of year (454.2) (498.1)
----------------------------- -------- --------------
Net debt at end of year (408.1) (454.2)
----------------------------- -------- --------------
EBITDA - earnings before interest, tax, adjusting items,
depreciation and amortisation.
Adjusted operating cash flow decreased by $45.0m to $109.8m for
2020 due to lower adjusted EBITDA ($41.8m lower) and a smaller
working capital inflow in the period ($14.2m lower), partially
offset by disciplined control of capital expenditure ($7.3m
benefit).
Free cash flow of $58.9m in 2020 represents a reduction of
$31.5m year on the prior year period. Cash tax outflows increased
from $2.2m to $8.5m, primarily due to settlement of a historical
tax liability to the Belgium tax authorities of $2.1m in 2020 and a
one-off tax refund from the IRS in 2019 of $2.0m. This was offset
by a reduction in cash outflows associated with adjusting items
from $30.4m in 2019 to $12.2m in 2020, principally related to
business transformation activities. Net pensions payments in the
year decreased by $1.1m to $0.1m mainly due to a reduction in
employer contributions to US pension schemes. The 2017 triennial
review of the UK pension scheme concluded that no cash top up
payments will be required from Elementis until at least 2021.
Whilst net debt decreased from $454.2m in 2019 to $408.1m in
2020, a reduction of $46.1m, net debt to adjusted EBITDA increased
from 2.7x*** in 2019 to 3.2x*** in 2020. The increase in leverage
is due to the decline in adjusted EBITDA, reflective of the Group's
lower earnings.
Balance sheet
2020 2019
$m $m
---------------------------------------------- -------- --------
Intangible fixed assets 892.6 958.1
Tangible fixed assets 516.0 513.6
Working capital 141.4 152.2
Net tax liabilities (132.2) (137.9)
Provisions and retirement benefit obligations (79.0) (68.7)
Financial assets and liabilities (30.7) (15.1)
Lease liabilities (44.4) (46.9)
Unamortised syndicate fees 4.8 5.1
Net debt (408.1) (454.2)
---------------------------------------------- -------- --------
Total equity 860.4 906.2
---------------------------------------------- -------- --------
Group equity decreased by $45.8m in 2020 (2019: decrease of
$9.4m). Intangible fixed assets decreased by $65.5m due to an
impairment of $60.3m and $16.1m of amortisation of intangibles
partially offset by $10.6m of foreign exchange gains. Tangible
fixed assets increased by $2.4m, with gross PPE additions of
$41.5m, right of use asset capitalisation of $1.4m and exchange
differences of $24.0m partially offset by depreciation of $50.6m
and an impairment loss of $11.7m.
Working capital comprises inventories, trade and other
receivables and trade and other payables. Working capital decreased
by $10.8m in 2020, a result of lower underlying revenue and tight
working capital management. As part of our multi year working
capital improvement programme $7m of sustainable working reductions
were achieved in 2020, taking our cumulative, project related,
working capital reductions since 2017 to $30m.
Net tax liabilities decreased by $5.7m primarily due to the
continued unwind of deferred tax liabilities on intangible
assets.
ROCE (excluding goodwill) decreased to 10%** from 15%** in 2019,
due to reduced adjusted operating profit partially offset by
reductions in working capital.
The main dollar exchange rates relevant to the Group are set out
below.
2020 2019
Year end Average Year end Average
---------------- --------- --------- --------- ---------
Pounds sterling 0.73 0.78 0.75 0.78
Euro 0.82 0.88 0.89 0.89
---------------- --------- --------- --------- ---------
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. The Group calculates provisions on a discounted basis.
At the end of 2020 the Group held provisions of $58.8m (2019:
$51.6m) consisting of environmental provisions of $50.6m (2019:
$44.1m), self-insurance provisions of $1.5m (2019: $2.2m) and
restructuring and other provisions of $6.7m (2019: $5.3m).
Environmental provisions have increased by $6.5m in 2020, with
$6.7m taken through adjusting items, of which $1.1m relates to a
change in the discount rate applied to the liabilities and $6.1m
relates to extra remediation work identified offset by unused
amounts reversed in the year of $0.5m. The remaining movement
relates to $2.0m of unwind of discount in the year, $1.5m of
currency translation offset by $3.7m of utilisation. The
self-insurance provision represents the Group's estimate of its
liability arising from retained liabilities under the Group's
insurance programme.
Within the restructuring and other provisions categories the
majority of the balance relates to the organisational efficiency
programme which has eliminated duplicate roles, reduced management
layers and increased spans of control in order to realise cost
savings and efficiencies across the Group.
Pensions and other post retirement benefits
2020 2019
$m $m
------------------------- ------ ------
Net (surplus)/liability:
UK (7.9) (7.4)
US 18.3 15.9
Other 9.8 8.6
------------------------- ------ ------
20.2 17.1
------------------------- ------ ------
UK plan
The largest of the Group's retirement plans is the UK defined
benefit pension scheme ('UK Scheme') which at the end of 2020 had a
surplus, under IAS 19, of $7.9m (2019: $7.4m). The UK Scheme is
relatively mature, with approximately two thirds of its gross
liabilities represented by pensions in payment, and is closed to
new members. Return on plan assets of $75.2m (2019: $62.1m)
outweighed liability adjustments of $59.5m (2019: $57.7m) arising
due to lower discount rates based on real corporate bond yields.
Company contributions of $nil (2019: $nil) reflect the funding
agreement reached with the UK Trustees following the 2017 triennial
valuation which concluded in 2018. Under this agreement top up
contributions are no longer required until at least 2021. The 2020
triennial review is ongoing and is expected to complete in
2021.
US plan
In the US, the Group reports two post retirement plans under IAS
19: a defined benefit pension plan with a deficit value at the end
of 2020 of $11.8m (2019: $9.9m), and a post retirement medical plan
with a liability of $6.5m (2019: $6.0m). The US pension plans are
smaller than the UK plan and in 2020 the overall deficit value of
the US plans increased by $2.4m as the financial cost of the
liability of $4.0m (2019: $5.0m) and the actuarial increases in the
liability of $12.8m (2019: $11.8m decrease) were partially offset
by the return on plan assets of $15.8m (2019: $21.1m) and employer
contributions of $0.5m (2019 $1.5m).
Other plans
Other liabilities at 31 December 2020 amounted to $9.8m (2019:
$8.6m) and relate to pension arrangements for a relatively small
number of employees in Germany, certain UK legacy benefits and one
pension scheme acquired as part of the SummitReheis transaction in
2017.
FINANCIAL ASSETS AND LIABILITIES
Financial liabilities at 31 December 2020 include $13.4m of
contingent consideration in respect of Mondo (2019: $13.0m). This
balance is payable to the previous owners of Mondo should Elementis
be successful in an historic, pre-acquisition interest
deductibility tax case relating to Mondo. Should Elementis be
unsuccessful the balance payable to the previous owners of Mondo
will be nil. Also included are net derivative financial liabilities
of $15.9m (2019: $2.0m) relating to the valuation of various risk
management instruments. The movements in the mark to market
valuation of financial instruments which are not in hedging
relationships do not form part of the underlying performance of the
business and thus are treated as adjusting items.
Brexit
Following the end of the Brexit transitional period on 31
December 2020 management have continued to monitor the status of
the trading relationship between the EU and the UK and the impact
on the Group in early 2021 has been immaterial.
Events after the balance sheet date
The ongoing EU state aid case is discussed in the taxation
section of this finance report. There were no other significant
events after the balance sheet date.
1 After adjusting items - see note 5.
* Adjusted for FX (where constant currency reflects prior year
results translated at current year exchange rates) and the impact
of M&A.
** See alternative performance measures information
*** See unaudited information.
Consolidated income statement
for the year ended 31 December 2020
2020 2019
$m $m
-------------------------------- ------- -------
Revenue 751.3 873.6
Cost of sales (494.0) (552.2)
-------------------------------- ------- -------
Gross profit 257.3 321.4
Distribution costs (112.6) (127.3)
Administrative expenses (172.9) (93.2)
Operating (loss)/profit (28.2) 100.9
Profit /(loss) on disposal 0.3 (9.0)
Other expenses(1) (1.6) (1.5)
Finance income 0.3 0.4
Finance costs (39.6) (29.8)
-------------------------------- ------- -------
(Loss)/profit before income tax (68.8) 61.0
Tax 1.8 (14.6)
-------------------------------- ------- -------
(Loss)/profit for the year (67.0) 46.4
-------------------------------- ------- -------
Attributable to:
Equity holders of the parent (67.0) 46.4
-------------------------------- ------- -------
Earnings per share
-------------------------------- ------- -------
Basic (loss)/earnings (cents) (11.5) 8.0
Diluted (loss)/earnings (cents) (11.3) 7.9
-------------------------------- ------- -------
1 Other expenses comprise administration expenses for the Group's pension schemes.
Consolidated statement of comprehensive income
for the year ended 31 December 2020
2020 2019
$m $m
-------------------------------------------------------------- ------ ------
(Loss)/profit for the year (67.0) 46.4
-------------------------------------------------------------- ------ ------
Other comprehensive income:
Items that will not be reclassified subsequently
to profit and loss:
Remeasurements of retirement benefit obligations (0.3) (11.1)
Deferred tax associated with retirement benefit
obligations (0.3) 1.3
Items that may be reclassified subsequently to profit
and loss:
Exchange differences on translation of foreign operations 25.0 (23.9)
Effective portion of change in fair value of net
investment hedge (3.6) 27.5
Recycling of deferred foreign exchange (gains)/
losses on disposal (0.2) 0.4
Effective portion of changes in fair value of cash
flow hedges (1.4) (2.8)
Fair value of cash flow hedges transferred to income
statement 0.9 -
Exchange differences on translation of share options
reserves (2.7) 2.7
-------------------------------------------------------------- ------ ------
Other comprehensive income/(loss) 17.4 (5.9)
-------------------------------------------------------------- ------ ------
Total comprehensive (loss)/income for the year (49.6) 40.5
-------------------------------------------------------------- ------ ------
Attributable to:
Equity holders of the parent (49.6) 40.5
-------------------------------------------------------------- ------ ------
Total comprehensive (loss)/income for the year (49.6) 40.5
-------------------------------------------------------------- ------ ------
Consolidated balance sheet
as at 31 December 2020
2020 2019
31 December 31 December
$m $m
--------------------------------------------------- -------------- -------------
Non-current assets
Goodwill and other intangible assets 892.6 958.1
Property, plant and equipment 516.0 513.6
ACT recoverable 0.6 4.8
Deferred tax assets 26.3 28.2
Net retirement benefit surplus 7.9 7.4
--------------------------------------------------- -------------- -------------
Total non-current assets 1,443.4 1,512.1
--------------------------------------------------- -------------- -------------
Current assets
Inventories 164.3 168.7
Trade and other receivables 108.3 117.9
Derivatives 1.4 0.1
Current tax assets 7.2 2.5
Cash and cash equivalents 111.0 103.9
--------------------------------------------------- -------------- -------------
Total current assets 392.2 393.1
--------------------------------------------------- -------------- -------------
Total assets 1,835.6 1,905.2
--------------------------------------------------- -------------- -------------
Current liabilities
Bank overdrafts and loans (3.7) (2.2)
Trade and other payables (132.6) (134.5)
Financial liabilities (17.3) (2.1)
Current tax liabilities (23.2) (23.2)
Lease liabilities (7.2) (7.1)
Provisions (9.6) (6.4)
--------------------------------------------------- -------------- -------------
Total current liabilities (193.6) (175.5)
--------------------------------------------------- -------------- -------------
Non-current liabilities
Loans and borrowings (510.6) (550.8)
Retirement benefit obligations (28.1) (24.5)
Deferred tax liabilities (143.1) (150.2)
Lease liabilities (37.2) (39.8)
Provisions (49.2) (45.2)
Financial liabilities (13.4) (13.0)
--------------------------------------------------- -------------- -------------
Total non-current liabilities (781.6) (823.5)
--------------------------------------------------- -------------- -------------
Total liabilities (975.2) (999.0)
--------------------------------------------------- -------------- -------------
Net assets 860.4 906.2
--------------------------------------------------- -------------- -------------
Equity
Share capital 52.1 52.1
Share premium 237.7 237.7
Other reserves 108.6 91.1
Retained earnings 462.0 525.3
--------------------------------------------------- -------------- -------------
Total equity attributable to equity holders of the
parent 860.4 906.2
Total equity 860.4 906.2
--------------------------------------------------- -------------- -------------
Consolidated statement of changes in equity
for the year ended 31 December 2020
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 2019 52.1 237.6 (73.0) (5.6) 164.1 540.4 915.6
Impact following
adoption of
IFRS 16 - - - - - (4.0) (4.0)
================= ========== ============ =============== ============== ============ ============ ============
Revised at 1
January 2019 52.1 237.6 (73.0) (5.6) 164.1 536.4 911.6
----------------- ---------- ------------ --------------- -------------- ------------ ------------ ------------
Comprehensive
income:
Profit for the
year - - - - - 46.4 46.4
Other
comprehensive
income:
Exchange
differences - - 3.6 - 2.7 -- 6.3
Recycling of
deferred
foreign
exchange
losses on
disposal - - 0.4 - - - 0.4
Fair value of - - - - - - -
cash flow
hedges
transferred to
the income
statement
Effective
portion of
changes
in fair value
of cash flow
hedges - - - (2.8) - - (2.8)
Remeasurements
of retirement
benefit
obligations - - - - - (11.1) (11.1)
Deferred tax
adjustment on
pension
scheme deficit - - - - - 1.3 1.3
Transfer - - - - (1.3) 1.3 -
----------------- ---------- ------------ --------------- -------------- ------------ ------------ ------------
Total other
comprehensive
income - - 4.0 (2.8) 1.4 (8.5) (5.9)
----------------- ---------- ------------ --------------- -------------- ------------ ------------ ------------
Total
comprehensive
income - - 4.0 (2.8) 1.4 37.9 40.5
----------------- ---------- ------------ --------------- -------------- ------------ ------------ ------------
Transactions with
owners:
Issue of shares
by the Company - 0.1 - - - - 0.1
Share based
payments - - - - 3.0 - 3.0
Deferred tax on
share based
payments
recognised
within equity - - - - - 0.3 0.3
Dividends paid - - - - - (49.3) (49.3)
----------------- ---------- ------------ --------------- -------------- ------------ ------------ ------------
Total
transactions
with owners - 0.1 - - 3.0 (49.0) (45.9)
----------------- ---------- ------------ --------------- -------------- ------------ ------------ ------------
Balance at 31
December 2019 52.1 237.7 (69.0) (8.4) 168.5 525.3 906.2
----------------- ---------- ------------ --------------- -------------- ------------ ------------ ------------
Balance at 1 January 2020 52.1 237.7 (69.0) (8.4) 168.5 525.3 906.2
Comprehensive income
Loss for the year - - - - - (67.0) (67.0)
Other comprehensive income
Exchange differences - - 21.4 - (2.7) - 18.7
Recycling of deferred foreign
exchange gains on disposal - - (0.2) - - - (0.2)
Fair value of cash flow hedges
transferred to the
income statement - - - 0.9 - - 0.9
Effective portion of changes
in fair value
of cash flow hedges - - - (1.4) - - (1.4)
Remeasurements of retirement
benefit obligations - - (1.1) - - 0.8 (0.3)
Deferred tax adjustment on pension
scheme deficit - - - - - (0.3) (0.3)
Transfer - - - - (2.9) 2.9 -
---------------------------------------- ---- ----- ------ ----- ----- ------ ------
Total other comprehensive income/(loss) - - 20.1 (0.5) (5.6) 3.4 17.4
---------------------------------------- ---- ----- ------ ----- ----- ------ ------
Total comprehensive income/(loss) - - 20.1 (0.5) (5.6) (63.6) (49.6)
---------------------------------------- ---- ----- ------ ----- ----- ------ ------
Transactions with owners:
Issue of shares by the Company - - - - - 0.2 0.2
Share based payments - - - - 3.5 - 3.5
Deferred tax on share based payments
recognised within equity - - - - - 0.1 0.1
Total transactions with owners - - - - 3.5 0.3 3.8
---------------------------------------- ---- ----- ------ ----- ----- ------ ------
Balance at 31 December 2020 52.1 237.7 (48.9) (8.9) 166.4 462.0 860.4
---------------------------------------- ---- ----- ------ ----- ----- ------ ------
Consolidated cash flow statement
for the year ended 31 December 2020
2020 2019
$m $m
------------------------------------------------------- ------ ------
Operating activities:
(Loss)/profit for the year (67.0) 46.4
Adjustments for:
Other expenses 1.6 1.5
Finance income (0.3) (0.4)
Finance costs 39.6 29.8
Tax charge (1.8) 14.6
Depreciation and amortisation 66.7 70.1
Impairment loss on property, plant and equipment 11.7 -
Increase/(decrease) in provisions and financial
liabilities 3.7 (27.8)
Pension payments net of current service cost 1.1 (1.2)
Share based payments 3.5 3.0
Impairment of goodwill 60.3 -
(Profit)/loss on disposal of business (0.3) 9.0
------------------------------------------------------- ------ ------
Operating cash flow before movement in working capital 118.8 145.0
Decrease in inventories 7.8 18.6
Decrease in trade and other receivables 13.3 15.5
Decrease in trade and other payables (0.6) (8.5)
------------------------------------------------------- ------ ------
Cash generated by operations 139.3 170.6
Income taxes paid (8.5) (2.2)
Interest paid (23.7) (25.0)
------------------------------------------------------- ------ ------
Net cash flow from operating activities 107.1 143.4
------------------------------------------------------- ------ ------
Investing activities:
Interest received 0.3 0.4
Disposal of property, plant and equipment 1.8 0.8
Purchase of property, plant and equipment (41.5) (47.7)
Disposal of business 0.5 (2.1)
Acquisition of intangible assets (0.3) (0.4)
------------------------------------------------------- ------ ------
Net cash flow from investing activities (39.2) (49.0)
------------------------------------------------------- ------ ------
Financing activities:
Issue of shares by the Company and the ESOT net
of issue costs 0.1 0.1
Dividends paid - (49.3)
Outflow of cancelled dividend hedge (1.8) -
Net movement on existing debt (56.3) (30.4)
Payment of lease liabilities (6.7) (6.0)
------------------------------------------------------- ------ ------
Net cash used in financing activities (64.7) (85.6)
------------------------------------------------------- ------ ------
Net increase in cash and cash equivalents 3.2 8.8
Cash and cash equivalents at 1 January 103.9 96.1
Foreign exchange on cash and cash equivalents 3.9 (1.0)
------------------------------------------------------- ------ ------
Cash and cash equivalents at 31 December 111.0 103.9
------------------------------------------------------- ------ ------
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
2020 or 2019 but is derived from those accounts. Statutory accounts
for 2019 have been delivered to the Registrar of Companies, and
those for 2020 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 23 March 2021.
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 EU (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 2020 which will be made available
to shareholders on 9 April 2021.
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 reporting currency. This
aligns the Group's external reporting with the profile of the
Group, as well as with internal management reporting.
3. Finance income
2020 2019
$m $m
-------------------------- ----- -----
Interest on bank deposits 0.3 0.4
-------------------------- ----- -----
4. Finance costs
2020 2019
$m $m
---------------------------------------------- ----- -----
Interest on bank loans 22.6 23.7
Pension and other post retirement liabilities 0.6 0.5
Unwind of discount on provisions 2.7 2.4
Fair value movement on derivatives 10.2 1.4
Dividend currency hedge cancellation 1.8 -
Interest on lease liabilities 1.7 1.8
---------------------------------------------- ----- -----
39.6 29.8
---------------------------------------------- ----- -----
5. Adjusting items and alternative performance measures
2020 2019
$m $m
-------------------------------------------------------- ------ -----
Restructuring 0.9 5.1
Business transformation 22.7 2.5
Environmental provisions
Increase in provisions due to additional remediation
work identified 5.6 -
Increase in provisions due to change in discount rate 1.1 4.9
M&A and disposal costs 3.7 -
Impairment of goodwill 60.3 -
Amortisation of intangibles arising on acquisition 15.5 18.6
Release of contingent consideration - (9.0)
-------------------------------------------------------- ------ -----
109.8 22.1
Sale of Elementis Specialties (Changxing) Ltd (0.3) -
Sale of SRL Dental GmbH - 9.0
Mark to market of derivative financial instruments 10.2 1.4
Currency hedge due to dividend cancellation 1.8 -
Tax credit in relation to adjusting items (16.0) (6.1)
105.5 26.4
-------------------------------------------------------- ------ -----
A number of items have been recorded under 'adjusting items' in
2020 by virtue of their size and/or one time nature, in line with
our accounting policies, in order to provide additional useful
analysis of the Group's results. The net impact of these items on
the Group profit before tax for the year is a debit of $121.5m
(2019: $32.5m). The items fall into a number of categories, as
summarised below:
Restructuring - In 2020, restructuring costs relate
predominantly to the organisational efficiency programme commenced
in late 2019, which has eliminated duplicate roles, reduced
management layers and increased spans of control in order to
realise cost savings and efficiencies across the Group.
Business transformation - In November 2020 in line with
Elementis' ongoing strategy to optimise its footprint the closure
of the Charleston plant was announced resulting in a one-off charge
of $15.6m. Further charges of $7.1m relates to the continuation of
the programme to review and optimise the supply chain and
manufacturing footprint across our Coatings, Personal Care, Energy
and Chromium businesses.
Environmental provisions - The Group's environmental provision
is calculated on a discounted cash flow basis, reflecting the time
period over which spending is estimated to take place. The movement
in provision relates to a change in discount rates that has
increased the liability by $1.1m in the year, extra remediation
work identified in the year which has resulted in a $6.1m increase
to the liability offset by unused amounts reversed in the year of
$0.5m. As these costs relate to non-operational facilities they are
classed as adjusting items.
M&A and disposal costs - Charges of $3.7m represent costs
relating to the disposal of small, non-core businesses in the
Personal Care business segment and advisory fees incurred in
response to an unsolicited takeover approach received in the
year.
Impairment of goodwill - As a result of the low average oil
price in 2020 and the expected ongoing challenging outlook for the
Energy sector, in particular the North American shale market, a
$26.9m impairment has been recognised in Energy. In Talc, while the
business fundamentals are unchanged and the medium term growth
outlook attractive, the significant impact of COVID-19 on wider
industrial activity and the near term profitability of the business
combined with an increase in the pre-tax discount rate has resulted
in a $33.4m goodwill impairment charge.
Amortisation of intangibles arising on acquisition -
Amortisation of $15.5m (2019: $18.6m) represents the charge in
respect of the Group's acquired intangible assets. As in previous
years, these are included in adjusting items in order to present a
more reflective view of the Group's overall performance and the key
business drivers that underpin it.
Sale of Elementis Specialties (Changxing) Ltd - The profit on
the exit of a non-core plant (previously part of the Coatings
business) has been treated as an adjusting item in 2020.
Mark to market of derivatives - The movements in the mark to
market valuation of financial instruments which are not in hedging
relationships do not form part of the underlying performance of the
business and thus are treated as adjusting items.
Currency hedge due to dividend cancellation- The charge of $1.8m
relates to the cancellation of currency hedges following the
suspension of the 2019 final ordinary dividend that provided
additional financial headroom in response to COVID-19.
Tax on adjusting items - this is the net impact of tax relating
to the adjusting items listed above.
To support comparability with the financial statements as
presented in 2020 the reconciliation to the adjusted consolidated
income statement is shown below.
2020
Profit
2020 and loss
Profit 2020 Adjusting after adjusting
and loss items items
$m $m $m
------------------------ --------- -------------- ----------------
Revenue 751.3 - 751.3
Cost of sales (494.0) - (494.0)
--------------------------- --------- -------------- ----------------
Gross profit 257.3 - 257.3
Distribution costs (112.6) - (112.6)
Administrative expenses (172.9) 109.8 (63.1)
--------------------------- --------- -------------- ----------------
Operating (loss)/profit (28.2) 109.8 81.6
Profit on disposal 0.3 (0.3) -
Other expenses (1.6) - (1.6)
Finance income 0.3 - 0.3
Finance costs (39.6) 12.0 (27.6)
--------------------------- --------- -------------- ----------------
(Loss)/profit before
income tax (68.8) 121.5 52.7
Tax 1.8 (16.0) (14.2)
--------------------------- --------- -------------- ----------------
(Loss)/profit for
the year (67.0) 105.5 38.5
--------------------------- --------- -------------- ----------------
Attributable to:
Equity holders of
the parent (67.0) 105.5 38.5
--------------------------- --------- -------------- ----------------
Earnings per share
Basic (loss)/earnings
(cents) (11.5) 18.1 6.6
Diluted (loss)/earnings
(cents) (11.3) 17.8 6.5
--------------------------- --------- -------------- ----------------
2019
Profit
2019 and loss
Profit 2019 Adjusting after adjusting
and loss items items
$m $m $m
------------------------ --------- -------------- ----------------
Revenue 873.6 - 873.6
Cost of sales (552.2) - (552.2)
--------------------------- --------- -------------- ----------------
Gross profit 321.4 - 321.4
Distribution costs (127.3) - (127.3)
Administrative expenses (93.2) 22.1 (71.1)
Operating profit 100.9 22.1 123.0
Loss on disposal (9.0) 9.0 -
Other expenses (1.5) - (1.5)
Finance income 0.4 - 0.4
Finance costs (29.8) 1.4 (28.4)
--------------------------- --------- -------------- ----------------
Profit before income
tax 61.0 32.5 93.5
Tax (14.6) (6.1) (20.7)
--------------------------- --------- -------------- ----------------
Profit for the year 46.4 26.4 72.8
--------------------------- --------- -------------- ----------------
Attributable to:
Equity holders of
the parent 46.4 26.4 72.8
--------------------------- --------- -------------- ----------------
Earnings per share
Basic (cents) 8.0 4.6 12.6
Diluted (cents) 7.9 4.5 12.4
--------------------------- --------- -------------- ----------------
To support comparability with the financial statements as
presented in 2020, a reconciliation from reported profit/(loss)
before interest to adjusted profit before income tax by segment is
shown below for each year.
2020
Personal Segment Central
Care Coatings Talc Chromium totals costs Total
$m $m $m $m Energy$m $m $m $m
----------------------------------- -------- -------- ------ -------- -------- ------- -------- ------
Reported operating profit/(loss) 20.0 43.3 (22.4) (3.6) (48.2) (10.9) (17.3) (28.2)
----------------------------------- -------- -------- ------ -------- -------- ------- -------- ------
Adjusting Items
Restructuring - 0.9 - - - 0.9 - 0.9
Business transformation 3.0 1.8 - 2.3 15.6 22.7 - 22.7
Increase in environmental
provisions due to additional
remediation work identified - - - 5.6 - 5.6 - 5.6
Increase in environmental
provisions due to change in
discount rate - - - 1.1 - 1.1 - 1.1
M&A and disposal costs 2.0 - - - - 2.0 1.7 3.7
Impairment of goodwill - - 33.4 - 26.9 60.3 - 60.3
Amortisation of intangibles
arising on acquisition 8.6 1.1 5.6 0.2 - 15.5 - 15.5
Adjusted operating profit
/(loss) 33.6 47.1 16.6 5.6 (5.7) 97.2 (15.6) 81.6
----------------------------------- -------- -------- ------ -------- -------- ------- -------- ------
Other expenses - - - - - - (1.6) (1.6)
Finance income - - - - - - 0.3 0.3
Finance costs - - - - - - (27.6) (27.6)
----------------------------------- -------- -------- ------ -------- -------- ------- -------- ------
Adjusted profit /(loss) before
income tax 33.6 47.1 16.6 5.6 (5.7) 97.2 (44.5) 52.7
----------------------------------- -------- -------- ------ -------- -------- ------- -------- ------
2019
Personal Segment Central
Care Coatings Talc Chromium totals costs Total
$m $m $m $m Energy$m $m $m $m
----------------------------------------- -------- -------- ---- -------- -------- ------- -------- ------
Reported operating profit/(loss) 29.1 43.7 19.9 12.6 3.8 109.1 (8.2) 100.9
----------------------------------------- -------- -------- ---- -------- -------- ------- -------- ------
Adjusting Items
Restructuring 0.7 2.6 0.2 0.1 - 3.6 1.5 5.1
Business transformation 1.6 0.5 - 0.4 - 2.5 - 2.5
Increase in environmental provisions
due change in discount rate - - - 4.9 - 4.9 - 4.9
Amortisation of intangibles
arising on acquisition 11.3 1.5 5.6 0.2 - 18.6 - 18.6
Release of contingent consideration - - - - - - (9.0) (9.0)
----------------------------------------- -------- -------- ---- -------- -------- ------- -------- ------
Adjusted operating profit/(loss) 42.7 48.3 25.7 18.2 3.8 138.7 (15.7) 123.0
----------------------------------------- -------- -------- ---- -------- -------- ------- -------- ------
Other expenses - - - - - - (1.5) (1.5)
Finance income - - - - - - 0.4 0.4
Finance costs - - - - - - (28.4) (28.4)
----------------------------------------- -------- -------- ---- -------- -------- ------- -------- ------
Adjusted profit/(loss) before
income tax 42.7 48.3 25.7 18.2 3.8 138.7 (45.2) 93.5
----------------------------------------- -------- -------- ---- -------- -------- ------- -------- ------
6. Income tax expense
2020 2019
$m $m
------------------------------------------------------ ------ -----
Current tax on continuing operations:
------------------------------------------------------ ------ -----
UK corporation tax 6.5 5.7
Overseas corporation tax on continuing operations 8.6 6.6
Adjustments in respect of prior years:
United Kingdom 0.1 -
Overseas (8.3) 1.1
------------------------------------------------------ ------ -----
Total current tax 6.9 13.4
------------------------------------------------------ ------ -----
Deferred tax:
United Kingdom (1.0) (0.1)
Overseas (11.1) 1.4
Adjustment in respect of prior years:
United Kingdom - -
Overseas 3.4 (0.1)
------------------------------------------------------ ------ -----
Total deferred tax (8.7) 1.2
------------------------------------------------------ ------ -----
Income tax (credit)/expense for the year (1.8) 14.6
------------------------------------------------------ ------ -----
Comprising:
------------------------------------------------------ ------ -----
Income tax (credit)/expense for the year (1.8) 14.6
------------------------------------------------------ ------ -----
Adjusting items (1)
Overseas taxation on adjusting items (12.4) 5.1
UK taxation on adjusting items (3.6) 1.0
Taxation on adjusting items (16.0) 6.1
------------------------------------------------------ ------ -----
Income tax expense for the year after adjusting items 14.2 20.7
------------------------------------------------------ ------ -----
(1) See Note 5 for details of adjusting items.
The tax charge on profits represents an effective rate of 2.6%
(2019: 23.9%) and an effective tax rate after adjusting items of
26.9% (2019: 22.1%). The Group is international, has operations in
several jurisdictions and benefits from cross border financing
arrangements.
Accordingly, tax charges of the Group in future periods will be
affected by the profitability of operations in different
jurisdictions, changes to tax rates and regulations in the
jurisdictions within which the Group has operations, as well as the
ongoing impact of the Group's funding arrangements. The Group's
effective tax rate in 2020 is slightly above its usual range due to
withholding tax incurred on the repatriation of profits from Asia
and the derecognition of a deferred tax asset in the US. The medium
term expectation for the Group's adjusted effective tax rate is
around 22-23% until 2023, after which it is anticipated to rise to
25-26% due to the recently announced increase in UK corporation tax
rates from April 2023.
In the UK Budget on 3 March 2021, the Chancellor of the
Exchequer announced an increase in the UK corporation tax rate from
19% to 25%, which is due to be effective from 1 April 2023. This
change was not substantively enacted at the balance sheet date and
hence has not been reflected in the measurement of deferred tax
balances at the period end. This change is not expected to have a
material impact on the Group's deferred tax balances.
The total charge for the year can be reconciled to the
accounting profit as follows:
2020 2020 2019 2019
$m % $m %
----------------------------------------- ------- ------- ------- -------
(Loss)/profit before tax (68.8) 61.0
----------------------------------------- ------- ------- ------- -------
Tax at 19.0% (2019: 19.0%) (13.1) 19.0 11.6 19.0
Difference in overseas effective tax
rates 4.0 (5.8) 1.7 2.8
Income not taxable and impact of tax
efficient financing (4.7) 6.8 (15.2) (24.9)
Expenses not deductible for tax purposes 11.5 (16.7) 13.6 22.3
Adjustments in respect of prior years (4.8) 7.0 1.0 1.6
Tax rate changes 1.3 (1.9) 0.9 1.5
Movement in unrecognised deferred tax 4.0 (5.8) 1.0 1.6
Tax (credit)/charge and effective tax
rate for the year (1.8) 2.6 14.6 23.9
----------------------------------------- ------- ------- ------- -------
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:
2020 2019
$m $m
-------------------------------------------------- ------ -----
Earnings:
(Loss)/earnings for the purpose of basic earnings
per share (67.0) 46.4
Adjusting items net of tax 105.5 26.4
-------------------------------------------------- ------ -----
Adjusted earnings 38.5 72.8
-------------------------------------------------- ------ -----
2020 2019
m m
--------------------------------------------------- ----- -----
Number of shares:
Weighted average number of shares for the purposes
of basic earnings per share 580.1 579.6
Effect of dilutive share options 13.6 8.9
--------------------------------------------------- ----- -----
Weighted average number of shares for the purposes
of diluted earnings per share 593.7 588.5
--------------------------------------------------- ----- -----
2020 2019
cents cents
------------------------------ ------ ------
Earnings per share:
Basic (loss) / earnings (11.5) 8.0
Diluted (loss) / earnings (11.3) 7.9
Basic after adjusting items 6.6 12.6
Diluted after adjusting items 6.5 12.4
------------------------------ ------ ------
8. Contingent liabilities
As is the case with other chemical companies, the Group
occasionally receives notices of litigation relating to regulatory
and legal matters. A provision is recognised when the Group
believes it has a present legal or constructive obligation as a
result of a past event, and it is probable that an outflow of
economic benefits will be required to settle the obligation. Where
it is deemed that an obligation is merely possible and that the
probability of a material outflow is not remote, the Group would
disclose a contingent liability.
In 2013 the UK Government (through HMRC) introduced the UK
Finance Company Exemption ('FCE') regime. Elementis entered into
the FCE regime during 2014. In October 2017 the European Commission
opened a State Aid investigation into the regime. In April 2019 the
European Commission concluded that the FCE regime constituted State
Aid in circumstances where Groups had accessed the regime using a
financing company with UK significant people functions; the
European Commission therefore instructed the UK Government to
collect any relevant State Aid amounts. The UK government and other
UK-based international companies, including Elementis, appealed to
the General Court of the European Union against the decision in
2019.
In Spring 2020 HMRC requested that affected Groups submit their
UK significant people function analysis. The deadline for
submission of these analyses was delayed due to the impact of
COVID-19 and Elementis submitted its analysis to HMRC in July 2020.
In December 2020 the UK government introduced legislation to
commence collection proceedings.
Elementis received a charging notice from HMRC on 5 February
2021 which assessed for the maximum exposure of $19m (excluding
interest). This was paid to HMRC on 5 March 2021. Whilst Elementis
has lodged an appeal against the charging notice this does not
defer the payment of the tax assessed. As Elementis considers that
the appeal will ultimately be successful, an asset will be recorded
in the 2021 accounts on the expectation that the charge will be
repaid in due course.
9. Events after the balance sheet date
The ongoing EU state aid case is discussed in note 8. There were
no other significant events after the balance sheet date.
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.
2020 2019
Profit Profit
and and
loss loss
$m $m
------------------------------------------------- ------- -------
(Loss)/profit for the year (67.0) 46.4
--------------------------------------------------- ------- -------
Adjustments for
Finance income (0.3) (0.4)
Finance costs and other expenses after
adjusting items 41.2 31.3
Tax (credit)/charge (1.8) 14.6
Depreciation and amortisation 66.7 70.1
Excluding intangibles arising on acquisition (15.5) (18.6)
Adjusting items before interest 109.5 31.1
--------------------------------------------------- ------- -------
EBITDA 132.8 174.5
--------------------------------------------------- ------- -------
There are also a number of key performance indicators (KPIs)
used in this report. The reconciliations to these are given
below.
Operating cash flow
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.
2020 2019
$m $m
-------------------------------------------------- ------ ------
Net cash flow from operating activities 107.1 143.4
-------------------------------------------------- ------ ------
Less: Capital expenditure (40.0) (47.3)
Add:
Income tax paid or received 8.5 2.2
Interest paid or received 23.7 25.0
Pension contributions net of current service cost 0.1 1.2
Adjusting items - non cash (1.8) -
Adjusting items - cash 12.2 30.3
-------------------------------------------------- ------ ------
Operating cash flow 109.8 154.8
-------------------------------------------------- ------ ------
Operating cash conversion
Operating cash conversion is defined as operating cash flow (as
defined above) excluding payments for provisions and share based
pay, divided by operating profit from total operations after
adjusting items.
2020 2019
$m $m
--------------------------------------- ----- -----
Operating profit after adjusting items 81.6 123.0
--------------------------------------- ----- -----
Operating cash flow 109.8 154.8
Add:
Provision and share based pay 1.7 5.4
--------------------------------------- ----- -----
111.5 160.2
--------------------------------------- ----- -----
Operating cash flow conversion 137% 130%
--------------------------------------- ----- -----
Contribution margin
The Group's contribution margin, which is defined as sales less
all variable costs, divided by sales and expressed as a
percentage.
2020 2019
$m $m
--------------------- ------- -------
Revenue 751.3 873.6
--------------------- ------- -------
Variable costs (410.8) (473.1)
Non variable costs (83.2) (79.1)
--------------------- ------- -------
Cost of sales (494.0) (552.2)
--------------------- ------- -------
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.
Return on operating capital employed
The 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.
2020 2019
$m $m
------------------------------------------------------- ------ ------
Operating profit from total operations after adjusting
items 81.6 123.0
------------------------------------------------------- ------ ------
Fixed assets excluding goodwill 740.7 746.0
Working capital 141.4 152.1
Operating provisions (58.8) (51.6)
------------------------------------------------------- ------ ------
Operating capital employed 823.3 846.5
Return on capital employed 10% 15%
------------------------------------------------------- ------ ------
Average trade working capital to sales ratio
The trade working capital to sales ratio is defined as the 12
month average trade working capital divided by sales, expressed as
a percentage. Trade working capital comprises inventories, trade
receivables (net of provisions) and trade payables. It specifically
excludes repayments, capital or interest related receivables or
payables, changes due to currency movements and items classified as
other receivables and other payables.
Adjusted operating profit/operating margin
Adjusted operating profit is the profit derived from the normal
operations of the business. Adjusted operating margin is the ratio
of operating profit, after adjusting items, to sales.
Unaudited information
To support a full understanding of the performance of the Group,
the information below provides the calculation of Net Debt/EBITDA
as per our banking covenants.
2020 2019
$m $m
---------------------------- ----- -----
Revenue 751.3 873.6
Adjusted operating profit 81.6 123.0
Adjusted operating margin 10.9% 14.1%
Adjusted EBITDA 132.8 174.5
IFRS 16 adjustment (6.4) (7.9)
---------------------------- ----- -----
Adjusted EBITDA pre IFRS 16 126.4 166.6
Net Debt 408.1 454.2
Net Debt/EBITDA* 3.23 2.73
---------------------------- ----- -----
* Net Debt/EBITDA, where EBITDA is the Adjusted EBITDA on
continuing operations of the Group on a pre IFRS16 basis, is the
definition of Net Debt/EBITDA for Elementis' core banking
covenants.
*****************************************************
Annual Financial Report
In accordance with Disclosure and Transparency Rule 6.3.5, the
following additional information is required to be made through a
Regulatory Information Service ("RIS"): Principal risks and
uncertainties; and Directors' responsibility statement. The
information below, which is summarised and extracted from the 2020
Annual report and accounts that is to be published on 9 April 2021,
is included solely for the purpose of complying with DTR 6.3.5(2)
and the requirements it imposes on issuers on what material is to
be communicated to the media in unedited full text through a RIS. A
fuller description is set out in the 2020 Annual report and
accounts.
Risk management
Elementis faces a number of risks and uncertainties in the
ordinary course of its operations. The effective identification,
mitigation and ongoing management of these risks underpins the
delivery of strategic objectives. Elementis has an established risk
management framework and system of internal controls to support
decision making throughout the financial year. Risk management
systems are intended to mitigate and reduce risk to the lowest
extent possible, however, complete elimination of all risks faced
by Elementis is not possible. The risk management processes can
only provide reasonable and not absolute assurance against material
misstatement or loss.
The Board has overall responsibility for risk management and
sets the Group's policies, culture and tone on risk as well as
providing oversight to management. A risk management framework is
in place to identify, assess, mitigate and monitor the risks faced.
The Audit Committee plays an important role in supporting the work
of the Board and has specific responsibility for monitoring
financial reporting, as well as the internal and external audit
programmes, one of the primary purposes of which is to provide
assurance on financial, operational and compliance controls.
The CEO, supported by the Executive Leadership Team (ELT), is
responsible for implementing Group policies, risk management
performance, identifying principal risks and ensuring resources are
allocated for effective risk management and mitigation. Individual
ELT members have responsibility for managing and monitoring risks
relevant to their business or function on an ongoing basis. On an
annual basis, the ELT reviews operational risks and the Board
carries out a review of the principal risks and uncertainties.
Principal risks and uncertainties
The following is a summary of the principal risks agreed by the
Board: global economic conditions and competitive market pressures;
business interruption as a result of a major or a natural
catastrophe; business interruption as a result of supply chain
failure of key raw materials and/or third party service provision;
regulatory compliance and product stewardship challenges; major
regulatory enforcement action, litigation and/or other claims
arising from products and/or historical and ongoing operations;
intellectual property and know-how; portfolio innovation and
technology; people, talent management and succession; IT networks,
data security and privacy; COVID-19 Pandemic. A full description of
these risks and the mitigating actions taken by the Company will
appear in the 2020 Annual Report and Accounts.
Key areas of focus during the year
During 2020, the Board carried out a robust assessment of the
key risks which we believe could threaten the Group's business
model, future performance, solvency or liquidity or long term
viability of the Company. These risks, if they materialise, could
have a significant impact on the Group's ability to meet its
strategic objectives over the medium term.
Coronavirus (COVID-19)
The COVID-19 outbreak has become a global pandemic moving from
an emerging risk in the earlier part of 2020 to a principal risk by
the end of 2020. COVID-19 has been assessed and is included as a
principal risk for 2020. The dynamic nature of COVID-19 and scale
of response had a significant impact on the Company's profitability
during 2020 and is discussed in detail within the Chief Executive
Officer's overview on page 7.
Brexit
On 31 December 2020, the transition period for the UK's
withdrawal from the EU ended. Our most significant risk was
potential supply chain delays and a new customs regime. Our
cross-functional Brexit team secured Importer of Record status to
ensure synchronised goods flowing between the UK and the EU and we
continue to monitor changes to customs clearances, duties and
exports as part of our ongoing supply chain processes.
Climate change
Awareness and engagement of climate change and the transition to
a low carbon economy, sustainability and ESG matters are gaining
intensity amongst a number of stakeholder groups. In 2020, we set
challenging environmental climate-related targets. At present, we
envisage that climate change is not a specific risk category in its
own right rather, that it could have the ability to affect each of
our principal risk categories as we conduct our assessment of
reporting frameworks and allocate resources as appropriate to
report in line the recommendations of the Taskforce for
Climate-related Financial Disclosures (TCFD). A charter for climate
risk governance has been adopted by the Sustainability Committee
which includes oversight of climate risk, climate-related external
reporting disclosures. It is envisaged that we will undertake a
materiality assessment during 2021 as part of our preparation for
TCFD implementation. Using the TCFD framework to map our physical
and transition risks and opportunities will enable us to analyse
the financial impact over a much longer time horizon. Our purpose
is at the heart of enabling the transition to a lower carbon
economy.
Emerging risks
Emerging risks and opportunities are identified and documented
through the existing risk management framework.
Related party transactions
The Company is a guarantor to the UK pension scheme under which
it guarantees all current and future obligations of UK subsidiaries
currently participating in the pension scheme to make payments to
the scheme, up to a specified maximum amount. The maximum amount of
the guarantee is that which is needed (at the time the guarantee is
called on) to bring the scheme's funding level up to 105 per cent
of its liabilities, calculated in accordance with section 179 of
the Pensions Act 2004. This is also sometimes known as a Pension
Protection Fund ("PPF") guarantee, as having such a guarantee in
place reduces the annual PPF levy on the scheme.
Directors' responsibility statement
The following is an extract of the full statement prepared in
connection with the Company's Annual Report and Accounts
(comprising both consolidated and parent company financial
statements) for the year ended 31 December 2020. The full text of
the Directors' responsibility statement will appear in the 2020
Annual Report and Accounts.
The Directors of the Company confirm that to the best of their
knowledge:
-- The financial statements, which have been prepared in
accordance with the relevant financial reporting framework, give a
true and fair view of the assets, liabilities, financial position
and profit or loss of the Company and the undertakings included in
the consolidation taken as a whole.
-- The strategic report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
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END
FR JJMJTMTMTMBB
(END) Dow Jones Newswires
March 23, 2021 03:00 ET (07:00 GMT)
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