TIDMIBST
RNS Number : 7157R
Ibstock PLC
10 March 2021
Ibstock plc
Results for the year ended 31 December 2020
Resilient operational performance and continued strategic
progress
Ibstock plc ("Ibstock" or the "Group"), a leading manufacturer
of clay bricks and concrete products in the United Kingdom,
announces its results for the year ended 31 December 2020.
Adjusted results(1) Statutory results
============================= =============================
Year ended 31 December 2020 2019 Change 2020 2019 Change
============================ ========= ======== ======== ========= ======== ========
Revenue GBP316m GBP409m (23%) GBP316m GBP409m (23%)
---------------------------- --------- -------- -------- --------- -------- --------
Adjusted EBITDA GBP52m GBP122m (57%)
---------------------------- --------- -------- -------- --------- -------- --------
Exceptional Items (GBP36m) (GBP3m) (>100%)
---------------------------- --------- -------- -------- --------- -------- --------
Profit / (loss) before tax GBP12m GBP85m (86%) (GBP24m) GBP82m (>100%)
---------------------------- --------- -------- -------- --------- -------- --------
EPS 4.0p 18.3p (78%) (6.8p) 16.3p (>100%)
---------------------------- --------- -------- -------- --------- -------- --------
Net debt GBP69m GBP85m 19%
---------------------------- --------- -------- -------- --------- -------- --------
Total Ordinary Dividend(2) 1.6p 3.2p 1.6p 3.2p
---------------------------- --------- -------- -------- --------- -------- --------
All numbers from continuing operations
Operational Headlines
-- Resilient operational performance and strategic progress
against unprecedented backdrop of COVID-19
-- Health and safety of all our people has remained the key
priority throughout
-- Strong progress against operational strategy, notably in
area of ESG; achieved "AA" rating from MSCI
-- Following initial sharp contraction in market demand from
late March 2020, steady and sustained recovery of demand
patterns over remainder of year
-- Group wide restructuring programme to reshape and upgrade
the business completed in H2, delivering up to GBP20 million
of cost savings in FY21, at a cash cost of GBP9 million
Financial Headlines
-- Revenue decline of 23% reflects impact of COVID-19 pandemic,
with significant reductions in both Clay Division, down
29%, and Concrete Division, down 5%
-- Adjusted EBITDA(1) of GBP52 million (2019: GBP122 million)
down 57% reflecting lower sales volumes and impact of operational
gearing
-- Statutory loss before tax of GBP24 million (2019: GBP82
million profit) reflects lower trading performance and exceptional
costs of GBP36 million principally related to COVID-19 and
restructuring
-- Decisive actions to reshape cost base, combined with demand
recovery, enabled Group to exit 2020 with margins in both
divisions getting back close to the underlying levels achieved
in the prior year
-- Strong cash flow performance, materially ahead of expectations,
driven by improved trading through the second half and actions
to manage costs and working capital
-- Robust balance sheet with closing leverage(4) of 1.5x net
debt to adjusted EBITDA(1) and liquidity headroom of over
GBP145 million
-- Resumption of dividend payments - proposing modest final
dividend for 2020 of 1.6p per share
Current Trading and Outlook
-- Trading in the initial period of 2021 slightly ahead of
run rates achieved in Q4 2020
-- Demand backdrop and recent policy announcements are encouraging
but we remain mindful of economic uncertainties and disruption
associated with COVID-19. As a result, the Board is comfortable
with current market consensus expectations (3) for adjusted
EBITDA (1) for the year
-- With our strong financial position, strengthened operating
platform and range of attractive growth opportunities ,
we are focused on driving sustainable, profitable growth
to deliver attractive shareholder returns over the medium
term
Joe Hudson, Chief Executive Officer of Ibstock plc,
commented:
"2020 was a testing year, as COVID-19 created some exceptional
challenges for our business and our people. The health and
wellbeing of colleagues, customers and business partners were
paramount throughout, and I would like to thank them all for their
impressive response to the pandemic and their ongoing effort and
commitment.
"Through the actions we have taken, t he Group has entered the
new financial year with a stronger operational platform in place
and a clear focus on the strategic drivers that will re-establish
growth and create sustainable, long term earnings momentum in the
business.
"Market demand recovered faster than our expectations as we
progressed through 2020, and trading in the initial period of 2021
has started well, with clay sales volumes slightly ahead of the run
rates achieved in Q4 2020. While we remain mindful of the economic
uncertainties and disruption associated with COVID-19, we are
encouraged by the strength of trading over recent weeks and are
confident for the year ahead.
"Looking further forward, market fundamentals remain supportive,
underpinned by the UK housing deficit, Government policy and low
interest rates. With a strong management team, clarity on the
strategic drivers which will underpin our progress and continued
recovery in our core markets, we believe that Ibstock is well
placed to re-establish positive earnings momentum and deliver
sustainable, profitable growth over the medium term."
(1) Alternative Performance Measures are described in Note 3 to
the results announcement.
(2) 2020 dividend is proposed, 2019 comparative differs to that
announced in the equivalent RNS last year (as the final 2019
dividend was cancelled due to impacts of COVID-19)
(3) Management believes that analysts' consensus expectations
for adjusted EBITDA(1) for the year are approximately GBP93
million
(4) Based on pre-IFRS 16 numbers, in line with RCF covenants
Results presentation
Ibstock is hosting an audio webcast for investors and analysts
at 10am UK time today.
To register for the webcast, please see:
https://brrmedia.news/fufkk
The presentation can also be heard via a conference call, where
there will be the opportunity to ask questions.
Conference Call Dial-In Details: +44 (0)330 336 9125
Confirmation code: 3598425
An archived version of today's webcast analyst presentation will
be available on www.ibstockplc.com later today.
Ibstock plc 01530 261 999
Joe Hudson, CEO
Chris McLeish, CFO
Citigate Dewe Rogerson 020 7638 9571
Kevin Smith
Nick Reading
About Ibstock plc
Ibstock plc is a leading UK manufacturer of clay bricks and a
diversified range of clay and concrete products. Its principal
products are clay bricks, brick components, concrete roof tiles,
concrete substitutes for stone masonry, concrete fencing and pre --
stressed concrete products.
The Group's two divisions are:
Ibstock Clay: The leading manufacturer by volume of clay bricks
sold in the United Kingdom. With 16 manufacturing sites Ibstock
Brick has the largest brick production capacity in the United
Kingdom. It operates a network of 18 active quarries located close
to its manufacturing plants. Ibstock Kevington provides masonry and
pre-fabricated component building solutions, operating from 6 sites
across the United Kingdom.
Ibstock Concrete: A leading manufacturer of concrete roofing,
walling, flooring and fencing products, along with lintels and
general concrete building products, with 14 manufacturing plants in
the United Kingdom.
Chief Executive's Review
Introduction
2020 was, by any measure, a testing year. However, I am pleased
to report that, while the Group had to contend with many unexpected
difficulties in the year, it was also a period of continued
strategic progress for Ibstock.
The COVID-19 pandemic, whilst presenting challenges for the
business and impacting on trading, especially in the first half of
the year, also acted as a catalyst for change, prompting us to take
decisive action to protect and upgrade the business. This included
a reshaping of our cost base, ensuring we are fit for the future
and in a strong position to capitalise on continued improvement in
our markets.
Our agile approach allowed the Group to address COVID-19 issues
effectively and recommence production on a phased basis towards the
end of the first half, with volumes building progressively from May
onwards. The sustained improvement in trading conditions in the
second half allowed us to focus increasingly on those initiatives
which will support longer-term growth. While COVID-19 restrictions
inevitably impacted the Group's performance in the year, it is
encouraging to note that underlying market fundamentals remained
robust, supported by demand for new housing, low interest rates and
the Government's Help to Buy scheme.
Our strategy has three pillars: Sustain, Innovate and Grow. The
strategic progress made, particularly within our key Sustain and
Innovate pillars, builds on that achieved over the two preceding
years. With a stronger platform in place, we have a range of
attractive growth opportunities with the potential to create
significant value for our stakeholders over the medium term.
COVID-19 response
At the onset of the crisis, in order to ensure the health and
safety of all colleagues, we completed an orderly shutdown of our
production facilities in early April to support the national effort
against COVID-19 and used the following weeks to develop new
working practices and protocols that would allow us to reopen
safely. These plans allowed us to recommence production from May
2020, in response to customer demand. A comprehensive range of
strict social distancing and hygiene protocols at all of our
factory and office locations remains in place and continues to work
well.
In response to the effects of the pandemic, the Group took a
number of actions, focused initially on conserving cash and
protecting the balance sheet, including reducing discretionary
spend and implementing a temporary salary reduction for the Board
and executive leadership team, and subsequently on restructuring
the business to ensure we are well positioned for the future. The
results of these efforts are evident in the strong cash flow
performance delivered in the second half and our robust balance
sheet at year end. COVID-19 has also been the catalyst for a number
of process improvements and other new ways of working, enhancing
pace, agility and levels of collaboration across the
organisation.
In order to safeguard jobs during the most acute period of
COVID-19 restrictions, the Group received around GBP10 million
under the Government's Coronavirus Job Retention Scheme ("CJRS") in
respect of furloughed employees. Following the subsequent decision
to restructure the Group's operations, the Group intends to repay
all CJRS amounts received in respect of colleagues subsequently
made redundant, which total around GBP2 million.
The Group initially took advantage of the HMRC deferred payment
provisions during the year, deferring just over GBP16 million as at
30 June 2020, but subsequently settled all outstanding amounts by
year-end.
Financial Performance
The results for the year reflect the significant impact of
COVID-19, with first half revenues falling by 36% as many of our
customers temporarily curtailed their operations. Activity in the
second half was characterised by a steady and sustained recovery in
demand with Group revenues recovering from their April lows to
reach 90% of prior year levels in the final quarter of the
year.
Group revenue for the year to 31 December 2020 of GBP316 million
was down by 23% (2019: GBP409 million), with Group adjusted
EBITDA(1) of GBP52 million, down by 57% (2019: GBP122 million),
reflecting the negative operational gearing impact of the reduced
revenue offset, in part, by the actions taken to manage costs. In
addition, during the first half there was an under recovery of
costs associated with the substantial reduction of inventory in the
second quarter, given the lower activity levels, resulting in
around GBP10 million of additional one-off costs. Performance in
2020 was also modestly impacted by reduced levels of productivity
arising from COVID-19, due to the impact of social distancing in
the more labour-intensive parts of the Group's operations.
The statutory loss before tax for the year was GBP24 million
(2019: profit of GBP82 million) reflecting the impact of net
exceptional costs(1) of GBP36 million (2019: GBP3 million),
principally related to COVID-19 and the restructuring of the
business. Exceptional items(1) included GBP12.4 million of cash
costs, (2019: GBP2 million), of which GBP10 million was settled in
the period. Excluding exceptional items(1) , adjusted profit before
taxation(1) was GBP12 million (2019: GBP85 million).
In response to the effects of the pandemic, we took a number of
actions, focused initially on conserving cash and protecting the
balance sheet, and subsequently on restructuring the business to
ensure we are well positioned for the future. Together with the
improved volume levels achieved during the final quarter, this
resulted in adjusted EBITDA(1) margins in both divisions getting
back close to the underlying levels achieved in the prior year
towards the end of the year. The full benefit of these
restructuring actions will be seen in the 2021 financial year, as
detailed further below.
In light of the significant uncertainties created by COVID-19,
we also took the difficult but necessary decision to cancel our
2019 final dividend and did not pay an interim dividend.
Furthermore, the Group secured agreement from its lending banks for
a number of amendments to covenant tests at 31 December 2020 and 30
June 2021 under the Group's Revolving Credit Facility (RCF), and
also agreed an extension to this Facility of a period of 12 months
to March 2023. The Group also secured eligibility for the Bank of
England's Covid Corporate Financing Facility ("CCFF"), although we
did not access funding from this scheme and do not anticipate doing
so.
The business delivered an excellent cash performance, with net
debt(1) reducing by GBP16 million over the year to GBP69 million
(2019: GBP85 million), driven by a GBP34 million reduction in net
debt(1) in the second half, and with net debt to adjusted EBITDA(1)
of 1.5 times (2019: 0.7 times), excluding the impact of IFRS 16.
Fixed costs and working capital were managed tightly, with finished
goods inventories reducing by around GBP20 million during the year.
Capital expenditure was held at GBP24 million (2019: GBP39
million), including GBP9 million spent on capital enhancement
initiatives.
Divisional Review
Ibstock Clay
Brick demand fell to just 10% of pre-COVID levels in April 2020.
From that low point demand recovered steadily and by 30 June 2020
demand levels had recovered back to around 60% of 2019 levels.
Revenues had risen back to around 85% of 2019 levels towards the
end of 2020, with each market sector increasing activity
progressively as we moved through the year.
During the first half year, sales to our builders' merchant
customers increased as a proportion of total sales, with volumes
supplying both the Repairs, Maintenance and Improvement (RMI) and
new build sectors increasing (since smaller builders were typically
less affected by the initial impacts of COVID-19 on their business
operations). During the second half, the proportion of direct sales
to our larger housebuilding customers increased back towards
historical levels, as the pace of new build construction among the
larger house builders gathered pace.
Throughout the period, we took appropriate actions to balance
operational output and inventory levels as demand recovered.
Overall, in 2020 the UK market consumed around 1.88 billion
bricks, compared to 2.45 billion in 2019, with 1.54 billion being
supplied from domestic production. The level of Imports fell to
around 0.34 billion bricks (2019: 0.46 billion bricks),
representing around 18% of the total market, which was a modestly
lower share than in 2019. Industry domestic finished goods
inventory levels fell by over 25% over the course of the 2020
year.
Divisional revenue was GBP213 million in 2020, 29% down year on
year (2019: GBP300 million). Adjusted EBITDA(1) at GBP44 million in
2020 was 59% lower than in the prior year (2019: GBP107 million),
reflecting both the significant reduction in sales volumes and the
impact of operational gearing. Divisional statutory loss before tax
was GBP12 million (2019: profit of GBP79 million) as a result of
reduced adjusted EBITDA(1) and exceptional costs(1) recognised in
2020.
Completion of the restructuring actions during the final quarter
of the year, in combination with the improved volume levels
achieved during the same period, enabled the division to achieve
adjusted EBITDA(1) margins for the final months of the year of just
over 30%, getting back close to the underlying levels achieved in
the prior year periods.
Trading in the initial period of the 2021 year has started well,
with sales volumes slightly ahead of the run rates achieved in Q4
2020. Our base case planning assumption for the 2021 year is in
line with CPA industry projections for Private Housing Starts,
being 15% below 2019 levels(4) .
Ibstock Concrete
Divisional performance benefitted from our significant exposure
to the broader RMI markets. Consequently, although sales volumes
during 2020 were materially impacted by the effects of the COVID-19
pandemic, the concrete division benefited from relatively resilient
structural demand within its end markets, as consumers spent a
greater proportion of their disposable income on their homes.
Activity levels improved significantly during the second half of
the year, with revenues in the final quarter modestly ahead of the
prior year period. This reflected a material improvement from the
first half, when revenues were 15% behind the prior year, (or 28%
behind on a like for like basis(1) , adjusting for the acquisition
of Longley Concrete in July 2019).
Divisional revenue was GBP103 million in 2020, representing a 5%
reduction year on year (2019: GBP109 million), or 14% reduction on
a like for like basis(1) . Fencing, building and flooring products
delivered a resilient performance, with relatively strong momentum
as we finished the 2020 year. Adjusted EBITDA(1) of GBP15 million
in 2020 was 31% lower year on year (2019: GBP22 million)
principally reflecting the materially lower sales volumes in the
first half. Divisional statutory profit before tax was GBP1 million
(2019: GBP11 million) as a result of reduced adjusted EBITDA(1) and
exceptional costs(1) recognised in 2020.
Adjusted EBITDA(1) margins of around 16% during the second half
reflected certain costs of reorganising our manufacturing footprint
and some limited impacts of social distancing on productivity in
the more labour-intensive parts of the division's operations.
Notwithstanding these impacts, margins benefited from the steps
taken to restructure the business, along with the improved volume
levels achieved during the final quarter, with margins for the
final months of the year getting back close to the underlying
levels achieved in the prior year periods.
Trading activity in concrete in the initial period of 2021
remains marginally above pre-COVID 19 levels, broadly in line with
the trend observed in the final quarter of 2020. Our base case
planning assumption for the 2021 year is that concrete volumes on a
like-for-like basis (i.e. excluding the impact of Longley concrete)
will be modestly below 2019 levels.
Manufacturing footprint & cost base
As set out in the interim results announcement in August 2020,
during the year the Group undertook a fundamental restructuring of
its operations in order to reduce the fixed cost base and enhance
the resilience of the business, rationalising its production
capacity and restructuring support functions. This resulted in the
closure of two clay brick factories and one concrete facility; the
mothballing of our existing Atlas clay brick manufacturing
facility; the rationalisation of capacity at our Leicester site;
and significant headcount reductions in support functions.
Whilst these actions were primarily taken to align cost with the
short term reduction in demand, flexibility has been retained to
ensure we are in a position to respond quickly as markets recover
and to transition back effectively to our long term strategic focus
on capacity growth and enhancement. Utilising the additional
capacity created through our recent capital enhancements, and by
recommissioning idled and mothballed capacity, we have the ability
to return to 2019 output levels as market conditions improve. Our
inventory levels continue to provide an effective buffer to serve
customers and manage the balance between supply and demand during
the lead time associated with these actions.
This restructuring programme has ensured Ibstock is
appropriately resourced for the near-term outlook for the industry
and will deliver up to GBP20 million of fixed cost savings in the
current financial year (based on operating the network at similar
levels to the final quarter of 2020), at a cash cost of GBP9
million.
As market conditions and visibility improve further, we will
continue to assess the case for investment into enhancing and
extending our footprint, including the previously announced Atlas
re-development project.
Dividend
In light of the strength of the Group's recent trading
performance and cash generation, and after taking into account the
prospects for the business, the Board is recommending a final
ordinary dividend of 1.6 pence per share for the 2020 year,
representing 2.5 times cover on adjusted basic earnings per
share(1) of 4.0 pence.
Subject to approval at the Annual General Meeting, this will be
paid on 14 May 2021, to shareholders on the register at the close
of business on 16 April 2021.
A clear, long-term investment case
We have a strong business with market-leading positions in
sectors of the market which benefit from positive structural growth
trends. Our business, which is comprised of our market-leading UK
clay brick business and a growing presence in attractive concrete
and modular product markets, delivers structurally high margins and
strong free cash flows. We benefit from a significant and
diversified asset base, and an attractive range of future growth
opportunities.
As we emerge from the period of peak pandemic impact, we are
re-focusing on the initiatives and actions that will drive
sustainable growth and value creation for all our stakeholders. Our
significant cash generation capability enables us to outperform our
markets through active, intelligent and disciplined investment.
Looking ahead, our investments for growth will be focused in two
areas: on capacity, efficiency and sustainability enhancement to
optimise the performance of our existing business; and on
innovation and extension into new markets, to diversify our revenue
base within the UK building envelope.
In developing and extending our business, we are focused on the
two key trends that we believe will transform our industry over the
long-term: firstly, an increasing focus on the social and
environmental impacts of all construction activity; and secondly, a
new wave of industrialisation redefining the way that residential
buildings are constructed.
Our strategy has three pillars: Sustain, Innovate and Grow. This
strategy has been in place for some time, and defines how we
operate as a business. We have delivered another year of strong
progress against this strategy, with a number of notable
achievements, and have a clear view of our priorities in the years
ahead. These are detailed further in the sections below.
Strategic Initiatives
Driving sustainable performance
As a scale industrial business, sustainable high performance is
at the heart of what we do. We are focused on three priorities:
-- Health and safety
-- Operational excellence
-- Sustainability and our social impact
Health and safety
In addition to the measures implemented to ensure all sites were
COVID secure, significant progress was made within many other areas
of the health and safety road map. A number of new systems and
procedures were introduced or upgraded including: permit to work;
lone working; inductions; and audit processes. A new dynamic risk
assessment was introduced to empower employees in approaching tasks
and we launched our Ibstock six health and safety rules. Our focus
has meant that we are now ahead of our five-year target of a 50%
reduction in the Lost Time Injury Frequency Rates (LTIFR) which now
stands at 2.2 lost time injuries per one million hours worked
(2019: 3.4). Whilst there can never be any grounds for complacency
in this area and there is still more to be done, I am delighted to
report that our achievements in improving health and safety in the
context of the pandemic were recognised by the British Ceramic
Confederation awarding us with the overall health and safety
award.
Looking forward, we will implement a new health and safety
management system over the next 12 months, in order to drive
enterprise-wide standards and promote more effective sharing of
best practice. We will also be placing further focus on contractor
safety, enabling all partners working at our facilities to operate
at the high standards we expect at all times.
Operational excellence
Our focus on operational excellence and preventative maintenance
enabled us to manage a safe shutdown and restart of our sites, as
well as the efficient optimisation of inventory and other working
capital, as we responded to the COVID challenge. We continued to
enhance standard practices for maintenance and capital expenditure,
raw materials and quality systems across the year. We reviewed and
upgraded our organisational structures within our plants, alongside
standard reporting and tier meetings, to highlight performance gaps
and drive faster issue resolution within our day-to-day
operations.
During 2021, we will be focusing on several key transformation
projects, which will optimise the management of our clay quarries,
and improve materials management across our clay factory network.
We will also be investing further in developing our talent and
leadership programmes, to ensure that we can attract, retain and
develop our leaders of tomorrow.
Sustainability and our social impact
Our commitment to sustainability flows through all that we do as
a business. We are strongly committed to leading our sector in
Environmental, Social and Governance (ESG) matters and believe
performance in this area will be an important differentiator for
our business in the years ahead. Our sustainability roadmap, which
was initially published in 2018, sets out clear objectives and
targets for the business in the period to 2025, including a
commitment to a minimum 15% reduction in carbon emissions. We
delivered another strong year of progress towards these goals
during the year.
Specific initiatives in 2020 included successful trials of our
packaging reduction programme which reduces shrink wrap thickness
by up to 30%, reducing plastic use significantly. This initiative
is now being rolled out across the Group.
We were pleased that our commitment to industry-leading ESG
performance was recognised with the Group receiving an "AA" rating
from the Morgan Stanley Capital International (MSCI) Sustainability
Index during the year.
We are actively mapping our Net Zero Carbon pathway. As part of
this process, we will look to optimise the application of existing
and emerging manufacturing technologies including energy
efficiency, fuel switching, use of lower carbon materials and
Carbon Capture, across the business in the coming years. We are
already making progress: the solar park at our central site in
Ibstock, Leicestershire is now operational and currently supplies
around 25% of the power for our head office site; and, from January
2021, we began procuring 100% of the electricity used across all
operations from renewable sources.
Our partnership with Well North Enterprise is helping us to
bring our purpose and vision to life through place making, which
for Ibstock means how our products and our business can build and
inspire better lives. This is a long-term commitment and as our
partnership evolves we aim to be part of the transformative and
sustainable change in local communities.
Market-led innovation
Innovation has a critical role to play in our future growth and
success, with our initiatives centred on three distinct areas:
-- Product innovation
-- Customer experience
-- Digital transformation
Product innovation
As market leader in clay and concrete building materials, we
have the broadest range of products and systems available in the
UK, and we continue to invest to enhance our offer. Our recent
investments in our production capabilities and focus on innovation
have enabled us to: enhance our brick range with the introduction
of new products into our 'I-range' which targets the specification
market; develop our brick slip capabilities; develop and launch the
Nexus XI brick-faced soffit and lintel system; and grow our
position in the façade systems market with our MechSlip
product.
Nexus XI was launched in November 2020, using a digital
approach, and customer feedback received to date has been
excellent, with an increasing volume of orders already secured and
a growing pipeline of interest.
New product development has also been an area of strategic focus
within the Concrete division during the last 12 months. Notable
achievements in the year included the development of precast panels
to build biomass facilities and the use of novel materials for the
supply of foundations and signal bases to the rail market.
New product development is a crucial part of our growth plans
and we are committed to the continuous enhancement of our product
portfolio to underpin our market and margin leadership.
Customer experience
Whilst COVID-19 impacted our ability to meet face-to-face with
customers in our London i-studio, the launch of a digital platform
providing product visualisation and design tools still allowed us
to collaborate in a virtual way.
We also reorganised our commercial teams during the year,
bringing marketing expertise closer to divisional sales colleagues.
This has enabled us to better understand and respond more
effectively to the evolving needs of our customers, which has been
particularly important during the last year.
The creation of a Group shared services team during the year -
bringing together the back-office teams of our two divisions - has
also allowed us to standardise processes, generate efficiencies and
improve both commercial execution and service levels to
customers.
Digital transformation
The digitisation of our business will be a key strategic enabler
over the coming years, providing us with efficiency, flexibility
and increased levels of customer collaboration. Our initial
investment in this regard has been focused on improving the
efficiency of our operations and using digital tools to reduce
friction in the supply chain, whilst promoting stronger partnership
with customers.
During 2020, we rolled out cloud-based tools which automate our
yard inventory management processes, improving productivity and
allowing more effective matching of supply and demand profiles. We
also commissioned new, paperless outbound logistics processes at a
number of factories, and will be rolling this out more broadly
through 2021.
During the year, work commenced on the development of a new
digital sales platform and this will be a key focus over the next
couple of years.
Grow
We have a resilient and cash generative business which allows us
to invest to drive growth, whilst also delivering attractive
returns to shareholders. With a clear, consistent framework for
capital allocation, our growth focus encompasses investments to
enhance our existing business as well as opportunities to
accelerate the growth and diversification of our revenue base
within the UK building envelope. We see an attractive range of
investment opportunities, and through applying our clear and
consistent investment criteria, we have the ability to drive
profitable, sustainable growth over the medium term.
We continued to invest in our Clay manufacturing assets in a
measured way during 2020, in order to maintain and modernise our
production capability, at the same time supporting our strong
commitment to sustainability. Capital enhancement investments at
two key soft mud factories were completed towards the end of 2020
and are now being commissioned, delivering incremental capacity and
reliability benefits. In addition, investment at a third factory
continues to progress well, and we expect completion in 2021.
Our broad, differentiated factory footprint provides us with
unique optionality to make targeted organic investments to support
growth over the medium term, including the previously announced
Atlas redevelopment project which we paused during 2020 due to the
uncertainty presented by COVID-19.
Within Ibstock Concrete, the acquisition of Longley Concrete in
July 2019 has enabled the Group to create a truly national
pre-stressed flooring business, offering a range of precast and
related products to the housing developer, contractor and builders'
merchant customer base. The acquisition has enabled the Group to
achieve a position of market leadership in the UK floor beam
market, and the combined business has begun to realise synergies
with other parts of the Group.
The Longley acquisition is illustrative of the opportunity we
see in leveraging Ibstock's operational expertise, national
footprint and strong customer relationships to diversify its
business effectively, driving incremental growth and returns. We
will continue to explore opportunities to bring innovative new
product technology into the Group where it meets our disciplined
financial and strategic criteria.
We also continue to generate cash through realising the value of
our surplus land estate, which can in turn be used to fund growth.
During the year, we received proceeds of GBP4 million from the sale
of land. Over the medium term, we expect land sales to generate a
further GBP10 to GBP20 million of cash proceeds.
Outlook
Through the actions we have taken, the Group has entered the new
financial year with a stronger operational platform in place and a
clear focus on the strategic drivers that will re-establish growth
and create sustainable, long term earnings momentum in the
business.
Market demand recovered faster than our expectations as we
progressed through 2020, and trading in the initial period of 2021
has started well, with clay sales volumes slightly ahead of the run
rates achieved in Q4 2020. While we remain mindful of the economic
uncertainties and disruption associated with COVID-19, we are
encouraged by the strength of trading over recent weeks and are
confident for the year ahead. As a result, the Board is comfortable
with current market consensus(3) expectations for adjusted
EBITDA(1) for 2021.
Looking further forward, market fundamentals remain supportive,
underpinned by the UK housing deficit, Government policy and low
interest rates. With a strong management team, clarity on the
strategic drivers which will underpin our progress and continued
recovery in our core markets, we believe that Ibstock is well
placed to re-establish positive earnings momentum and deliver
sustainable, profitable growth over the medium term.
(1) Alternative Performance Measures are described in Note 3 to
the results announcement .
(3) Management believes that analysts' consensus expectations
for adjusted EBITDA(1) for the year are approximately GBP93
million
(4) GB Private Housing Starts of 123k in 2021 versus 144k in
2019 (Construction Products Association Main Scenario, published
January 2021)
Chief Financial Officer's report
Introduction
The Group's performance for the year ended 31 December 2020 was
significantly impacted by the effects of the COVID-19 pandemic,
particularly during the first six months of the year. The impact of
national lockdowns and restrictions on the construction industry
and the wider economy led to a material reduction in both our own
production activity and the volumes of our products supplied to
customers particularly during the second quarter of the year.
Over the course of the second half of the year, trading
conditions steadily improved, and sales revenues increased
throughout the second half, reaching 90% of prior year levels in
the final quarter of the year. The decisive management actions
taken at the outset of the pandemic to reduce costs and preserve
cash, coupled with the completion of committed restructuring
actions in the second half, meant that we exited the 2020 year with
a strong balance sheet and with adjusted EBITDA(1) margins in each
division getting back close to pre-pandemic levels. As we enter
2021, we are well positioned to take advantage of both continued
improvement in our markets and future growth opportunities.
COVID-19 and impact on our results
Trading and operational impact
COVID-19 had a significant impact on the Group's 2020
performance: we saw a sharp decline in sales volumes from late
March as the Government measures to control the COVID-19 pandemic
began to take effect and our construction and housebuilding
customers closed sites. On 24 March 2020 we announced the temporary
suspension of all production across our manufacturing
facilities.
During April volumes in our Clay division fell by around 90%
year on year, whilst exposure to RMI markets meant the Concrete
division remained relatively more resilient with volumes falling by
around 70%. Having instituted a comprehensive set of COVID-19
safety protocols, we began a phased restart of our production
facilities from the beginning of May. As the construction and house
building sectors began to increase their activity levels we saw a
sequential improvement in trading activity over the remainder of
the year, with volumes in both the clay and concrete divisions
recovering steadily.
Actions taken in response to the effects of the COVID-19
pandemic
In response to the effects of the pandemic, the Group took a
number of actions, focused initially on conserving cash and
protecting the balance sheet, and subsequently on restructuring the
business to ensure we are well positioned for the future.
The initial actions taken to protect the business included:
curtailing non-essential discretionary spend; halting recruitment
of all but essential new staff; reprioritising capital commitments;
and implementing a temporary salary reduction for the Board and the
executive leadership team. The Group also utilised around GBP10
million of funding from the Government's Coronavirus Job Retention
Scheme (CJRS). Following the subsequent decision to restructure the
Group's operations, the Group intends to repay all CJRS amounts
received in respect of colleagues subsequently made redundant,
which total around GBP2 million. This amount is expected to reduce
adjusted EBITDA(1) in 2021. The Group initially utilised HMRC's
Time to Pay provisions during the period, deferring GBP16 million
as at 30 June 2020, but settled all outstanding amounts by
year-end.
During the second half of the year, the Group undertook a
fundamental restructuring of its operations, in order to reduce our
fixed cost base and enhance the resilience of our business. The
actions taken included: the closure of two of our clay brick
factories and one concrete facility; the mothballing of our
existing Atlas clay brick manufacturing facility; the
rationalisation of capacity at our Leicester site; and significant
SG&A headcount reductions, as well as introducing more flexible
working arrangements across the Group.
The restructuring programme will deliver GBP20 million of fixed
cost savings in the 2021 year, based on operating the network at
levels in line with the final quarter of 2020.
Exceptional costs(1) of GBP36 million were recognised in the
2020 year, principally relating to restructuring (severance cash
costs of GBP9 million and non-cash impairment charges of GBP20
million) and energy cash costs of GBP5 million as a result of
surplus hedged positions from April onwards.
The Group expects to incur additional expenditure of around
GBP2m over the next 12 months on final closure and decommissioning
costs as part of our single coordinated plan for our site closures.
These costs have not been accounted for in the 2020 results since
the Group was not committed to this specific expenditure at
year-end and so no provision could be recognised.
Alternative performance measures
This results statement contains alternative performance measures
("APMs"). A description of each APM is included in Note 3 to the
financial statements. The Group uses APMs to aid comparability and
further understanding of the financial performance of the Group
between periods. The APMs represent measures used by management and
the Board to monitor performance against budget. Certain APMs are
used in the remuneration of management and Executive Directors. It
is not believed that APMs are a substitute for, or superior to,
statutory measures.
Strong Balance Sheet
The Group delivered a strong cash flow performance for the year,
benefiting from both the improved trading conditions as we
progressed through the second half of 2020, and the decisive
actions to manage cost and working capital throughout the period.
At 31 December 2020, net debt(1) was GBP69 million (2019: GBP85
million), with net debt to adjusted EBITDA(1) of 1.5 times (2019:
0.7 times), excluding the impact of IFRS 16. This closing net
debt(1) position reflects a reduction of approximately GBP34
million achieved during the second half of the year.
In the second quarter, in order to provide appropriate financial
flexibility, the Group secured agreement from its lending banks for
a number of amendments to covenant tests at 31 December 2020 and 30
June 2021 under the Group's RCF, and during the period was
confirmed as eligible for the Bank of England's Covid Corporate
Financing Facility ("CCFF"), although we did not access funding
from this scheme and do not expect to do so.
During the final quarter of the year, the Group agreed an
extension to its GBP215 million Revolving Credit Facility of a
period of 12 months to March 2023, at interest rates modestly above
the previous agreement.
Group results
The table below sets out segmental sales and adjusted EBITDA(1)
for the year
Clay Concrete Central Total
costs
GBP'm GBP'm GBP'm GBP'm
------- --------- -------- -------
Year ended 31 December 2020
Total revenue 213.2 103.0 - 316.2
------- --------- -------- -------
Adjusted EBITDA(1) 44.0 15.1 (6.9) 52.1
======= ========= ======== =======
Year ended 31 December 2019
Total revenue 300.5 108.8 - 409.3
------- --------- -------- -------
Adjusted EBITDA(1) 106.7 21.9 (6.4) 122.3
======= ========= ======== =======
(1) Alternative Performance Measures are described in Note 3 to
the results announcement .
Revenue
Group revenue from continuing operations decreased by 23% to
GBP316.2 million (2019: GBP409.3 million). This reduction was most
pronounced in the first half of the year (down 36% year on year in
H1), reflecting the sharp contraction in sales as our customers
curtailed their activities in response to the initial impact of
COVID-19 from the end of March. Overall, sales into RMI markets
proved relatively more resilient than sales into new build housing
markets since end-market demand remained stronger, and tradesmen
operating in the RMI market were typically less impacted in their
ability to operate throughout the pandemic period.
Clay revenues decreased by 29% year on year, with the reduction
greatest in the new build housing sector, as the COVID-19 pandemic
impacted house building volumes from the second quarter of the
year. Clay revenues recovered over the second half of the year with
revenues in the final quarter of the year back to around 85% of the
comparative period.
Concrete revenue for the 2020 year was 5% below the prior year.
Activity in this division is weighted towards RMI, and sales
performance reflected the relative resilience of this sector
compared to new build housing. Having been impacted by the initial
impacts of COVID-19 during the second quarter, Concrete volumes
recovered well during the second half of the 2020 year, with
revenue for the second half 4% above the comparative period.
The recent annual pricing round for the 2021 year with our
customers has concluded satisfactorily, achieving price levels
which are expected to cover input cost inflation for the 2021
year.
Adjusted EBITDA (1)
Management measures the Group's operating performance using
adjusted EBITDA(1) . For the continuing operations, adjusted
EBITDA(1) decreased by 57% to GBP52.1 million in the year ended 31
December 2020 (2019: GBP122.3 million).
This reduction was due principally to reduced profitability
within the clay division, which saw a decrease in adjusted
EBITDA(1) of 59% to GBP44.0m (2019: GBP106.7 million). This
reduction was primarily driven by the significant volume reduction
combined with the impact of operational gearing. In addition,
during the first half there was an under recovery of costs
associated with the substantial reduction of inventory in the
second quarter, given the lower activity levels, resulting in
around GBP10 million of additional one-off costs. Unit margins in
the second half were modestly reduced by the impact of social
distancing on productivity at some of our more labour-intensive
facilities.
Adjusted EBITDA(1) in the clay division increased during the
second half of the year, as volumes recovered and margins benefited
from the actions taken to restructure the business. Within the
concrete division, adjusted EBITDA(1) reduced by 31% to GBP15.1
million (2019: GBP21.9 million) principally reflecting lower
volumes during the first half of the year (which reduced by around
30% on a like-for-like basis). Concrete revenues in the second half
recovered to levels slightly above the comparative period, with
unit margins modestly lower reflecting one-off costs of
reorganising the operational footprint and the impact of COVID-19
on productivity.
Central costs increased to GBP6.9 million (2019: GBP6.4 million)
principally due to lower R&D credits reflecting lower
qualifying spend in the current year.
Accounting for energy costs
The Group has a long standing practice of locking in prices for
gas and electricity used in the Group's production activities and
achieves this by committing to a certain volume of consumption in
future months which creates a contractual commitment and secures a
certain price. Historically, since the Group has always taken
delivery of the energy, those purchases were accounted for when the
gas and electricity was consumed, at the contracted price.
Because of the significant reduction in activity levels due to
the COVID-19 pandemic and resulting production shutdown, the Group
had surplus energy contracts, in energy markets which fell sharply
as a result of the COVID-19 pandemic. This resulted in exceptional
income statement charges in the 12 months to December 2020,
totalling GBP5.2 million. Further details are set out in Note
5.
A further charge (and a derivative liability at 30 June 2020) of
GBP6.4 million was recognised in the period to 30 June 2020, which
represented fair value losses on energy positions which were
expected to be used by the Group in the second half of 2020. As
expected at the time of the interim results announcement in August
2020, the contracted energy was consumed in the second half of
2020, and the associated actual cost recognised within the income
statement.
Exceptional items (1)
Based on the application of our accounting policy for
exceptional items(1) , certain income and expense items have been
excluded from adjusted EBITDA(1) to aid shareholders' understanding
of the Group's underlying financial performance. The amounts
classified as exceptional in the period, totalling GBP35.7 million,
comprised:
1. Exceptional cash items of GBP12.4 million (of which GBP9.7 million
were cash settled in the period):
a) GBP8.7 million of costs associated with the restructuring
of the Group's operations, comprising severance, factory
clearance and one-off costs to exit contractual commitments;
b) GBP5.2 million losses on surplus energy positions, resulting
from a sharp, and unanticipated, reduction in energy usage
as the plant network was taken down during the second quarter
of the year;
c) GBP2.8 million of exceptional cash profits arising from
disposals of land during the 2020 year;
d) GBP0.9 million of other one-off operating costs arising
directly as a result of COVID-19; and
e) GBP0.4 million of one-off finance costs arising directly
as a result of COVID-19.
2. Non-cash exceptional costs of GBP23.3 million, relating to:
a) GBP20.4 million from the impairment of current and non-current
assets in light of the Group's closure and mothballing of
a number of its manufacturing facilities; and
b) GBP2.9 million relating to preparation of pensioner data
of the Ibstock pension scheme to enable the buy-in transaction
(GBP1.9 million) and the impact of the recent pensions GMP
equalisation ruling (GBP1 million).
Finance costs
Net finance costs of GBP4.3 million were above the level of
GBP2.0 million in the prior year. This increase principally
reflected increased interest costs associated with the Group's
debt, which was above the levels of average drawn debt in the prior
year, and included drawing down significant additional liquidity
during the height of the pandemic. The statutory interest expense
in 2020 also included GBP0.4 million of exceptional costs related
to amendments to covenants under the Group's RCF and a GBP0.5
million year-on-year reduction in non-cash net interest income on
the defined benefit pension surplus.
Loss before taxation
Group statutory loss before taxation was GBP23.9 million (2019:
profit of GBP82.0 million), with the current year result including
exceptional costs(1) of GBP35.7 million (2019: GBP3.2 million).
Prior to exceptional items(1) , adjusted profit before taxation(1)
was GBP11.7 million (2019: GBP85.2 million).
Taxation
The Group recorded a taxation charge of GBP4.1 million (2019:
GBP15.5 million) on Group pre-tax losses of GBP23.9 million (2019:
profit of GBP82.0 million). The taxation charge is primarily a
result of the restatement of deferred tax liabilities to the
prevailing standard rate of UK corporation tax of 19%, following
the withdrawal of the previously announced rate reduction to 17%
that was due to come into force from 1 April 2020.
The adjusted underlying effective tax rate for the 2020 year was
19.7% (2019: 18.9%), reflecting modestly higher levels of
non-deductible expense as a proportion of underlying taxable
profits.
Earnings per share
Group statutory basic EPS for continuing operations decreased to
a loss of 6.8 pence in the year to 31 December 2020 (2019: profit
of 16.3 pence) principally as a result of the Group's statutory
loss after taxation.
Group adjusted basic EPS(1) for continuing operations of 4.0
pence per share reduced significantly from the 18.3 pence reported
last year, principally reflecting the reduced adjusted EBITDA(1)
achieved in the year. In line with prior years, our adjusted EPS(1)
metric removes the impact of exceptional items(1) , the fair value
uplifts resulting from our acquisition accounting and non-cash
interest impacts net of the related taxation charge/credit.
Adjusted EPS(1) has been included to provide a clearer guide as to
the underlying earnings performance of the Group. A full
reconciliation of our adjusted EPS(1) measure is included in Note
7.
Table 1: Earnings per share
2020 2019
pence pence
========================== ======= =======
Statutory basic EPS -
Continuing operations (6.8) 16.3
========================== ======= =======
Adjusted basic EPS(1)
- Continuing operations 4.0 18.3
========================== ======= =======
Cash flow and net debt (1)
Adjusted free cash flow(1) reduced by GBP7.1 million in the year
to GBP26.1 million (2019: GBP33.2 million). The reduction in
adjusted EBITDA(1) was partly offset by favourable movements in
working capital, as we reduced finished goods inventories across
the Group, and lower levels of capital expenditure. In light of the
strong cash performance, all amounts deferred under the HMRC's Time
to Pay provisions at the half year were settled during the second
half. Corporation tax totalling GBP6.5 million was paid in the
period (2019: GBP13.3 million).
Cash conversion(1) increased to 96% in the year ended 31
December 2020 (2019: 59%), primarily as a result of very strong
working capital management.
Table 2: Cash flow (non-statutory)
2020 2019 Change
=======================================
GBP'm GBP'm GBP'm
======================================= ======= ======= ========
Adjusted EBITDA(1) 52.1 122.3 (70.1)
--------------------------------------- ------- ------- --------
Adjusted change in working capital(1) 17.3 (24.3) 41.6
--------------------------------------- ------- ------- --------
Net interest (3.8) (2.6) (1.2)
--------------------------------------- ------- ------- --------
Tax (6.5) (13.3) 6.8
--------------------------------------- ------- ------- --------
Post-employment benefits (2.2) (2.2) -
--------------------------------------- ------- ------- --------
Other(2) (6.8) (7.9) 1.2
======================================= ------- ------- --------
Adjusted operating cash flow(1) 50.2 72.0 (21.8)
--------------------------------------- ------- ------- --------
Cash conversion(1) 96% 59% +37ppts
--------------------------------------- ------- ------- --------
Total capex (24.1) (38.8) 14.7
======================================= ------- ------- --------
Adjusted free cash flow(1) 26.1 33.2 (7.1)
======================================= ======= ======= ========
(1) Alternative Performance Measures are described in Note 3 to
the consolidated financial statements.
(2) Other includes operating lease payments
The table above excludes the cash flows relating to exceptional
items(1) in both years.
The net favourable change in working capital(1) of GBP17.3
million during 2020 (2019: adverse change of GBP24.3 million)
primarily reflected reduced inventories across the Group, as the
Group managed working capital very tightly throughout the year in
the service of cash and liquidity management. Net debt(1)
(borrowings less cash) of GBP69.2 million at 31 December 2020
compares to GBP84.9 million at the prior year end and GBP102.8
million at 30 June 2020, reflecting focus on working and fixed
capital management in the period.
In the 2021 year, we expect to build back a portion of the
finished goods inventories reduced in 2020, leading to a modest
level of working capital outflows. For 2021, we also expect
sustaining capital expenditure to be around GBP20-GBP22 million
(including the final elements of our existing capital enhancements
programme), towards the lower end of our long-term capital
expenditure range.
The Group has a GBP215 million revolving credit facility with a
group of seven major banks. The original five-year facility was
entered into in March 2017. During the final quarter of the 2020
year, the Group concluded an extension to this Facility by a period
of 12 months to March 2023 at interest rates modestly above the
existing agreement.
Return on capital employed(1)
Return on capital employed(1) (ROCE) was 3.7% (2019: 19.3%) with
the reduction principally driven by lower adjusted EBITDA(1) in the
period.
Capital allocation
With a strong platform in place as we exited the 2020 year, the
Group remains committed to delivering sustainable, profitable
growth over the medium term.
Our capital allocation framework remains consistent with that
set out in March 2020:
-- Firstly, we will invest to maintain and enhance our existing asset
base and operations;
-- Having done this, we will look to pay an ordinary dividend, setting
targeted cover of at least 2 times underlying earnings;
-- Thereafter, we will deploy capital for growth, both inorganically
and organically, in accordance with our strategic and financial investment
criteria;
-- And, finally, we will return surplus capital to shareholders.
Our framework remains underpinned by our commitment to
maintaining a strong balance sheet, and we will look to maintain
leverage at between 0.5 and 1.5 times net debt(1) to adjusted
EBITDA(1) excluding the impact of IFRS 16, through the cycle.
Dividend
Given the initial impact of COVID-19 on the Group's financial
performance and position, and in light of the inherent uncertainty
over short-term demand, during the first half of the 2020 year the
Board took the difficult decision to cancel the final 2019 dividend
of 6.5 pence per ordinary share (2018: 6.5 pence), saving around
GBP27 million. The Group did not pay an interim 2020 dividend.
In light of the strength of the Group's trading performance and
position, and after taking into account the prospects for the
business, the Board is recommending a final ordinary dividend of
1.6 pence per share for the 2020 year, representing 2.5 times cover
on adjusted basic earnings per share of 4.0 pence.
Pensions
During the year, the Group completed a partial buy-in of the
main defined benefit pension scheme ("the scheme"), involving the
purchase of an insurance contract with a third-party specialist
pensions provider covering just over half of the Group's total
pension liability. As well as providing further security for all
members of the pension scheme, this transaction represented a
significant step in the Group's continuing strategy of de-risking
its pensions exposure.
At 31 December 2020, the scheme was in an actuarial accounting
surplus position of GBP43.6 million (31 December 2019: surplus of
GBP88.7 million). At the year end, the scheme had asset levels of
GBP639.2 million (31 December 2019: GBP625.9 million) against
scheme liabilities of GBP595.6 million (31 December 2019: GBP537.3
million). Liabilities include an amount of GBP1.0 million
recognised in the 2020 year in relation to the Guaranteed Minimum
Pension (GMP) equalisation liability. The reduction in the balance
sheet surplus over the period primarily reflected the actuarial
losses from a change in market conditions underlying the financial
assumptions (as detailed in Note 12) and the impact of the buy-in
transaction completed during the year. These impacts were partially
offset by higher than expected investment returns.
The Group will continue its ongoing work with the scheme
Trustees to further de-risk the pension position over the medium
term, and seek to match asset categories with the associated
underlying liabilities.
Related party transactions
Related party transactions are disclosed in Note 13 to the
consolidated financial statements. During the current and prior
year, there have been no material related party transactions.
Subsequent events
On 3 March 2021, the Chancellor of the Exchequer delivered his
Budget Statement. The measures announced include an increase in the
standard rate of corporation tax from 19% to 25% with effect from 1
April 2023. The full impact of this change will be reflected in the
2021 financial statements once the Finance Bill has been
substantively enacted and is expected to give rise to an increase
in the Group's net deferred tax liabilities of around GBP20
million.
Except for the above item and the proposed dividend, there have
been no subsequent events requiring further disclosure or
adjustments to these financial statements that have been identified
since the balance sheet date.
Going concern
The Directors are required to assess whether it is reasonable to
adopt the going concern basis in preparing the financial
statements.
In arriving at their conclusion, the Directors have given due
consideration to whether the funding and liquidity resources are
sufficient to accommodate the principal risks and uncertainties
faced by the Group and in particular the potential on-going impact
of the COVID-19 pandemic.
Forecast scenarios have been prepared comparing two cases: a) an
operating case; and b) a low case to assess how the virus could
impact the Group in the period to 30 June 2022. In determining
these cases, the Group considered macro-economic and industry wide
projections as well as matters specific to the Group.
In addition, the Group has prepared a reverse stress test to
evaluate the sales reduction at which the RCF covenants would be
breached, before any further mitigating actions were taken.
Having considered the conclusions to this work, the Directors
have concluded that it is reasonable to adopt a going concern basis
in preparing the financial statements. This is based on an
expectation that the Company and the Group will have adequate
resources to continue in operational existence for at least twelve
months from the date of signing these accounts.
Further information is provided in note 2 of the financial
statements.
Statement of directors' responsibilities in relation to the
financial statements
The 2020 Annual Report and Accounts which will be issued in
March 2021, contains a responsibility statement in compliance with
DTR 4.1.12 of the Listing Rules which sets out that as at the date
of approval of the Annual Report on 9 March 2021, the Directors
confirm to the best of their knowledge:
- the Group and unconsolidated Company financial statements,
prepared in accordance with the applicable set of accounting
standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group and Company, and
the undertakings included in the consolidation taken as a whole;
and
- the performance review contained in the Annual Report and
Accounts includes a fair review of the development and performance
of the business and the position of the Group and the undertakings
including the consolidation taken as a whole, together with a
description of the principal risks and uncertainties they face.
This responsibility statement was approved by the Board of
Directors on 9 March 2021 and is signed on its behalf by:
Joe Hudson Chris McLeish
Chief Executive Officer Chief Financial Officer
9 March 2021 9 March 2021
CONSOLIDATED INCOME STATEMENT
Notes Year ended Year ended
31 December 31 December
2020 2019
------ ------------- -------------
GBP'000 GBP'000
Continuing operations
Revenue 4 316,172 409,257
Cost of sales before exceptional items (235,667) (250,008)
Exceptional cost of sales 5 (32,062) -
--------------------------------------------- ------ ------------- -------------
Cost of sales (267,729) (250,008)
--------------------------------------------- ------ ------------- -------------
Gross profit 48,443 159,249
Distribution costs (31,427) (42,052)
-------------
Administrative expenses before exceptional
items (35,296) (34,633)
Exceptional administrative items 5 (6,003) (2,833)
--------------------------------------------- ------ ------------- -------------
Administrative expenses (41,299) (37,466)
--------------------------------------------- ------ ------------- -------------
Profit on disposal of property, plant and
equipment before exceptional items 113 1,773
Exceptional profit on disposal of property,
plant and equipment 5 2,808 -
Total profit on disposal of property, plant
and equipment 2,921 1,773
------ -------------
Other income 2,118 3,458
Other expenses (368) (939)
--------------------------------------------- ------ ------------- -------------
Operating (loss)/profit (19,612) 84,023
--------------------------------------------- ------ ------------- -------------
Finance costs before exceptional items (5,691) (4,735)
Exceptional finance costs 5 (414) -
Finance costs (6,105) (4,735)
------ -------------
Finance income 1,777 2,703
--------------------------------------------- ------ ------------- -------------
Net finance cost (4,328) (2,032)
--------------------------------------------- ------ ------------- -------------
(Loss)/profit before taxation (23,940) 81,991
--------------------------------------------- ------ ------------- -------------
Taxation 6 (4,081) (15,516)
--------------------------------------------- ------ ------------- -------------
(Loss)/profit from continuing operations (28,021) 66,475
--------------------------------------------- ------ ------------- -------------
Discontinued operations
Loss from discontinued operations, net
of tax - (383)
(Loss)/profit (28,021) 66,092
--------------------------------------------- ------ ------------- -------------
(Loss)/profit attributable to:
Owners of the parent (28,021) 66,092
--------------------------------------------- ------ ------------- -------------
(Loss)/profit attributable to:
Continuing operations (28,021) 66,475
Discontinued operations - (383)
--------------------------------------------- ------ ------------- -------------
(28,021) 66,092
Notes pence per pence per
share share
------ ------------- -------------
(Loss)/earnings per share
Basic - continuing operations 7 (6.8) 16.3
Basic - discontinued operations 7 - (0.1)
------------- -------------
(6.8) 16.2
Diluted - continuing operations 7 (6.8) 16.1
Diluted - discontinued operations 7 - (0.1)
------------- -------------
(6.8) 16.0
--------------------------------------------- ------ ------------- -------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
Notes Year ended Year ended
31 December 31 December
2020 2019
------ ------------- -------------
GBP'000 GBP'000
(Loss)/profit for the financial year (28,021) 66,092
Other comprehensive (expense)/income:
Items that will not be reclassified to
profit or loss
Remeasurement of post employment benefit
assets and obligations(1) (45,263) 5,005
Related tax movements(1) 6 7,927 (851)
--------------------------------------------------- ------
(37,336) 4,154
--------------------------------------------------- ------ ------------- -------------
Other comprehensive (expense)/income for
the year net of tax (37,336) 4,154
--------------------------------------------------- ------ ------------- -------------
Total comprehensive (expense)/income for
the year, net of tax (65,357) 70,246
--------------------------------------------------- ------ ------------- -------------
Total comprehensive (expense)/income attributable
to:
Owners of the parent (65,357) 70,246
--------------------------------------------------- ------ ------------- -------------
(1) Impacting retained earnings.
Non-GAAP measure
Reconciliation of adjusted EBITDA(1) to Operating (loss)/profit
for the financial year for continuing operations
Notes Year ended Year ended
31 December 31 December
2020 GBP000 2019 GBP000
------------- -------------
Operating (loss)/profit (19,612) 84,023
------------- -------------
Add back exceptional items(1) impacting
EBITDA 5 35,257 2,833
Add back depreciation and amortisation 36,477 35,409
------------- -------------
Adjusted EBITDA (1) 52,122 122,265
------------- -------------
CONSOLIDATED BALANCE SHEET
Notes 31 December 31 December
2020 2019
------ ------------ ============
GBP'000 GBP'000
Assets
Non-current assets
Intangible assets 95,163 102,594
Property, plant and equipment 371,395 386,255
Right-of-use assets 26,653 30,479
Post-employment benefit asset 12 43,576 88,656
536,787 607,984
--------------------------------------- ------ ------------ ------------
Current assets
Inventories 63,386 84,327
Trade and other receivables 58,906 58,088
Cash and cash equivalents 19,552 19,494
141,844 161,909
Assets held for sale 1,186 1,186
Total assets 679,817 771,079
--------------------------------------- ------ ------------ ------------
Current liabilities
Trade and other payables (85,423) (88,150)
Borrowings 8 (135) (395)
Lease liabilities (6,728) (6,586)
Current tax payable (421) (6,350)
Provisions 9 (5,303) (738)
(98,010) (102,219)
--------------------------------------- ------ ------------ ------------
Net current assets 45,020 60,876
--------------------------------------- ------ ------------ ------------
Total assets less current liabilities 581,807 668,860
--------------------------------------- ------ ------------ ------------
Non-current liabilities
Borrowings 8 (88,601) (103,950)
Lease liabilities (22,348) (23,775)
Deferred tax liabilities (64,755) (69,655)
Provisions 9 (8,232) (7,179)
--------------------------------------- ------
(183,936) (204,559)
--------------------------------------- ------ ------------ ------------
Total liabilities (281,946) (306,778)
--------------------------------------- ------ ------------ ------------
Net assets 397,871 464,301
--------------------------------------- ------ ------------ ------------
Equity
Share capital 4,096 4,093
Share premium 4,333 7,441
Retained earnings 759,483 822,321
Merger reserve (369,119) (369,119)
Own shares held (922) (435)
Total equity 397,871 464,301
--------------------------------------- ------ ------------ ------------
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
Share Share Retained Merger Own shares Total
capital premium earnings reserve held equity
attributable
to owners
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- ---------- ---------- ----------- --------------
Balance at 1 January
2020 4,093 7,441 822,321 (369,119) (435) 464,301
Loss for the year - - (28,021) - - (28,021)
Other comprehensive
expense - - (37,336) - - (37,336)
--------- --------- ---------- ---------- ----------- --------------
Total comprehensive
expense for the year - - (65,357) - - (65,357)
Transactions with
owners:
Share based payments - - 527 - - 527
Current tax on share
based payment - - 24 - - 24
Deferred tax on share
based payment - - (686) - - (686)
Transfer from Share
premium account - (3,108) 3,108 - - -
Purchase of own shares - - - - (1,020) (1,020)
Issue of own shares
held on exercise
of share options - - (454) - 536 82
Issue of share capital
to Employee Benefit
Trust 3 - - - (3) -
At 31 December 2020 4,096 4,333 759,483 (369,119) (922) 397,871
------------------------- --------- --------- ---------- ---------- ----------- --------------
At 1 January 2019 4,065 917 813,851 (369,119) (1,683) 448,031
Profit for the year - - 66,092 - - 66,092
Other comprehensive
income - - 4,154 - - 4,154
--------- --------- ---------- ---------- ----------- --------------
Total comprehensive
income for the year - - 70,246 - - 70,246
Transactions with
owners:
Share based payments - - 704 - - 704
Current tax on share
based payment - - 171 - - 171
Deferred tax on share
based payment - - 508 - - 508
Equity dividends
paid - - (60,068) - - (60,068)
Purchase of own shares - - - - (1,176) (1,176)
Issue of own shares
held on exercise
of share options - 698 (1,454) - 2,424 1,668
Issue of share capital
on exercise of share
options 28 5,826 (1,637) - - 4,217
--------- --------- ---------- ---------- ----------- --------------
At 31 December 2019 4,093 7,441 822,321 (369,119) (435) 464,301
------------------------- --------- --------- ---------- ---------- ----------- --------------
CONSOLIDATED CASH FLOW STATEMENT
Year ended Year ended
31 December 31 December
2020 2019
------------- -------------
GBP'000 GBP'000
Cash flow from operating activities
Cash generated from operations (Note 11) 55,215 92,077
Interest paid (4,189) (2,605)
Tax paid (6,478) (13,266)
-----------------------------------------------------
Net cash inflow from operating activities 44,548 76,206
----------------------------------------------------- ------------- -------------
Cash flows from investing activities
Purchase of property, plant and equipment (24,072) (38,797)
Proceeds from sale of property, plant and
equipment 1,165 2,447
Proceeds from sale of property, plant and 2,808 -
equipment - exceptional
Proceeds from sale of intangible assets - 475
Payment for acquisition of subsidiary undertaking,
net of cash acquired - (13,219)
Interest received 10 47
----------------------------------------------------- ------------- -------------
Net cash outflow from investing activities (20,089) (49,047)
----------------------------------------------------- ------------- -------------
Cash flows from financing activities
Dividends paid - (60,068)
Drawdown of borrowings 100,000 70,000
Repayment of borrowings (115,000) (50,417)
Repayment of lease liabilities (8,063) (8,263)
Proceeds from issuance of equity shares 141 5,824
Purchase of own shares by Employee Benefit
Trust (1,020) (1,176)
Net cash outflow from financing activities (23,942) (44,100)
----------------------------------------------------- ------------- -------------
Net increase/(decrease) in cash and cash
equivalents 517 (16,941)
Cash and cash equivalents at beginning
of the year 19,494 36,048
Exchange (losses)/gains on cash and cash
equivalents (459) 387
Cash and cash equivalents at end of the
year 19,552 19,494
----------------------------------------------------- ------------- -------------
Discontinued operations do not have material cash
flows during the current or prior period.
Reconciliation of changes in cash and
cash equivalents to movement in net debt
(1)
Year ended Year ended
31 December 31 December
2020 2019
------------- -------------
GBP'000 GBP'000
Net increase/(decrease) in cash and cash
equivalents 517 (16,941)
Proceeds from borrowings (100,000) (70,000)
Repayment of borrowings 115,000 50,417
Non-cash debt movement 609 (332)
Effect of foreign exchange rate changes (459) 387
Movement in net debt (1) 15,667 (36,469)
Net debt(1) at start of year (84,851) (48,382)
----------------------------------------------------- -------------
Net debt(1) at end of year (Note 8) (69,184) (84,851)
----------------------------------------------------- ------------- -------------
Comprising:
Cash and cash equivalents 19,552 19,494
Short-term borrowings (135) (395)
Long-term borrowings (88,601) (103,950)
----------------------------------------------------- -------------
(69,184) (84,851)
---------------------------------------------------- ------------- -------------
1. AUTHORISATION OF FINANCIAL STATEMENTS
The consolidated financial statements of Ibstock plc, which has
a premium listing on the London Stock Exchange, for the year ended
31 December 2020 were authorised for issue in accordance with a
resolution of the Directors on 9 March 2021. The balance sheet was
signed on behalf of the Board by J Hudson and C McLeish. Ibstock
plc is a public company limited by shares, which is incorporated
and registered in England. The registered office is Leicester Road,
Ibstock, Leicestershire, LE67 6HS and the company registration
number is 09760850.
2. BASIS OF PREPARATION
European law requires that the Group's consolidated financial
statements for the year ended 31 December 2020 are prepared in
accordance with all applicable International Financial Reporting
Standards ("IFRS"), as adopted by the European Union. These
financial statements have been prepared in accordance with IFRS,
International Financial Reporting Interpretations Committee
("IFRIC") interpretations issued by the International Accounting
Standards Board ("IASB") and those parts of the Companies Act 2006
applicable to companies reporting under IFRS. The financial
information set out above does not constitute the Company's
statutory accounts for the year ended 31 December 2020 but is
derived from those accounts. Statutory accounts for 2020 will be
delivered to the registrar of companies in due course. The auditors
have 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 in respect of the
accounts for 2019. The consolidated financial statements are
presented in Pound Sterling and all values are rounded to the
nearest thousand (GBP'000) except where otherwise indicated. The
significant accounting policies are set out below.
Basis of consolidation
The consolidated financial statements comprise the financial
statements of Ibstock plc and its subsidiaries as at 31 December
2020. The financial statements of subsidiaries are prepared for the
same reporting period as the Parent Company, using consistent
accounting policies. All intra-Group balances, transactions, income
and expenses and profit and losses resulting from intra-Group
transactions have been eliminated in full.
Subsidiaries are consolidated from the date on which the Group
obtains control and cease to be consolidated from the date on which
the Group no longer retains control. The Group controls an entity
when the Group is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to affect
those returns through its power over the entity.
New standards, amendments and interpretations not yet
adopted
A number of new standards and amendments to standards and
interpretations are effective for periods beginning after 1 January
2020, and have not been applied in preparing these consolidated
financial statements. None of these is expected to have a
significant effect on the consolidated financial statements of the
Group.
At the end of the Brexit transition period on 31 December 2020,
IFRS Standards as adopted by the EU were brought into UK law and
UK-adopted IFRS Standards came into effect for the period beginning
1 January 2021.
The Group applied IFRS 16 Leases in the current and prior
periods. In the year ended 31 December 2020, the benefit to
Adjusted EBITDA(1) as a result of IFRS 16 was GBP6,832,000 (2019:
GBP7,121,000). Operating lease charges now expensed via
depreciation increased by GBP6,073,000 (2019: GBP6,471,000) and
interest by GBP1,103,000 (2019: GBP1,204,000) resulting in a net
reduction in profit before taxation of GBP344,000 (2019:
GBP554,000).
Going concern
The potential impact of COVID-19 on the Group has been
considered in the preparation of the financial statements,
including within the evaluation of critical accounting estimates
and judgements. The Group's financial planning and forecasting
process consists of a budget for the next year followed by a medium
term projection. The Directors have reviewed and robustly
challenged the assumptions about future trading performance,
operational and capital expenditure and debt requirements within
these forecasts including the Group's liquidity and covenant
forecasts, which have been updated for the expected impact of
COVID-19 and stress-tested.
The Group's committed facilities at 31 December 2020 comprise a
syndicated Revolving Credit Facility ("RCF") of GBP215 million,
which matures in March 2023. At 31 December 2020, GBP90 million was
drawn down under the RCF with GBP125 million of headroom remaining.
At 31 December 2020 covenant requirements were met with significant
headroom. Covenants under the Group's RCF facility going forward
require: leverage of no more than 3 times net debt to adjusted
EBITDA(1) , except at 30 June 2021 which was amended to no more
than 3.75 times during the period; and interest cover of no less
than 4 times, tested bi-annually at each reporting date with
reference to the previous 12 months.
In addition, the Group secured eligibility for the Bank of
England's Covid Corporate Financing Facility ("CCFF") in 2020,
although have no present intention to access funding from this
scheme.
In arriving at their conclusion on going concern, the Directors
have given due consideration to whether the funding and liquidity
resources above are sufficient to accommodate the principal risks
and uncertainties faced by the Group, particularly those relating
to economic conditions and operational disruption.
Group forecasts have been prepared which reflect both actual
experienced impact of the pandemic and estimates of the future
reflecting macroeconomic and industry wide projections, as well as
matters specific to the Group.
Cash flow and covenant compliance forecast scenarios have been
prepared comparing two cases: a) an operating case; and b) a low
case to assess how the virus could impact the Group in the period
to 30 June 2022.
In the operating case, industry demand for the Group's brick
products in 2021 is projected to be around 15% below the level in
2019, consistent with industry forecasts with regard housing
starts, recovering in 2022 to being around 7% below the level in
2019.
In the severe but plausible low case, industry demand for all
the Group's products is projected to be around 30% lower than 2019
in the 2021 year, which is broadly in line with the sales reduction
seen in the Clay division in 2020, recovering to around 25% lower
in 2022.
In both scenarios, the Group has sufficient liquidity and
headroom against its covenants to expect to remain in compliance
with the RCF covenants at June and December 2021 and June 2022,
with covenant headroom expressed as a percentage of annual adjusted
EBITDA(1) being in excess of 45% for the low case and 70% for the
operating case.
The key uncertainty faced by the Group is the industry demand
for its products in light of macroeconomic factors, therefore in
addition, the Group has prepared a reverse stress test to evaluate
the industry demand reduction at which it would be likely to breach
the RCF covenants, before any further mitigating actions were
taken. This test indicates that, at a reduction of 41% in sales
volumes in 2021 and 37% in the first half of 2022 versus 2019
levels, the Group would be at risk of breaching its covenants. The
Directors consider this to be an unlikely scenario, and in the
event of an anticipated covenant breach, the Group would seek to
take further steps to mitigate, including the disposal of valuable
land and building assets and additional restructuring steps to
further reduce the fixed cost base of the Group. In such
circumstances, the Group would also reasonably expect to
renegotiate the terms of the RCF, providing amended covenant
terms.
Having taken account of the various scenarios modelled, and in
light of the mitigations available to the Group, the directors are
satisfied that the Group has sufficient resources to continue in
operation for a period of not less than 12 months from the date of
this report. Accordingly, the consolidated financial information
has been prepared on a going concern basis.
3. ALTERNATIVE PERFORMANCE MEASURES
Alternative performance measures ("APMs") are disclosed within
the consolidated financial statements where management believes it
is necessary to do so to provide further understanding of the
financial performance of the Group. APMs are reported for
continuing operations. Management uses APMs in its own assessment
of the Group's performance and in order to plan the allocation of
internal capital and resources. Certain APMs are used in the
remuneration of management and Executive Directors. It is not
intended that APMs are a substitute for, or superior to, statutory
measures. None of the APMs are outlined within IFRS and they may
not be comparable with similarly titled APMs used by other
companies. Changes to our Adjusted EPS definition in the current
period are described below.
Exceptional items
The Group presents as exceptional on the face of the income
statement those items of income and expense which, because of the
materiality, nature and/or expected infrequency of the events
giving rise to them, merit separate presentation to allow
shareholders to understand better elements of financial performance
in the year, so as to facilitate comparison with future periods and
to assess trends in financial performance. Specifically, in the
current period, management has further defined its policy criteria
for the recognition of exceptional items in relation to the
COVID-19 pandemic.
In order to qualify for exceptional classification, any such
items must be discrete, capable of objective segregation from
underlying cost, and be not expected to recur in subsequent
periods. Such items are included as exceptional where items have
either: a) arisen as a direct result of COVID-19; or b) arisen in a
period, or through a manner, different to that anticipated. Any
items which have been incurred within the normal course of the
Group's operations, and in the manner anticipated, throughout the
period, even if the efficiency of the related operations has been
materially reduced by COVID-19 do not meet the Group's definition
of exceptional items and are included within underlying
performance. Details of all exceptional items are disclosed in Note
5.
Adjusted EBITDA
Adjusted EBITDA is the earnings before interest, taxation,
depreciation and amortisation adjusted for exceptional items.
During the current period, the definition was expanded to remove
fair valuation losses on failed own use contracts in order to
remove in-period distortions in the Adjusted EBITDA arising from
such contracts. For the year ended 31 December 2020, these losses
were GBPnil (2019: GBPnil). The Directors regularly use Adjusted
EBITDA as a key performance measure in assessing the Group's
profitability. The measure is considered useful to users of the
financial statements as it represents a common APM used by
investors in assessing a company's operating performance, when
comparing its performance across periods and in determination of
Directors' variable remuneration. A full reconciliation is included
at the foot of the Group's consolidated statement of comprehensive
income within the consolidated financial statements.
Adjusted profit before taxation
Adjusted profit before taxation is the profit/(loss) before
taxation from continuing operations removing the impact of
exceptional items and the fair valuation losses on failed own use
contracts. The Directors have presented adjusted profit before
taxation as they believe the APM represents useful information to
the user of the financial accounts in assessing the performance of
the Group and when comparing its performance across periods. A
reconciliation of adjusted profit before taxation is provided at
the foot of the exceptional items table in Note 5.
Adjusted EPS
Adjusted EPS is the basic earnings per share adjusted for
exceptional items, fair value adjustments being the amortisation
and depreciation on fair value uplifted assets and non-cash
interest net of taxation (at the Group's adjusted effective tax
rate). During the current period, the definition was expanded to
remove fair valuation losses on failed own use contracts in order
to remove in-period distortions in the Adjusted EBITDA arising from
such contracts. For the year ended 31 December 2020, these losses
were GBPnil (2019: GBPnil). Also in the current period, in order to
remove distortions to the effective tax rate applied resulting from
changes to the rate of deferred taxation, management has applied
the effective tax rate prior to such changes. The impact of this
change on the comparative figure is immaterial and it has not been
restated. The Directors have presented Adjusted EPS as they believe
the APM represents useful information to the user of the financial
statements in assessing the performance of the Group, when
comparing its performance across periods, and used within the
determination of Directors' variable remuneration. A full
reconciliation is provided in Note 7.
Net debt and net debt to adjusted EBITDA ("leverage") ratio
Net debt is defined as the sum of cash and total borrowings at
the balance sheet date. This does not include lease liabilities
arising upon application of IFRS 16 in order to align with the
Group's banking facility covenant definition. Net debt to adjusted
EBITDA is the ratio of net debt to adjusted EBITDA (defined above).
The net debt to adjusted EBITDA ratio definition similarly removes
the benefit of IFRS 16 within adjusted EBITDA so as to align the
definition with the Group's banking facility covenant definition.
The Directors disclose the net debt APM to provide information as a
useful measure for assessing the Group's overall level of financial
indebtedness and when comparing its performance across periods. Net
debt is shown at the foot of the Group consolidated cash flow
statement. A full reconciliation of the net debt to adjusted EBITDA
ratio (also referred to as "leverage") is set out below:
Year ended Year ended
31 December 31 December
2020 2019
------------- -------------
GBP'000 GBP'000
Net debt (69,184) (84,851)
Adjusted EBITDA 52,122 122,265
Impact of IFRS 16 (Note
27) (6,832) (7,121)
------------- -------------
Adjusted EBITDA prior
to IFRS 16 45,290 115,144
Ratio of net debt to
adjusted EBITDA 1.5x 0.7x
============= =============
Return on capital employed
Return on capital employed ("ROCE") is defined as earnings
before interest and taxation adjusted for exceptional items as a
proportion of the average capital employed (defined as net debt
plus equity excluding the pension surplus). The average is
calculated using the period end balance and corresponding preceding
reported period end balance (year end or interim). The Directors
disclose the ROCE APM in order to provide users of the financial
statements with an indication of the relative efficiency of capital
use by the Group over the year, assessing performance between
periods and it is used within the determination of Directors'
variable remuneration. The calculation of ROCE together with a
reconciliation to the measure prior to the application of IFRS 16
is set out below:
Year ended Year ended
31 December 31 December
2020 2019
------------- -------------
GBP'000 GBP'000
Adjusted EBITDA 52,122 122,265
Less depreciation (29,046) (28,999)
Less amortisation (7,431) (6,410)
------------- -------------
Adjusted earnings before interest
and taxation 15,645 86,856
Average net debt 85,974 73,416
Average equity* 394,471 465,093
Average pension (52,396) (89,626)
------------- -------------
Average capital employed 428,049 448,883
ROCE 3.7% 19.3%
Average capital employed figures 31 December 30 June 31 December 30 June
comprise: 2020 2020 2019 2019
------------ --------- ------------ ---------
GBP'000 GBP'000 GBP'000 GBP'000
Net debt 69,184 102,764 84,851 61,980
Equity 397,871 391,070 464,301 465,885
Pension 43,576 61,216 88,656 90,596
* Average equity in the comparative period differs to that
reported within the 2019 Annual Report and Accounts by GBP1,864,000
due to the reclassification of balances within the 2019 interim
financial statements, as set out within Note 2 of the Group's 2020
Interim results. There is no impact on the reported comparative
ROCE figure as a result of this reclassification.
Like-for-like sales
In the current year, the Directors have introduced a
like-for-like revenue measure, which sets out the performance
without the contribution of the Longley Concrete operations, which
were acquired in July 2019. The Directors have included this APM in
order to remove the distortions arising from ownership for a period
of fewer than 12 months in the comparative period. The Longley
operations contributed GBP17.0 million of revenue in the year ended
31 December 2020 (year ended 31 December 2019: GBP8.3 million).
Cash flow related APMs
Adjusted change in working capital
Adjusted change in working capital is the statutory change in
working capital removing cash flows associated with exceptional
items arising in the year of GBP2,650,000 (2019: GBP510,000). The
Directors use this APM to allow shareholders to understand better
elements of the Group's working capital performance in the period,
so as to facilitate comparison with future years and to assess
trends in financial performance. The analysis of adjusted change in
working capital is included in Table 2 of the Financial Review and
reconciliation to the statutory cash flow statement, below.
Adjusted operating cash flow
Adjusted operating cash flows are the cash flows arising from
operating activities adjusted to exclude cash flows relating to
exceptional items of GBP9,737,000 (2019: GBP1,106,000) and
inclusion of cash flows associated with interest income, proceeds
from the sale of property, plant and equipment and lease payments
reclassified from investing or financing activities of GBP4,080,000
(2019: GBP5,294,000). The Directors use this APM to allow
shareholders to understand better elements of the Group's cash flow
performance in the period, so as to facilitate comparison with
future years and to assess trends in financial performance. The
analysis of adjusted operating cash flows is included in Table 2 of
the Financial Review and reconciliation to the statutory cash flow
statement, below.
Cash conversion
Cash conversion is the ratio of adjusted operating cash flow
(defined above) to adjusted EBITDA (defined above). The Directors
believe this APM provides a useful measure of the Group's
efficiency of its cash management during the period. Cash
conversion is set out in Table 2 of the Financial Review.
Adjusted free cash flow
Adjusted free cash flow represents adjusted operating cash flow
(defined above) less capital expenditure. The Directors use the
measure of adjusted free cash flow as a measure of the funds
available to the Group for the payment of distributions to
shareholders, for use within M&A activity and other investing
and financing activities. Adjusted free cash flow is reconciled in
Table 2 of the Financial Review and illustrated within the
reconciliation to the statutory cash flow statement, below.
Reconciliation of statutory cash flow statement to adjusted cash
flow statement
Year ended 31 December 2020 Statutory Exceptional Reclassification Adjusted
------------------------------
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ---------- ------------ ----------------- ---------
Adjusted EBITDA 16,865 35,257 - 52,122
------------------------------ ---------- ------------ ----------------- ---------
Change in working capital 19,945 (2,650) - 17,295
------------------------------ ---------- ------------ ----------------- ---------
Impairment charges 20,382 (20,382) - -
------------------------------ ---------- ------------ ----------------- ---------
Net interest (4,189) 414 10 (3,765)
------------------------------ ---------- ------------ ----------------- ---------
Tax (6,478) - - (6,478)
------------------------------ ---------- ------------ ----------------- ---------
Post-employment benefits 1,584 (2,902) (870) (2,188)
------------------------------ ---------- ------------ ----------------- ---------
Other (3,561) - (3,220) (6,781)
------------------------------ ---------- ------------ ----------------- ---------
Adjusted operating cash flow 44,548 9,737 (4,080) 50,205
------------------------------ ---------- ------------ ----------------- ---------
Cash conversion 96%
------------------------------ ---------- ------------ ----------------- ---------
Total capex (24,072) - - (24,072)
------------------------------ ---------- ------------ ----------------- ---------
Adjusted free cash flow 20,476 9,737 (4,080) 26,133
============================== ========== ============ ================= =========
4. SEGMENT REPORTING
The Directors consider the Group's reportable segments to be the
Clay and Concrete divisions.
The key Group performance measure is adjusted EBITDA(1) , as
detailed below, which is defined in Note 3. The below tables
present revenue and adjusted EBITDA(1) and profit/(loss) before
taxation for the Group's operating segments.
Included within the unallocated and elimination columns in the
tables below are costs including share based payments and Group
employment costs. Unallocated assets and liabilities are pensions,
taxation and certain centrally held provisions. Eliminations
represent the removal of inter-company balances.
Transactions between segments are carried out at arm's length.
There is no material inter-segmental revenue and no aggregation of
segments has been applied.
Year ended 31 December 2020
Clay Concrete Unallocated Total
& elimination
GBP'000 GBP'000 GBP'000 GBP'000
Total revenue 213,197 102,975 - 316,172
---------- --------- --------------- ----------
Adjusted EBITDA (1) 43,968 15,055 (6,901) 52,122
Exceptional items(1) impacting
EBITDA (see Note 5) (29,498) (2,518) (3,241) (35,257)
Depreciation and amortisation
pre fair value uplift (20,056) (6,454) (136) (26,646)
Incremental depreciation and
amortisation following fair
value uplift (5,152) (4,679) - (9,831)
Net finance costs (1,687) (638) (2,003) (4,328)
---------- --------- --------------- ----------
(Loss)/profit before tax (12,425) 766 (12,281) (23,940)
---------- --------- ---------------
Taxation (4,081)
----------
Loss for the year (28,021)
==========
Consolidated total assets 504,106 132,310 43,401 679,817
----------
Consolidated total liabilities (127,573) (54,584) (99,789) (281,946)
----------
Non-current assets
Consolidated total intangible
assets 57,652 37,511 - 95,163
----------
Property, plant and equipment 325,859 45,536 - 371,395
----------
Right-of-use assets 15,993 10,279 381 26,653
----------
Total 399,504 93,326 381 493,211
========== ========= =============== ==========
Total non-current asset additions 23,610 5,911 - 29,521
----------
Included within the revenue of our Clay operations during the
year ended 31 December 2020 were GBP1.2 million of bill and hold
transactions. At 31 December 2020, GBP0.3m of inventory relating to
these sales remained on the Group's premises. The unallocated
segment balance includes the fair value of the Group's share-based
payments and associated taxes of (GBP0.5 million), plc Board and
other plc employment costs (GBP3.8 million), pension costs (GBP0.9
million) and legal/administrative expenses (GBP3.0 million). These
costs have been offset by the research and development taxation
credits of (GBP1.2 million). During the current year, no one
customer accounted for greater than 10% of Group revenues.
Year ended 31 December 2019
Clay Concrete Unallocated Total
& elimination
GBP'000 GBP'000 GBP'000 GBP'000
Continuing operations
Total revenue 300,470 108,787 - 409,257
---------- --------- --------------- ----------
Adjusted EBITDA (1) 106,717 21,942 (6,394) 122,265
Exceptional items(1) impacting
EBITDA (see Note 5) (881) (999) (953) (2,833)
Depreciation and amortisation
pre fair value uplift (20,744) (5,727) (128) (26,599)
Incremental depreciation and
amortisation following fair
value uplift (5,152) (3,658) - (8,810)
Net finance costs (1,019) (249) (764) (2,032)
---------- --------- --------------- ----------
Profit/(loss) before tax 78,921 11,309 (8,239) 81,991
---------- --------- ---------------
Taxation (15,516)
----------
Profit for the year from continuing
operations 66,475
Loss for the year from discontinued
operations, net of tax (383)
----------
Profit for the year 66,092
==========
Consolidated total assets 548,731 142,243 80,105 771,079
----------
Consolidated total liabilities (140,059) (46,312) (120,407) (306,778)
----------
Non-current assets
Consolidated total intangible
assets 60,284 42,310 - 102,594
----------
Property, plant and equipment 339,089 47,166 - 386,255
----------
Right-of-use assets 19,388 10,574 517 30,479
----------
Total 418,761 100,050 517 519,328
========== ========= =============== ==========
Total non-current asset additions
(excluding business combinations) 41,577 7,304 92 48,973
----------
Included within the revenue of our Clay operations during the
year ended 31 December 2019 were GBP2.2 million of bill and hold
transactions. At 31 December 2019, all inventory relating to these
sales remained on the Group's premises. The unallocated segment
balance includes the fair value of the Group's share-based payments
and associated taxes of (GBP0.8 million), plc Board and other plc
employment costs (GBP4.2 million), pension costs (GBP0.7 million)
and legal expenses (GBP2.3 million). These costs were offset by the
research and development taxation credits of (GBP1.7 million).
During the prior year, one customer accounted for greater than 10%
of Group revenues with GBP42.4 million from the Clay segment and
GBP0.6 million from the Concrete segment.
5. EXCEPTIONAL ITEMS (1)
Year ended Year ended
31 December 31 December
2020 2019
------------- -------------
Continuing operations GBP'000 GBP'000
Exceptional cost of sales
Impairment charges - Property, (16,263) -
plant and equipment
Impairment charges - Right-of-use (1,681) -
assets
Impairment charges - working (2,438) -
capital
------------- -------------
Total impairment charges (see (20,382) -
Note 10)
Energy contract losses (5,160) -
Redundancy costs (6,073) -
Other costs associated with (447) -
closure of sites
------------- -------------
Total exceptional cost of sales (32,062) -
Exceptional administrative
expenses:
Pension closure costs - legal
and actuarial costs (1,902) (737)
GMP equalisation costs (1,000) -
Redundancy costs (2,224) (1,880)
COVID-19 administrative expenses (818) -
Exceptional items relating (59) -
to discontinued operations
Acquisition of subsidiary undertaking
- legal costs - (179)
Exceptional corporate costs - (37)
------------- -------------
Total exceptional administrative
expenses (6,003) (2,833)
Exceptional profit on disposal 2,808 -
of property, plant and equipment
------------- -------------
Exceptional items impacting
EBITDA (35,257) (2,833)
Exceptional finance costs (414) -
Total exceptional items relating
to continuing operations (35,671) (2,833)
Exceptional items relating
to discontinued operations - (383)
Total exceptional items (35,671) (3,216)
============= =============
Reconciliation of adjusted
profit before taxation (1)
:
(Loss)/profit before taxation (23,940) 81,991
Add back exceptional items 35,671 3,216
Adjusted profit before taxation
(1) 11,731 85,207
============= =============
2020
Included within the current year are the following exceptional
items:
Exceptional cost of sales
Impairment charges arising in the current year relate to the
impairment of non-current assets and working capital items, as set
out in Note 10. Due to the materiality and non-recurring nature,
these costs have been categorised as exceptional.
Energy contract losses have arisen during the current period as
a result of losses on contracts for the purchase of the Group's
energy requirements, which due to the COVID-19 lockdown (and
consequent sharp reduction in energy usage as the plant network was
taken down during 2Q 2020), resulted in contractual energy
positions in excess of production needs. These costs have been
categorised as exceptional due to their anticipated non-recurring
nature.
Redundancy costs relate to employees engaged in production
activities following the Group's announced restructuring activity
in response to the deterioration in near-term demand outlook caused
by COVID-19. These costs have been categorised as exceptional due
to their materiality, and the unusual and non-recurring nature of
the events giving rise to the costs.
Costs associated with the closure of sites relate to other costs
incurred as a result of the Group's restructuring decisions during
the year. These costs include closed site security and
decommissioning activities.
Exceptional administration expenses
Pension-closure related costs which arose in the current year,
comprising legal and actuarial costs associated with the pension
data cleansing exercise and subsequent pension buy-in transaction
completed as part of the Group's pension de-risking exercise
following the closure of the scheme to future accrual from 1
February 2017. These costs have been categorised as exceptional due
to the non-recurring nature of the event giving rise to them.
Guaranteed Minimum Pension ("GMP") equalisation costs arose as a
result of the High Court ruling in November 2020 requiring pension
schemes to revisit individual transfer payments since May 1990 to
identify any additional value due as a result of GMP equalisation.
These pension costs have been assessed as exceptional due to the
non-recurring nature of the event giving rise to the costs.
Exceptional redundancy costs arising in the current period
relate to costs of redundancy of employees within the Group's
selling, general and administrative ("SG&A") functions
following the Group's announced restructuring in June 2020. The
costs have been treated as exceptional due to their materiality,
and their unusual and non-recurring nature of the event giving rise
to the costs.
COVID-19 related administrative costs relate to costs incurred
in acquiring personal protective and health screening equipment
associated with the return to work, and the costs of acquiring
information technology equipment to be used in the short term
during the COVID-19 lockdown. These costs have been categorised as
exceptional due to the non-recurring nature of the event giving
rise to the costs.
Exceptional items relating to discontinued operations comprise
residual costs incurred during the current year in concluding the
disposal of the Group's Glen-Gery operations, which were sold in
November 2018.
Exceptional profit on disposal of property, plant and
equipment
The exceptional profit on disposal relates to the finalisation
of overage payments contained within the sale and purchase
agreement associated with the Group's past disposal of its property
in Bristol. The profit on disposal have been categorised as
exceptional due to the materiality of the amounts recorded.
Exceptional finance costs
Exceptional finance costs include professional fees associated
with the Group's renegotiation of banking covenant requirements and
application to join the CCFF (see Note 20), both of which have been
incurred as a result of the impact of COVID-19 on the Group's
financial position and prospects. These costs have been categorised
as exceptional due to the non-recurring nature of the event giving
rise to the costs.
2019
Included within the prior year are the following exceptional
items:
Exceptional administration expenses
Pension related costs which arose in the current year include
costs associated with the pension data cleansing exercise completed
as part of the Group's pension de-risking exercise, which followed
the closure of the scheme to future accrual from 1 February
2017.
All exceptional pension costs have been assessed as exceptional
due to the non-recurring nature of the event giving rise to the
costs.
Legal costs associated with the acquisition of the Longley
Concrete subsidiary undertaking in July 2019 have been treated as
exceptional on the basis of the infrequent nature of the event
giving rise to these costs.
Exceptional corporate costs in the prior year relate to the
duplication of Chief Financial Officer's expenses, which was
categorised as exceptional on the basis of the non-recurring nature
of the event giving rise to the costs.
Exceptional restructuring costs, which arose in the prior year
relate to redundancy and other transformative project costs
following the establishment of a new Ibstock Concrete division from
1 January 2019. Additionally, costs of transformative restructuring
within the Ibstock Clay division were also categorised as
exceptional. These costs have been treated as exceptional due to
the unusual and non-recurring nature of the event giving rise to
the costs.
Exceptional costs relating to discontinued operations relate to
residual costs incurred during the prior year in concluding the
disposal of the Group's Glen-Gery operations, which were sold in
November 2018.
Tax on exceptional items
2020
In the current period, the COVID-19 related energy contract
losses, redundancy costs, COVID-19 administrative expenses and
exceptional finance costs were all tax deductible.
The working capital impairment costs were also tax deductible,
primarily in the current period.
The COVID-19 related impairment charges arising on non-current
assets, pension closure costs and GMP equalisation costs were not
tax deductible but gave rise to a deferred tax credit in the
current period and as such were not tax rate impacting.
Other costs associated with the closure of sites are tax
deductible either in the current or a future period. A deferred tax
credit has been recognised for costs that are tax deductible in a
future period.
The profit on disposal of property, plant and equipment gave
rise to a chargeable gain which is taxable in the current
period.
Costs associated with the discontinued operations were not tax
deductible.
2019
The pension related expenses along with the corporate and
restructuring costs were tax deductible.
The legal costs incurred on acquisition of the subsidiary
undertaking were not tax deductible.
The expenses relating to discontinued operations were not tax
deductible.
6. TAXATION
The Group recorded a taxation charge of GBP4.1 million (2019:
GBP15.5 million) on a pre-tax loss of GBP23.9 million (2019: profit
of GBP82.0 million), resulting in an effective tax rate ("ETR") of
-17.1% (2019: 18.9%). The taxation charge is impacted by the change
in deferred taxation rate applied following the Chancellor's
announcement in March 2020 repealing the previously enacted rate
reduction from 19% to 17%. This rate change resulted in a taxation
charge of GBP7.7 million, which impacted the ETR by 32.0%pts.
7. EARNINGS PER SHARE
The basic earnings per share figures are calculated by dividing
profit for the year attributable to the parent shareholders by the
weighted average number of Ordinary Shares in issue during the
year.
The diluted earnings per share figures allow for the dilutive
effect of the conversion into Ordinary Shares of the weighted
average number of options outstanding during the year. Where the
average share price for the year is lower than the option price the
options become anti-dilutive and are excluded from the
calculation.
The number of shares used for the earnings per share calculation
are as follows:
Year ended Year ended
31 December 31 December
2020 2019
(000s) (000s)
------------- -------------
Basic weighted average number of
Ordinary Shares 409,333 408,367
Effect of share incentive awards
and options 1,989 3,570
------------- -------------
Diluted weighted average number
of Ordinary Shares 411,322 411,937
---------------------------------- ------------- -------------
The calculation of adjusted earnings per share(1) is a key
measurement used by management that is not defined by IFRS. The
adjusted earnings per share(1) measures should not be viewed in
isolation, but rather treated as supplementary information.
Adjusted earnings per share(1) figures are calculated as the
Basic earnings per share adjusted for exceptional items, fair value
adjustments being the amortisation and depreciation on fair value
uplifted assets and non-cash interest expenses. Adjustments are
made net of the associated taxation impact at the adjusted
effective tax rate. In the current year, in order to remove
distortions to the effective tax rate applied resulting from
changes to the rate of deferred taxation, management has applied
the effective tax rate prior to such changes. The impact on
comparative figures is immaterial and balances have not been
restated. As described in Note 3, during the year ended 31 December
2020 the Adjusted earnings per share(1) definition was expanded to
add back fair valuation of energy contracts (net of tax). At 31
December 2020 and 2019 the impact of this adjustment was nil.
A reconciliation of the statutory profit to that used in the
adjusted earnings per share(1) calculations is as follows:
Year ended Year ended 31 December
31 December 2019
2020
Total Continuing Discontinued Total
2020
GBP000 GBP000 GBP000 GBP000
------------------------------------------- ------------- ----------- ------------- --------
(Loss)/profit for the period attributable
to the parent shareholders (28,021) 66,475 (383) 66,092
Add back exceptional items(1) (Note
5) 35,671 2,833 383 3,216
Add back tax credit on exceptional
items(1) (6,119) (536) - (536)
Add fair value adjustments (Note
4) 9,831 8,810 - 8,810
Less tax credit on fair value adjustments (1,693) (1,667) - (1,667)
Less net non-cash interest (954) (1,238) - (1,238)
Add back tax expense on non-cash
interest 164 234 - 234
Add back impact of deferred taxation 7,667 - - -
rate change
------------------------------------------- ------------- ----------- ------------- --------
Adjusted profit for the period
attributable to the parent shareholders 16,546 74,911 - 74,911
Year ended Year ended 31 December
31 December 2019
2020
Total Continuing Discontinued Total
2020 2019
pence pence pence pence
------------------------------------ ------------- ----------- ------------- ------
Basic EPS on (loss)/profit for the
year (6.8) 16.3 (0.1) 16.2
Diluted EPS on (loss)/profit for
the year (6.8) 16.1 (0.1) 16.0
Adjusted basic EPS (1) on profit
for the year 4.0 18.3 - 18.3
Adjusted diluted EPS (1) on profit
for the year 4.0 18.2 - 18.2
8. BORROWINGS
31 December 31 December
2020 2019
============ ============
GBP'000 GBP'000
Current
Revolving Credit Facility 135 395
------------ ------------
135 395
Non-current
Revolving Credit Facility 88,601 103,950
------------ ------------
88,601 103,950
Total borrowings 88,736 104,345
============ ============
As at 31 December 2020 and 31 December 2019, the Group held a
Revolving Credit Facility ("RCF") for GBP215 million. The original
five-year RCF, which was due to expire in March 2022, was extended
for a further 12 months in December 2020.
The initial facility attracted interest at LIBOR plus a margin
ranging from 100 to 225bps depending upon the ratio of net debt to
Adjusted EBITDA(1) (see Note 3 for definitions). This was amended
upon extension of the facility to a margin ranging from 200 to
325bps.
The Directors note that the UK's Financial Conduct Authority has
announced plans to phase out the LIBOR benchmark by the end of
2021. The Group is monitoring developments in relation to the
replacement of LIBOR but has yet to conclude negotiations with
counterparties in relation to amendments to the reference rate for
the RCF. The expectation is that a new alternate reference rate,
Sterling Overnight Index Average ("SONIA"), will replace LIBOR.
This is not expected to have a material impact on the finance costs
recognised in the consolidated income statement.
The facility contains debt covenant requirements of leverage
(net debt to Adjusted EBITDA(1) ) and interest cover (adjusted
EBITDA(1) to net finance charge) of 3x and 4x, respectively, to be
tested semi-annually on 30 June and 31 December in respect of the
preceding 12-month period.
Due to COVID-19 and in order to provide appropriate financial
flexibility, in June 2020 the Group agreed covenant amendments with
its lending banks. Under these amendments, the leverage test as at
December 2020 was replaced by a liquidity test requiring the Group
to have Minimum Liquidity of GBP60 million. Liquidity is defined
as: (Cash and Equivalents) + (Available Existing RCF Commitments)
-- (Any Outstanding Drawings under the CCFF). The interest cover
test as at December 2020 was amended to no less than 1.25 times,
after which it reverts to 4 times. The leverage test that will
apply as at 30 June 2021 was amended to no more than 3.75 times net
debt to adjusted EBITDA(1) . Due to the improving financial
performance during the second half of 2020, the covenant amendment
in relation to liquidity agreed for the test at 31 December 2020
was waived by the Group.
The Group was also confirmed as eligible to access funding under
the Covid Corporate Financing Facility ("CCFF"). This facility
would provide additional liquidity, should it be required, but is
currently undrawn. The Group notes that the offer is subject to the
Bank of England's standard terms where it reserves the right to
deem any security ineligible. The Bank of England currently intends
to purchase eligible securities until 23 March 2021. Securities can
be up to one year in length from this date. The Bank of England has
communicated its intention to give six months' notice of the
withdrawal of the scheme. The CCFF contains no covenant tests or
requirements.
The carrying value of financial liabilities have been assessed
as materially in line with their fair values.
No security is currently provided over the Group's
borrowings.
9. PROVISIONS
31 December 31 December
2020 2019
============ ============
GBP'000 GBP'000
Restoration (i) 4,575 3,393
Dilapidations (ii) 4,913 4,524
Restructuring (iii) 2,406 -
Other (iv) 1,641 -
13,535 7,917
------------ ------------
Current 5,303 738
Non-current 8,232 7,179
13,535 7,917
------------ ------------
(i) The restoration provision comprises obligations governing
site remediation and improvement costs to be incurred in compliance
with applicable environmental regulations together with
constructive obligations stemming from established practice once
the sites have been fully utilised. The key estimates associated
with calculating the provision relate to the cost per acre to
perform the necessary remediation work as at the reporting date
together with determining the year of retirement. Climate change is
considered at the planning stage of developments when restoration
provisions are initially estimated. This includes projection of
costs associated with future water management requirements and the
form of the ultimate expected restoration activity. Estimates are
updated annually based on the total estimated available reserves
and the expected extraction rates. Whilst a significant element of
the total provision will reverse in the medium-term (two to ten
years), the majority of the legal and constructive obligations
applicable to mineral-bearing land will unwind over a 30-year
timeframe. In discounting the related obligations, expected future
cash outflows have been determined with due regard to extraction
status and anticipated remaining life.
(ii) Provisions for dilapidations arose as contingent
liabilities recognised upon the business combination in the period
ended 31 December 2015, are recognised on a lease by lease basis
and are based on the Group's best estimate of the likely
contractual cash outflows, which are estimated to occur over the
lease term.
(iii) The restructuring provision comprises obligations arising
as a result of the site closures and associated redundancy costs
announced following the completion of the Group's review of
operations during the second half of 2020. The key estimate
associated with the provision relates to the redundancy cost per
impacted employee. The majority of the cost is expected to be
incurred within one year of the balance sheet date.
(iv) Other provisions include provisions for legal and warranty
claim costs, which are expected to be incurred within one year of
the balance sheet date.
10. IMPAIRMENT
As a result of the COVID-19 pandemic and the resulting
significant decrease in activity levels across the UK Construction
industry, management identified indicators of potential impairment
and subsequently performed detailed impairment testing across the
Group's cash-generating units ("CGUs").
The carrying values of assets associated with factories subject
to closure were assessed for impairment and the recoverable amount
was determined based on the fair value less costs to dispose
("FVLCTD"). Determination of FVLCTD by management reflected full
impairment of all items of plant and machinery, right-of-use assets
and working capital for which management's assessment was that no
alternative use, future salvage value or disposal proceeds are
expected for the impacted assets.
This assessment of impairment resulted in the recognition of an
exceptional impairment charge of GBP20.4 million within cost of
sales within the Group consolidated income statement.
The impairment of assets valued at historical cost impacted both
operating segments of the Group in the current year as follows:
Year ended 31 December Property, plant and Right-of-use assets Working capital Total cost of sales
2020 equipment
------------------------- --------------------- ----------------- ---------------------
GBP'000 GBP'000 GBP'000 GBP'000
Division
Clay 16,107 411 2,363 18,881
Concrete 156 1,270 75 1,501
Total 16,263 1,681 2,438 20,382
========================= ===================== ================= =====================
Additionally, management completed detailed testing of
value-in-use ("VIU") for the Group's operating CGUs at 30 June
2020. This detailed testing resulted in no further impairment
charges being recognised.
Subsequently, management has revisited its analysis of
indicators of impairment as at 30 November 2020. This has not
identified further indicators of impairment, which would require
full detailed impairment testing. However, management took the
decision to test those CGUs which demonstrated the lowest levels of
headroom when performing its detailed testing of impairment as at
30 June 2020.
These assets were tested for impairment as at 30 November 2020
based on VIU calculations. The key assumptions used within the VIU
calculations are noted below:
1. Management has used the latest budgetary and strategic
planning forecasts in its estimated future cash flows. These
Board-approved estimates cover the period from 2021 to 2025 and are
based upon construction industry forecasts for activity levels over
that time horizon. Incorporated within the Board-approved plans are
consideration of currently communicated changes to climate-related
legislation (e.g., red diesel entitlements, EUETS target
reductions).
2. A pre-tax weighted average cost of capital ("WACC") of
9.2-10.2% was used within the VIU calculation based on an
externally derived rate, and benchmarked against industry peer
group companies.
3. Terminal growth rates of 2% were used reflecting management's
past experience, expectations of future market performance and
longer-term industry forecasts and inflationary expectations.
As a result of the detailed impairment testing performed, no
further impairment charges were recognised. No impairment reversals
arose during the year. Management is of the view that no reasonably
possible change in the key assumptions would result in impairment
of the CGU's non-current assets.
No detailed impairment assessment was performed in 2019 as there
were no indicators of impairment.
Goodwill
The Group's goodwill balance of GBP3.0m, relating to the
acquisition of the Longley CGU in July 2019, was tested for
impairment at 30 November 2020. Based upon management's detailed
testing of the recoverable value of the CGUs to which goodwill is
allocated, no impairment was indicated. Key assumptions used within
the testing of goodwill for impairment are consistent with those
set out above.
A pre-tax discount rate of 9.2% has been used, together with a
long-term growth rate of 2%. CGU-specific cash flows for the
detailed five-year time period used by management contain a revenue
compound growth rate of 4.3%.
Based on management's projections, no reasonably possible change
in key assumptions within the VIU calculation supporting the
impairment calculation could cause the carrying value of goodwill
to exceed its recoverable amount.
11. NOTES TO THE GROUP CASHFLOW STATEMENT
Year ended Year ended
31 December 31 December
2020 2019
Cash flows from operating activities GBP'000 GBP'000
-------------------------------------- ------------- -------------
(Loss)/profit before taxation (23,940) 81,608
Adjustments for:
Depreciation 29,046 28,999
Impairment of property plant 16,263 -
and equipment
Impairment of right-of-use 1,681 -
assets
Impairment of working capital 2,438 -
Amortisation of intangible
assets 7,431 6,410
Finance costs 4,328 2,032
Gain on disposal of property,
plant and equipment (2,921) (1,773)
Research and development expenditure
credit (1,167) (1,650)
Share based payments 527 704
Post-employment benefits 1,584 (677)
Other - 199
------------- -------------
35,270 115,852
Decrease/(increase) in inventory 18,503 (16,092)
(Increase)/decrease in trade
and other receivables (877) 2,222
Decrease in trade and other
creditors (2,537) (8,942)
Increase/(decrease) in provisions 4,856 (963)
Cash generated from operations 55,215 92,077
-------------------------------------- ------------- -------------
The loss before taxation in 2020, above, includes a loss before
tax of GBP59,000 (2019: GBP383,000) incurred in relation to
discontinued operations, which do not have material cash flows
during the current or prior years.
During the current year, Government assistance of GBP10,482,000
(2019: GBPnil) was received in relation to the Coronavirus Job
Retention Scheme and payment of taxes totalling GBP16,525,000
(2019: GBPnil) relating to employment taxes, income taxes and value
added tax were deferred. All deferred amounts were fully settled as
at 31 December 2020.
12. POST EMPLOYMENT BENEFITS
The Group participates in the Ibstock Pension Scheme (the
'Scheme'), a defined benefit pension scheme in the UK. During the
year ended 31 December 2020, the Scheme surplus of GBP88,656,000
has reduced to a surplus of GBP43,576,000. Analysis of movements
during the year ended 31 December 2020:
GBP'000
Scheme surplus at 31 December
2019 88,656
Charge within labour costs
and operating profit (3,772)
Interest income 1,767
Remeasurement due to:
- Change in financial assumptions (89,088)
- Change in demographic assumptions 3,750
- Experience gains 3,216
- Return on plan assets 36,859
Company contributions 2,188
Scheme surplus at 31 December
2020 43,576
=========
The reduction in the balance sheet surplus over the year is
primarily due to a significant actuarial loss arising from a change
in financial assumptions, as well as the buy-in occurring during
the year. This has been partially offset by an improvement in the
Scheme's assets and contributions into the Scheme made by the
Company.
Key assumptions used at 31 December 2020:
31 December 31 December
2020 2019
Per annum Per annum
Discount rate 1.20% 2.00%
RPI inflation 2.90% 3.00%
CPI inflation 2.20% 2.00%
Rate of increase in salary n/a n/a
Rate of increase in pensions
in payment 3.50% 3.55%
Commutation factors 17.31 15.52
13. RELATED PARTY TRANSACTIONS
In the year ended 31 December 2020
There were no related party transactions during the year ended
31 December 2020 nor any balances with related parties.
In the year ended 31 December 2019
There were no related party transactions during the year ended
31 December 2019 nor any balances with related parties.
14. DIVIDS PAID AND PROPOSED
In April 2020, the Directors notified shareholders that the
final dividend in relation to 2019, which was announced in March
2020 alongside the Group's 2019 Preliminary results was cancelled.
Subsequently, no final dividend in relation to 2019 was paid by the
Group.
The directors are proposing a final dividend in respect of the
financial year ended 31 December 2020 of 1.6 pence per ordinary
share (2019: 6.5 pence). In the prior year, payment of the final
dividend in relation to 2018 distributed GBP26.6 million of
shareholders' funds.
Subject to approval at the Annual General Meeting, this will be
paid on 14 May 2021, to shareholders on the register at the close
of business on 16 April 2021.
15. POST BALANCE SHEET EVENTS
On 3 March 2021, the Chancellor of the Exchequer delivered his
Budget Statement. The measures announced include an increase in the
standard rate of corporation tax from 19% to 25% with effect from 1
April 2023. The full impact of this change will be reflected in the
2021 financial statements once the Finance Bill has been
substantively enacted and is expected to give rise to an increase
in the Group's net deferred tax liabilities of around GBP20
million
Except for the above item and the proposed dividend (see note
14), no further subsequent events requiring further disclosure or
adjustments to these financial statements have been identified
since the balance sheet date.
(1) Alternative Performance Measures are described in Note 3
INDEPENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF IBSTOCK PLC ON
THE PRELIMINARY ANNOUNCEMENT OF IBSTOCK PLC
As the independent auditor of Ibstock plc we are required by UK
Listing Rule LR 9.7A.1(2)R to agree to the publication of Ibstock
plc's preliminary announcement statement of annual results for the
period ended 31 December 2020.
The preliminary statement of annual results for the period ended
31 December 2020 includes management commentary, the consolidated
income statement, consolidated statement of comprehensive income,
consolidated balance sheet, consolidated statement of changes in
equity, consolidated cash flow statement, and notes. We are not
required to agree to the publication of presentations to
analysts.
The directors of Ibstock plc are responsible for the
preparation, presentation and publication of the preliminary
statement of annual results in accordance with the UK Listing
Rules.
We are responsible for agreeing to the publication of the
preliminary statement of annual results, having regard to the
Financial Reporting Council's Bulletin "The Auditor's Association
with Preliminary Announcements made in accordance with UK Listing
Rules".
Status of our audit of the financial statements
Our audit of the annual financial statements of Ibstock plc is
complete and we signed our auditor's report on 9 March 2021. Our
auditor's report is not modified and contains no emphasis of matter
paragraph.
Our audit report on the full financial statements sets out the
following key audit matters which had the greatest effect on our
overall audit strategy; the allocation of resources in our audit;
and directing the efforts of the engagement team, together with how
our audit responded to those key audit matters and the key
observations arising from our work:
Presentation of exceptional items
Key audit matter The Group has identified GBP35.7 million of exceptional
description items in the Group Income Statement in 2020 (2019:
GBP3.2 million).
The FRC and ESMA have advised companies against presenting
the impacts of Covid-19 as exceptional on the basis
that the impacts are macroeconomic and likely to
have a wide range of potentially long-term consequences
which will be considered to form part of underlying
business performance on an ongoing basis. A key principle
is that the Group should not split discrete items
on an arbitrary basis in an attempt to quantify the
portion relating to Covid-19. The preferred treatment
by regulators is to explain the impact of Covid-19
through additional narrative in the "front half"
rather than exceptional items on the face of the
financial statements.
Therefore, there is a risk that items are inappropriately
classified as exceptional in the financial statements.
The presentation of exceptional items is a new key
audit matter in 2020 given the significant increase
in the quantum of exceptional items identified compared
to 2019.
----------------------- -----------------------------------------------------------------------
How the scope We have performed the following procedures to address
of our audit responded this key audit matter:
to the key audit -- obtained an understanding of the management review
matter controls over the classification of items as exceptional;
-- assessed the classification of items management
proposed to include as exceptional, assessing whether
any items classified as Covid-19 exceptional items
are discrete expenses, directly caused by the Covid-19
pandemic and not relating to the ongoing macroeconomic
impacts on performance;
-- evaluated regulatory guidance released by the
FRC and ESMA;
-- assessed the consistency of the proposed disclosures
against emerging practice in this area and the disclosures
made by other Groups in 2020; and
-- assessed the adequacy of the disclosures to explain
the nature of the exceptional items.
----------------------- -----------------------------------------------------------------------
Key observations We concur with management that the classification
of items as exceptional is appropriate for the year
ended 31 December 2020.
----------------------- -----------------------------------------------------------------------
Going concern
Key audit matter The Directors have concluded that the going concern
description basis of preparation is appropriate for both the
Group and C ompany .
The Covid-19 pandemic has led to significant operational
disruption for the Group, including a sharp decline
in sales volumes, particularly in the second half
of 2020. Despite performance since 30 June 2020 being
ahead of forecast, there remains significant uncertainty
in the level of forecast demand from the Group's
customers over the going concern assessment period
and therefore the Group's ability to remain compliant
with its financial covenants. We have therefore identified
the ability of the business to continue as a going
concern as a new key audit matter for 2020.
----------------------- -----------------------------------------------------------------------
How the scope We have performed the following procedures to address
of our audit responded this key audit matter:
to the key audit -- obtained an understanding of the relevant controls
matter over the review of forecasts used in the going concern
assessment;
-- assessed the appropriateness of forecasts based
on industry and analyst forecasts, considering the
impact of Covid-19;
-- evaluated the accuracy of the forecasts for the
second half of 2020 compared to initial forecasts
prepared by management in June 2020;
-- challenged the appropriateness of the sensitivities
used in management's low case scenario, with reference
to the historical trading performance, market expectations
and peer comparison;
-- assessed the feasibility of any mitigating actions
that management have at their disposal should the
financial covenants be close to being breached; and
-- evaluated the disclosures on going concern to
confirm that they concur with the knowledge we have
acquired during the course of our audit.
----------------------- -----------------------------------------------------------------------
Key observations We concur with the Directors' conclusion that it
is appropriate to prepare the financial statements
for the 12 months ended 31 December 2020 on a going
concern basis.
----------------------- -----------------------------------------------------------------------
Inflation, discount rate and mortality assumptions used in
defined benefit pension scheme valuations
Key audit matter The Group has a net defined benefit pension asset
description of GBP43.6 million (2019: GBP88.7 million) as at
31 December 2020, which is made up of defined benefit
obligations of GBP595.6 million (2019: GBP537.3 million)
and defined benefit assets of GBP639.2 million (2020:
GBP625.9 million).
We consider inflation, discount rate and mortality
assumptions used in the defined benefit pension scheme
valuation a key audit matter due to the sensitivity
of the liability balance to changes in these inputs.
Judgements made in valuing the defined benefit pension
scheme liabilities can have a significant impact
on the valuation of the liability.
----------------------- --------------------------------------------------------------------
How the scope We worked with our actuarial specialists and have
of our audit responded performed the following procedures to address this
to the key audit key audit matter:
matter -- obtained an understanding of the relevant controls
over the inputs adopted to calculate the defined
benefit pension liability;
-- assessed the appropriateness of the inflation,
discount rate and mortality assumptions used in respect
of the UK scheme by comparing rates adopted by Ibstock
plc for the year ended 31 December 2020 against our
expectation determined by internal benchmarks and
comparator schemes; and
-- assessed the adequacy of the Group's disclosures
in respect of the sensitivity of the defined benefit
scheme liabilities to changes in these key assumptions.
----------------------- --------------------------------------------------------------------
Key observations We concur that that the key assumptions applied in
respect of the valuation of the defined benefit pension
scheme liabilities are in the middle of our reasonable
range.
----------------------- --------------------------------------------------------------------
Revenue recognition - rebates
Key audit matter The Group has recognised revenue for the 12 months
description ended 31 December 2020 of GBP316.2 million (2019:
GBP409.3 million). The Group enters into various
agreements whereby it offers customers retrospective
rebates according to the volume of transactions completed
with that customer. The rebate agreements are complex
in nature, with different types of rebates being
offered to each customer, with the nature of those
rebates differing across different product ranges.
Due to the high level of complexity involved, we
have determined that there was a potential for fraud
through possible manipulation of this balance.
The key audit matter in relation to customer rebates
is focussed on the accuracy and completeness of the
reduction against revenue in respect of rebates for
customers in Ibstock Brick Limited and Supreme Concrete
Limited.
----------------------- -----------------------------------------------------------------------
How the scope We have performed the following procedures to address
of our audit responded this key audit matter:
to the key audit -- obtained an understanding of the relevant controls
matter over the revenue recognition process to address the
key audit matter;
-- performed year-on-year analysis of revenue and
rebates to understand any material changes in the
rebate provision at a customer level;
-- selected a sample of customer rebate agreements,
inspected the terms and dates, and recalculated selected
rebates in accordance with the contract terms, including
evaluating the sales data on which the rebate calculations
are based;
-- identified the largest customers in each of Ibstock
Brick Limited and Supreme Concrete Limited and requested
written confirmations from a sample of the largest
customers to confirm that the rebate provided by
the Group is the full rebate due to the customer
for 2020;
-- assessed the completeness of rebates by evaluating
credit notes raised during 2020 and post year-end,
assessing whether payments had been made to customers
where we had been informed that no rebate agreement
was in place and made enquiries of management as
to the existence of any other rebate arrangements;
and
-- agreed a sample of rebates to settlement post
year end.
----------------------- -----------------------------------------------------------------------
Key observations We concur with management that the revenue recognition
in relation to customer rebates is appropriate for
the year ended 31 December 2020.
----------------------- -----------------------------------------------------------------------
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we did not provide a separate opinion on these
matters.
Procedures performed to agree to the preliminary announcement of
annual results
In order to agree to the publication of the preliminary
announcement of annual results of Ibstock plc we carried out the
following procedures:
(a) checked that the figures in the preliminary announcement
covering the full year have been accurately extracted
from the audited or draft financial statements and reflect
the presentation to be adopted in the audited financial
statements;
(b) considered whether the information (including the management
commentary) is consistent with other expected contents
of the annual report;
(c) considered whether the financial information in the
preliminary announcement is misstated;
(d) considered whether the preliminary announcement includes
a statement by directors as required by section 435
of CA 2006 and whether the preliminary announcement
includes the minimum information required by UKLA Listing
Rule 9.7A.1;
(e) where the preliminary announcement includes alternative
performance measures ("APMs"), considered whether appropriate
prominence is given to statutory financial information
and whether:
-- the use, relevance and reliability of APMs has been
explained;
-- the APMs used have been clearly defined, and have
been given meaningful labels reflecting their content
and basis of calculation;
-- the APMs have been reconciled to the most directly
reconcilable line item, subtotal or total presented
in the financial statements of the corresponding period;
and
-- comparatives have been included, and where the basis
of calculation has changed over time this is explained.
(a) read the management commentary, any other narrative
disclosures and any final interim period figures and
considered whether they are fair, balanced and understandable.
Use of our report
Our liability for this report, and for our full audit report on
the financial statements is to the company's members as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for our audit report or this report, or for the
opinions we have formed.
Jonathan Dodworth (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
9 March 2021
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END
FR JLMBTMTTMTLB
(END) Dow Jones Newswires
March 10, 2021 02:00 ET (07:00 GMT)
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