REG - Elementis PLC - Half-year Report
27/07/2023 07:15
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RNS Number : 3294H Elementis PLC 27 July 2023
27 July 2023
ELEMENTIS plc
("Elementis" or the "Group")
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2023
Resilient performance, results in line with expectations
· Revenue down 6% (down 4% on an underlying basis*) to $364m, with
improved pricing and product mix partially offsetting lower volumes.
· Adjusted operating profit of $53m up against H2 2022 ($42m) and down
10% (7% on an underlying basis*) against prior year period ($58m). Strong
Personal Care and materially improved Talc performance offset by weaker
Coatings volumes.
· Adjusted operating margin of 14.4% compared to 15.0% in the prior year
period as improved price/mix and proactive cost management actions help to
optimise performance.
· Profit from continuing operations of $26m compared to $18m in prior
year period, with lower adjusting items(6) partially offset by higher net
interest costs and UK corporation tax.
· Net debt of $255m down from $367m at the end of 2022 driven by the
successful disposal of Chromium. Net debt to EBITDA(5) down from 2.2x (31
December 2022) to 2.0x, with further progress expected at the year end.
Further strategic progress, well positioned for sustainable growth and value
creation
· Completion of Chromium disposal for $170m with $139m of proceeds -
Elementis now a less cyclical, higher margin and lower carbon intensive
business.
· New Performance Specialties business driving greater market focus,
enhanced growth opportunities and reduced costs - Talc performance recovery on
track with a combination of effective price and cost management.
· Delivered $25m of revenue from new business opportunities and 8 new
product launches. On course for targeted $10m of annual cost savings by the
end of 2023.
· Capital Markets Day on 14 November to update on continuing
strategic progress.
Guidance unchanged - strength in a challenging demand environment
· Full year outlook unchanged, with the Group expected to deliver an
improved financial performance and reduction in leverage, in line with
expectations.
FINANCIAL SUMMARY
Six months ended 30 June 2023 Six months ended % Change Reported
30 June 2022
Revenue $364m $387m -6%
Profit for the period $26m $18m +44%
Basic earnings per share(2) 4.4c 3.1c +42%
Adjusted operating profit(1) $53m $58m -10%
Adjusted profit before tax(1) $45m $46m -3%
Adjusted diluted earnings per share(2) 5.6c 6.1c -8%
Adjusted operating cash flow(3) $13m $13m +1%
Net debt(4) $255m $393m -35%
Ordinary dividend per share - - -
Commenting on the results, CEO, Paul Waterman said:
"The Group has performed well in a weak demand environment, reflecting the
strength of its business model and the benefits of proactive self-help
actions. Personal Care had a strong first half, gaining from innovative new
product launches and new business success. Performance Specialties
demonstrated its resilience as our new streamlined operating structure enabled
a material Talc performance recovery and improved focus on higher value added
products in attractive growth markets. Whilst we are mindful of continued
macro-economic risks, the Group is well positioned to manage these impacts and
deliver against full year expectations".
Notes:
* Adjusted for constant currency. See Finance Report.
1 - See note 5
2 - See note 9
3 - See Finance Report
4 - See note 12
5 - See unaudited pro forma information
6 - As detailed in note 5
Further information
A virtual presentation for investors and analysts will be held at 09:00 BST on
27 July 2023. The presentation will be webcast on www.elementis.com
(http://www.elementis.com) and a copy of this Interim Results announcement can
also be found on this website. Conference call dial in details:
UK: 020 3936 2999 Other locations: +44 20 3936 2999
Participant access code: 779728
Enquiries
Elementis
James Curran, Investor Relations 07342 999 067
Teneo
Martin
Robinson 020
7353 4200
Olivia Peters
- ENDS -
Business review
CEO's report
Following the successful sale of Chromium in the first quarter and the
creation of our Performance Specialties segment, Elementis is a more focused
specialty chemicals business that brings a distinctive combination of
expertise, innovation and teamwork to every formulation challenge. We create
high-value specialty additives that enhance the performance of our customers'
products and make a positive change in the world; unique chemistry,
sustainable solutions.
In the first six months of the year the Group delivered a resilient financial
performance despite weak demand conditions and customer destocking in several
key markets. This is testament to the attractiveness of our business model and
the ongoing effectiveness of our proactive pricing and cost management.
Personal Care (now 44% of Group profit) performed well with strong revenue and
earnings growth, while Performance Specialties displayed encouraging
resilience as materially improved Talc earnings partially offset weaker
Coatings volumes. The Group's performance, combined with continued strategic
momentum as part of our Innovation, Growth and Efficiency agenda, has put us
in a good position to deliver on expectations for 2023, and make further
progress towards our medium-term performance objectives. The next update on
our continuing strategic progress will be at our Capital Markets Day on 14
November 2023.
Group performance
Following the disposal of the Chromium business in January 2023 all prior year
Group figures have been restated to exclude Chromium and allocate the $7m of
annual stranded costs to the Personal Care and Performance Specialties
segments.
In the six months to 30 June 2023, revenue declined 4% on an underlying basis*
(down 6% on a reported basis) to $364m as pricing and mix improvements
partially offset weaker volumes in Performance Specialties. Adjusted operating
profit declined 10% on a reported basis to $53m, with lower revenues partially
offset by proactive cost management across the organisation. As a result,
continuing margins declined from 15.0% to 14.4%. Reported operating profit
increased from $27m to $44m due to a $22m reduction in adjusting items.
Personal Care
In the six months to 30 June 2023, Personal Care revenue increased 7% on an
underlying basis* to $112m (up 6% on a reported basis) driven by improved
price/mix and continued strategic progress.
Sales into colour cosmetics applications was an area of strength, up 16% on
the prior year period driven by new product launches such as Bentone(®) Plus
Glow. Asia and skin care, two strategic focus areas for the business also
showed continued positive momentum. Sales in Asia grew 5%, with notable
progress in Japan and South Korea as recent investments in sales and marketing
resources and new products more than offset a slow start to the year in China.
In skin care, our sales grew 7% against a strong prior year comparative as
recent new product launches such as Bentone(TM) Luxe XO continued to gain
traction with customers.
Adjusted operating profit for Personal Care increased 16% on an underlying*
basis (14% on a reported basis) to $27m, representing an adjusted operating
margin of 24.5% versus 22.7% in the prior year period.
Performance Specialties
At the end of 2022, following the sale of Chromium, we streamlined our
business by combining the Talc and Coatings segments into one operating
division, Performance Specialties. This step has enabled a stronger end market
focus on growth opportunities. We will continue to report Talc performance for
transparency.
In the period, Performance Specialties revenue declined 9% on an underlying
basis* to $252m (down 11% on a reported basis) with volume weakness across
both Coatings and Talc partially offset by pricing benefits and improved mix.
Adjusted operating profit declined 21% on an underlying basis* (23% on a
reported basis) to $34m with a strong Talc performance recovery partially
offsetting the volume led decline in Coatings.
Coatings
In Coatings, revenue declined 12% on an underlying basis* (down 14% on a
reported basis) against a very strong prior year comparative to $181m. All
regions experienced weaker performance as a result of lower end market demand
and significant destocking throughout the value chain. In the Americas and
EMEA sales declined 18% and 15% respectively due to weaker performance in both
decorative and industrial markets linked to lower manufacturing, construction
and residential activity, along with customer destocking. In Asia, where
approximately 80% of our sales are linked to industrial end markets, revenue
declined 13% due to weak manufacturing activity in China post the lifting of
COVID-19 related restrictions.
Adjusted operating profit declined 38% on an underlying basis* (40% on a
reported basis) from $42m to $25m with improved price/mix offset by materially
weaker volumes across all key end markets and geographies. As a result,
adjusted operating profit margins decreased from a record high of 20.2% in the
prior year period to 14.0%.
Talc
In Talc, revenue decreased 2% on a reported basis (flat on an underlying
basis*) from $73m to $71m with the benefit from price actions, implemented in
late 2022, and improved mix offsetting weaker year on year volumes.
Revenue from industrial talc (representing over 85% of total Talc revenue) was
modestly down on an underlying basis* against the prior year period, with
successful price increases in response to variable cost inflation offset by
volume declines. While volumes sequentially improved from the last quarter of
the previous year, they declined across all key end markets versus the prior
year period linked to weak manufacturing activity and customer destocking.
Sales to paper customers, which represent only 8% of total Talc revenue, rose
strongly against a prior year period that was impacted by strike action at our
main customers production plant.
Adjusted operating profit increased materially from $3m to $9m, with margins
rising from 4% to 13%. The delivery of cost synergies linked to the creation
of the Performance Specialties business, variable cost decreases and the
benefits of pricing actions all contributed to the performance improvement.
Balance sheet
At 30 June 2023 net debt was $255m compared to $367m at the end of 2022, with
weaker earnings and working capital outflows, in line with our typical
seasonality, offset by $139m of proceeds received from the disposal of the
Chromium business in Q1 2023. Leverage at the end of the period was 2.0x net
debt to adjusted EBITDA** (2.2x at 31 December 2022). Further progress on debt
and leverage reduction is expected in the second half, driven by improved
underlying cashflow generation, in line with typical seasonality.
Interim dividend
The Board recognises the importance of a dividend to our shareholders. Given
the continued macroeconomic uncertainty and the desire to further reduce
leverage, the Board has decided it is prudent not to declare an interim
dividend for 2023. The Board will keep future dividends under review and will
restart payments as soon as it is appropriate to do so.
Strategic progress - Innovation, Growth & Efficiency
In recent years, we have made significant progress positioning Elementis as a
premium performance additives company, based on unique assets, value chains,
and with clear opportunities for growth. Our strategic pillars of Innovation,
Growth and Efficiency are designed to leverage this differentiated portfolio
and the execution of our strategic priorities will deliver our medium term
performance objectives of:
- 17% adjusted operating profit margin: driven by Innovation, Growth and
Efficiency
- 90%+ adjusted operating cash conversion: consistent with 5 year
average historical performance
- Leverage under 1.5x net debt / EBITDA: consistent with debt reduction
track record
Innovation
Innovation is a key pillar for the growth of Elementis. We are recognised as a
global leader in developing performance driven additives that address unmet
consumer and market needs. We continue to focus on creating solutions for our
customers that deliver product performance improvements and efficiency gains,
while always focusing on how sustainability can be improved for our customers.
We leverage our strong customer relationships with industry technology leaders
and strive to become the innovation partner of choice.
At present, 72% of our revenue is from products that are natural or naturally
derived(†). While this is a strong proportion, we are focused on improving
this further. In the first half of the year we launched 8 new products,
including two exciting new Personal Care products. Bentone Hydroclay(TM) 700
is a 100% natural combination of high purity hectorite clay and xanthan gum
that allows the creation of silky smooth and light skin products. Responding
to the up-and-coming "skin glow" trend, Bentone(®) Plus Glow is a new
hectorite gel technology that combines hectorite clay with naturally derived
active ingredients to combat signs of dull and flaky skin. Customer feedback
on both these products has been extremely positive as they deliver excellent
performance, reduce product development times, increase the speed to market
for fast and agile brands, and are natural.
Growth
New products and new business will drive future growth. While near term growth
is challenged by macroeconomic headwinds and customer destocking, we see
long-term sustainable growth across all of our Personal Care and Performance
Specialties markets, with attractive incremental revenue opportunities.
In Personal Care, Asia represents under 15% of our sales and the medium term
aim is to double our cosmetics sales in the region. Despite headwinds in
China, we achieved good growth in the first half, benefiting from recent
product launches (for instance our JSQI gels) and investments in local sales
and marketing resources. Today our Asia business is nearly twice the size it
was three years ago, and with significant runway for further progress. In skin
care, which represents approximately $20m of annual sales, we continue to make
good progress leveraging the unique benefits of hectorite clay into a new
market and have already delivered on our medium term ambition to add $10m of
high margin sales since 2019.
In Performance Specialties, our high margin growth platforms in Coatings have
a track record of success, increasing from approximately 30% of total revenue
in 2019 to just under 40% today. While near term growth has been challenged we
remain well positioned for further success. In the first half we expanded our
NiSAT series for premium decorative paints with Rheolate(®) PHX 7025. This
product offers market leading performance attributes in a 100% active powdered
format that requires no biocides, emulsifiers or surfactants, resulting in a
volatile organic compound free product with significantly lower transportation
emissions. Furthermore, the launch of Dapro(®) Bio 9910, a new 96% bio based
defoamer product, extends our waterborne industrial additives portfolio and
enhances the sustainability credentials of our technology solutions.
Efficiency
In recent years our supply chain organisation has faced multiple efficiency
challenges including materials shortages and rapid cost inflation. The start
of this year has been characterised by low demand. Again we have responded
proactively, this time with particular focus on costs. Hiring and travel spend
has been limited, and operations optimised to match the low demand
environment, including reduced production runs and optimised maintenance
plans. These activities have helped our first half performance.
Our new AP Actives plant in India will create a cost advantaged and resilient
supply chain, generate material savings in 2024 and being a closed water
production facility, significantly lower our environmental impact. Our global
process engineers have delivered continuous improvement gains from areas such
as debottlenecked spray drying capacity in Newberry, California and insourced
raw materials at our operations in Milwaukee. Combined with further progress
in procurement, leveraging our global scope and scale, we achieved $3m of
efficiency savings in the first half across these two areas.
The macroeconomic environment in 2023 remains uncertain but we are confident
that through a mixture of targeted innovation, agile supply chain management
and continued efficiency focus, we can defend and improve margins over time.
Outlook
While global economic risks persist, the Group has again demonstrated
resilience and the importance of its self-help agenda. We will continue to
maintain our focus on Innovation, Growth and Efficiency and in 2023 expect to
capture $50m of new business opportunities, create 15 new products and deliver
$10m of additional efficiency savings.
For the rest of the year, we are confident that our first half performance,
combined with continued proactive cost management, means we are well
positioned to deliver an improved financial performance in line with
expectations and a further reduction in leverage.
Notes:
Where we refer to adjusted performance measures (e.g. adjusted operating
profit), see Note 5
* Adjusted for FX (where constant currency reflects prior year results
translated at current year exchange rates). See Finance Report for the
constant currency impact at a business unit level
** Excluding the impact of IFRS 16
(†) Naturally derived products defined in accordance with IS0 16128 standard
and explicitly excludes ingredients derived from fossil fuels
Finance report
Revenue 2022 Effect of Increase/ 2023
$m
exchange
$m
for the six months ended 30 June
rates (decrease)
$m
2023
$m
Coatings 209.3 (4.1) (24.2) 181.0
Talc 72.5 (1.4) (0.1) 71.0
Performance Specialties 281.8 (5.5) (24.3) 252.0
Personal Care 105.6 (1.2) 7.4 111.8
Revenue 387.4 (6.7) (16.9) 363.8
Adjusted operating profit* 2022 Effect of Increase/ 2023
$m
exchange
$m
for the six months ended 30 June
rates (decrease)
$m
2023
$m
Coatings 42.2 (1.0) (15.8) 25.4
Talc 2.7 (0.1) 6.4 9.0
Performance Specialties 44.9 (1.1) (9.4) 34.4
Personal Care 24.0 (0.4) 3.8 27.4
Central Costs (10.7) - 1.4 (9.3)
Adjusted operating profit 58.2 (1.5) (4.2) 52.5
Note: All prior year numbers are restated to reflect the allocation of
Chromium stranded costs to the remaining business units.
2023 Operating profit/(loss) Adjusting 2023 2022 Operating profit/(loss) Adjusting items 2022 Adjusted operating profit/(loss)*
$m
items
Adjusted operating profit/(loss)(*)
$m
$m
$m
$m
$m
Operating profit
for the six months ended 30 June
Coatings 24.9 0.5 25.4 41.0 1.2 42.2
Talc 6.3 2.7 9.0 (23.3) 26.0 2.7
Performance Specialties 31.2 3.2 34.4 17.7 27.2 44.9
Personal Care 23.1 4.3 27.4 19.8 4.2 24.0
Central Costs (10.5) 1.2 (9.3) (10.2) (0.5) (10.7)
Total operating profit 43.8 8.7 52.5 27.3 30.9 58.2
*See note 5
Group results
Group revenue for the first six months of 2023 was $363.8m compared to $387.4m
in the same period last year, a decrease of $23.6m (6.1%). Excluding the
impact of currency, Group revenue declined by 4.4%, driven primarily by weak
market demand and customer destocking in Coatings, partially offset by strong
Personal Care.
Group adjusted operating profit was $52.5m compared to $58.2m in the same
period last year, a decrease of 9.8%, or 7.4% excluding currency movements,
representing an adjusted operating profit margin of 14.4%, down from the prior
year margin of 15.0%. Operating profit increased from $27.3m in the prior year
period to $43.8m primarily driven by the impact of the adjusting items in 2022
(see Note 5 for further information).
Central costs
Central costs are costs that are not identifiable as expenses of a particular
business and comprise the global corporate offices in the UK and US which
include the Board of Directors, executive and senior management. The decrease
in the adjusted operating loss for the first half of 2023 was primarily due to
movements in adjusting items, partially offset by underlying cost inflation.
Adjusting items
In addition to the statutory results, the Group uses alternative performance
measures, such as adjusted operating profit and adjusted diluted earnings per
share, to provide additional useful analysis of the performance of the Group.
The Board considers these non-GAAP measures as an alternative way to measure
the Group's performance. Adjusting items in the 6 months ended June 2023
resulted in a charge of $10.2m before tax, a decrease of $13.0m against the
same period last year. The key categories of adjusting items are summarised
below. For more information on adjusting items and the Group's policy for
adjusting items, please see Note 5.
Charge/(credit) 2023 2022 2022
Six months
Six months
Year
ended
ended
ended
30 June
30 June
31 December
$m
$m
$m
Adjusting items:
Business transformation 1.2 0.8 4.8
Environmental provisions 0.4 (0.5) (3.8)
Impairment of property, plant and equipment - 23.0 23.0
Impairment of goodwill - - 103.4
Amortisation of intangibles arising on acquisition 7.1 7.6 14.9
Total charge to operating profit 8.7 30.9 142.3
Mark to market of derivatives 1.5 (7.7) (6.6)
Tax credit in relation to adjusting items (2.6) (5.0) (8.3)
Total adjusting items 7.6 18.2 127.4
In the first half of 2023, $8.7m of charges to operating profit were
classified as adjusting items. Of these items, $7.1m relates to the
amortisation of intangibles arising on acquisitions. Business transformation
costs of $1.2m included costs incurred in relation to the closure of the
Charleston plant announced in November 2020. A charge of $0.4m to the
environmental provision is comprised of a credit of $0.8m related to the
impact of changes in discount rates and a charge of $1.2m related to extra
remediation work identified.
The charge to finance costs of $1.5m represents movements in mark to market
valuation of financial instruments which are not in hedging relationships.
An explanation of other adjusting items relating to the previous period can be
found within the Finance Report of the 2022 Annual Report and Accounts.
Other expenses
Other expenses are administration costs incurred and paid by the Group's
pension schemes, which relate primarily to former employees of legacy
businesses and were $0.5m in the period compared to $0.6m in the previous
year.
Net finance costs
Net finance costs 2023 2022
$m
$m
for the six months ended 30 June
Finance income 0.4 0.1
Finance cost of borrowings (7.5) (10.6)
(7.1) (10.5)
Net pension finance income/(expense) - 0.3
Unwind of discount on provisions (0.5) (0.3)
Fair value movement on derivatives (0.1) 7.7
Interest on lease liabilities (0.7) (0.7)
Net finance costs (8.4) (3.5)
Net finance costs for the first six months of the year of $8.4m were $4.9m
higher than the same period last year. Within this total, net interest costs
were $3.4m lower at $7.1m due to a reduced level of borrowings and an
effective interest rate hedging policy. Net pension finance costs were $nil
in 2023 compared with a $0.3m credit in 2022 due an higher discount rates.
The unwind of discount on provisions of $0.5m was $0.2m higher compared to
2022 as a result of higher discount rates. The interest on lease liabilities
in the period remained in line with the previous year. The fair value movement
on derivatives which are not in hedging relationships was significantly lower
than the prior year as a result of foreign exchange fluctuations.
Tax
The Group reports an adjusted tax charge for the first half of 2023 of $11.8m
(2022: $10.4m); giving rise to an adjusted effective tax rate of 26.2% (2022:
22.4%). The adjusted effective tax rate is higher than the prior year due the
increase in UK corporation tax rate from 19% to 25% effective from 1 April
2023.
Tax on adjusting items for the first half of 2023 amounts to a credit of $2.6m
(2022: credit of $5.0m); resulting in a total statutory tax charge for the
period of $9.2m (2022: $5.4m) and a reported effective tax rate of 26.4%
(2022: 23.3%).
For the full year 2023, we are currently forecasting an adjusted effective tax
rate of c.26%.
Earnings per share
Statutory basic earnings per share was 4.4 cents for the period compared to
basic earnings per share of 3.1 cents in the prior period.
Basic adjusted and diluted adjusted earnings per share for the first half of
2023, calculated on the adjusted earnings of $33.3m (2022: $36.0m), was 5.7
cents and 5.6 cents compared to 6.2 cents and 6.1 cents respectively for the
same period last year.
Note 9 provides disclosure of earnings per share calculations both including
and excluding the effects of adjusting items and the potential dilutive
effects of outstanding and exercisable options.
Adjusted cash flow
Cash flow is summarised below:
Adjusted cash flow 2023 2022
$m
$m
for the six months ended 30 June
Profit before interest, tax, depreciation and amortisation (Adjusted EBITDA)* 74.0 78.2
Change in working capital (46.2) (51.2)
Net capital expenditure (13.8) (15.1)
Other (1.1) 0.9
Adjusted operating cash flow 12.9 12.8
Pension contribution net of current service cost (0.9) 0.4
Net interest paid (10.8) (11.1)
Tax (10.7) (9.1)
Adjusting items (0.9) (1.1)
Other (including payment of lease liabilities) (1.2) (3.7)
Free cash flow (11.6) (11.8)
Acquisitions and disposals 139.2 -
Discontinued operations (12.0) 6.0
Currency fluctuations (4.3) 13.4
Decrease/(increase) in net debt 111.3 7.6
Net debt at start of period (366.8) (401.0)
Net debt as at end of period (255.5) (393.4)
*See alternative performance measures on page 30
Net debt as at 30 June 2023 of $255.5m is significantly down on the 2022 year
end position of $366.8m due to the disposal of the Chromium business. Adjusted
operating cash flow in the period of $12.9m was slightly higher than the
comparative 2022 period of $12.8m, with lower net working capital outflow and
lower net capital expenditure partially offset by lower earnings.
Net capital expenditure in the period was $13.8m, $1.3m lower than the
previous year. Capital spending for the whole year is expected to be c.$40m.
There were $1.3m of pension payments to the UK pension scheme in the period
(2022: nil). The next triennial review to set any future contribution levels
is due in September 2023.
Net tax payments in the period of $10.7m were slightly higher than the prior
period due to the phasing of tax instalment payments.
Dividend payments were nil in the first six months of 2023 (2022: nil). The
Board recognises the importance of a dividend to our shareholders. However,
given the continued macroeconomic uncertainty and the desire to further reduce
leverage, the Board has decided it is prudent not to declare an interim
dividend for 2023. The Board will keep future dividends under review and will
restart payments as soon as it is appropriate to do so.
Overall the Group had a net debt position at 30 June 2023 of $255.5m,
representing a net debt/EBITDA ratio of 2.0x on a pre-IFRS 16 basis (2.2x at
December 2022). Further reduction in leverage is expected by the year end,
driven by improved trailing months earnings and robust cash conversion.
Working capital
Working capital days 30 June 30 June 31 December
2023 2022 2022
Inventory 128 116 129
Debtors 44 43 37
Creditors 60 72 82
Average working capital to sales (%) 25.3 19.4 22.5
Total working capital for the Group of $192.2m was $50.7m higher than at 31
December 2022, driven by increased debtors and lower creditors. As a result,
debtors days increased from 37 days (31 December 2022) to 44 days and creditor
days decreased from 82 days (31 December 2022) to 60 days. Inventory days have
remained reasonably stable and we are looking to reduce absolute inventory
levels in the second half.
Balance sheet
30 June 30 June 31 December 2022
2023
2022
$m
$m
$m
Property, plant and equipment 385.3 452.6 386.4
Other net assets 708.9 830.2 764.3
Net debt (255.5) (393.4) (366.8)
Equity 838.7 899.4 783.9
Property, plant and equipment decreased by $1.1m compared to the value at 31
December 2022, primarily as a result of depreciation of $18.2m for the 6
months offset by net capital expenditure of $13.4m and currency translation.
Other net assets decreased by $55.4m primarily as a result of the disposal of
the Chromium business which was completed on 31 January 2023.
Equity increased by $54.8m compared to 31 December 2022, primarily as a result
of the statutory profit in the period of $27.5m, net of $9.3m from the impact
of the disposal of the impact of the disposal of the Chromium business,
foreign exchange gains of $8.4m and gains from impact of accounting for cash
flow hedges of $7.8m. The remainder of the movement relates primarily to share
based payment provisions and actuarial losses on pensions, net of the deferred
tax impact.
The main dollar currency exchange rates as at 30 June 2023 and average rates
in the period were:
2023 2023 2022 2022
30 June
Average
30 June
Average
Sterling 0.79 0.82 0.82 0.77
Euro 0.92 0.93 0.96 0.91
Pensions and post retirement plans
UK US Other Total
$m
$m
$m
$m
Movement in net deficit
Net surplus/(deficit) in schemes at 1 January 2023 26.4 (3.5) (5.4) 17.5
Current service cost - (0.3) (0.2) (0.5)
Contributions 1.3 0.7 (0.1) 1.9
Administration costs (0.4) (0.1) - (0.5)
Net interest expense 0.7 (0.5) (0.2) -
Actuarial gain/(loss) (4.5) 3.6 (0.2) (1.1)
Currency translation difference 1.3 - 0.3 1.6
Net surplus/(deficit) in schemes at 30 June 2023 24.8 (0.1) (5.8) 18.9
During the period the surplus, under IAS 19, on the Group's pension and
post-retirement medical plans increased by $1.4m to a net surplus of $18.9m.
During the first six months of 2023 the UK scheme had an annualised loss on
scheme assets of 5.1% (2022: return of 35.8%), liabilities decreased by 5%
(2022: decreased by 23%) and the net surplus decreased by $1.6m. This movement
was driven by actuarial changes due predominantly to an increase in the
discount rate which more than offset a decrease in scheme assets over the
period and the impact of higher inflation. Within the US schemes the net
deficit decreased by $3.4m mainly due to the net return on plan assets.
Contributions in the period totalled $0.7m (2022: $0.5m), all to the US plans.
There were net $1.3m pension payments to the UK pension scheme in the period
(2022: nil). The next triennial review is due in September 2023.
Related party transactions
There were no material related party transactions entered into during the
first half of the year and there have been no material changes to the related
party transactions disclosed in the Company's 2022 Annual Report and Accounts
on
page 210.
Cautionary statement
The Elementis plc interim results announcement for the half year ended 30 June
2023, which comprises the CEO's report, Finance report and the Directors'
responsibility statement (which taken together constitute the Interim
management report) and the interim financial statements and accompanying notes
(incorporating a Condensed consolidated balance sheet at 30 June 2023,
Condensed consolidated income statement, Condensed consolidated statement of
comprehensive income, Condensed consolidated cash flow statement and Condensed
consolidated statement of changes in equity, each for the six months ended 30
June 2023) (altogether 'Half-yearly financial report'), contains information
which viewers or readers might consider to be forward looking statements
relating to or in respect of the financial condition, results, operations or
businesses of Elementis plc. Any such statements involve risk and uncertainty
because they relate to future events and circumstances. There are many factors
that could cause actual results or developments to differ materially from
those expressed or implied by any such forward looking statements. Nothing in
this Half-yearly financial report should be construed as a profit forecast.
Directors' responsibility statement
A full list of the Directors can be found on the Elementis corporate website
at: www.elementis.com (http://www.elementis.com) .
The Directors confirm that to the best of their knowledge:
· The condensed set of financial statements set out in this Half-yearly
financial report has been prepared in accordance with IAS 34 Interim Financial
Reporting as adopted by the United Kingdom.
· The condensed set of consolidated financial statements, which has been
prepared in accordance with the applicable set of accounting standards, gives
a true and fair view of the assets, liabilities, financial position and profit
or loss of the issuer, or the undertakings included in the consolidation as a
whole as required by DTR 4.2.4R; and
· The interim management report contained in this Half-yearly financial
report includes a fair review of the information required by:
- DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of the important events that have occurred during the first six
months of the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year.
- DTR 4.2.8R of the Transparency Rules, being related party transactions
that have taken place in the first six months of the current financial year
and that have materially affected the financial position or performance of the
entity during that period; and any changes in related party transactions
described in the 2022 Annual Report and Accounts that could have a material
effect on the financial position or performance of the entity during the first
six months of the current financial year.
Approved by the Board on 26 July 2023 and signed on its behalf by:
Paul Waterman
Ralph Hewins
CEO
CFO
26 July 2023
26 July 2023
INDEPENDENT REVIEW REPORT TO ELEMENTIS PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2023 which comprises the condensed consolidated income statement, the
condensed consolidated statement of comprehensive income, the condensed
consolidated balance sheet, the condensed consolidated cashflow statement, the
condensed consolidated statement of changes in equity, and related notes 1 to
17.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2023 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim
financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with United Kingdom adopted international financial
reporting standards. The condensed set of financial statements included in
this half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the company a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our Conclusion, including our
Conclusion Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with ISRE (UK) 2410.
Our work has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
Cambridge, United Kingdom
26 July 2023
Condensed consolidated income statement
for the six months ended 30 June 2023
Note 2023 2022(1) 2022
Six months ended
Six months
Year
30 June
ended
ended
$m
30 June
31 December
$m
$m
(unaudited)
(unaudited) (audited)
Revenue 4 363.8 387.4 736.4
Cost of sales (219.4) (224.5) (437.5)
Gross profit 144.4 162.9 298.9
Distribution costs (58.7) (64.0) (125.0)
Administrative expenses (41.9) (71.6) (215.7)
Operating profit/(loss) 4 43.8 27.3 (41.8)
Other expenses (0.5) (0.6) (1.3)
Finance income 6 1.8 7.8 9.9
Finance costs 7 (10.2) (11.3) (21.6)
Profit/(loss) before tax 4 34.9 23.2 (54.8)
Tax 8 (9.2) (5.4) (7.8)
Profit/(loss) from continuing operations 25.7 17.8 (62.6)
Profit from discontinued operations 1.8 3.0 11.5
Profit/(loss) for the period 27.5 20.8 (51.1)
Attributable to: 27.5 20.8 (51.1)
Equity holders of the parent
Earnings per share
From continuing operations
Basic earnings/(loss) (cents) 9 4.4 3.1 (10.7)
Diluted earnings/(loss) (cents) 9 4.3 3.0 (10.7)
From continuing and discontinued operations
Basic earnings/(loss) (cents) 9 4.7 3.6 (8.8)
Diluted earnings/(loss) (cents) 9 4.6 3.5 (8.8)
(1) 2022 has been represented following the classification of the Chromium
business as a discontinued operation, see Note 15 for further details.
Condensed consolidated statement of comprehensive income for the six months
ended 30 June 2023
2023 2022(1) 2022
Six months
Six months
Year
ended
ended
ended
30 June
30 June
31 December
$m
$m
$m
(unaudited) (unaudited) (audited)
Profit/(loss) for the period 27.5 20.8 (51.1)
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of retirement benefit obligations (1.1) 9.8 (18.5)
Deferred tax associated with retirement benefit obligations 0.4 (2.2) 5.3
Items relating to discontinued operations, net of tax - - 0.3
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations (4.2) 0.3 (100.9)
Effective portion of change in fair value of net investment hedge 12.6 (38.6) 46.2
Tax associated with change in fair value of net investment hedge - - (2.8)
Tax associated with changes in cashflow hedges - - 0.8
Recycling of deferred foreign exchange losses on disposal 9.3 - -
Effective portion of changes in fair value of cash flow hedges 10.5 5.9 (2.6)
Fair value of cash flow hedges transferred to income statement (2.7) 1.8 1.6
Exchange differences on translation of share options reserves 0.3 (1.0) (0.9)
Other comprehensive income/(loss), net of tax 25.1 (24.0) (71.5)
Total comprehensive income/(loss) for the period 52.6 (3.2) (122.6)
Attributable to:
Equity holders of the parent 52.6 (3.2) (122.6)
Total comprehensive income/(loss) for the period 52.6 (3.2) (122.6)
(1) 2022 has been represented following the classification of the Chromium
business as a discontinued operation, see Note 15 for further details.
Condensed consolidated balance sheet
at 30 June 2023
2023 2022(1) 2022
30 June
30 June
31 December
$m
$m
$m
(unaudited) (unaudited) (audited)
Non-current assets
Goodwill and other intangible assets 655.1 785.2 660.2
Property, plant and equipment 385.3 452.6 386.4
Tax recoverable 18.4 17.7 17.5
Deferred tax assets 24.8 28.0 24.8
Net retirement benefit surplus 24.8 58.5 26.4
Derivative financial instruments 7.0 4.0 1.3
Total non-current assets 1,115.4 1,346.0 1,116.6
Current assets
Inventories 174.8 218.8 182.0
Trade and other receivables 121.2 152.0 94.9
Derivative financial instruments 6.9 7.0 10.7
Current tax asset - 7.1 7.0
Cash and cash equivalents 67.3 76.7 54.9
Total current assets 370.2 461.6 349.5
Assets classified as held for sale - - 160.9
Total assets 1,485.6 1,807.6 1,627.0
Current liabilities
Bank overdrafts and loans (1.0) (5.3) (2.7)
Trade and other payables (103.8) (168.6) (135.4)
Financial liabilities (0.6) (0.8) (3.3)
Current tax liabilities (17.6) (14.3) (20.2)
Lease liabilities (5.8) (6.8) (6.1)
Provisions (7.9) (7.9) (5.8)
Total current liabilities (136.7) (203.7) (173.5)
Non-current liabilities
Loans and borrowings (318.0) (463.2) (414.7)
Retirement benefit obligations (5.9) (15.7) (8.9)
Deferred tax liabilities (134.4) (146.7) (131.3)
Lease liabilities (30.6) (31.1) (30.2)
Provisions (21.3) (47.8) (23.9)
Financial liabilities - - (2.8)
Total non-current liabilities (510.2) (704.5) (611.8)
Liabilities classified as held for sale - - (57.8)
Total liabilities (646.9) (908.2) (843.1)
Net assets 838.7 899.4 783.9
Equity
Share capital 52.5 52.2 52.3
Share premium 238.7 243.0 238.7
Other reserves 68.0 58.5 42.1
Retained earnings 479.5 545.7 450.8
Equity attributable to equity holders of the parent 838.7 899.4 783.9
Total equity and reserves 838.7 899.4 783.9
(1) The classification of the Chromium business as held for sale was at 30
November 2022, thus the at 30 June 2022 Balance Sheet has not been represented
to exclude the impact of the Chromium business.
Condensed consolidated cash flow statement
for the six months ended 30 June 2023
2023 2022(1) 2022(1)
Six months
Six months
Year
ended
ended
ended
30 June
30 June
31 December
$m
$m
$m
(unaudited) (unaudited) (unaudited)
Operating activities:
Profit/(loss) from continuing operations 25.7 17.8 (62.6)
Adjustments for:
Other expenses 0.6 0.6 1.3
Finance income (1.8) (7.8) (9.9)
Finance costs 10.2 11.3 21.6
Tax charge 9.2 5.4 7.8
Depreciation and amortisation 28.8 28.1 56.9
Decrease in provisions and financial liabilities (2.9) (2.0) (7.7)
Pension payments net of current service cost (0.9) 0.4 (0.7)
Share based payments expense 2.0 2.1 3.4
Impairment of goodwill - - 103.4
Impairment of property, plant and equipment - 23.0 23.0
Operating cash flows before movements in working capital 70.9 78.9 136.5
Decrease/(Increase) in inventories 9.6 (39.4) (57.5)
(Increase)/decrease in trade and other receivables (22.0) (17.8) 6.5
(Decrease)/increase in trade and other payables (33.8) 10.5 13.8
Cash generated by operations 24.7 32.2 99.3
Income taxes paid (10.7) (11.0) (13.3)
Interest paid (11.2) (9.3) (14.6)
Net cash flow used in operating activities from discontinued operations (11.9) 7.9 5.6
Net cash used in operating activities (9.1) 19.8 77.0
Investing activities:
Interest received 0.4 0.1 0.2
Cash received on settlement of derivative option 1.9 - -
Disposal of property, plant and equipment - 0.3 (0.4)
Purchase of property, plant and equipment (13.4) (15.3) (33.1)
Purchase of business - - -
Disposal of business 139.2 - -
Acquisition of intangible assets - (0.1) (0.2)
Net cash flow used in investing activities from discontinued operations (0.3) (6.8) (13.4)
Net cash flow from investing activities 127.8 (21.8) (46.9)
Financing activities:
Issue of shares by the Company and the ESOT net of issue costs - - 0.9
Net movement on existing debt (103.4) 0.6 (51.6)
Payment of lease liabilities (3.1) (3.7) (7.1)
Net cash flow from financing activities from discontinued operations - (0.1) -
Net cash used in financing activities (106.5) (3.2) (57.8)
Net increase/(decrease) in cash and cash equivalents 12.2 (5.2) (27.7)
Cash and cash equivalents at beginning of period 54.9 84.6 84.6
Foreign exchange on cash and cash equivalents 0.2 (2.7) (2.0)
Cash and cash equivalents at end of period 67.3 76.7 54.9
(1) 2022 has been represented following the classification of the Chromium
business as a discontinued operation, see Note 15 for further details.
Condensed consolidated statement of changes in equity
for the six months ended 30 June 2023
Share capital Share premium Translation reserve Hedging reserve Other Retained earnings Total
$m
$m
$m
$m
reserves
$m
equity
$m
$m
At 1 January 2023 52.3 238.7 (122.4) (1.0) 165.5 450.8 783.9
Profit for the period - - - - - 27.5 27.5
Other comprehensive income:
Exchange differences - - 8.4 - 0.3 - 8.7
Movement in cash flow hedges - - - 7.8 - - 7.8
Remeasurement of retirement benefit obligations - - - - - (1.1) (1.1)
Deferred tax adjustment on retirement benefit obligations - - - - - 0.4 0.4
Recycling of deferred foreign exchange on disposal - - 9.3 - - - 9.3
Transfer - - - - (1.9) 1.9 -
Transactions with owners:
Issue of shares by the Company 0.2 - - - - - 0.2
Share based payments - - - - 2.0 - 2.0
At 30 June 2023 52.5 238.7 (104.7) 6.8 165.9 479.5 838.7
Share capital Share premium Translation reserve Hedging reserve Other Retained earnings Total
$m
$m
$m
$m
reserves
$m
equity
$m
$m
At 1 January 2022 52.2 240.8 (67.7) (8.6) 167.0 517.3 901.0
Profit for the period - - - - - 20.8 20.8
Other comprehensive income:
Exchange differences - - (38.3) - (1.0) - (39.3)
Movement in cash flow hedges - - - 7.7 - - 7.7
Remeasurement of retirement benefit obligations - - - - - 9.8 9.8
Deferred tax adjustment on retirement benefit obligations - - - - - (2.2) (2.2)
Transactions with owners:
Issue of shares by the Company - 2.2 - - (2.2) - -
Share based payments - - - - 2.1 - 2.1
Fair value of cash flow hedges transferred to net assets - - - (0.5) - - (0.5)
At 30 June 2022 52.2 243.0 (106.0) (1.4) 165.9 545.7 899.4
Notes to the interim financial statements
for the six months ended 30 June 2023
1. General Information
Elementis plc (the 'Company') and its subsidiaries (together, the 'Group')
manufacture specialty chemicals. The Group has operations in the US, UK,
Brazil, Germany, Finland, The Netherlands, China, Taiwan, Malaysia and India.
The Company is a limited liability company incorporated and domiciled in
England, UK and is listed on the London Stock Exchange.
2. Accounting policies
Basis of preparation
The annual financial statements of Elementis plc will be prepared in
accordance with United Kingdom adopted International Financial Reporting
Standards. This condensed set of financial statements (also referred to as
'interim financial statements' in this announcement) has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by the United
Kingdom.
As required by the Disclosure and Transparency Rules of the Financial Conduct
Authority, the condensed set of financial statements has been prepared
applying the same accounting policies and presentation that were applied in
the preparation of the Company's published consolidated financial statements
for the year ended 31 December 2022 except for the adoption of new standards
effective as of 1 January 2023. The Group has not early adopted any standard,
interpretation or amendment that has been issued but is not yet effective.
Several amendments apply for the first time in 2023, but do not have an impact
on the interim condensed consolidated financial statements of the Group. Key
judgements and sources of estimation uncertainty remain unchanged from those
as set out in the Annual Report and Accounts at 31 December 2022.
The information for the year ended 31 December 2022 does not constitute
statutory accounts as defined in section 434 of the Companies Act 2006. A copy
of the statutory accounts for that year has been delivered to the Registrar of
Companies. The auditor's report on those accounts was not qualified, did not
include a reference to any matters to which the auditors drew attention by way
of emphasis without qualifying the report and did not contain statements under
section 498(2) or (3) of the Companies Act 2006.
3. Going concern
Given the continuing uncertainties resulting from the macro-economic
environment in which the Group operates, the directors have placed a
particular focus on the appropriateness of adopting the going concern basis in
preparing the condensed consolidated financial statements for the six months
ended 30 June 2023.
The Group's going concern assessment covers the period of at least 12 months
from the date of authorisation of these consolidated half year financial
statements (the "going concern period"), and takes into account its
substantial liquidity, committed expenditure, and likely ongoing levels of
costs.
In preparing the assessment, alongside the most likely "base case" forecast,
the Board has considered both a "reverse stress test case" which flexes sales
and costs to determine what circumstances would be required to breach banking
covenants, and a "plausible downside case". This assessment shows the Group
has sufficient liquidity to discharge its liabilities as they fall due
throughout the going concern period under the base case, assuming continued
access to our revolving credit facilities. Access to these credit facilities
is dependent on the Group operating within its financial covenants.
Testing up to 30 June 2023 confirmed that the Group operated within these
covenants and under the base case the Group is expected to remain within its
financial covenants throughout the going concern period and the conditions
necessary for the reverse stress scenario to be applicable were deemed remote.
The directors also considered factors likely to affect future performance and
development, the Group's financial position, current excess liquidity
position, high level of cash conversion and the principal risks and
uncertainties facing the Group, including the Group's exposure to credit,
liquidity and market risk and the mechanisms for dealing with these risks.
In conclusion, after reviewing the base case and considering the remote
likelihood of the scenario in the reverse stress test case occurring as well
as having considered the uncertainty relating to the macro-economic
environment and the mitigating actions available, the directors have formed
the judgement that, at the time of approving the consolidated financial
statements, there are no material uncertainties that cast doubt on the Group's
going concern status and that it is appropriate to prepare the consolidated
accounts on the going concern basis.
4. Segment reporting
Effective from 1 January 2023 the results of the Coatings and Talc divisions
were merged and are now reported under a new operating division called
Performance Specialties, which reflects a change in the internal organisation
structure used for management, internal reporting purposes and the allocation
of strategic resources. We continue to report results for the Coatings and
Talc operating segments in line with IFRS 8. Our reporting segments are
therefore:
Performance Specialties which consists of:
· Coatings - production of rheological modifiers and additives for
decorative and industrial coatings
· Talc - production and supply of talc for use in plastics,
coatings, technical ceramics and paper sectors
Personal Care - production of rheological modifiers and compounded products,
including active ingredients for anti-perspirant deodorants, for supply to
Personal Care manufacturers
2023 Six months 2022 Six months ended 30 2022 Year ended 31 December
ended 30 June June
Revenue
Coatings 181.0 209.3 389.1
Talc 71.0 72.5 135.8
Performance Specialties 252.0 281.8 524.9
Personal Care 111.8 105.6 211.5
Revenue 363.8 387.4 736.4
All revenues are external and relate to the sale of goods. Revenue and
operating profit in Coatings (Decorative Paints) and Personal Care (AP
Actives) are marginally impacted by seasonal influences. Revenue and operating
profit tend to be higher in the first half of the year as our customers ramp
up production ready to meet end-customer demand in the summer months, when
weather conditions are favourable for painting and when anti-perspirants are
in greater demand.
Reported profit before tax for the six months Coatings Talc Performance Specialties Personal Care Segment totals Central Total
$m
costs
$m
ended 30 June 2023 $m $m $m $m
$m
Adjusted operating profit/(loss) 25.4 9.0 34.4 27.4 61.8 (9.3) 52.5
Adjusting Items
Business transformation (0.3) - (0.3) (0.1) (0.4) (0.8) (1.2)
Increase in environmental provisions due to a change in cost of remediation - - - - - (1.2) (1.2)
work identified
Decrease in environmental provisions due to change in discount rate - - - - - 0.8 0.8
Amortisation of intangibles arising on acquisition (0.2) (2.7) (2.9) (4.2) (7.1) - (7.1)
Reported operating profit/(loss) 24.9 6.3 31.2 23.1 54.3 (10.5) 43.8
Other expenses (0.5)
Finance income 1.8
Finance costs(1) (10.2)
Reported profit before income tax 34.9
(1) Finance costs of $10.2m includes the mark to market on derivatives of
$1.5m.
Reported profit before tax for the six months Coatings Talc Performance Specialties Personal Care Segment totals Central Total
$m
$m
costs
$m
ended 30 June 2022 $m $m $m
$m
Adjusted operating profit/(loss) 42.2 2.7 44.9 24.0 68.9 (10.7) 58.2
Adjusting Items
Business transformation (0.6) (0.2) (0.8) - (0.8) - (0.8)
Increase in environmental provisions due to a change in cost of remediation - - - - - (3.6) (3.6)
work identified
Decrease in environmental provisions due to change in discount rate - - - - - 4.1 4.1
Write-off of plant and equipment - (23.0) (23.0) - (23.0) - (23.0)
Amortisation of intangibles arising on acquisition (0.6) (2.8) (3.4) (4.2) (7.6) - (7.6)
Reported operating profit/(loss) 41.0 (23.3) 17.7 19.8 37.5 (10.2) 27.3
Other expenses (0.6)
Finance income(1) 7.8
Finance costs (11.3)
Reported profit before income tax 23.2
Note: All prior year numbers are restated to reflect the allocation of
Chromium stranded costs to the remaining business units.
(1) Finance income of $7.8m includes the mark to market on derivatives of
$7.7m.
5. Adjusting items and alternative performance measures
In addition to the statutory results, the Group uses alternative performance
measures, such as adjusted operating profit and adjusted diluted earnings per
share, to provide additional useful analysis of the performance of the
business. The Board considers these non-GAAP measures as an alternative way to
measure the Group's performance. Adjusting items in the 6 months ended 30 June
2023 resulted in a charge of $10.2m before tax, a decrease of $13.0m against
the same period from last year. The key categories of adjusting items are
summarised below.
2023 2022 2022
Six months
Six months
Year
ended
ended
ended
30 June
30 June
31 December
$m
$m
$m
Reported operating profit/(loss) 43.8 27.3 (41.8)
Adjusting items:
Business transformation 1.2 0.8 4.8
Environmental provisions
Increase in provisions due to change in cost of remediation work identified 1.2 3.6 3.4
Decrease in provisions due to change in discount rate (0.8) (4.1) (7.2)
Write-off of plant and equipment - 23.0 23.0
Impairment of goodwill - - 103.4
Amortisation of acquired intangibles 7.1 7.6 14.9
Net adjusting items 8.7 30.9 142.3
Adjusted operating profit 52.5 58.2 100.5
Adjusting items:
Mark to market of derivative financial instruments 1.5 (7.7) (6.6)
Net adjusting items on profit before tax 10.2 23.2 135.7
2023 2022 2022
Six months
Six months
ended
ended Year
30 June
30 June
ended
$m
$m
31 December
$m
Adjusted operating profit/(loss)
Coatings 25.4 42.2 70.3
Talc 9.0 2.7 (0.4)
Performance Specialties 34.4 44.9 69.9
Personal Care 27.4 24.0 49.0
Central costs (9.3) (10.7) (18.4)
Adjusted operating profit 52.5 58.2 100.5
Other expenses (0.5) (0.6) (1.3)
Finance income(2,3) 1.8 0.1 3.3
Finance costs(1) (8.7) (11.3) (21.6)
Adjusted profit before tax 45.1 46.4 80.9
Note: All prior year numbers are restated to reflect the allocation of
Chromium stranded costs to the remaining business units.
(1 )Adjusted finance costs for the six months ended 30 June 2023 of $8.7m
excludes the mark to market on derivatives of $1.5m.
(2) Adjusted finance income for the six months ended 30 June 2022 of $0.1m
excludes the mark to market on derivatives of $7.7m.
(3) Adjusted finance income for the year ended 31 December 2022 of $3.3m
excludes the mark to market derivatives of $6.6m
Adjusting items in the period fall into the following categories:
Business transformation
In November 2020 the closure of the Charleston plant was announced. The costs
incurred for the period to 30 June 2023 associated with the closure of the
site are classified as an adjusting item and the site is planned to be
disposed of in the future.
Environmental provision
The Group's environmental provision is calculated on a discounted cash flow
basis, reflecting the time period over which spending is estimated to take
place. The net movement on the provision for the period to 30 June 2023 is
$0.4m. This is comprised of an income statement credit of $0.8m due to a
change in discount rates and extra remediation work identified in the period
to 30 June 2023 which has resulted in a $1.2m increase in the liability. As
the provision relates to non-operational facilities these movements are
classified as adjusting items.
Amortisation of intangibles arising on acquisition
Amortisation of $7.1m represents the charge in respect of the Group's acquired
intangible assets. As in previous periods, these are included in adjusting
items as they are a non-cash charge arising from historical investment
activities.
An explanation of other adjusting items relating to the full year 2022 can be
found within the 2022 Annual Report and Accounts.
6. Finance income
2023 2022 2022
Six months
Six months
Year
ended
ended
ended
30 June
30 June
31 December
$m
$m
$m
Interest on bank deposits 0.4 0.1 0.2
Pension and other post-retirement liabilities - - 0.6
Fair value movement on derivatives 1.4 7.7 9.1
1.8 7.8 9.9
7. Finance costs
2023 2022 2022
Six months
Six months
Year
ended
ended
ended
30 June
30 June
31 December
$m
$m
$m
Interest on bank loans 7.5 10.6 19.5
Unwind of discount on provisions 0.5 0.3 0.7
Pension and other post-retirement liabilities - (0.3) -
Interest on lease liabilities 0.7 0.7 1.4
Fair value movement on derivatives 1.5 - -
10.2 11.3 21.6
8. Tax
The charge for tax on profits of $9.2m gives rise to an effective tax rate of
26.3% (2022: $5.4m, or 23.3%) and is based on the probable tax charge in those
jurisdictions where profits arise. Within this figure is a tax credit of $2.6m
(2022: $5.0m) in respect of adjusting items.
9. Earnings per share
2023 2022 2022
Six months
Six months
Year
ended
ended
ended
30 June
30 June
31 December
$m
$m
$m
Earnings from continuing operations 25.7 17.8 (62.6)
Adjusting items net of tax from continuing operations 7.6 18.2 127.4
Adjusted earnings from continuing operations 33.3 36.0 64.8
Earnings from discontinued operations 1.8 3.0 11.5
Earnings from continuing and discontinued operations 27.5 20.8 (51.1)
Number(m) Number(m) Number(m)
Weighted average number of shares for the purposes of basic 585.1 582.1 582.6
earnings per share
Effect of dilutive share options 10.6 5.3 9.7
Weighted average number of shares for the purposes of diluted 595.7 587.4 592.3
earnings per share
2023 2022 2022
Six months
Six months
Year
ended
ended
ended
30 June
30 June
31 December
cents
cents
cents
Earnings per share from continuing operations
Basic 4.4 3.1 (10.7)
Diluted 4.3 3.0 (10.7)
Adjusted earnings per share from continuing operations
Basic 5.7 6.2 11.1
Diluted 5.6 6.1 10.9
Earnings per share from discontinued operations
Basic 0.3 0.5 2.0
Diluted 0.3 0.5 2.0
Earnings per share from continuing and discontinued operations
Basic 4.7 3.6 (8.8)
Diluted 4.6 3.5 (8.8)
10. Dividends
The following dividends were declared and paid by the Group:
2023 2022 2022
Six months
Six months
Year
ended
ended
ended
30 June
30 June
31 December
$m
$m
$m
Dividends paid on ordinary shares - - -
11. Pension
Valuations for IAS 19 purposes were conducted as of 30 June 2023. At this date
the Group is reporting a surplus on its UK scheme of $24.8m (2022: surplus of
$58.5m), and a deficit on all other schemes of $5.9m (2022: deficit of
$15.6m). Additional commentary is included in the Finance Report.
A triennial valuation for the UK scheme is expected in September 2023, which
will reflect revised demographic assumptions, including mortality base tables.
The Group expects to incorporate revised demographic assumptions in its
forthcoming actuarial valuation. The Group is at an early stage in quantifying
the impact of revised assumptions on the recognised surplus at 30 June 2023.
Initial high-level estimates suggest that the revised mortality assumptions
would increase the surplus by approximately $9.1m. The revised mortality
assumptions take into consideration the latest plan-specific and wider UK
population mortality experience. Further disclosures will be made in the 2023
Annual Report and Accounts.
12. Movement in net borrowings
2023 2022 2022
Six months
Six months
Year
ended
ended
ended
30 June
30 June
31 December
$m
$m
$m
Change in net borrowings resulting from cash flows:
Decrease in cash and cash equivalents 12.2 (5.2) (27.8)
Increase in bank overdrafts and loans (52.3) (5.6) (3.0)
Decrease in borrowings 155.7 5.0 54.6
115.6 (5.8) 23.8
Currency translation differences (4.3) 13.4 10.4
Decrease in net debt 111.3 7.6 34.2
Net debt at beginning of period (366.8) (401.0) (401.0)
Net debt at end of period (255.5) (393.4) (366.8)
13. Financial risk management
The Group has exposure to the following financial risks:
· credit risk;
· liquidity risk; and
· market risk.
The Board of Directors has overall responsibility for the establishment and
oversight of the Group's risk management framework. The Group's risk
management policies are established to identify and analyse the risks faced by
the Group, to set appropriate risk limits and controls, and to monitor risks
and adherence to limits. Risk management policies and systems are reviewed
regularly to reflect changes in market conditions and the Group's activities.
The Group's Audit Committee, assisted by Internal Audit, oversees how
management monitors compliance with the Group's risk management policies and
procedures and reviews the adequacy of the risk management framework in
relation to the risks faced by the Group. These interim financial statements
do not include all the financial risk management information and disclosures
that are required in the Annual report and accounts and should be read in
conjunction with the financial statements for the year ended 31 December 2022.
The Group's risk management policies have not changed since the year end.
The Group measures fair values in respect of financial instruments in
accordance with IFRS 13, using the following fair value hierarchy that
reflects the significance of the inputs used in making the measurements:
· Level 1: Quoted market price (unadjusted) in an active market for
an identical instrument.
· Level 2: Valuation techniques based on observable inputs, either
directly or indirectly.
· Level 3: Valuation techniques using significant unobservable
inputs.
Derivatives are held at fair value and are categorised within Level 2. All
other financial instruments are held at amortised cost, which is assumed to
approximate their fair values. All the fair values of financial assets and
liabilities carried at amortised cost are considered to be Level 2 valuations
which are determined using directly or indirectly observable inputs other than
unadjusted quoted prices.
14. Contingent liabilities
As is the case with other chemical companies, the Group occasionally receives
notices of litigation relating to regulatory and legal matters. A provision is
recognised when the Group believes it has a present legal or constructive
obligation as a result of a past event, and it is probable that an outflow of
economic benefits will be required to settle the obligation. Where it is
deemed that an obligation is merely possible and that the probability of a
material outflow is not remote, the Group would disclose a contingent
liability.
In 2013 the UK Government (through HMRC) introduced the UK Finance Company
Exemption ('FCE') regime. Elementis entered into the FCE regime during 2014.
In October 2017 the European Commission opened a State Aid investigation into
the regime. In April 2019 the European Commission concluded that the FCE
regime constituted State Aid in circumstances where Groups had accessed the
regime using a financing company with UK significant people functions; the
European Commission therefore instructed the UK Government to collect any
relevant State Aid amounts. The UK government and other UK-based international
companies, including Elementis, appealed to the General Court of the European
Union against the decision in 2019.
In Spring 2020 HMRC requested that affected Groups submit their UK significant
people function analysis. The deadline for submission of these analyses was
delayed due to the impact of COVID-19 and Elementis submitted its analysis to
HMRC in July 2020. In December 2020 the UK government introduced legislation
to commence collection proceedings.
Elementis received a charging notice from HMRC on 5 February 2021 which
assessed for the maximum exposure of $19m (excluding interest). This was paid
to HMRC on 5 March 2021. A charging notice for associated interest of $1m was
received on 24 June 2021 and paid on 7 July 2021. Whilst Elementis lodged an
appeal against the charging notices that did not defer the payment of the tax
assessed.
The UK Government's appeal against the European Commission's decision was
heard by the General Court of the European Union during October 2021 and on 8
June 2022 the General Court of the European Union ruled against the UK
Government. The UK Government lodged a further appeal to the European Court of
Justice during Q3 2022. As Elementis continues to consider that the appeal
process will ultimately be successful, at 30 June 2023 an asset has been
recorded within non-current assets in the expectation that the charge will be
repaid in due course. At this point in time we have not recognised any
interest on the EU state aid receivable.
In August 2022 the Brazilian tax authorities opened a tax audit into the
Group's Brazilian entity. The audit is focused on the customs classification
code used since 2017 for one of the entity's imported raw materials. The
potential exposure is c.$5m. Management have obtained legal advice on the
matter and, based on the advice received, conclude that as at 30 June 2023 it
is not probable that an outflow of economic resources will be required to
settle the matter.
During 2022 the Group terminated a distribution agreement with one of its
longstanding distributors. In line with the terms of the distribution
agreement, the distributor is entitled to an amount of compensation for such a
termination. Whilst the maximum amount payable would be $3.4m, management
believe that the correct figure is materially lower. Discussions remain
ongoing between the two parties and management have concluded that at this
stage the obligation cannot be measured with sufficient reliability.
During 2023 a legal case regarding historic asbestos exposure in which the
Group was a co-defendant returned a verdict in favour of the plaintiff.
Elementis was assigned 5% of the total damages awarded, with the Group's share
being c.$1.7m. The Group and the other co-defendants intend to appeal the
verdict and our external legal counsel currently judge that such an appeal is
more likely than not to be successful. As such management have concluded that
as at 30 June 2023 it is not probable that an outflow of resources will be
required to settle the matter.
15. Disposal of Chromium business
On 31 January 2023, the sale of the Chromium business to Yildirim Group was
completed, with the business classified as a discontinued operation. The Group
received gross cash proceeds of $139.2m ($127.2m net of total disposal
transaction costs(1)) from the sale.
The results of the discontinued operation included within the consolidated
income statement are as follows:
2023 2022 2022
Six months
Six months
Year
ended
ended
ended
30 June
30 June
31 December
$m
$m
$m
Revenue 14.4 90.9 185.0
Expenses (14.2) (84.2) (165.0)
Calculated gain on sale of Chromium business 25.9 - -
Disposal transaction costs(1) (6.4) (2.3) (5.6)
Recycling of deferred foreign exchange losses (9.3) - -
Profit before income tax 10.4 4.4 14.4
Income tax (8.6) (1.4) (2.9)
Profit from discontinued operations 1.8 3.0 11.5
(1) Total disposal transaction costs of $12.0m includes $6.4m incurred in the
6 months ended 30 June 2023 and $5.6m incurred in the year ended 31 December
2022.
16. Events after balance sheet date
There were no further events after the balance sheet date.
17. Related party transactions
Management has performed a review for any related party transactions and have
concluded that position remains unchanged from the year ended 31 December 2022
and is consistent with the information disclosed on page 210 of the Company's
2022 Annual report and accounts.
Principal risks and uncertainties
The Group has policies, processes and systems in place to help identify,
evaluate and manage risks throughout the organisation that may have a material
effect on its business operations and the delivery of its strategic
objectives, including its business model, future performance, solvency,
liquidity and / or reputation. The Board continues to take a proactive
approach to recognising and mitigating risk with the aim of protecting its
employees and safeguarding the interests of the Group, its shareholders,
employees, customers, suppliers and all other stakeholders.
The principal risks and uncertainties facing the Group are set out in the
Annual Report and Accounts for the 12 months ended 31 December 2022 (pages 86
to 94). The Group has reviewed these risks and concluded that they will remain
relevant for the second half of the financial year. The potential impact of
these risks, together with details of specific mitigating actions are set out
in the 2022 Annual Report and Account.
All risks are subject to Executive oversight and assessment and we continue to
review the effectiveness and efficiency of existing controls over those risks
and to identify further actions where appropriate in order to manage our
exposure.
Alternative performance measures
A reconciliation from reported profit for the year to adjusted earnings before
interest, tax, depreciation and amortisation (EBITDA) is provided to support
understanding of the summarised cash flow included within the finance report
on pages 7 to 11.
2023 2022 2022
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
Profit/(loss) from continuing operations 25.7 17.8 (62.6)
Adjustments for:
Finance income after adjusting items (1.8) (0.1) (3.3)
Finance costs and other expenses after adjusting items 9.2 11.9 22.9
Tax charge 9.2 5.4 7.8
Depreciation and amortisation 28.8 28.1 56.9
Excluding intangibles arising on acquisition (7.1) (7.6) (14.9)
Impact of adjusting items 10.0 22.7 135.0
Adjusted EBITDA 74.0 78.2 141.8
There are also a number of key performance indicators (KPIs) used in this
report. The reconciliations to these are given below.
Adjusted operating cash flow
Adjusted operating cash flow is defined as the net cash flow from operating
activities less net capital expenditure but excluding income tax paid or
received, interest paid or received, pension contributions net of current
service cost and adjusting items.
2023 2022 2022
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
Net Cash flow from operating activities (9.1) 19.8 77.0
Less:
Net capital expenditure (13.8) (15.1) (46.5)
Add:
Net cash used in/(flow from) discontinued operations 11.9 (7.9) (5.6)
Income tax paid 10.7 11.0 13.3
Interest paid 11.2 9.3 14.6
Pension contributions net of current service cost 0.9 (0.4) 0.7
Adjusting items - non cash 0.2 (5.0) 7.6
Adjusting items - cash 0.9 1.1 5.2
Adjusted operating cash flow 12.9 12.8 66.3
Free cash flow
Free cash flow is defined as adjusted operating cash flow (as defined above),
less pension contributions net of current service cost, net interest paid,
income tax paid, cash flow relating to adjusting items and other, including
payment of lease liabilities.
Adjusted operating cash conversion
Adjusted operating cash conversion is defined as adjusted operating cash flow
(as defined above) excluding payments for provisions and share based payments,
divided by adjusted operating profit.
2023 2022 2022
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
Adjusted operating profit 52.5 58.2 100.5
Adjusted operating cash flow 12.9 12.8 66.3
Add/(deduct):
Provisions and share based payments 1.1 (0.9) (0.4)
14.0 11.9 65.9
Adjusted operating cash flow conversion 27% 20% 66%
Average trade working capital to sales ratio
The trade working capital to sale ratio is defined as the 12 month average
trade working capital divided by sales, expressed as a percentage. Trade
working capital comprises inventories, trade receivables (net of provisions)
and trade payables. It specifically excludes repayments, capital or interest
related receivables or payables, changes due to currency movements and items
classified as other receivables and other payables.
Adjusted operating profit/operating margin
Adjusted operating profit is the profit derived from the normal operations of
the business. Adjusted operating margin is the ratio of adjusted operating
profit to sales.
Unaudited information
To support a full understanding of the performance of the Group, the
information below provides the calculation of Net Debt / EBITDA.
Pre-IFRS 16 Net Debt/EBITDA
$m
Adjusted EBITDA for the last twelve months to 30 June 2023 137.6
IFRS 16 adjustment (6.6)
Adjusted EBITDA pre IFRS 16 131.0
Net Debt 255.5
Net Debt / EBITDA* 2.0
*Where EBITDA is the adjusted EBITDA on continuing operations of the Group on
a pre IFRS 16 basis.
Post-IFRS 16 Net Debt/EBITDA
$m
Adjusted EBITDA for the last twelve months to 30 June 2023 137.6
Net Debt 255.5
IFRS 16 lease liabilities 36.5
Adjusted Net Debt post IFRS 16 292.0
Net Debt / EBITDA* 2.1
*Where EBITDA is the adjusted EBITDA on continuing operations of the Group on
a post IFRS 16 basis.
- ENDS -
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