REG - Elementis PLC - Preliminary results year ended 31 December 2021
03/03/2022 07:00
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RNS Number : 4651D Elementis PLC 03 March 2022
3 March 2022
ELEMENTIS PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021
Strong financial performance - new business momentum and self-help actions
· Revenue up 17% (14% underlying*) from $751m to $880m due to strong
new business momentum, targeted pricing actions and volume recovery against a
COVID-19 impacted prior year.
· Adjusted operating profit up 31% (28% underlying*) to $107m, modestly
ahead of expectations. Strong Coatings performance, pricing actions and
efficiency savings more than offset higher costs. Statutory profit after tax
of $3m, up from a loss of $67m with improved business performance partially
offset by a $53m non-cash Talc goodwill impairment linked to ongoing COVID-19
impacts.
· Net debt of $401m, in line with prior year ($408m). Net cash flow
from operating activities reduced from $107m in the prior year to $67m in
2021, primarily due to $32m working capital outflow to support growth and a
$20m one off EU state aid tax payment. Net debt to EBITDA down from 3.2x (Dec.
2020) to 2.6x.
Further strategic progress supports sustainable growth and value creation
· Good progress on Innovation, Growth and Efficiency strategy
implementation to deliver medium term Group performance objectives. Delivered
$50m of new business opportunities with 21 new product launches. New
products** 14% of sales, on track towards target of 17% by 2025.
· Proactive cash and cost management - $10m of cost savings delivered
in 2021, offsetting 2020 temporary cost reductions that returned to the
business as expected. Successful startup of the new AP Actives plant in India
and subsequent 12 month production ramp up underpins an additional $10m of
savings by 2023.
· Good progress towards 2030 sustainability targets with a 25%
reduction in GHG intensity*** versus prior year and upgrades at four rating
agencies including EcoVadis "Gold" and MSCI "A".
2022 outlook - further performance improvement and deleveraging expected
· An encouraging start to 2022, although the external environment
remains challenging due to global supply chain constraints and accelerating
cost inflation.
· Continued demand improvement, self-help focus and growth initiatives
anticipated to drive improved financial performance and a reduction in
leverage.
FINANCIAL SUMMARY
2021 2020 % Change
Revenue $880m $751m +17%
Adjusted operating profit(1) $107m $82m +31%
Adjusted profit before tax(1) $77m $53m +46%
Adjusted diluted earnings per share(2) 10.6c 6.5c +63%
Adjusted operating cash flow(3) $76m $110m -31%
Net debt(4) $401m $408m -2%
Statutory results
Statutory profit/(loss) for the period $3m $(67)m +104%
Statutory basic earnings/(loss) per share(2) 0.4c (11.5)c +103%
Business performance overview
· Personal Care revenue up 6% on an underlying basis* (9% on a
reported basis), from $161m to $175m. Adjusted operating profit up 6% on an
underlying basis* (9% on a reported basis) from $34m to $37m; adjusted
operating margin of 21.0% vs 20.9% in 2020.
o Partial volume recovery in colour cosmetics and anti-perspirant deodorants
as social and travel restrictions begin to ease; market demand still below pre
COVID-19 levels.
o Adjusted margins stable at 21.0% with improved volumes and price/mix
partially offset by higher raw material costs and investments for growth.
· Coatings revenue up 17% on an underlying basis* (20% on a reported
basis), from $319m to $384m. Adjusted operating profit up 46% on an underlying
basis* (49% reported) from $41m to $62m, with adjusted operating margin up
from 13.0% to 16.1%.
o Revenue growth driven by new business success, targeted pricing actions and
demand recovery in industrial applications such as marine and protective
coatings.
o Adjusted margins improved to 16.1% with underlying revenue growth and fixed
cost savings from Charleston/St Louis consolidation more than offsetting raw
material cost inflation.
· Talc revenue up 9% on an underlying basis* (14% on a reported
basis), from $133m to $150m. Adjusted operating profit down 19% on an
underlying basis* (16% reported) from $17m to $14m, with adjusted operating
profit margin of 9.3%.
o New business success in coatings and technical ceramics, partially offset by
weaker long life plastics, linked to lower global automotive production, and
lower paper demand.
o Adjusted margins of 9.3%, down from 12.5% in 2020 due to accelerating second
half cost inflation ahead of associated pricing actions towards the end of the
year.
· Chromium revenue up 16% from $147m to $171m; adjusted operating
profit up 152% from $6m to $14m.
o Revenue increase driven by stronger demand across industrial end markets,
including metal plating and construction applications.
o Adjusted margins up from 3.8% to 8.3% with stronger volumes partially offset
by accelerating raw material cost inflation.
Commenting on the results, CEO, Paul Waterman said:
"In 2021 our financial performance was much improved, benefitting from the
combination of focused strategy execution and improved industrial demand. In
an environment of continued supply chain challenges and accelerating
inflation, the Group has demonstrated its resilience and the importance of our
continued efficiency focus and targeted pricing actions.
We have made an encouraging start to 2022 and expect to deliver an improved
financial performance. Continued implementation of our strategy will enable
the delivery of $50m of new business opportunities, the launch of 20 new
products and progress towards an additional $10m of cost savings by 2023.
The fundamentals of our business remain strong. We have a talented team and
high quality assets with enduring competitive advantages. I am confident that
the implementation of our Innovation, Growth and Efficiency strategy, in
combination with our self-help actions, positions us well to deliver our
medium term financial objectives and generate significant shareholder value".
Further information
A presentation for investors and analysts will be held at 10.30am GMT on 3
March 2022. The presentation will be webcast on www.elementis.com. Conference
call dial in details:
UK: 020 3936 2999 Other locations: +44 20 3936 2999
Participant access code: 884461
Enquiries
Elementis
James Curran, Investor Relations 020 7067
2994
Tulchan
Martin
Robinson
020 7353 4200
Olivia Peters
Notes:
* Adjusted for constant currency impact. See Finance Report.
** New products defined as products launched within the last 5 years,
patented and protected products (excluding Chromium).
*** GHG scope 1 and scope 2 (market based) emissions.
1 - See note 5.
2 - See note 7.
3 - See Finance Report.
4 - See alternative performance measures and unaudited information.
Chairman's statement
It is a great honour to be serving as Elementis' new Chair and to be working
with a strong Board, an impressive team of leaders, and many hugely dedicated
and talented people all around the world. Since joining the Board in 2020, I
have found a group with a clear strategy built on Innovation, Growth and
Efficiency. It is well managed and run by people who are hardworking, engaged
and enthusiastic. Elementis has significant potential and, having witnessed
the resilience of the business model over the last two years, I am encouraged
about its prospects.
BUSINESS PERFORMANCE
In 2021, our financial performance was much improved compared to the prior
year. Sales increased 17% to $880m, driven by strong new business momentum,
targeted pricing actions to offset inflationary cost increases and volume
recovery across most of our end markets.
While this demand recovery is welcome, it has triggered well documented supply
chain challenges and accelerating cost inflation across the globe. In
response, the Group has demonstrated the resilience and agility of its
business model, the strength of its global supply chain and the importance of
its efficiency improvement projects. In such an environment, I am encouraged
by the Group's performance and look forward to further improvement as end
markets continue to recover and we make further strategic and operational
progress.
STRATEGIC PRIORITIES
The Group's strategic priorities are clear and consistent. Innovation, Growth
and Efficiency are the pillars of our strategic agenda. Execution of our
priorities in these areas will drive the delivery of our medium term financial
ambitions, namely a 17% adjusted operating profit margin, 90% operating cash
conversion and net debt/EBITDA of under 1.5x.
This year our strategic progress has been encouraging. We launched 21 new
products, all of which deliver enhanced product performance, manufacturing
efficiency and sustainability credentials to our customers. The start-up of
our new anti-perspirant actives plant in India and the delivery of $10m of
cost savings were key efficiency milestones, and the achievement of $50m of
new business opportunities is a clear sign that our growth platforms are well
positioned for future success.
Although Talc recognised a $53m non-cash goodwill impairment, linked primarily
to delays in the recovery of automotive markets, your Board believe the
fundamentals of the business remain strong, built on a fully integrated value
chain supported by unique processing and formulation capabilities. There are
attractive long-term opportunities to grow in Asia and the Americas, increase
market share in high value industrial applications and deliver $20-25m of
revenue synergies by 2023.
BALANCE SHEET & SHAREHOLDER RETURNS
Net debt of $401m was broadly unchanged on the prior year ($408m). Net cash
flow from operating activities reduced from $107m in the prior year to $67m in
2021, primarily due to $32m working capital outflow to support growth and a
$20m one off EU state aid tax payment. The recovery in earnings resulted in
the reduction of our financial leverage ratio from 3.2x net debt to EBITDA (31
December 2020) to 2.6x. The Board and management remain focused on reducing
leverage as quickly as possible towards the medium term target of 1.5x net
debt to EBITDA.
In 2020, at the height of COVID-19 related uncertainty, the Group took several
steps to provide additional financial headroom and preserve cash, one of which
was the suspension of the dividend. The Board recognises the value of
dividends to shareholders and will look to reinstate the dividend in the
medium term, conditional upon further financial deleveraging progress.
GOVERNANCE & BOARD
During 2021 Andrew Duff stepped down as Chairman and as a Director. I would
like to thank Andrew for his strong leadership and guidance of the Board
throughout his tenure. He left a Group with high quality businesses, good
market positions, and a strong Board and Company leadership.
This year we completed an externally facilitated Board evaluation. The overall
result was positive, concluding that the Board continues to perform
effectively with good leadership, competent and engaged members, and with the
appropriate focus on both in-year performance and strategy for the future.
Board succession planning is critical to ensure we have the right skills and
capabilities to support strategic delivery. In the coming year, given the
current Board size, we will look to appoint two additional members to the
Board who can help us achieve our strategy and growth ambitions.
OUR PEOPLE
Elementis' core asset is its people and 2021 has once again showcased the
importance of this. Our colleagues around the world have gone above and beyond
to support our customers and provide reliable supply. We value our people and
have sought to recognise their dedication throughout the year.
Employee engagement activities are crucial to understand what we are doing
well and where we can improve. I am pleased to report positive trendlines,
with our key engagement score rising from 55% in 2020 to 63% in 2021. This is
reflective of recent improvements to digital communications, flexible working
and an enhanced overall engagement agenda, which included our inaugural Women
in Leadership forum led by Christine Soden, our Designated Non-Executive
Director for workforce engagement.
Talent is a key focus for the Board and during 2021 we continued to monitor
and track our talent development programmes, focusing on ensuring that we have
the right capabilities for the future and a strong succession pipeline across
leadership positions. The Group is further developing its diversity programmes
with unconscious bias training initiatives launched across the globe. Whilst
gender is not the only focus for diversity, encouragingly the number of women
in the senior leadership team has increased from 24% in 2018 to 31% this year,
and women currently represent over 40% of the Board. We are committed to
further developing programmes to support a diverse workforce.
SUSTAINABILITY
For consumers the COVID-19 pandemic has brought the environmental footprint of
products and services into sharp focus. With 53% of our revenue generated from
naturally derived products* that are also closely aligned to megatrends such
as the switch to natural personal care ingredients, water based industrial
coatings and vehicle weight reduction, we are strategically aligned for the
future and our innovation pipeline is positioned to further increase this
number.
We also recognise the importance of reducing the impact of our global supply
chain on the environment. This year we have made good progress towards our
2030 targets thanks to multiple efficiency initiatives throughout our
operations.
STAKEHOLDER ENGAGEMENT
As a new Chair, I have sought to meet and get the views of our shareholders
and other stakeholders. This engagement is a valuable way of assessing the
success of our strategic delivery and where we can improve. During the year we
received another unsolicited takeover offer, which we concluded significantly
undervalued Elementis and its prospects, and therefore rejected. The Board
appreciates the support of our shareholders and accepts the continued
performance expectations that come with that support.
LOOKING TO THE FUTURE
Elementis is well positioned; we have differentiated assets, market leading
positions and clear strategic priorities for growth. We remain mindful of the
continued uncertain external environment and the ongoing challenges that the
COVID-19 pandemic brings, but we know that Elementis is heading in the right
direction and well positioned to take advantage of the opportunities we see.
The Board and I are thankful to all our people for their hard work, commitment
and passion in driving our business recovery and positioning Elementis for
future progress.
John O'Higgins
Chairman
3 March 2022
*Naturally derived products defined in accordance with IS0 16128 standard and
explicitly excludes ingredients derived from fossil fuels
Chief Executive Officer's overview
While the impact of COVID-19 has started to recede, 2021 was, in many ways, as
challenging as 2020. Strong and sharp demand recovery across multiple end
markets triggered significant global supply chain challenges and material cost
inflation. In such an environment, the delivery of results modestly ahead of
expectations is testament to the resilience of our business model, the
commitment of our people and the importance of our self-help agenda. This
performance, combined with our continued strategic progress, gives me
confidence in our prospects and the delivery of our medium term financial
objectives.
PERFORMANCE
2021 saw an improved financial performance due to good new business success
and end market recovery from the weak demand levels of the prior year,
resulting in 17% sales growth. Coatings, our biggest business, benefitted from
strong new business activity, continued growth in decorative paint and a
recovery in industrial coatings demand. In Personal Care, we saw a modest
increase in performance as improved demand for lipsticks, mascaras and
anti-perspirants was somewhat constrained by continued restrictions on travel
and social interaction. In Talc, sales grew 14%, reflective of good strategic
progress and a well positioned business, but adjusted operating profit
declined 16% due to weak automotive production and accelerating second half
cost inflation ahead of pricing actions taken towards the end of the year.
While these near term headwinds resulted in a $53m non-cash Talc goodwill
impairment, the strong fundamentals of the business are unchanged and there is
scope for material performance improvement from price actions, continued
strategic momentum and market share gains, along with the latent demand
recovery in automotive markets. Finally in Chromium, the business benefitted
from stronger volumes linked to the rebound in industrial activity.
While this demand recovery is welcome, it has created supply challenges
including raw material availability, logistical disruptions and accelerating
inflation. In response, we qualified alternative suppliers, extended
production runs and pursued alternative transportation options. In addition,
we were able to put through price increases to fully offset material cost
inflation. These actions, combined with our ongoing self-help agenda on
costs and cash management, resulted in an adjusted operating profit of $107m,
modestly ahead of expectations.
SAFETY
Safety is the foundation of our business and at the heart of our culture. This
year we continued the TogetherSAFE safety campaign roll out and held our
inaugural global safety week, including webinars from external speakers and
multiple activities at our sites around the world. Although our safety
performance has been somewhat disappointing, with 12 recordable injuries, I am
confident that the steps we have taken mean we are positioned for future
improvement.
Many sites achieved notable milestones during the year, and while I cannot
mention them all, let me highlight a few. In Mumbai, our team working on the
new anti-perspirant actives plant reached over one million hours of safe
working, overcoming multiple obstacles including COVID-19 lockdowns and
monsoons. Congratulations also to our Corpus Christi and Milwaukee teams for
18 and nine years of safe working respectively - I am sure there are many more
to come.
OUR PEOPLE
Key to the strength of Elementis is the quality and commitment of our people.
Ongoing engagement surveys and outreach programmes reflect a motivated and
loyal workforce with improving engagement metrics. During the COVID-19
pandemic, given the increased prevalence of home working, one key area of
focus has been global communications. We have invested in digital
capabilities, improved our engagement activities, and increased our employee
recognition and reward schemes.
Elementis aims to be an open and inclusive workplace. This year our Diversity
and Inclusion Council continued to move forward in shaping our culture for
success through Women in Leadership events, unconscious bias training and
expert speakers addressing inclusive leadership and active cultural advocacy
skills.
I am incredibly proud of how strong our team is, both in the care our people
have shown each other, our customers, suppliers and communities, and how they
have responded so positively in such a difficult environment.
SUSTAINABILITY
Sustainability is a key focus at Elementis and I am pleased to report further
progress. This year we launched 21 new products, all of which have clear
sustainability credentials, including hectorite clay based additives that are
100% natural and castor wax derived rheology modifiers for marine and
protective coatings that are 75% bio based. In addition, we have made good
progress towards our 2030 environmental targets including significant
reductions in GHG (-25%) and water withdrawal (-26%) intensity versus the
prior year.
This progress has been recognised by external agencies. MSCI, Sustainalytics,
CDP and EcoVadis all raised their ESG ratings of Elementis this year. I am
also pleased we have been recognised with the Responsible Chromium label,
awarded by the International Chromium Development Association (ICDA). As the
only chromium chemicals holder of this award, it highlights the market leading
standards of our operations in areas such as safety and safeguarding of the
environment.
While this progress and recognition are encouraging, it is only the start of
our journey. To accelerate our future progress, I am pleased to welcome Phil
Blakeman to Elementis as our first Global Head of Sustainability.
INNOVATION, GROWTH AND EFFICIENCY
In the last few years, we have made significant progress positioning Elementis
as a premium performance additives company, based on unique assets and value
chains, and with clear opportunities for growth. Innovation, Growth and
Efficiency represent our strategic pillars, and the delivery of our priorities
in each of these areas will ensure we create significant value for all our
stakeholders.
Our medium term Group performance objectives are unchanged:
- 17% adjusted operating profit margin: driven by Innovation, Growth
and Efficiency
- 90% plus operating cash conversion: consistent with 5 year average
track record
- Reduce leverage to under 1.5x net debt / EBITDA: consistent with
debt reduction track record
1) INNOVATION
We are a global leader in performance driven additives and are focused on
creating solutions for our customers that deliver product performance
improvements, efficiency gains and enhanced sustainability credentials. While
customers have returned to their laboratories, conditions are far from
normalised, and so we continued to leverage our relationships and digital
capabilities to drive the launch of 21 new products in 2021.
Our innovation focus is clear. We want to create solutions for the biggest
challenges that our customers face; and, in turn, these are reflected in our
growth platform focus. In Personal Care, consumers want natural ingredients
that deliver superior performance to synthetic alternatives. In response, in
2021 we launched Bentone Hydroclay™ 2100, a hectorite based rheology
modifier that is 100% natural, delivers improved touch and feel and simplifies
customer processing requirements. Likewise, the Coatings industry wants
additives that deliver enhanced one coat hide and stain resistance for
decorative paints. Our Rheolate HX(®) series, which we expanded this year,
delivers up to 50% better hide than competitors, has helped our customers win
awards and is now the industry gold standard.
Innovation is interwoven with sustainability; all our new product launches and
pipeline projects must have clear sustainability credentials. At present 53%
of our revenue (up from 45% last year) is from natural or naturally derived
chemistries* - for example, castor wax based organic thixotropes. In addition,
we are conscious of the need for our products to contribute to the overall
wellbeing of society, whether it is through dry powder additives that reduce
transportation emissions or barrier coatings that enable 100% recyclable food
packaging.
We are also focused on the speed of innovation. The integration of our R&D
and technical support teams, along with fast prototyping and technology
transfers across segments, means we are increasing our speed of innovation. In
2021, our average time from concept to launch was 1.8 years - 30% faster than
in 2016.
And finally, we value the role of open innovation in providing differentiation
and increased speed to market. During the year we developed our partnerships
with AQDOT and NXTLEVVEL Biochem, rolling out novel odour capture technologies
and biomass based solvents for coatings. In addition, we have established
cooperation arrangements with Evolved by Nature, working on activated silk
technology to replace potentially toxic chemicals, and Allied Microbiota, to
enable advanced microbes to clean up environmental contamination.
As result of this progress, our revenue from new products was 14% in 2021, up
from 10% in 2017, and in line with 2020 as our base business rebounded from
the initial impact of COVID-19. Our innovation pipeline is well positioned,
with 60 projects in the pipeline, of which approximately 20 are scheduled to
launch in the next 12 months, and this will support reaching our Group
adjusted operating profit margin target of 17%.
2) GROWTH
Around 90% of Elementis' earnings are generated by Personal Care, Coatings and
Talc. The value chains across these markets are similar, transforming natural
resources into high value additives through distinctive science. Across these
businesses we see clear medium term structural growth opportunities,
representing in total over $100m of incremental revenue opportunities.
In Coatings, opportunities exist where our additives solve specific market
needs with clear sustainability credentials, for instance waterborne
industrial additives and premium decorative paints. Such growth areas
represent roughly one third of our Coatings sales, and in 2021 they grew 37%,
driven by $23m of new business wins. Products such as our castor wax based
organic thixotropes for adhesives and sealants and non-ionic associative
thickeners (NiSATs) for premium decorative paints saw notable growth and
market share gains. Geographic expansion is an important growth pillar in
Coatings, and following recent sales and marketing hires in South East Asia,
we grew 30% compared to the prior year.
In Personal Care, there are significant high margin growth opportunities.
While Asia represents 40% of the personal care market, it represents under 20%
of our sales, and our medium term aim is to double our cosmetics sales in the
region. In 2021, we grew sales 44% in Asia versus the prior year, and to help
drive future growth we made several targeted investments. We opened our first
Personal Care technical service centre in Asia, located in Shanghai, and more
than doubled our local sales and marketing team. Our new AP Actives plant in
India will create a highly advantaged global supply chain, help us grow in the
region and drive a material performance improvement in the business. The plant
started up in the third quarter and will ramp up production over the next 12
months. In skin care, a new application for our hectorite clay, we aim to
deliver $10m of incremental sales over the medium term. In 2021, we launched
three products building out our product portfolio and helping deliver 41% skin
care revenue growth.
In Talc, we are the second largest global producer, serving high value
industrial applications. Our growth strategy is based on leveraging our global
scope and scale, synergistically expanding into new geographies and market
sectors. In 2021, we grew 24% in Asia and 62% in the Americas versus the prior
year, driven by $13m of new business wins across long life plastics, technical
ceramics and coatings applications. Despite this success, we remain materially
underweight in these regions, with considerable runway for long term growth.
We are on track for our goal of $20-25m of revenue synergies by 2023, with
$16m realised to date. Sales of talc to coatings customers rose 8% in 2021,
leveraging Elementis' global key account network and strong presence in the
coatings market. We have also continued to develop new products and
applications. For example, barrier coating solutions for recyclable food
packaging is showing encouraging early progress, with 27 production and pilot
scale trials and a $5m new business pipeline.
3) EFFICIENCY
We are always seeking to improve our organisation, drive ongoing efficiency
gains and become more resilient. The 2021 demand rebound unleashed significant
global supply chain challenges resulting in material cost inflation. We do not
expect these pressures to abate in 2022 but, through a mixture of price
actions, agile supply chain management and continued efficiency focus, we are
confident of protecting and improving margins moving forward.
In 2021, as part of our medium term efficiency programme, we delivered $10m of
supply chain savings, offsetting $10m of temporary cost savings made last year
which have, as expected, returned to the business as the impact of COVID-19
has receded. A significant driver of our $10m savings was the closure of our
Charleston, West Virginia, production plant and consolidation of capacity at
our St Louis, Missouri site. This improved efficiency and utilisation levels
across our North American organoclay operations. Another notable milestone
this year was the start-up of our anti-perspirant actives plant in India,
which will be a significant enabler of an additional $10m of savings by 2023.
Following completion of the approximate 12 month production ramp up and
customer qualification period, this will create a cost advantaged and
resilient global supply position.
Sustainability and the reduction of our environmental footprint are at the
forefront of all operations decisions, and this year we made considerable
progress across our supply chain. Enhanced temperature controls in our talc
operations reduced our energy consumption. Automatic sensors at our Newberry
Spring processing plant increased production yields and reduced waste, while
switching to water based quaternary amines (from solvent based) at our Anji
site reduced both our costs and environmental impact. Throughout our
operations, our global process excellence teams have identified over 60
projects that are beneficial from both an efficiency and environmental
perspective. Their implementation will drive delivery of both our cost saving
ambitions and our 2030 sustainability targets.
Another key enabler of our efficiency and simplification drive is our digital
implementation programme. In 2021, our global standard business management
software went live in Asia, bringing the region in line with Europe and the
Americas and improving the flow of data across the organisation. We also
started the roll out of fully online lead-to-order fulfilment cycles for
customers. The onboarding of customers to digital ordering systems will
continue in 2022 and it is already resulting in an improved customer
experience, enhanced new business success and more efficient resource
management.
OUTLOOK
While the last 12 months have been extremely challenging, the Group has again
demonstrated its resilience and responded with speed and agility. The
fundamentals of the business remain strong, with high quality assets,
differentiated technologies and a clear strategy. We will continue to maintain
our focus on Innovation, Growth and Efficiency and in 2022 expect to deliver
$50m of new business opportunities, over 20 new products and progress towards
$10m of additional efficiency savings by 2023.
We have made an encouraging start to the year, although the external
environment remains challenging due to global supply constraints and the
impact of accelerating cost inflation. For the year ahead, we are confident
that with further steady demand improvement, supported by our self-help
actions, we will deliver an improved financial performance and a reduction in
leverage.
Paul Waterman
CEO
3 March 2022
*Naturally derived products defined in accordance with IS0 16128 standard and
explicitly excludes ingredients derived from fossil fuels
Business commentaries
Revenue
Revenue Effect of Increase Revenue
2020
exchange
2021
2021
$m
rates
$m
$m
$m
Personal Care 160.8 3.5 10.4 174.7
Coatings 319.1 9.3 55.9 384.3
Talc 132.5 6.1 11.8 150.4
Chromium 146.9 - 23.8 170.7
Inter-segment (8.0) - 8.0 -
Revenue 751.3 18.9 109.9 880.1
Adjusted operating profit
Operating Effect of Increase/ Operating
profit/(loss)
exchange
profit/(loss)
2020(*)
rates (decrease)
2021(*)
$m
$m
$m
2021
$m
Personal Care 33.6 1.0 2.1 36.7
Coatings 41.4 0.8 19.6 61.8
Talc 16.6 0.6 (3.2) 14.0
Chromium 5.6 - 8.5 14.1
Central costs (15.6) (0.8) (3.6) (20.0)
Adjusted operating profit 81.6 1.6 23.4 106.6
( )
* See note 5
Personal Care
Personal Care revenue in 2021 was $175m compared with $161m in the prior year,
a 9% increase on a reported basis. Excluding currency impacts, revenue rose by
6% on an underlying basis*, driven by demand recovery in our two key end
markets, colour cosmetics and anti-perspirant deodorants. While these markets
have started to recover as COVID-19 related social and travel restrictions
have eased, they remain approximately 3-5% below 2019 levels, thereby
providing scope for further recovery.
Adjusted operating profit was 9% ahead of the prior year period at $37m, with
margins of 21.0% stable on the prior year (20.9%). Improved volumes and
product mix more than offset double running costs associated with the ramp up
of the new India manufacturing plant, people investments in Asia to drive
future growth and increased raw material costs.
Coatings
Coatings revenue in 2021 was $384m compared with $319m in the prior year, a
20% increase on a reported basis. Excluding the impact of currency, revenue
rose 17%, driven by new business success, pricing actions and demand recovery
from COVID-19 lows in 2020. Revenue from the Energy business, now reported as
part of Coatings, rose 21% on the prior year supported by higher oil prices
and increased drilling activity.
Excluding Energy, Coatings sales rose 17% on an underlying basis* with strong
growth in all regions as decorative activity remained buoyant and industrial
demand recovered. In EMEA, sales rose 27% on an underlying basis*, with
notable strength in industrial coatings applications, reflective of new
business success, particularly for our Thixatrol(®) products which are also
used in high performance adhesives and sealants. In Americas, sales rose 17%*
driven by encouraging new business success for our Rheolate® HX rheology
series for premium decorative paint. In Asia, where over 80% of our sales come
from industrial activity, underlying* sales rose 9% as strong growth in South
East Asia was partially offset by slowing market activity in China in the
second half of the year.
Adjusted operating profit rose by 49% from $41m to $62m, and 46% on an
underlying basis*, with volume growth, improved price/mix and cost savings
from the Charleston plant closure and St Louis capacity consolidation more
than offsetting raw material cost inflation. As a result, adjusted operating
profit margins rose from 13.0% in 2020 to 16.1% in 2021, a tremendous result
in a challenging global supply chain environment and reflective of a business
well positioned for future success.
Talc
Revenue in 2021 was $150m compared with $133m in the prior year, a 14%
increase on a reported basis. Excluding the impact of currency movements,
revenue rose by 9%, with new business success and pricing actions partially
offset by weakness in automotive and paper end markets.
Sales of industrial talc (representing over 85% of total Talc revenue) rose
15% on an underlying basis*, driven by $13m of new business, geographic
expansion and demand recovery in several end markets following a COVID-19
impacted 2020. Sales to coatings customers grew 8% on an underlying basis*,
reflective of market share gains as we gained new customers and entered new
geographies, taking our revenue synergies since acquisition to $16m. Sales to
technical ceramics customers more than doubled on the prior year due to market
share gains, predominantly in Asia. This momentum more than offset a weak
performance in high value long life plastics, due to a 6% decline in European
automotive production because of well documented semi-conductor shortages.
Talc sales to the graphic paper market declined as expected by over 30% on an
underlying basis* driven by the ongoing shift to non-print media. This market
now represents just under 8% of total Talc revenue.
Adjusted operating profit declined 16% on a reported basis (19% on an
underlying basis*) from $17m to $14m, with top line growth more than offset by
higher costs in the second half of the year due to accelerating logistics and
energy cost inflation, ahead of pricing actions taken in response.
Chromium
Chromium revenue in 2021 was $171m, up 16% from $147m in the prior year driven
by double digit volume growth. Due to the rebound in industrial activity,
demand for chromium chemicals increased across a range of end markets
including metal plating, leather tanning and construction applications. While
average unit pricing modestly decreased in the year, the second half of the
year showed clear signs of recovery. As a result of demand improvements and
constrained supply, we estimate global chromium industry capacity utilisation
rose from approximately 75% in 2020 to 85% in 2021. In turn, this tightness is
positively impacting market prices.
Adjusted operating profit rose by 152%, with improved volumes and product mix
more than offsetting accelerating raw material costs. Adjusted operating
profit margin rose from 3.8% to 8.3%.
* Adjusted for FX (where constant currency reflects prior year results
translated at current year exchange rates).
Finance report
Revenue
2021 2020
$m
$m
Change
Personal Care 174.7 160.8 9%
Coatings (1) 384.3 319.1 20%
Talc 150.4 132.5 14%
Chromium 170.7 146.9 16%
Inter-segment ― (8.0) N/A
Total revenue 880.1 751.3 17%
Operating profit
2021 Operating profit/(loss) Adjusting 2021 2020 Operating profit/(loss) Adjusting items 2020 Adjusted operating profit/(loss)(1)
$m
items
Adjusted operating profit/(loss) (2)
$m
$m
$m
$m
$m
Personal Care 27.9 8.8 36.7 20.0 13.6 33.6
Coatings(1) 56.5 5.3 61.8 (4.9) 46.3 41.4
Talc (44.3) 58.3 14.0 (22.4) 39.0 16.6
Chromium 6.3 7.8 14.1 (3.6) 9.2 5.6
Central costs (20.0) ― (20.0) (17.3) 1.7 (15.6)
Total operating profit 26.4 80.2 106.6 (28.2) 109.8 81.6
( )
(1 )2020 restated to include the Energy business which has been reported as
part of Coatings from 1 January 2021
(2 )After adjusting items - see note 5.
Group results
In 2021, revenue increased 17% from $751m to $880m due to strong new business
success, targeted pricing actions and demand recovery across most of our end
markets following a COVID-19 impacted prior year. Excluding the impact of
currency translation, underlying revenue increased 14%. Revenue in Personal
Care rose 9% on a reported basis and 6% on an underlying basis*, as demand
showed steady recovery due to the gradual easing of social interaction and
travel restrictions. In Coatings, revenue increased 20% on a reported basis
and 17% on an underlying basis* driven by strong new business success and
pricing actions in response to accelerating cost inflation. In Talc, revenue
increased 14% on a reported basis and 9% on an underlying basis*, as
geographic expansion outside of Europe and delivery of revenue synergies more
than offset weakness in both long life plastics for automotive applications
and paper markets. Revenue in Chromium increased 16% due to strong volume
growth as demand increased across a range of industrial end markets
Reported operating profit increased from a loss of $28m to a profit of $26m
with a strong performance improvement partially offset by $80m of adjusting
items, the largest of which was a $53m non-cash Talc goodwill impairment
(2020: Talc $33m and Energy $27m) due to the continuing impact of COVID-19
on industrial activity and global supply chains. Adjusted operating profit
increased 28% on an underlying basis* from $82m to $107m with the
aforementioned higher revenue and associated earnings more than offsetting
cost inflation primarily associated with global supply chain challenges. The
statutory result for the year was a profit of $3m compared with a loss of $67m
in 2020.
Adjusting items
In addition to the statutory results, the Group uses alternative performance
measures, such as adjusted operating profit and adjusted diluted earnings per
share, to provide additional useful analysis of the performance of the
business. The Board considers these non-GAAP measures as an alternative way to
measure the Group's performance. Adjusting items in 2021 resulted in a charge
of $71.2m before tax, a decrease of $50.3m against last year. The key
categories of adjusting items are summarised below. For more information on
adjusting items and the Group's policy for adjusting items, please see Note 5
and Note 1 to the financial statements respectively.
Credit/(charge) Personal Care Coatings Talc Chromium Central costs Total
$m $m $m $m $m $m
Business transformation (0.1) (4.2) - (0.3) - (4.6)
Environmental provisions - - - (8.3) - (8.3)
Impairment of goodwill - - (52.3) - - (52.3)
Amortisation of intangibles arising on acquisitions (8.7) (1.1) (6.0) (0.2) - (16.0)
Sale of Montreal land - - - 1.0 - 1.0
Total charge to operating profit (8.8) (5.3) (58.3) (7.8) - (80.2)
Sale of businesses (1.7) - - - - (1.7)
Mark to market of derivatives - - - - 10.7 10.7
Total (10.5) (5.3) (58.3) (7.8) 10.7 (71.2)
Business transformation
In November 2020, the closure of the Charleston plant was announced. Costs of
$4.2m in 2021 (including $0.4m of depreciation) associated with preparing the
site for sale are classified as an adjusting item and the site is planned to
be disposed of in the future. Further charges of $0.4m relate to the
optimisation of the supply chain footprint across our Personal Care and
Chromium businesses.
Environmental provisions
The Group's environmental provision is calculated on a discounted cash flow
basis, reflecting the time period over which spending is estimated to take
place. The movement in provision relates to a change in discount rates that
decreased the liability by $1.3m in the year, and extra remediation work
identified in the year which resulted in a $9.6m increase to the liability. As
these costs relate to non-operational facilities they are classified as
adjusting items.
Impairment of goodwill
In Talc, while the business fundamentals are unchanged, the continuing impact
of COVID-19 on wider industrial activity and global supply chains, especially
affecting the automotive sector, and the near term forecast profitability of
the business has resulted in a goodwill impairment of $53.1m. This impairment
is reflected as a P&L charge of $52.3m and $0.8m movement in exchange
differences on translation of foreign operations in other comprehensive
income.
Amortisation of intangibles arising on acquisitions
Amortisation of $16.0m (2020: $15.5m) represents the charge in respect of the
Group's acquired intangible assets. As in previous years, these are included
in adjusting items as they are a non-cash charge arising from historical
investment activities.
Sale of Montreal land
In 2021 the Group disposed of a non-core parcel of land in Montreal, Canada.
The profit on disposal has been treated as an adjusting item.
Sale of businesses
The $1.7m loss on disposal of two non-core dental businesses, Eisenbacher
Dentalwaren ED GmbH and Adentatec GmbH, has been treated as an adjusting item
in 2021.
Mark to market of derivatives
The movements in the mark to market valuation of financial instruments that
are not in hedging relationships are treated as adjusting items as they are
non-cash fair value adjustments that will not affect the cash flows of the
Group.
Hedging
Cash flow hedges are used as part of a programme to manage our exposure to
interest rate risk and commodity price risk particularly associated with USD
and EUR interest payments and aluminium pricing. In 2021, interest rate and
commodity price movements were such that the net impact of these hedge
transactions was a loss of $0.4m (2020: $0.9m) recycled to the income
statement.
Central costs
Central costs are those costs that are not identifiable as expenses of a
particular business and comprise expenditures of the Board of Directors and
corporate head office. In 2021, adjusted central costs were $20.0m, up $4.4m
on the previous year due to an increase in variable remuneration and an
investment in capability.
COVID-19 assistance
The Group has accessed various government support schemes aimed at mitigating
the potential impact on individuals' job losses resulting from the impact of
COVID-19. The most significant amounts received by the Group include the
following:
- $0.4m in relation to government support under temporary wage support
schemes available in the Netherlands. The Group does not have any unfulfilled
obligations relating to these support programmes. This amount has been offset
against employee remuneration costs.
- Agreement of payment plans with tax authorities in China to defer
payments of income taxes and payroll taxes resulting in $1.1m payment
deferrals across the Group.
Other expenses
Other expenses are administration costs incurred and paid by the Group's
pension schemes, which relate primarily to former employees of legacy
businesses, and were $2.1m in 2021 compared with $1.6m in the previous year.
Net finance costs
2021 2020
$m
$m
Finance income 0.3 0.3
Finance cost of borrowings (23.3) (22.6)
(23.0) (22.3)
Net pension finance costs (0.3) (0.6)
Discount unwind on provisions (2.6) (2.7)
Fair value movement on derivatives 10.7 (10.2)
Dividend currency hedge cancellation - (1.8)
Interest on lease liabilities (1.6) (1.7)
Net finance costs (16.8) (39.3)
Net finance costs for 2021 were $16.8m, a decrease of $22.5m on last year.
Finance costs comprise interest payable on borrowings calculated using the
effective interest rate method, facility arrangement fees, the unwinding of
discounts on the Group's environmental provisions, fair value movement on
derivatives and interest charged on lease liabilities.
The decrease in net finance costs is primarily due to the fair value movement
on derivatives ($20.9m decrease) versus prior year and the cancellation of the
dividend currency hedge in 2020 following the suspension of the 2019 final
ordinary dividend ($1.8m decrease). Finance cost of borrowings was broadly in
line with the previous year.
Both pension finance costs, which are a function of discount rates under IAS
19 and the value of schemes' deficit or surplus positions, and the interest on
lease liabilities, were broadly consistent in 2021 compared with 2020.
The discount unwind on provisions relates to the annual time value of the
Group's environmental provisions which are calculated on a discounted basis.
The unwind of $2.6m in 2021 is in line with the previous year.
Taxation
Tax charge
$m 2021 Effective rate $m 2020 Effective
%
rate
%
Reported tax charge/(credit) 3.3 (57.0) (1.8) (2.6)
Adjusting items tax credit 11.3 - 16.0 -
Underlying tax charge 14.6 19.0 14.2 26.9
The Group incurred a tax charge of $14.6m (2020: $14.2m) on adjusted profit
before tax, resulting in an effective tax rate of 19.0% (2020: 26.9%). The
Group's effective tax rate in 2021 is slightly lower than its usual range due
to beneficial adjustments in respect of prior years and the one-off impact of
the UK rate change on its deferred tax assets.
Tax on adjusting items relates primarily to the reversal of an uncertain tax
provision in the US and the amortisation of intangible assets.
The expectation for the Group's effective P&L tax rate is around 22-23%
until 2023, after which it is anticipated to rise to 25-26% due to the
previously announced increase in UK corporation tax rates from April 2023. The
enacted rate change increases the Group's UK deferred tax assets by $1.2m,
with the tax credit reflected in the income statement. Furthermore, the
enacted rate change increases the Group's UK deferred tax liabilities by
$2.5m, with the tax charge reflected in other comprehensive income.
Following the European Commission's State Aid investigation into the UK
Finance Company Exemption (FCE) regime, Elementis received a charging notice
in February 2021 for the maximum exposure of $19m (excluding interest).
Elementis paid the notice amount to HMRC on 5 March 2021, as required, and has
lodged an appeal. A charging notice for associated interest of $1m was
received on 24 June 2021 and paid on 7 July 2021.
Whilst Elementis has lodged an appeal against the charging notice this does
not defer the payment of the tax assessed. As Elementis considers that the
appeal will ultimately be successful, at 31 December 2021 an asset has been
recorded within non-current assets in the accounts on the expectation that the
charge will be repaid in due course. The UK Government's appeal against the
European Commission's decision was heard by the General Court of the European
Union during October 2021 with a decision expected during 2022.
Earnings per share
To aid comparability of the underlying performance of the Group, earnings per
share reported under IFRS is adjusted for items classified as adjusting.
Adjusted diluted earnings per share was 10.6 cents for 2021 compared with 6.5
cents in the previous year, an increase of 63% due to higher profit and a
lower effective tax rate. Basic earnings per share before adjusting items was
a profit per share of 0.4 cents compared with a loss per share of 11.5 cents
in 2020.
Note 7 provides disclosure of earnings per share calculations both including
and excluding the effects of adjusting items and the potential dilutive
effects of outstanding and exercisable options.
Distributions to shareholders
Given the market and economic uncertainties, and the Board's desire to provide
additional financial headroom and preserve cash, no dividend distributions to
shareholders were made during the year. The Board is also not recommending a
final dividend for 2021. The Board recognises the importance of dividends to
shareholders and will look to reinstate payments once further progress is made
on reducing financial leverage.
Cash flow
Net cash flow from operating activities decreased by $40.4m to $66.7m in 2021,
due to an increase in cash tax of $23.1m, the majority of which relates to the
ongoing EU state aid case, and working capital outflow as a result of
increased revenues.
Net cash outflow in relation to investing activities increased by $25.8m to
$65.0m following the successful conclusion of an historic, pre-acquisition
interest deductibility case ($13.2m outflow) and also due to increased capital
expenditure primarily linked to the new AP Actives plant in India.
Net cash outflow in relation to financing activities reduced by $39.4m to
$25.3m in 2021 due to additional tax cash outflows related to specific items
as set out above limiting surplus cash to pay down central borrowings.
The adjusted cash flow which excludes the effect of adjusting items from
operating cash flow is summarised below. A reconciliation of statutory
operating profit to EBITDA is shown in the alternative performance measures
information.
2021 2020
$m
$m
EBITDA ◊ 158.5 132.8
Change in working capital (31.6) 18.8
Capital expenditure (52.8) (40.0)
Other 1.9 (1.8)
Adjusted operating cash flow 76.0 109.8
Pension payments (0.1) (0.1)
Interest (23.2) (23.4)
Tax (30.9) (8.5)
Adjusting items (20.4) (12.2)
Payment of lease liabilities (6.7) (6.7)
Free cash flow (5.3) 58.9
Issue of shares 0.1 0.1
Dividends paid - -
Acquisitions and disposals 0.3 0.5
Currency fluctuations 12.0 (13.4)
Movement in net debt 7.1 46.1
Net debt at start of year (408.1) (454.2)
Net debt at end of year (401.0) (408.1)
( )
◊( )EBITDA - earnings before interest, tax, adjusting
items, depreciation and amortisation.
Adjusted operating cash flow decreased by $33.8m to $76.0m for 2021 as an
increase of $25.7m in EBITDA was offset by $50.4m movement in working capital
and an increase in net capital expenditure of $12.8m.
Free cash outflow of $5.3m in 2021 represents a reduction of $64.2m on the
prior year period. Cash tax outflows increased from $8.5m to $30.9m, primarily
due to the $19.5m charging notice received for the ongoing EU state aid case.
A further one off cash outflow of $13.2m associated with an historic,
pre-acquisition interest deductibility tax case increased adjusting items cash
outflow from $12.2m in 2020 to $20.4m in 2021.
Net debt decreased from $408.1m in 2020 to $401.0m in 2021, a reduction of
$7.1m, and net debt to adjusted EBITDA decreased from 3.2x*** in 2020 to
2.6x*** in 2021. The decrease in leverage is due to the improvement in
adjusted EBITDA, reflective of the Group's higher earnings.
Balance sheet
2021 2020
$m
$m
Intangible fixed assets 815.7 892.6
Tangible fixed assets 499.7 516.0
Working capital 164.0 141.4
Net tax liabilities (112.6) (132.2)
Provisions and retirement benefit obligations (22.5) (79.0)
Financial assets and liabilities (5.2) (30.7)
Lease liabilities (40.2) (44.4)
Unamortised syndicate fees 3.1 4.8
Net debt (401.0) (408.1)
Total equity 901.0 860.4
Group equity increased by $40.6m in 2021 (2020: decrease of $45.8m).
Intangible fixed assets decreased by $76.9m due to an impairment of $52.3m,
$16.6m of amortisation of intangibles and $8.2m of foreign exchange. Tangible
fixed assets decreased by $16.3m, with gross PPE additions of $51.5m,
right-of-use asset capitalisation of $2.0m more than offset by exchange
differences of $18.7m and depreciation of $51.7m.
Working capital comprises inventories, trade and other receivables and trade
and other payables. Working capital
increased by $22.6m in 2021, a result of higher underlying revenue.
Net tax liabilities of $112.6m decreased as a result of the EU state aid
payment which has been recognised as an asset based on the expectation that
the charge will be repaid in due course of the broadly in line with the
previous year.
Adjusted ROCE (excluding goodwill) increased to 13%** from 10%** in 2020, due
to increased adjusted operating profit.
The main dollar exchange rates relevant to the Group are set out below.
Year end 2021 Year end 2020
Average
Average
Pounds sterling 0.74 0.73 0.73 0.78
Euro 0.88 0.84 0.82 0.88
Provisions
The Group records a provision in the balance sheet when it has a present
obligation as a result of past events, which is expected to result in an
outflow of economic benefits in order to settle the obligation and the amount
can be reliably estimated. The Group calculates provisions on a discounted
basis. At the end of 2021 the Group held provisions of $61.8m (2020: $58.8m)
consisting of environmental provisions of $58.7m (2020: $50.6m),
self-insurance provisions of $0.7m (2020: $1.5m) and restructuring and other
provisions of $2.4m (2020: $6.7m).
Environmental provisions have increased by $8.1m in 2021, with a net $8.3m
taken through adjusting items, $9.6m expense relates to extra remediation work
for additional closure and decommissioning activities offset by $1.3m relating
to a change in the discount rate applied to the liabilities. The remaining
movement relates to $2.6m of unwind of discount in the year offset by $0.4m of
currency translation and $3.1m of utilisation. The self-insurance provision
represents the Group's estimate of its liability arising from retained
liabilities under the Group's insurance programme.
Within the restructuring and other provisions categories the majority of the
balance relates to payments to be made for right of first refusal on a
quarry, payments for which are linked to the discharge of residue into
another quarry owned by the same counterparty.
Pensions and other post retirement benefits
2021 2020
$m
$m
Net (surplus)/liability:
UK (56.6) (7.9)
US 8.3 18.3
Other 9.0 9.8
(39.3) 20.2
UK plan
The largest of the Group's retirement plans is the UK defined benefit pension
scheme ('UK Scheme') which at the end of 2021 had a surplus, under IAS 19, of
$56.6m (2020: $7.9m). The UK Scheme is relatively mature, with approximately
two thirds of its gross liabilities represented by pensions in payment, and is
closed to new members. Return on plan assets of $35.0m (2020: $75.2m) and
liability adjustments of $27.1m (2020: $59.5m) arising due to higher discount
rates based on real corporate bond yields increased the surplus. Company
contributions of $0.6m (2020: $nil) reflect the funding agreement reached with
the UK trustees following the 2020 triennial valuation which concluded in
2021.
US plan
In the US, the Group reports two post retirement plans under IAS 19: a defined
benefit pension plan with a deficit value at the end of 2021 of $1.7m (2020:
$11.8m), and a post retirement medical plan with a liability of $6.6m (2020:
$6.5m). The US pension plans are smaller than the UK plan and in 2021 the
overall deficit value of the US plans decreased by $10.0m due to actuarial
decreases in the liability of $6.3m (2020: $12.8m increase), return on plan
assets of $7.2m (2020: $15.8m) and employer contributions of $0.5m (2020
$0.5m).
Other plans
Other liabilities at 31 December 2021 amounted to $9.0m (2020: $9.8m) and
relate to pension arrangements for a relatively small number of employees in
Germany, certain UK legacy benefits and one pension scheme acquired as part of
the SummitReheis transaction in 2017.
Financial assets and liabilities
Financial liabilities at 31 December 2021 include $nil of contingent
consideration in respect of Talc (2020: $13.4m). This balance was settled in
2021 following the successful conclusion of an historic, pre-acquisition
interest deductibility tax case relating to Talc. Also included are net
derivative financial liabilities of $5.2m (2020: $15.9m) relating to the
valuation of various risk management instruments. The movements in the mark to
market valuation of financial instruments which are not in hedging
relationships do not form part of the underlying performance of the business
and thus are treated as adjusting items.
Events after the balance sheet date
The ongoing EU state aid case is discussed in the taxation section of this
finance report. There were no other significant events after the balance sheet
date.
1 After adjusting items - see note 5.
* Adjusted for FX (where constant currency reflects prior year results
translated at current year exchange rates).
** See alternative performance measures information.
*** See unaudited information.
Consolidated income statement
for the year ended 31 December 2021
2021 2020
$m
$m
Revenue 880.1 751.3
Cost of sales (545.2) (494.0)
Gross profit 334.9 257.3
Distribution costs (151.9) (112.6)
Administrative expenses (156.6) (172.9)
Operating profit/(loss) 26.4 (28.2)
(Loss)/profit on disposal (1.7) 0.3
Other expenses(1) (2.1) (1.6)
Finance income 11.0 0.3
Finance costs (27.8) (39.6)
Profit/(loss) before income tax 5.8 (68.8)
Tax (3.3) 1.8
Profit/(loss) for the year 2.5 (67.0)
Attributable to:
Equity holders of the parent 2.5 (67.0)
Earnings per share
Basic earnings/(loss) (cents) 0.4 (11.5)
Diluted earnings/(loss) (cents) 0.4 (11.3)
1 Other expenses comprise administration expenses for the Group's pension
schemes.
Consolidated statement of comprehensive income
for the year ended 31 December 2021
2021 2020
$m
$m
Profit/(loss) for the year 2.5 (67.0)
Other comprehensive income:
Items that will not be reclassified subsequently to profit and loss:
Remeasurements of retirement benefit obligations 63.5 (0.3)
Deferred tax associated with retirement benefit obligations (14.6) (0.3)
Items that may be reclassified subsequently to profit and loss:
Exchange differences on translation of foreign operations (29.1) 25.0
Effective portion of change in fair value of net investment hedge 10.7 (3.6)
Tax associated with change in fair value of net investment hedge 1.8 -
Tax associated with changes in cashflow hedges (0.4) -
Recycling of deferred foreign exchange (gains) on disposal (0.4) (0.2)
Effective portion of changes in fair value of cash flow hedges (0.1) (1.4)
Fair value of cash flow hedges transferred to income statement 2.7 0.9
Exchange differences on translation of share options reserves - (2.7)
Other comprehensive income 34.1 17.4
Total comprehensive income/(loss) for the year 36.6 (49.6)
Attributable to:
Equity holders of the parent 36.6 (49.6)
Total comprehensive income/(loss) for the year 36.6 (49.6)
( )
Consolidated balance sheet
as at 31 December 2021
2021 2020
31 December
31 December
$m
$m
Non-current assets
Goodwill and other intangible assets 815.7 892.6
Property, plant and equipment 499.7 516.0
ACT recoverable - 0.6
Tax recoverable 19.7 -
Deferred tax assets 28.0 26.3
Net retirement benefit surplus 56.6 7.9
Total non-current assets 1,419.7 1,443.4
Current assets
Inventories 186.1 164.3
Trade and other receivables 138.9 108.3
Derivative financial instruments 0.2 1.4
Current tax assets 7.1 7.2
Cash and cash equivalents 84.6 111.0
Total current assets 416.9 392.2
Total assets 1,836.6 1,835.6
Current liabilities
Bank overdrafts and loans - (3.7)
Trade and other payables (161.0) (132.6)
Financial liabilities (1.4) (17.3)
Current tax liabilities (17.4) (23.2)
Lease liabilities (6.4) (7.2)
Provisions (8.7) (9.6)
Total current liabilities (194.9) (193.6)
Non-current liabilities
Loans and borrowings (482.5) (510.6)
Retirement benefit obligations (17.3) (28.1)
Deferred tax liabilities (150.0) (143.1)
Lease liabilities (33.8) (37.2)
Provisions (53.1) (49.2)
Financial liabilities (4.0) (13.4)
Total non-current liabilities (740.7) (781.6)
Total liabilities (935.6) (975.2)
Net assets 901.0 860.4
Equity
Share capital 52.2 52.1
Share premium 240.8 237.7
Other reserves 90.7 108.6
Retained earnings 517.3 462.0
Total equity attributable to equity holders of the parent 901.0 860.4
Total equity 901.0 860.4
( )
Consolidated statement of changes in equity
for the year ended 31 December 2021
Share Share Translation reserve Hedging Other Retained Total
capital $m
premium $m
$m
reserve
reserves $m
earnings
equity
$m
$m
$m
Balance at 1 January 2020 52.1 237.7 (69.0) (8.4) 168.5 525.3 906.2
Comprehensive income
Loss for the year - - - - - (67.0) (67.0)
Other comprehensive income
Exchange differences - - 21.4 - (2.7) - 18.7
Recycling of deferred foreign exchange losses on disposal - - (0.2) - - - (0.2)
Fair value of cash flow hedges transferred to the - - - 0.9 - - 0.9
income statement
Effective portion of changes in fair value - - - (1.4) - - (1.4)
of cash flow hedges
Remeasurements of retirement benefit obligations - - (1.1) - - 0.8 (0.3)
Deferred tax adjustment on pension scheme deficit - - - - - (0.3) (0.3)
Transfer - - - - (2.9) 2.9 -
Total other comprehensive income/(loss) - - 20.1 (0.5) (5.6) 3.4 17.4
Total comprehensive income/(loss) - - 20.1 (0.5) (5.6) (63.6) (49.6)
Transactions with owners:
Issue of shares by the Company - - - - - 0.2 0.2
Share based payments - - - - 3.5 - 3.5
Deferred tax on share based payments recognised within equity - - - - - 0.1 0.1
Total transactions with owners - - - - 3.5 0.3 3.8
Balance at 31 December 2020 52.1 237.7 (48.9) (8.9) 166.4 462.0 860.4
Balance at 1 January 2021 52.1 237.7 (48.9) (8.9) 166.4 462.0 860.4
Comprehensive income
Profit for the year - - - - - 2.5 2.5
Other comprehensive income
Exchange differences - - (18.4) - - - (18.4)
Recycling of deferred foreign exchange gains on disposal - - (0.4) - - - (0.4)
Fair value of cash flow hedges transferred to the - - - 2.7 - - 2.7
income statement
Effective portion of changes in fair value - - - (0.1) - - (0.1)
of cash flow hedges
Tax associated with changes in cashflow hedges - - - - - (0.4) (0.4)
Tax associated with change in fair value of net - - - - - 1.8 1.8
investment hedge
Remeasurements of retirement benefit obligations - - - - - 63.5 63.5
Deferred tax adjustment on pension scheme deficit - - - - - (14.6) (14.6)
Transfer - - - - (1.4) 1.4 -
Total other comprehensive income/(loss) - - (18.8) 2.6 (1.4) 51.7 34.1
Total comprehensive income/(loss) - - (18.8) 2.6 (1.4) 54.2 36.6
Transactions with owners:
Issue of shares by the Company 0.1 3.1 - - (3.1) - 0.1
Deferred tax on share based payments recognised within equity - - - - - 1.1 1.1
Share based payments - - - - 5.1 - 5.1
Fair value of cash flow hedges transferred to net assets - - - (2.3) - - (2.3)
Total transactions with owners 0.1 3.1 - (2.3) 2.0 1.1 4.0
Balance at 31 December 2021 52.2 240.8 (67.7) (8.6) 167.0 517.3 901.0
Consolidated cash flow statement
for the year ended 31 December 2021
2021 2020
$m
$m
Operating activities:
Profit for the year 2.5 (67.0)
Adjustments for:
Other expenses 2.1 1.6
Finance income (11.0) (0.3)
Finance costs 27.8 39.6
Tax charge 3.3 (1.8)
Depreciation and amortisation 68.3 66.7
Impairment loss on property, plant and equipment - 11.7
(Decrease)/increase in provisions and financial liabilities 0.8 3.7
Pension payments net of current service cost (0.1) 1.1
Share based payments expense 5.1 3.5
Impairment of goodwill 52.3 60.3
Loss/(profit) on disposal of business 1.7 (0.3)
Operating cash flow before movement in working capital 152.8 118.8
(Increase)/decrease in inventories (24.2) 7.8
(Increase)/decrease in trade and other receivables (33.8) 13.3
Increase/(decrease) in trade and other payables 26.3 (0.6)
Cash generated by operations 121.1 139.3
Income taxes paid (30.9) (8.5)
Interest paid (23.5) (23.7)
Net cash flow from operating activities 66.7 107.1
Investing activities:
Interest received 0.3 0.3
Disposal of property, plant and equipment 0.7 1.8
Purchase of property, plant and equipment (52.7) (41.5)
Purchase of business (0.2) -
Disposal of business 0.5 0.5
Acquisition of intangible assets (0.4) (0.3)
Contingent consideration paid (13.2) -
Net cash flow from investing activities (65.0) (39.2)
Financing activities:
Issue of shares by the Company and the ESOT net of issue costs 0.1 0.1
Outflow of cancelled dividend hedge - (1.8)
Net movement on existing debt (18.7) (56.3)
Payment of lease liabilities (6.7) (6.7)
Net cash used in financing activities (25.3) (64.7)
Net increase in cash and cash equivalents (23.6) 3.2
Cash and cash equivalents at 1 January 111.0 103.9
Foreign exchange on cash and cash equivalents (2.8) 3.9
Cash and cash equivalents at 31 December 84.6 111.0
Notes to the financial statements
1. Preparation of the preliminary announcement
The financial information in this statement does not constitute the Company's
statutory accounts for the years ended 31 December 2021 or 2020 but is derived
from those accounts. Statutory accounts for 2020 have been delivered to the
Registrar of Companies, and those for 2021 will be delivered in due course.
The auditor has reported on those accounts; their reports were (i)
unqualified, (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498(2) or (3) of the Companies
Act 2006.
This preliminary announcement was approved by the Board of Directors on 3
March 2022.
2. Basis of preparation
Elementis plc (the "Company") is incorporated in the UK. The information
within this document has been prepared based on the Company's consolidated
financial statements which are prepared in accordance with International
Financial Reporting Standards as adopted by the UK (adopted IFRS) and
consistent with the accounting policies as set out in the previous
consolidated financial statements.
The Group's financial statements have been prepared on the historical cost
basis except that derivative financial instruments are stated at their fair
value. Non-current assets held for sale are stated at the lower of carrying
amount and fair value less costs to sell. The preparation of financial
statements requires the application of estimates and judgements that affect
the reported amounts of assets and liabilities, revenues and costs and related
disclosures at the balance sheet date.
The accounting policies adopted are consistent with those of the previous
financial year.
Going concern
The Group and Company financial statements have been prepared on the going
concern basis, as the directors are satisfied that the Group and Company have
adequate resources to continue to operate for at least a period of 12 months
from the date of approval of the financial statements. An explanation of the
directors' assessment of using the going concern basis is given in the
Directors' report in the Annual Report and Accounts 2021 which will be made
available to shareholders on 22 March 2022.
Reporting currency
As a consequence of the majority of the Group's sales and earnings originating
in US dollars or US dollar linked currencies, the Group has chosen the US
dollar as its presentational currency. This aligns the Group's external
reporting with the profile of the Group, as well as with internal management
reporting.
3. Finance income
2021 2020
$m
$m
Interest on bank deposits 0.3 0.3
Fair value movement on derivatives 10.7 -
11.0 0.3
4. Finance costs
2021 2020
$m
$m
Interest on bank loans 23.3 22.6
Pension and other post retirement liabilities 0.3 0.6
Unwind of discount on provisions 2.6 2.7
Fair value movement on derivatives - 10.2
Dividend currency hedge cancellation - 1.8
Interest on lease liabilities 1.6 1.7
27.8 39.6
5. Adjusting items and alternative performance measures
2021 2020
$m
$m
Restructuring - 0.9
Business transformation 4.6 22.7
Environmental provisions
Increase in provisions due to additional remediation work identified 9.6 5.6
(Decrease)/Increase in provisions due to change in discount rate (1.3) 1.1
M&A and disposal costs - 3.7
Impairment of goodwill 52.3 60.3
Sale of Montreal land (1.0) -
Amortisation of intangibles arising on acquisition 16.0 15.5
80.2 109.8
Sale of Business 1.7 (0.3)
Mark to market of derivative financial instruments (10.7) 10.2
Currency hedge due to dividend cancellation - 1.8
Tax credit in relation to adjusting items (11.3) (16.0)
59.9 105.5
A number of items have been recorded under 'adjusting items' by virtue of
their size and/or one time nature, in line with our accounting policy in Note
1, in order to provide additional useful analysis of the Group's results. The
Group considers the adjusted results to be an important measure used to
monitor how the businesses are performing as they achieve consistency and
comparability between reporting periods. The net impact of these items on the
Group profit before tax for the year is a debit of $71.2m (2020: $121.5m).
The items fall into a number of categories, as summarised below:
Restructuring - In 2020, restructuring costs relate predominantly to the
organisational efficiency programme commenced in late 2019, which eliminated
duplicate roles, reduced management layers and increased spans of control in
order to realise cost savings and efficiencies across the Group.
Business transformation - In November 2020, the closure of the Charleston
plant was announced. Costs of $4.2m in 2021 (including $0.4m of depreciation)
associated with preparing the site for sale are classified as an adjusting
item and the site is planned to be disposed of in the future. Further charges
of $0.4m relate to the optimisation of the supply chain footprint across our
Personal Care and Chromium businesses.
Environmental provisions - The Group's environmental provision is calculated
on a discounted cash flow basis, reflecting the time period over which
spending is estimated to take place. The movement in provision relates to a
change in discount rates that has decreased the liability by $1.3m in the
year, extra remediation work identified in the year which has resulted in a
$9.6m increase to the liability. As these costs relate to non-operational
facilities they are classified as adjusting items.
M&A and disposal costs - Charges of $3.7m in 2020 represent costs relating
to the disposal of small, non-core businesses in the Personal Care business
segment and advisory fees incurred in response to an unsolicited takeover
approach received in the previous year.
Impairment of goodwill - In Talc, while the business fundamentals are
unchanged, the continuing impact of COVID-19 on wider industrial activity and
global supply chains, especially affecting the automotive sector, and the near
term forecast profitability of the business has resulted in a goodwill
impairment of $53.1m. This impairment is reflected as a P&L charge of
$52.3m and $0.8m movement in exchange differences on translation of foreign
operations in other comprehensive income.
Sale of Montreal land - In 2021 the Group disposed of a non-core parcel of
land in Montreal, Canada. The profit on disposal has been treated as an
adjusting item.
Amortisation of intangibles arising on acquisition - Amortisation of $16.0m
(2020: $15.5m) represents the charge in respect of the Group's acquired
intangible assets. As in previous years, these are included in adjusting items
as they are a non-cash charge arising from historical investment activities.
Sale of Business - The $1.7m loss on disposal of two non-core dental
businesses, Eisenbacher Dentalwaren ED GmbH and Adentatec GmbH, has been
treated as an adjusting item in 2021.
Mark to market of derivatives - The movements in the mark to market valuation
of financial instruments that are not in hedging relationships are treated as
adjusting items as they are non-cash fair value adjustments that will not
affect the cash flows of the Group.
Currency hedge due to dividend cancellation - The charge of $1.8m in 2020
relates to the cancellation of currency hedges following the suspension of the
2019 final ordinary dividend that provided additional financial headroom in
response to COVID-19.
Tax on adjusting items - this is the net impact of tax relating to the
adjusting items listed above.
To support comparability with the financial statements as presented in 2021
the reconciliation to the adjusted consolidated income statement is shown
below.
2021 2021 Adjusting items 2021
Profit and loss
$m
Profit and loss after adjusting items
$m
$m
Revenue 880.1 - 880.1
Cost of sales (545.2) - (545.2)
Gross profit 334.9 - 334.9
Distribution costs (151.9) - (151.9)
Administrative expenses (156.6) 80.2 (76.4)
Operating profit 26.4 80.2 106.6
(Loss)/profit on disposal (1.7) 1.7 -
Other expenses (2.1) - (2.1)
Finance income 11.0 (10.7) 0.3
Finance costs (27.8) - (27.8)
Profit before income tax 5.8 71.2 77.0
Tax (3.3) (11.3) (14.6)
Profit for the year 2.5 59.9 62.4
Attributable to:
Equity holders of the parent 2.5 59.9 62.4
Earnings per share
Basic earnings (cents) 0.4 10.3 10.7
Diluted earnings (cents) 0.4 10.2 10.6
2020 2020 Adjusting items 2020
Profit and loss
$m
Profit and loss after adjusting items
$m
$m
Revenue 751.3 - 751.3
Cost of sales (494.0) - (494.0)
Gross profit 257.3 - 257.3
Distribution costs (112.6) - (112.6)
Administrative expenses (172.9) 109.8 (63.1)
Operating profit (28.2) 109.8 81.6
Profit/(loss) on disposal 0.3 (0.3) -
Other expenses (1.6) - (1.6)
Finance income 0.3 - 0.3
Finance costs (39.6) 12.0 (27.6)
(Loss)/profit before income tax (68.8) 121.5 52.7
Tax 1.8 (16.0) (14.2)
(Loss)/profit for the year (67.0) 105.5 38.5
Attributable to:
Equity holders of the parent (67.0) 105.5 38.5
Earnings per share
Basic (cents) (11.5) 18.1 6.6
Diluted (cents) (11.3) 17.8 6.5
To support comparability with the financial statements as presented in 2021, a
reconciliation from reported profit/(loss) before interest to adjusted profit
before income tax by segment is shown below for each year.
2021
Personal Care Coatings $m Talc Chromium Segment totals Central Total
$m
$m
costs
$m
$m $m
$m
Reported operating profit/(loss) 27.9 56.5 (44.3) 6.3 46.4 (20.0) 26.4
Adjusting Items
Business transformation 0.1 4.2 - 0.3 4.6 - 4.6
Increase in environmental provisions due to additional remediation work - - - 9.6 9.6 - 9.6
identified
Increase in environmental provisions due to change in discount rate - - - (1.3) (1.3) - (1.3)
Impairment of goodwill - - 52.3 - 52.3 - 52.3
Sale of Montreal land - - - (1.0) (1.0) - (1.0)
Amortisation of intangibles arising on acquisition 8.7 1.1 6.0 0.2 16.0 - 16.0
Adjusted operating profit /(loss) 36.7 61.8 14.0 14.1 126.6 (20.0) 106.6
Other expenses - - - - - (2.1) (2.1)
Finance income - - - - - 0.3 0.3
Finance costs - - - - - (27.9) (27.9)
Adjusted profit /(loss) before income tax 36.7 61.8 14.0 14.1 126.6 (49.7) 76.9
2020
Personal Care Coatings $m* Talc Chromium Segment totals Central Total
$m
$m
costs
$m
$m $m
$m
Reported operating profit/(loss) 20.0 (4.9) (22.4) (3.6) (10.9) (17.3) (28.2)
Adjusting Items
Restructuring - 0.9 - - 0.9 - 0.9
Business transformation 3.0 17.4 - 2.3 22.7 - 22.7
Increase in environmental provisions due to additional remediation work - - - 5.6 5.6 - 5.6
identified
Increase in environmental provisions due to change in discount rate - - - 1.1 1.1 - 1.1
M&A and disposal costs 2.0 - - - 2.0 1.7 3.7
Impairment of goodwill - 26.9 33.4 - 60.3 - 60.3
Amortisation of intangibles arising on acquisition 8.6 1.1 5.6 0.2 15.5 - 15.5
Adjusted operating profit /(loss) 33.6 41.4 16.6 5.6 97.2 (15.6) 81.6
Other expenses - - - - - (1.6) (1.6)
Finance income - - - - - 0.3 0.3
Finance costs - - - - - (27.6) (27.6)
Adjusted profit /(loss) before income tax 33.6 41.4 16.6 5.6 97.2 (44.5) 52.7
*Restated for the amalgamation of the Energy business into the Coatings
segment
6. Income tax expense
2021 2020
$m
$m
Current tax on continuing operations:
UK corporation tax 12.2 6.5
Overseas corporation tax on continuing operations 5.8 8.6
Adjustments in respect of prior years:
United Kingdom (1.0) 0.1
Overseas (7.2) (8.3)
Total current tax 9.8 6.9
Deferred tax:
United Kingdom (2.8) (1.0)
Overseas (3.2) (11.1)
Adjustment in respect of prior years:
United Kingdom - -
Overseas (0.5) 3.4
Total deferred tax (6.5) (8.7)
Income tax (credit)/expense for the year 3.3 (1.8)
Comprising:
Income tax (credit)/expense for the year 3.3 (1.8)
Adjusting items (1)
Overseas taxation on adjusting items (12.2) (12.4)
UK taxation on adjusting items 0.9 (3.6)
Taxation on adjusting items (11.3) (16.0)
Income tax expense for the year after adjusting items 14.6 14.2
( )
(1)( )See Note 5 for details of adjusting items.
The tax charge on profits represents an effective rate of 56.9% (2020: 2.6%)
and an effective tax rate after adjusting items of 19.0% (2020: 26.9%).
The tax impact of the adjusting items outlined within note 5 and within the
Consolidated income statement relates to the following:
2021 2021 2020 2020
Tax impact
Tax impact
Gross
Gross
$m
$m $m
$m
Restructuring - - 0.9 -
Business transformation 4.6 1.0 22.7 6.3
Environmental provisions 8.3 1.6 6.7 1.0
M&A and disposal costs 1.7 - 3.7 -
Impairment of goodwill 52.3 - 60.3 5.6
Mark to market of derivative financial instruments (10.7) (2.0) 10.2 1.9
Sale of Montreal land (1.0) - - -
Amortisation of intangibles arising on acquisition 16.0 3.5 15.5 1.2
Currency hedge due to dividend cancellation - - 1.8 -
Sale of Elementis Specialties (Changxing) Ltd - - (0.3) -
Reversal of uncertain tax provision - 7.2 - -
Total 71.2 11.3 121.5 16.0
The Group is international and has operations across a range of jurisdictions.
Accordingly, tax charges of the Group in future periods will be affected by
the profitability of operations in different jurisdictions and changes to tax
rates and regulations in the jurisdictions within which the Group has
operations. The Group 's effective tax rate in 2021 is slightly lower than its
usual range due to beneficial adjustments in respect of prior years and the
one-off impact of the UK rate change on its deferred tax assets. The
medium-term expectation for the Group's adjusted effective tax rate is around
22-23% until 2023, after which it is anticipated to rise to 25-26% due to the
previously announced increase in UK corporation tax rates from April 2023.
On 20 December 2021 the OECD published its Global Anti-Base Erosion Model
Rules (Pillar Two). The report provides a model for a coordinated system of
taxation that imposes a top-up tax on profits arising in a jurisdiction
whenever the effective tax rate, determined on a jurisdictional basis, is
below the minimum tax rate of 15%. Each OECD member nation has begun
consultations on the implementation of these model rules into local
legislation, with the expectation that they will be enshrined into law in
2023. The Group is currently considering the impact of the announcements on
its tax position.
The total charge for the year can be reconciled to the accounting profit as
follows:
2021 2021 2020 2020
$m
%
$m
%
Profit/(loss) before tax 5.8 (68.8)
Tax at 19.0% (2020: 19.0%) 1.1 19.0 (13.1) 19.0
Difference in overseas effective tax rates 1.5 25.9 4.0 (5.8)
Income not taxable and impact of tax efficient financing (0.9) (15.5) (4.7) 6.8
Expenses not deductible for tax purposes 12.0 206.9 11.5 (16.7)
Adjustments in respect of prior years (8.7) (150.0) (4.8) 7.0
Tax rate changes (1.2) (20.7) 1.3 (1.9)
Movement in unrecognised deferred tax (0.5) (8.7) 4.0 (5.8)
Total charge/(credit) and effective tax rate for the year 3.3 56.9 (1.8) 2.6
7. Earnings per share
The calculation of the basic and diluted earnings per share attributable to
the ordinary equity holders of the parent is based on the following:
2021 2020
$m
$m
Earnings:
Earnings/(loss) for the purpose of basic earnings per share 2.5 (67.0)
Adjusting items net of tax 59.9 105.5
Adjusted earnings 62.4 38.5
2021 2020
m
m
Number of shares:
Weighted average number of shares for the purposes of basic earnings per share 581.0 580.1
Effect of dilutive share options 7.8 13.6
Weighted average number of shares for the purposes of diluted earnings per 588.8 593.7
share
2021 2020
cents
cents
Earnings per share:
Basic earnings / (loss) 0.4 (11.5)
Diluted earnings / (loss) 0.4 (11.3)
Basic after adjusting items 10.7 6.6
Diluted after adjusting items 10.6 6.5
8. Contingent liabilities
As is the case with other chemical companies, the Group occasionally receives
notice of litigation relating to regulatory and legal matters. A provision is
recognised when the Group believes it has a present legal or constructive
obligation as a result of a past event, and it is probable that an outflow of
economic benefits will be required to settle the obligation. Where it is
deemed that an obligation is merely possible and that the probability of a
material outflow is not remote, the Group would disclose a contingent
liability.
The Group has not received any notice of litigation relating to events arising
prior to the balance sheet date that is expected to lead to a material
exposure.
In 2013 the UK Government (through HMRC) introduced the UK Finance Company
Exemption ('FCE') regime. Elementis entered into the FCE regime during 2014.
In October 2017 the European Commission opened a State Aid investigation into
the regime. In April 2019 the European Commission concluded that the FCE
regime constituted State Aid in circumstances where Groups had accessed the
regime using a financing company with UK significant people functions; the
European Commission therefore instructed the UK Government to collect any
relevant State Aid amounts. The UK government and other UK-based international
companies, including Elementis, appealed to the General Court of the European
Union against the decision in 2019. In Spring 2020 HMRC requested that
affected Groups submit their UK significant people function analysis. The
deadline for submission of these analyses was delayed due to the impact of
COVID-19 and Elementis submitted its analysis to HMRC in July 2020. In
December 2020 the UK government introduced legislation to commence collection
proceedings. Elementis received a charging notice from HMRC on 5 February 2021
which assessed for the maximum exposure of $19m (excluding interest). This was
paid to HMRC on 5 March 2021. A charging notice for associated interest of $1m
was received on 24 June 2021 and paid on 7 July 2021. Whilst Elementis has
lodged an appeal against the charging notice this does not defer the payment
of the tax assessed. As Elementis considers that the appeal will ultimately be
successful, at 31 December 2021 an asset has been recorded within non current
assets in the accounts on the expectation that the charge will be repaid in
due course. The UK Government's appeal against the European Commission's
decision was heard by the General Court of the European Union during October
2021 with a decision expected during 2022.
9. Events after the balance sheet date
There were no other significant events after the balance sheet date.
10. Goodwill and other intangible assets
2021 2020
$m
$m
1 January 668.0 725.7
Exchange differences (2.2) 2.6
Acquisitions 0.5 -
Disposals (1.0) -
Impairment (52.3) (60.3)
31 December 613.0 668.0
Other intangible assets 202.7 224.7
Total goodwill and intangibles at 31 December 815.7 892.7
At 31 December 2021 we considered the continuing impact of COVID-19 on wider
industrial activity and global supply chains, especially affecting the
automotive sector, which has impacted current year performance and the near
term forecast profitability of the Talc business to be an indicator of
impairment of goodwill for the Talc CGU. As a result, an impairment test was
performed which resulted in recognition of an impairment of $53.1m to the
goodwill of the Talc CGU as at 31 December 2021 based on a recoverable amount
of $440.7m. Due to the currency of the entity in which the goodwill is held,
this impairment is reflected as a P&L charge of $52.3m and $0.8m movement
in exchange differences on translation of foreign operations in other
comprehensive income.
In reaching the impairment charge the forecast period included revenue growth
of between 5% and 8%. A pre-tax discount rate of 10.0% was applied. The
outcome of the impairment review was most sensitive to changes to forecast
revenues and discount rate. A 0.5% increase in the pre-tax discount rate would
have increased the impairment charge by $29.2m and a 3% decrease in forecast
revenues in each year of the five year forecast period would have increased
the impairment charge by $43.6m.
No impairment was identified for the Personal Care, Coatings and Chromium
CGUs.
Alternative performance measures and unaudited information
Alternative performance measures
A reconciliation from reported profit for the year to earnings before
interest, tax, depreciation and amortisation (EBITDA) is provided to support
understanding of the summarised cash flow included within the Finance report.
2021 2020
Profit and Profit and
loss loss
$m $m
Profit/(loss) for the year 2.5 (67.0)
Adjustments for
Finance income (11.0) (0.3)
Finance costs and other expenses after adjusting items 29.9 41.2
Tax (credit)/charge 3.3 (1.8)
Depreciation and amortisation 68.3 66.7
Excluding intangibles arising on acquisition (16.0) (15.5)
Adjusting items before finance costs and depreciation 81.5 109.5
Adjusted EBITDA 158.5 132.8
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 taxes paid or
received, interest paid or received, pension contributions net of current
service cost and adjusting items.
2021 2020
$m
$m
Net cash flow from operating activities 66.7 107.1
Less: Capital expenditure (52.4) (40.0)
Add:
Income tax paid or received 30.9 8.5
Interest paid or received 23.5 23.7
Pension contributions net of current service cost 0.1 0.1
Adjusting items - non cash (13.2) (1.8)
Adjusting items - cash 20.4 12.2
Adjusted operating cash flow 76.0 109.8
Adjusted operating cash conversion
Adjusted operating cash conversion is defined as operating cash flow (as
defined above) excluding payments for provisions and share based pay, divided
by operating profit from total operations after adjusting items.
2021 2020
$m
$m
Operating profit after adjusting items 106.6 81.6
Operating cash flow 76.0 109.8
Add:
Provision and share based payments (1.9) 1.7
74.1 111.5
Adjusted operating cash flow conversion 70% 137%
Contribution margin
The Group's contribution margin, which is defined as sales less all variable
costs, divided by sales and expressed as a percentage.
2021 2020
$m
$m
Revenue 880.1 751.3
Variable costs (479.2) (410.8)
Non variable costs (66.0) (83.2)
Cost of sales (545.2) (494.0)
Adjusted Group profit before tax
Adjusted Group profit before tax is defined as the Group profit before tax
from total operations (both continuing and discontinued) after adjusting
items, excluding adjusting items relating to tax.
Adjusted return on operating capital employed
The adjusted return on operating capital employed (ROCE) is defined as
operating profit from total operations after adjusting items divided by
operating capital employed, expressed as a percentage. Operating capital
employed comprises fixed assets (excluding goodwill), working capital and
operating provisions. Operating provisions include self insurance and
environmental provisions but exclude retirement benefit obligations.
2021 2020
$m
$m
Operating profit from total operations after adjusting items 106.6 81.6
Fixed assets excluding goodwill 722.1 740.7
Working capital 164.0 141.4
Operating provisions (61.8) (58.8)
Operating capital employed 824.3 823.3
Adjusted return on capital employed 13% 10%
Average trade working capital to sales ratio
The trade working capital to sales ratio is defined as the 12 month average
trade working capital divided by sales, expressed as a percentage. Trade
working capital comprises inventories, trade receivables (net of provisions)
and trade payables. It specifically excludes repayments, capital or interest
related receivables or payables, changes due to currency movements and items
classified as other receivables and other payables.
Adjusted operating profit/operating margin
Adjusted operating profit is the profit derived from the normal operations of
the business. Adjusted operating margin is the ratio of operating profit,
after adjusting items, to sales.
Unaudited information
To support a full understanding of the performance of the Group, the
information below provides the calculation of Net Debt/EBITDA as per our
banking covenants.
2021 2020
$m
$m
Revenue 880.1 751.3
Adjusted operating profit 106.6 81.6
Adjusted operating margin 12.1% 10.9%
Adjusted EBITDA 158.5 132.8
IFRS 16 adjustment (6.8) (6.4)
Adjusted EBITDA pre IFRS 16 151.7 126.4
Net Debt 401.0 408.1
Net Debt/EBITDA* 2.64 3.23
* Net Debt/EBITDA, where EBITDA is the Adjusted EBITDA on continuing
operations of the Group on a pre IFRS16 basis, is the definition of Net
Debt/EBITDA for Elementis' core banking covenants.
*****************************************************
Related party transactions
The Company is a guarantor to the UK pension scheme under which it guarantees
all current and future obligations of UK subsidiaries currently participating
in the pension scheme to make payments to the scheme, up to a specified
maximum amount. The maximum amount of the guarantee is that which is needed
(at the time the guarantee is called on) to bring the scheme's funding level
up to 105 per cent of its liabilities, calculated in accordance with section
179 of the Pensions Act 2004. This is also sometimes known as a Pension
Protection Fund ("PPF") guarantee, as having such a guarantee in place reduces
the annual PPF levy on the scheme.
Directors' responsibility statement
The following is an extract of the full statement prepared in connection with
the Company's Annual Report and Accounts (comprising both consolidated and
parent company financial statements) for the year ended 31 December 2021. The
full text of the Directors' responsibility statement will appear in the 2021
Annual Report and Accounts.
The Directors of the Company confirm that to the best of their knowledge:
· The financial statements, which have been prepared in accordance with
the relevant financial reporting framework, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company and
the undertakings included in the consolidation taken as a whole.
· The strategic report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face.
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