REG - Elementis PLC - Preliminary results year ended 31 December 2022
07/03/2023 07:00
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RNS Number : 0759S Elementis PLC 07 March 2023
ELEMENTIS PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022
Improved financial performance driven by sales growth and disciplined margin
management
· Revenue from continuing operations up 4% (+10% underlying(1)) from
$709m to $736m driven by strong new business momentum, targeted pricing
actions and improved product mix.
· Adjusted(2) operating profit from continuing operations up 14% (23%
underlying(1)) to $101m, with strong performances in both our Coatings and
Personal Care businesses and significantly weaker demand impacting Talc
profitability.
· Statutory loss for the year of $51m, including a $103m non-cash
goodwill impairment charge in the Talc business linked to macro related
discount rate increases and demand conditions.
· Net debt(3) of $367m, down by $34m from prior year ($401m). Net
debt(3) to EBITDA(4) down from 2.6x to 2.2x as at the year end and leverage
now stands at 1.9x pro forma(5) post the disposal of Chromium.
Significant strategic progress; Chromium disposal, new business wins and the
formation of Performance Specialties
· Successful sale of Chromium business for an enterprise value of $170m
post year end and completed 31 January 2023; proceeds of $119m(6) to reduce
the Group's net debt.
· Delivered record $59m revenues from new business opportunities with 18
new product launches. New products(7) 13% of sales and we are on track towards
target of 17% of sales by 2025.
· Transformed business focused on specialty chemicals with leading
positions in attractive markets:
§ Substantially enhances margin and growth characteristics
§ Improves earnings resilience
§ Transforms sustainability profile
· Talc combined with Coatings business, effective from January 2023, to
create new Performance Specialties business. Combination will create greater
market focus, enhanced growth opportunities and reduced costs.
2023 Outlook - further deleveraging - continued financial progress
· An encouraging start to 2023, well positioned to make continued
financial progress.
· Phasing of customer demand anticipated to be stronger in the second
half of the year.
· Strong pipeline of new business and efficiency opportunities.
· Given stronger balance sheet and expected good cash generation, we
will look to reinstate the payment of ordinary dividends to shareholders later
in 2023.
· We remain confident of the delivery of our medium term target of
17% operating margin.
Financial Summary
Continuing operations Total operations
$m 2022 2021 % Change 2022 2021 % Change
Revenue 736 709 +4% 921 880 +5%
Adjusted(2) operating profit 101 88 +14% 124 107 +16%
Adjusted(2) diluted earnings/ per share (cents) 10.9 8.3 +31% 13.9 10.6 +31%
Net debt(3*) 367 401 -9% 367 401 -9%
Statutory results
Statutory/(loss)/profit (63) (8) (51) 3
Statutory basic (loss) earnings per share (10.7) (1.4) (8.8) 0.4
( )
(*) - Net debt(3) to EBITDA(4) from total operations was 2.2x in 2022 versus
2.6x in 2021
Commenting on the results, Paul Waterman, CEO, said:
"In 2022 we made significant progress towards our strategic and financial
goals. The sale of our Chromium business enhances portfolio quality - reducing
the volatility of our earnings, improving margins, and transforming the
sustainability profile of our business.
Despite a volatile macroeconomic environment with significant cost inflation
and supply chain challenges, Elementis delivered resilient revenue growth and
higher adjusted(2) operating margins. This was driven by the implementation of
our Innovation, Growth and Efficiency strategy across our portfolio of
advantaged, high-value specialty products, delivering new product launches,
new business wins, and our continued focus on improving operational
efficiency.
Our more market focused operating structure simplifies Elementis. We have two
divisions, Personal Care and Performance Specialties, both with attractive
growth opportunities and margin profiles.
Trading conditions remain subdued in many of our markets, and we therefore
anticipate that demand phasing will be stronger in the second half of the
year. Energy prices are also moderating from the peaks of last year. We have a
strong pipeline of sales opportunities and are applying our Innovation, Growth
and Efficiency strategy to drive further improvement. Despite the continued
uncertainty in global demand, we remain confident that Elementis is well
placed for future growth and margin improvement."
Further information
A presentation for investors and analysts will be held at 09.00 am GMT on 7
March 2023. The presentation will be webcast on www.elementis.com
(http://www.elementis.com) , followed by live question session. Conference
call dial in details:
UK: +44 20 3936 2999 Other locations: +44 800 640 6441
Participant access code: 166552
Enquiries:
Elementis
Paul Waterman, President and Chief Executive Officer +44 (0)774 831 2690
Ralph Hewins, Chief Financial Officer
Cynthia Alers, Director, Investor Relations and M&A
Tulchan +44 (0)20 7353 4200
Martin Robinson
Olivia Peters
Notes:
(1) - Underlying figures exclude currency effects and M&A
(2) - Adjusted figures exclude the adjusting items set out in note 5
(3) - Pre IFRS 16 basis, refer to unaudited information on page 34 for further
information
(4) - Earnings before interest, tax, depreciation and amortization, refer to
unaudited information on page 34 for further information
(5) - Reflecting the sale of the Chromium business and assumed elimination of
$7m stranded costs in 2023/24
(6) - After transaction costs and working capital adjustments
(7) - Products launched within the last 5 years, patented and protected
products (excluding Chromium)
- ENDS -
BUSINESS PERFORMANCE OVERVIEW
Revenue
Revenue Effect of Increase Revenue
2021
exchange
2022
2022
$m
rates
$m
$m
$m
Personal Care 174.7 (7.4) 44.2 211.5
Coatings 384.3 (14.9) 19.7 389.1
Talc 150.4 (16.9) 2.3 135.8
Inter-segment - - - -
Revenue from continuing operations 709.4 (39.2) 66.2 736.4
Revenue from discontinued operations 170.7 - 14.3 185.0
Revenue from total operations 880.1 (39.2) 80.5 921.4
Adjusted operating profit
Operating Effect of Increase/ Operating
profit/(loss)
exchange
profit/(loss)
2021*
rates (decrease)
2022*
$m
$m
$m
2022
$m
Personal Care 36.7 (2.6) 18.7 52.8
Coatings 61.8 (3.1) 14.6 73.3
Talc 14.0 (1.7) (12.7) (0.4)
Central costs (24.5) 1.0 (1.7) (25.2)
Adjusted operating profit from continuing operations 88.0 (6.4) 18.9 100.5
Adjusting operating profit from discontinued operations 18.6 - 4.6 23.2
Adjusted operating profit from total operations 106.6 (6.4) 23.5 123.7
(*)After adjusting items - see Note 5
Elementis delivered a good financial performance despite challenging markets,
with reported revenue from continuing operations growing 4% to $736m (10% on
an underlying(1) basis). Adjusted(2) operating profit increased 14% (23%
underlying) from $88m to $101m. Adjusted(2) operating margin on continuing
operations improved to 13.6% from 12.4% in the prior year. Over 80% of the
sales of Elementis are accounted for by the Personal Care and Coatings
businesses which generated adjusted(2) operating margins of 25.0% and 18.8%
respectively.
Including discontinued operations, Group revenue grew 5% (10% underlying(1))
to $921m from $880m in 2021, and adjusted(2) operating profit increased 16% to
$124m compared with $107m in the prior year.
In 2022 we made significant progress towards our strategic and financial
goals. The sale of the Chromium business and the creation of our Performance
Specialties business streamlines our operating structure and focuses the Group
on higher value added products in attractive growth markets. We are
confident that continued application of our Innovation, Growth and Efficiency
strategy will enable us to make further progress in 2023.
Personal Care
Revenue in our Personal Care business increased 21% on a reported basis (26%
on an underlying(1) basis), from $175m to $212m. Adjusted(2) operating profit
increased 44% on a reported basis (55% underlying(1)) from $37m to $53m. The
strong business performance resulted in a record adjusted(2) operating profit
and an adjusted(2) operating margin of 25.0% vs 21.0% in 2021.
Both our Cosmetics and AP Actives businesses delivered record sales as
consumers in many of our end markets enjoyed a return to life without Covid
restrictions. Volume growth was particularly strong in Europe, as demand
recovered to pre-Covid levels, and AP Actives volumes in the Americas also
experienced exceptional growth. Pricing actions and a higher value product
mix more than offset higher costs, in particular for raw materials, as well as
manufacturing costs.
We have introduced 25 new products since 2020, with sales from new and
innovation products growing 47% since 2019. Skincare, AP Actives and Colour
Cosmetics all represent future growth opportunities with a $50m pipeline of
new business opportunities established. Our plant in Taloja, which completed
customer certifications at the end of 2022, will further strengthen our
competitive position and lower production and distribution costs.
Coatings
Revenue in our Coating and Energy business increased 1% on a reported basis
(5% on an underlying(1) basis), from $384m to $389m. Adjusted(2) operating
profit increased 19% on a reported basis (25% underlying(1)) from $62m to
$73m. Our focus on higher value ingredients and a better product mix, combined
with price/cost initiatives, resulted in a record adjusted(2) operating margin
of 18.8% vs 16.1% in 2021.
There were significant differences in performance between our regions and
end-markets. Coatings revenue, particularly in the premium decorative market
in the Americas, reported robust growth, reflecting healthy construction and
housing market activity and new business wins. By contrast, European revenues
were impacted by the war in Ukraine and inflationary pressures depressing
customer demand in both the decorative and industrial coatings markets. In
Asia, more than 80% of our business is industrial coatings. The industrial
market in China, our biggest Asian market, was weak throughout the year, due
to the impact of continued Covid restrictions, which had a material impact on
our performance. Energy, comprising less than 10% of division revenues,
benefited from increased levels of drilling activity in the oil and gas
sector.
Revenues from new and innovation products generated over $33m in sales, with
nine new products launched over the year, building on our market strengths in
premium decorative coatings and waterborne coatings for industrial
applications, both growing markets.
Talc
Revenue in our Talc business fell 10% on a reported basis (growth of 2% on an
underlying(1) basis), from $150m to $136m. The business reported a small
adjusted(2) operating loss of $0.4m versus a reported operating profit of $14m
in the prior year. As Talc is primarily a European-based business, it was
severely impacted by the Russia/Ukraine war, the resulting loss of our Eastern
European markets and depressed customer demand in our key markets. In
addition, the Ukraine conflict triggered substantial energy price inflation,
increasing our costs in what is an energy intensive process. The resulting
combination of weak demand and rapidly rising costs impacted performance.
These factors, as well as discount rate increases, led to an impairment of the
business's value of $103m.
Over the year we implemented both cost control measures and a series of
substantial pricing actions. With actions we have taken, combined with
energy prices moderating and demand conditions modestly improving, we are
confident of a material recovery in our Talc business in 2023.
At the end of the 2022, we took further strategic action to streamline our
business, with a focus on common end markets. As Talc and Coatings share many
distribution channels and end markets, we have combined these two businesses
into one operating division, Performance Specialties. This will enable a
stronger end market focus on attractive growth opportunities. We will continue
to report Talc performance for transparency.
We remain confident of the growth potential of the Talc business. Talc is well
positioned to benefit from several fundamental growth drivers, such as vehicle
light-weighting, and barrier coatings in recyclable food packaging. These are
markets with major growth potential, where the ability of talc to add strength
to plastics and ceramics, without adding unnecessary weight, can create
attractive sustainable solutions in these industries.
Chromium
Revenue in our Chromium business increased 8% on a reported and underlying(1)
basis, from $171m to $185m. Adjusted(2) operating profit increased 25% on a
reported and underlying basis, from $19m to $23m, resulting in an operating
margin of 12.5% vs 10.9% in 2021 excluding stranded costs in 2022 of $7m which
reverted to Group. Market demand overall was stronger in 2022, in particular
in the first half, as industrial activity increased across a range of our
North American end markets, such as automotive and leather tanning. At the end
of the year we announced that we had agreed to sell the Chromium business for
an enterprise value of $170m. This followed our strategic review of Chromium,
announced in April 2022, which concluded that the interests of all
stakeholders would now be best served by a sale of the business.
STRATEGY REVEIW
The Group has a clear and consistent strategy, built around the three pillars
of Innovation, Growth and Efficiency. Effective execution of this strategy
delivered the strong performance we saw in 2022, and the Group remains on
course to achieve the medium-term financial targets of 17% adjusted(2)
operating profit margin, 90% cash conversion and net debt/ EBITDA of under
1.5x.
In line with this strategy, in 2022 our Personal Care, Coatings and Talc
businesses continued to develop and launch new, distinctive, high-value
products, and to identify and convert attractive new business opportunities.
Our focus on continuous operational improvement delivered sustainable cost
savings during the year, helping to offset the cost inflation that all our
businesses faced.
Chromium is an attractive business with a strong market position, but the
business no longer sat strategically within our Group structure. The Board
therefore concluded that the Chromium business should be divested, and we
announced in November 2022 that agreement had been reached to sell the
business to the Yildirim Group for an enterprise value of $170m. The
transaction completed in January 2023, resulting in total cash proceeds of
$119m after the transfer to the buyer of all material liabilities and after
transaction costs. The proceeds of the Chromium business divestiture will
significantly reduce the Group's net debt and will enable Elementis to deliver
higher margins with lower cyclicality.
Following the divestment of the Chromium business, Elementis is a more focused
specialty chemicals business. To capitalise on this streamlined structure, we
are combining our Coating and Talc businesses under one management team. These
businesses share common customers, distributors and end markets, and these
synergies will benefit both businesses.
Our continuing portfolio of businesses have a compelling purpose and strategic
rationale. Elementis is a specialty chemicals company, focused on adding value
by making our customers' formulations look, feel and perform better. This
focus on advantaged, high value products will enable us to deliver higher
quality earnings and margins, with lower volatility, and generate significant
shareholder value. We continue to make progress towards our medium term goal
of 17% operating margin and expect to accelerate our progress through our
product growth platforms. As a naturally cash generative business,
combined with the sale of our Chromium business, we continue to make progress
towards our medium term leverage goal of 1.5x EBITDA.
Innovation, Growth and Efficiency
Innovation is a key pillar for the growth of Elementis. We are recognised as a
global leader in developing performance driven additives that address unmet
consumer and market needs. We continue to focus on creating solutions for our
customers that deliver product performance improvements, efficiency gains
while always focusing on how sustainability can be improved for our customers.
We leverage our strong customer relationships with industry technology leaders
and strive to become the partner of choice when new developments present
themselves.
We are targeting a wide range of attractive growth opportunities in both
Personal Care and our new Performance Specialties business, applying our
unique chemistry to develop sustainable solutions for customers in markets
where demand is growing.
New products and new business will drive continuing growth. We see long-term
sustainable growth across all of our personal care and coatings markets, with
attractive incremental revenue opportunities.
Our target over the medium term is to launch 15-20 new products annually and
to generate 17% of total sales from new products. In Personal Care we will
continue to target the skin care market and colour cosmetics markets in Asia,
where we remain under-represented, as well as further grow our position in AP
Actives. In Performance Specialties we will maintain our investment in our
growth platforms: premium decorative paints, waterborne industrial coatings,
and adhesives and sealants, seeking to leverage our advantaged products and
access to unique materials. We will also focus on the growth opportunity for
talc in the automotive sector especially, as the trend towards lighter weight
vehicles sees metal components continuing to be replaced by strong, durable
plastic equivalents. We also have good market positions in added value
products in long life plastics for household and automotive, technical
ceramics and barrier coatings which are attractive niche sectors in this
industry.
In 2022 Elementis was faced with exceptional conditions in needing to recover
soaring input costs. Not only did we see severe inflation in our raw material
costs, but we were also impacted by greatly increased costs impacts in
logistics and energy costs. Energy costs in Europe significantly increased in
response to the Russia/Ukraine conflict.
Our proactive response to severe inflation has involved disciplined action on
pricing, but also steps to improve our efficiency. In response to raw material
inflation and disruption, we found alternative suppliers, rapidly qualifying
more than ten suppliers in the first half of the year alone. In seeking to
manage energy costs, we benefited from hedging strategies, although these
could not fully mitigate the impacts of such rapidly rising market prices.
Another key efficiency response, which will be seen over the course of 2023/24
is the continued ramp up of our anti-perspirant actives plant in India, which
will be a significant enabler of an additional $10m of savings by 2023.
Alongside the production ramp up, we have completed customer qualification.
The cost advantaged and resilient global supply position that this new plant
gives us will enable us to access future savings.
A key enabler of our efficiency and simplification drive is our digital
implementation programme. In 2022 we laid the foundation for the completion of
a multi-year programme to consolidate all our ERPs onto one platform. This is
set to be complete in 2023 and will provide both efficiency and effectiveness
benefits. Our team of global process engineers are also driving our continuous
improvement programme.
The inflation environment in 2023 remains uncertain but we are confident that
through a mixture of targeted price actions, agile supply chain management and
continued efficiency focus, we can defend and improve margins over time.
Safety
Safety is fundamental to the success of Elementis and a core value in our
culture. Our goal is to eliminate injuries completely and we continue to drive
our TogetherSAFE campaign across the Group to achieve this. In 2022, we made
progress on this Journey to Zero, reporting an improvement in our safety
performance compared with the previous year, with 75% of our facilities
reporting no injuries. The number of recorded employee injuries fell by 25% to
9, with the number of hand injuries falling to 3, from 6 in the prior year.
Our new Taloja anti-perspirant actives plant in India was completed and
brought into production having recorded more than 1.56 million safe working
hours.
People
In 2022, we took further action to embed our culture and made good progress in
living our Values, launching a new Code of Conduct and revitalising our
approach to compliance and ethics, to maintain and improve employee engagement
and commitment.
During the year we launched our Employee Value Proposition, 'Connect. Grow.
Make a Difference', based on employee input, and supported the rollout with a
series of workshops. We continued to drive Diversity, Equity and Inclusion
across the Group, through a DE&I Leadership Council, training programmes
and specialist external trainers, and employee resource groups, such as the
global Women in Leadership group. We also held a series of events in October
focusing on inclusion, followed up by the launch of an inclusion newsletter.
People are the bedrock upon which our success depends and the past three years
have been challenging for everyone, firstly managing the impact of the COVID
pandemic, then navigating our way out of this and learning to live with a 'new
normal'. We thank the whole Elementis team for their fortitude, adaptability
and commitment during this period, and look forward to together creating a
successful future for the Company.
Sustainability
Our aim is to develop high performance additives that deliver positive,
sustainable outcomes for the environment and for society. To this end we seek
to design products that use fewer resources and create less pollution. Our
areas of focus include reducing GHG emissions with an ambition to reach Net
Zero by 2050; water, waste and energy management; and product design for
better lifecycle impacts.
Specific sustainability related applications benefits delivered by Elementis
products include additives working at lower temperatures, which reduce
customers' energy consumption; additives supporting formulation of low VOC
paints, which create less air pollution; and the use of talc in lightweight
plastics in vehicles, which improves their energy efficiency.
We continue to better understand our carbon footprint and the value-creating
opportunities reducing it can unlock. We completed our first assessment of
value-chain (Scope 3) GHG emissions in 2022 and committed to adopt a
science-based target via the Science Based Targets initiative, aligning our
strategy to reduce GHG emissions across our operations and value chains with
the 2015 Paris Agreement. In 2022, 69% of our revenue for our continuing
operations came from natural or naturally derived chemistries, while we
increased our electricity from renewable or low carbon sources to 77%,
contributing to our 50% reduction in Scope 1 and 2 (market based) GHG
emissions per tonne since 2019. Since 2019, we have reduced water withdrawal
per tonne of product made by 15%, and waste sent to third parties per tonne of
product made by 13% across our operations.
We believe clear disclosure of our ESG data is important, and in 2022, we
improved our climate rating at the Climate Disclosure Project (CDP) to B in
2022, and increased our EcoVadis Gold rating score compared with the prior
year.
Notes:
(1) - Underlying figures exclude currency effects and M&A.
(2) - Adjusted figures exclude the adjusting items set out in Note 5.
FINANCE REPORT
Revenue
2022 2021
$m $m
Change
Personal Care 211.5 174.7 36.8
Coatings 389.1 384.3 4.8
Talc 135.8 150.4 (14.6)
Inter-segment ― ― ―
Revenue from continuing operations 736.4 709.4 27.0
Revenue from discontinued operations 185.0 170.7 14.3
Revenue from total operations 921.4 880.1 41.3
Operating profit
( )
2022 Adjusting 2022 2021 Operating profit/(loss) Adjusting items 2021 Adjusted operating profit/(loss)(1)
items
Adjusted operating profit/(loss) (1)
$m
$m
$m
Operating profit/(loss)
$m
$m
$m
Personal Care 44.4 8.4 52.8 27.9 8.8 36.7
Coatings 69.2 4.1 73.3 56.5 5.3 61.8
Talc (134.0) 133.6 (0.4) (44.3) 58.3 14.0
Central costs(2) (21.4) (3.8) (25.2) (28.2) 3.7 (24.5)
Operating (loss)/profit from continuing operations (41.8) 142.3 100.5 11.9 76.1 88.0
Operating profit from discontinued operations 15.2 8.0 23.2 14.5 4.1 18.6
Operating (loss)/profit from total operations (26.6) 150.3 123.7 26.4 80.2 106.6
(1 ) - After adjusting items - see note 5.
(2 )- Central costs include $6.8m (2021: $4.5m) of stranded costs in
relation to the Chromium business following the discontinued operations
classification.
Group results
In 2022, revenue from continuing operations increased 4% from $709m to $736m
due to strong new business success, targeted pricing actions and demand
recovery across most of our end markets. Excluding the impact of currency
translation, underlying revenue from continuing operations increased 10%.
Revenue in Personal Care rose 21% on a reported basis and 26% on an underlying
basis*, delivering record sales in both AP Actives and Cosmetics. In Coatings,
revenue increased 1% on a reported basis and 5% on an underlying basis*, with
pricing actions and a better product mix offsetting lower volumes. In Talc,
revenue decreased 10% on a reported basis and increased 2% on an underlying
basis*, with a decline in volumes partially offset by pricing actions and an
improved product mix. Revenue in Chromium, a discontinued operation, increased
8% due to strong volume growth as demand increased across a range of
industrial end markets.
Reported operating profit/loss from continuing operations decreased from a
profit of $12m to a loss of $42m with a strong performance improvement
partially offset by $142m of adjusting items; the largest of which was a $103m
non-cash Talc goodwill impairment (2021: Talc $52m) due to the lower demand
environment, global inflationary pressures and the rising cost of capital in
the second half of 2022. Adjusted operating profit from continuing
operations increased 23% on an underlying basis* from $82m to $101m with the
aforementioned higher revenue and associated earnings more than offsetting
cost inflation. The loss before income tax from continuing operations for the
year was $63m compared with $8m in 2021.
Adjusting items
In addition to the statutory results the Group uses alternative performance
measures, such as adjusted operating profit and adjusted diluted earnings per
share, to provide additional useful analysis of the performance of the
business. The Board considers these non-GAAP measures as an alternative way to
measure the Group's performance. Adjusting items in 2022 resulted in a charge
of $135.7m before tax, an increase of $68.6m against last year. The key
categories of adjusting items are summarised below. For more information
on adjusting items and the Group's policy for adjusting items, please see
Note 5 and Note 1 to the financial statements respectively.
Credit/(charge) Personal Care Coatings Talc Central costs Continuing operations Discontinued operations Total
$m $m $m $m $m $m $m
Business transformation - (2.9) (1.9) - (4.8) - (4.8)
Environmental provisions - - - 3.8 3.8 (2.2) 1.6
Impairment of property, plant, and equipment - - (23.0) - (23.0) - (23.0)
Impairment of goodwill - - (103.4) - (103.4) - (103.4)
Costs associated with Chromium disposal - - - - (5.6) (5.6)
-
Amortisation of intangibles arising on acquisitions (8.4) (1.2) (5.3) - (0.2) (15.1)
(14.9)
Total charge to operating profit (8.4) (4.1) (133.6) 3.8 (142.3) (8.0) (150.3)
Unrealised mark to market of derivatives - - - 6.6 6.6 - 6.6
Total (8.4) (4.1) (133.6) 10.4 (135.7) (8.0) (143.7)
Business transformation
In November 2020, the closure of the Charleston plant was announced. Costs of
$2.9m in 2022 (including $0.4m of depreciation) associated with preparing
the site for sale are classified as an adjusting item and the site is planned
to be disposed of in the future. Since November 2020, costs of $22.7m have
been incurred in relation to the closure of this site. Further charges of
$1.9m relate to the Talc integration and synergy projects. This project was
completed in 2022.
Environmental provisions
The Group's environmental provision is calculated on a discounted cash flow
basis, reflecting the time period over which spending is estimated to take
place. The movement in continuing provisions relates to a change in discount
rates that has decreased the liability by $7.2m (2021: $0.6m) in the year, and
extra remediation work identified in the year which has resulted in a $3.4m
(2021: $5.3m) increase to the liability. As these costs relate to
non-operational facilities they are classified as adjusting items.
Impairment of goodwill
The performance of the Talc business was adversely impacted in the second half
of 2022 by a lower demand environment, global inflationary pressures, higher
energy costs and the Russia/Ukraine conflict. These factors, as well as a
reduction in the near term forecasted profitability of the Talc business and a
rise in the pre-tax discount rate resulted in an impairment charge of $103.4m
being recognised (2021: $52.3m), to reduce the remaining Talc goodwill to
$nil. Due to the currency in which the goodwill was held, this impairment also
gave rise to a $8.0m (2021: $0.8m) movement in exchange differences on
translation of foreign operations within other comprehensive income.
Impairment of property plant and equipment
In 2022 the Group recognised a non-cash $23.0m impairment in respect of
non-operational bioleaching property, plant and equipment in the Talc
business. The Group determined that the operational, health and safety and
financial commitments required to operate the equipment were not the best use
of the Group's resources.
Costs associated with Chromium disposal
As announced in November 2022, the Group signed a sale and purchase agreement
for the divestment of its Chromium business. The transaction completed in
January 2023. Costs totalling $5.6m were incurred during 2022 as part of the
divestiture process.
Amortisation of intangibles arising on acquisitions
Amortisation of $14.9m (2021: $15.8m) represents the charge in respect of the
Group's acquired intangible assets. As in previous years these are included in
adjusting items as they are a non-cash charge arising from historical
investment activities.
Unrealised mark to market of derivatives
The unrealised movements in the mark to market valuation of financial
instruments that are not in hedging relationships are treated as adjusting
items as they are unrealised non-cash fair value adjustments that will not
affect the cash flows of the Group.
Hedging
Cash flow hedges are used as part of a programme to manage our exposure to
interest rate risk and commodity price risk, particularly those associated
with US dollar and euro interest payments and aluminium and nickel pricing. In
2022 interest rate and commodity price movements were such that the net impact
of the hedge transactions was a gain of $1.6m (2021: gain of $2.7m) recycled
to the income statement.
Central costs
Central costs are those costs that are not identifiable as expenses of a
particular business and comprise expenditures of the Board of Directors and
corporate head office. In 2022, adjusted central costs were $25.2m, an
increase of $0.7m on the previous year primarily due to cost movements between
continuing and discontinued operations offset by favourable exchange rate
movements and a reduction in variable remuneration.
COVID-19 assistance
The Group has accessed in China and Taiwan various government support schemes
aimed at mitigating the impact losses resulting from COVID-19. During the year
payment plans were agreed with the tax authorities in China and Taiwan to
defer payment of income taxes and payroll taxes, resulting in $1.6m of payment
deferrals.
Other expenses
Other expenses are administration costs incurred and paid by the Group's
pension schemes that relate primarily to former employees of legacy
businesses. These costs were $1.3m in 2022 compared with $2.0m in the previous
year.
Net finance costs
( )
2022 2021
$m
$m
Finance income 0.2 0.3
Finance cost of borrowings (19.5) (23.2)
(19.3) (22.9)
Net pension finance income/(costs) 0.6 (0.2)
Discount unwind on provisions (0.7) (1.7)
Fair value movement on derivatives 9.1 10.7
Interest on lease liabilities (1.4) (1.6)
Net finance costs (11.7) (15.7)
Net finance costs for 2022 were $11.7m, a decrease of $4.0m on last year. Net
finance costs comprise interest payable on borrowings, calculated using the
effective interest rate method, facility arrangement fees, the unwinding of
discounts on the Group's environmental provisions, net pension interest
income/ (costs), fair value movement on derivatives and interest charged on
lease liabilities.
The decrease in net finance costs is primarily due lower interest payable on
borrowings following the refinancing of the Group's term loans on 1 July 2022
($3.6m decrease).
The fair value movement on derivatives, which are unrealised mark to market on
derivatives that are not in hedging relationships decreased by $1.6m in 2022.
Net pension finance income/(costs), which are a function of discount
rates under IAS 19, and the value of schemes' deficit or surplus positions,
changed from a net finance cost of $0.2m in 2021 to a net finance income of
$0.6m in 2022.
The discount unwind on provisions relates to the annual time value of the
Group's environmental provisions which are calculated on a discounted basis.
The unwind of $0.7m in 2022 compared to an unwind of $1.7m in 2021.
Both finance income and the interest on lease liabilities, were broadly
consistent in 2022 compared with 2021.
Taxation
Tax charge
$m 2022 Effective rate $m 2021 Effective
%
rate
%
Reported tax charge/(credit) 7.8 (14.2) 0.4 (5.3)
Adjusting items tax credit (8.3) - (10.5) -
Adjusted tax charge 16.1 20.0 10.9 18.3
The Group incurred a tax charge of $16.1m (2021: $10.9m) on adjusted profit
before tax, resulting in an effective tax rate of 20.0% (2021: 18.3%). The
Group's effective tax rate in 2022 is slightly lower than its usual range due
to beneficial adjustments in respect of prior years and the recognition of
previously unrecognised deferred tax assets.
Tax on adjusting items relates primarily to the amortisation of intangible
assets and the impairment of the bioleaching plant.
The medium-term expectation for the Group's adjusted effective tax rate is
around 25-26% due to the previously announced increase in UK corporation tax
rates from April 2023.
Earnings per share
Note 7 sets out a number of calculations of earnings per share. To aid
comparability of the underlying performance of the Group, earnings per share
reported under IFRS is adjusted for items classified as adjusting.
Adjusted diluted earnings from continuing operations per share was 10.9 cents
for 2022 compared with 8.3 cents in the previous year, an increase of 31% due
to a higher adjusted profit after tax. Basic earnings per share from
continuing operations before adjusting items was a loss per share of 10.7
cents compared with a loss per share of 1.4 cents in the previous year.
Note 7 provides disclosure of earnings per share calculations both including
and excluding the effects of adjusting items and the potential dilutive
effects of outstanding and exercisable options.
Distributions to shareholders
Given the market and economic uncertainties, and the Board's desire to
provide additional financial headroom and preserve cash, no dividend
distributions to shareholders were made during the year. The Board is not
recommending a final dividend for 2022. The Board recognises the importance
of dividends to shareholders and will look to reinstate payments during
2023.
Cash flow
As per the statutory cash flow statement, net cash flow from operating
activities increased by $10.3m to $77.0m in 2022, primarily due to lower cash
taxes and interest paid, offset by an increase in working capital outflow as
a result of movement in inventories and debtors.
Net cash outflow in relation to investing activities decreased by $18.1m to
$46.9m primarily due to lower capital expenditure and no contingent
consideration payable in 2022.
Net cash outflow in relation to financing activities increased by $32.5m to
$57.8m in 2022 primarily due to the repayment of borrowings as part of the
refinancing completed on 1 July 2022.
The adjusted cash flow, which excludes the effect of adjusting items from
operating cash flow and is therefore distinct from the statutory cash flow
referenced above, is summarised below. A reconciliation between statutory
operating profit to EBITDA is shown in the Alternative Performance Measures
section in this report.
2022 2021
$m
$m
EBITDA ◊ 173.1 158.5
Change in working capital (58.8) (31.6)
Capital expenditure (46.5) (52.8)
Other (3.6) 1.9
Adjusted operating cash flow 64.2 76.0
Pension payments (1.0) (0.1)
Interest (14.6) (23.2)
Tax (13.4) (30.9)
Adjusting items (5.2) (20.4)
Payment of lease liabilities (7.1) (6.7)
Free cash flow 22.9 (5.3)
Issue of shares 0.9 0.1
Dividends paid - -
Acquisitions and disposals - 0.3
Currency fluctuations 10.4 12.0
Movement in net debt 34.2 7.1
Net debt at start of year (401.0) (408.1)
Net debt at end of year (366.8) (401.0)
( )
◊( )EBITDA - earnings before interest, tax, adjusting
items, depreciation, and amortisation
Adjusted operating cash flow decreased by $11.8m to $64.2m in 2022. An
increase in EBITDA of $14.6m and a decrease in net capital expenditure of
$6.3m was offset by a $27.2m increase in working capital outflow.
Free cash flow of $22.9m in 2022 represents an increase of $28.2m on the prior
year period. Cash tax outflows decreased from $30.9m to $13.4m, primarily due
to the one-off nature of the $19m charging notice received for the ongoing EU
state aid case in 2021. That, combined with a further one-off cash outflow in
2021 of $13.2m in respect of a historic, pre-acquisition interest
deductibility tax case is the primary driver of the decrease in adjusting
items cash outflow in 2022.
Net debt decreased from $401.0m in 2021 to $366.8m in 2022, a reduction of
$34.2m. Net debt to adjusted EBITDA decreased from 2.6x in 2021 to 2.2x in
2022 on a pre-IFRS 16 basis. The decrease in leverage was driven by the
improvement in adjusted EBITDA, reflective of the Group's higher earnings
during 2022.
Balance sheet
2022 2021
$m
$m
Intangible fixed assets 660.2 815.7
Tangible fixed assets 386.4 499.7
Working capital 141.5 164.0
Net tax liabilities (102.2) (112.6)
Provisions and retirement benefit obligations (12.2) (22.5)
Financial assets and liabilities 5.9 (5.2)
Lease liabilities (36.3) (40.2)
Unamortised syndicate fees 4.3 3.1
Net debt (366.8) (401.0)
Net assets held for sale 103.1 -
Total equity 783.9 901.0
Group equity decreased by $117.1m in 2022 (2021: increase of $40.6m).
Intangible fixed assets decreased by $155.5m due to an impairment of $103.4m,
$15.7m of amortisation of intangibles, $35.6m of foreign exchange, $0.2m of
additions and $1.0m being transferred to assets held for sale. Tangible fixed
assets decreased by $113.3m, due to gross additions of $46.9m and right-of-use
asset capitalisation of $5.3m more than offset by exchange differences of
$19.9m, depreciation of $49.3m, the impairment of the bioleaching plant of
$23.0m, $3.0m of net disposals and $70.3m being transferred to assets held for
sale.
Working capital comprises inventories, trade and other receivables and trade
and other payables. Working capital decreased by $22.5m in 2022, primarily as
a result of the classification of Chromium working capital as held for sale
offset by inventory movements during the year.
Net tax liabilities decreased by $10.4m primarily as a result of the
amortisation of the intangible fixed assets leading to a reduction in the
associated deferred tax liability, and the recognition of previously
unrecognised deferred tax assets.
Adjusted ROCE (excluding goodwill) increased from 13% to 15%, with increased
adjusted operating profit partially offsetting increased total operating
capital employed (see the section on Alternative Performance Measures in this
report).
The main dollar exchange rates relevant to the Group are set out below.
Year end 2022 Year end 2021
Average
Average
Pounds sterling 0.83 0.81 0.74 0.73
Euro 0.94 0.95 0.88 0.84
Provisions
The Group records a provision in the balance sheet when it has a present
obligation as a result of past events, which is expected to result in an
outflow of economic benefits in order to settle the obligation and the amount
can be reliably estimated. The Group calculates provisions on a discounted
basis. At the end of 2022, the Group held provisions of $29.7m (2021: $61.8m)
consisting of environmental provisions of $27.5m (2021: $58.7m),
self-insurance provisions of $0.5m (2021: $0.7m) and restructuring and other
provisions of $1.7m (2021: $2.4m).
Environmental provisions have decreased by $31.2m in 2022, of which $19.5m was
transferred to liabilities held for sale. An expense of $8.7m (of which $3.4m
relates to continuing operations) which relates to extra remediation work
required was offset by a $10.3m credit (of which $7.2m relates to continuing
operations) related to a change in the discount rate applied to the
liabilities; leading to a reduction of $1.6m. The remaining movement relates
to the unwind of the discount in the year ($1.3m) offset by currency
translation of $3.5m and utilisation of $7.9m. The self-insurance provision
represents the Group's estimate of its liability arising from retained
liabilities under the Group's insurance programme and decreased by $0.2m in
the period.
The restructuring and other provisions categories relate primarily to
restructuring provisions made for adjusting head count and other costs of
restructuring where a need to do so has been identified by management.
Pensions and other post retirement benefits
2022 2021
$m
$m
Net (surplus)/liability:
UK (26.4) (56.6)
US 3.5 8.3
Other 5.4 9.0
(17.5) (39.3)
UK plan
The largest of the Group's retirement plans is the UK defined benefit pension
scheme (UK Scheme), which at the end of 2022 had a surplus, under IAS 19, of
$26.4m (2021: $56.6m). The UK Scheme is relatively mature, with approximately
two thirds of its gross liabilities represented by pensions in payment and it
is closed to new members. Losses on plan assets of $200.4m (2021: return of
$24.9m) and liability adjustments of $176.8m (2021: $27.1m) arising due
to higher discount rates decreased the net surplus for the year. Company
contributions of $0.5m (2021: $0.6m) reflect the funding agreement reached
with the UK trustees following the 2020 triennial valuation which concluded
in 2021.
US plan
In the US, the Group reports two post retirement plans under IAS 19: a defined
benefit pension plan with a liability at the end of 2022 of $nil (2021:
$1.7m), and a post retirement medical plan with a liability of $3.5m (2020:
$6.6m). The US pension plans are smaller than the UK plan and in 2022 the
overall deficit of the US plans decreased by $4.8m due to transfers to
liabilities held for sale of $2.4m and actuarial decreases in the liability
of $28.7m (2021: $6.3m), losses on plan assets of $26.1m (2021: return of
$4.4m) and employer contributions of $1.2m (2021 $1.0m).
Other plans
Other liabilities at 31 December 2022 amounted to $5.4m (2021: $9.0m) and
relate to pension arrangements for a relatively small number of employees in
Germany, certain UK legacy benefits and one pension scheme acquired as part of
the SummitReheis transaction in 2017.
Financial assets and liabilities
Net financial assets at 31 December 2022 are net derivative financial assets
of $5.9m (2021: net liability of $5.2m) relating to the valuation of various
risk management instruments.
The movements in the mark to market valuation of cross currency swaps that are
not in hedging relationships are treated as adjusting items as they are
non-cash fair value adjustments that will not affect the cash flows of the
Group.
Events after the balance sheet date
On 1 January 2023 the Talc and Coatings segments merged to form a new segment
called Performance Specialties.
On 31 January 2023 the Group completed the sale of its Chromium business to
the Yildirim Group for an enterprise value of $170m, of which total cash
proceeds of $119m were received.
On 31 January 2023 the Group repaid $83.0m of its US dollar borrowings and
€31.4m of its euro borrowings.
During February 2023 the Group was notified that the Administrative Court in
Finland had revoked its permit for the expansion of mining operations at the
Uutela mine located in Sotkamo, Finland. The permit was previously issued by
the Finnish Safety and Chemicals Agency; the body empowered to issue such
permits. The Group intends to appeal the decision. If the appeal were to be
unsuccessful the impact would be to reduce the Talc ore available to the Group
by approximately 6%.
There were no other significant events after the balance sheet date.
Consolidated income statement
for the year ended 31 December 2022
2022 2021(1)
$m
$m
Revenue 736.4 709.4
Cost of sales (437.5) (420.4)
Gross profit 298.9 289.0
Distribution costs (125.0) (126.1)
Administrative expenses (215.7) (151.0)
Operating profit/(loss) (41.8) 11.9
(Loss)/profit on disposal - (1.7)
Other expenses(2) (1.3) (2.0)
Finance income 9.9 11.0
Finance costs (21.6) (26.7)
(Loss)/profit before income tax (54.8) (7.5)
Tax (7.8) (0.4)
Loss from continuing operations (62.6) (7.9)
Profit from discontinued operations 11.5 10.4
(Loss)/profit for the year (51.1) 2.5
Attributable to:
Equity holders of the parent (51.1) 2.5
Earnings per share
From continuing operations
Basic loss (cents) (10.7) (1.4)
Diluted loss (cents) (10.7) (1.4)
From continuing and discontinued operations
Basic (loss)/earnings (cents) (8.8) 0.4
Diluted (loss)/earnings (cents) (8.8) 0.4
1 2021 has been represented following the classification of the Chromium
business as a discontinued operation.
2 Other expenses comprise administration expenses for the Group's pension
schemes.
Consolidated statement of comprehensive income
for the year ended 31 December 2022
2022 2021
$m
$m
(Loss)/Profit for the year (51.1) 2.5
Other comprehensive income:
Items that will not be reclassified subsequently to profit and loss:
Remeasurements of retirement benefit obligations (18.5) 64.3
Deferred tax associated with retirement benefit obligations 5.3 (14.6)
Items relating to discontinued operations, net of tax 0.3 (0.8)
Items that may be reclassified subsequently to profit and loss:
Exchange differences on translation of foreign operations (100.9) (29.1)
Effective portion of change in fair value of net investment hedge 46.2 10.7
Tax associated with change in fair value of net investment hedge (2.8) 1.8
Tax associated with changes in cashflow hedges 0.8 (0.4)
Recycling of deferred foreign exchange gains on disposal - (0.4)
Effective portion of changes in fair value of cash flow hedges (2.6) (0.1)
Fair value of cash flow hedges transferred to income statement 1.6 2.7
Exchange differences on translation of share options reserves (0.9) -
Other comprehensive (loss)/income (71.5) 34.1
Total comprehensive (loss)/income for the year (122.6) 36.6
Attributable to:
Equity holders of the parent (122.6) 36.6
( )
Consolidated balance sheet
as at 31 December 2022
2022 2021
31 December
31 December
$m
$m
Non-current assets
Goodwill and other intangible assets 660.2 815.7
Property, plant, and equipment 386.4 499.7
Tax recoverable 17.5 19.7
Financial assets 1.3 -
Deferred tax assets 24.8 28.0
Net retirement benefit surplus 26.4 56.6
Total non-current assets 1,116.6 1,419.7
Current assets
Inventories 182.0 186.1
Trade and other receivables 94.9 138.9
Financial assets 10.7 0.2
Current tax assets 7.0 7.1
Cash and cash equivalents 54.9 84.6
Total current assets 349.5 416.9
Assets classified as held for sale 160.9 -
Total assets 1,627.0 1,836.6
Current liabilities
Bank overdrafts and loans (2.7) -
Trade and other payables (135.4) (161.0)
Financial liabilities (3.3) (1.4)
Current tax liabilities (20.2) (17.4)
Lease liabilities (6.1) (6.4)
Provisions (5.8) (8.7)
Total current liabilities (173.5) (194.9)
Non-current liabilities
Loans and borrowings (414.7) (482.5)
Retirement benefit obligations (8.9) (17.3)
Deferred tax liabilities (131.3) (150.0)
Lease liabilities (30.2) (33.8)
Provisions (23.9) (53.1)
Financial liabilities (2.8) (4.0)
Total non-current liabilities (611.8) (740.7)
Liabilities classified as held for sale (57.8) -
Total liabilities (843.1) (935.6)
Net assets 783.9 901.0
Equity
Share capital 52.3 52.2
Share premium 238.7 240.8
Other reserves 42.1 90.7
Retained earnings 450.8 517.3
Total equity attributable to equity holders of the parent 783.9 901.0
Total equity 783.9 901.0
Consolidated statement of changes in equity
for the year ended 31 December 2022
Share Share Translation reserve Hedging Other Retained Total
capital $m
premium $m
$m
reserve
reserves $m
earnings
equity
$m
$m
$m
Balance at 1 January 2021 52.1 237.7 (48.9) (8.9) 166.4 462.0 860.4
Comprehensive income
Profit for the year - - - - - 2.5 2.5
Other comprehensive income
Exchange differences - - (18.4) - - - (18.4)
Recycling of deferred foreign exchange gains on disposal - - (0.4) - - - (0.4)
Fair value of cash flow hedges transferred to the - - - 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 cash flow hedges - - - - - (0.4) (0.4)
Tax associated with changes in fair value of net investment hedge - - - - - 1.8 1.8
Remeasurements of retirement benefit obligations - - - - - 63.5 63.5
Deferred tax adjustment on pension scheme deficit - - - - - (14.6) (14.6)
Transfer - - - - (1.4) 1.4 -
Total other comprehensive income/(loss) - - (18.8) 2.6 (1.4) 51.7 34.1
Total comprehensive income/(loss) - - (18.8) 2.6 (1.4) 54.2 36.6
Transactions with owners:
Issue of shares by the Company 0.1 3.1 - - (3.1) - 0.1
Deferred tax on share based payments recognised within equity - - - - - 1.1 1.1
Share based payments - - - - 5.1 - 5.1
Fair value of cash flow hedges transferred to net assets - - - (2.3) - - (2.3)
Total transactions with owners 0.1 3.1 - (2.3) 2.0 1.1 4.0
Balance at 31 December 2021 52.2 240.8 (67.7) (8.6) 167.0 517.3 901.0
Balance at 1 January 2022 52.2 240.8 (67.7) (8.6) 167.0 517.3 901.0
Comprehensive income
Loss for the year - - - - - (51.1) (51.1)
Other comprehensive income
Exchange differences - - (54.7) - (0.9) - (55.6)
Fair value of cash flow hedges transferred to the - - - 1.6 - - 1.6
income statement
Effective portion of changes in fair value - - - (2.6) - - (2.6)
of cash flow hedges
Tax associated with changes in cashflow hedges - - - - - 0.8 0.8
Tax associated with change in fair value of net - - - - - (2.8) (2.8)
investment hedge
Remeasurements of retirement benefit obligations - - - - - (18.2) (18.2)
Deferred tax adjustment on pension scheme deficit - - - - - 5.3 5.3
Transfer - - - 7.8 (4.0) (3.8) -
Total other comprehensive income/(loss) - - (54.7) 6.8 (4.9) (18.7) (71.5)
Total comprehensive income/(loss) - - (54.7) 6.8 (4.9) (69.8) (122.6)
Transactions with owners:
Issue of shares by the Company 0.1 0.8 - - - - 0.9
Deferred tax on share based payments recognised within equity - - - - - 0.4 0.4
Share based payments - - - - 3.4 - 3.4
Fair value of cash flow hedges transferred to net assets - - - 0.8 - - 0.8
Reserve reclassification(1) - (2.9) - - - 2.9 -
Total transactions with owners 0.1 (2.1) - 0.8 3.4 3.3 5.5
Balance at 31 December 2022 52.3 238.7 (122.4) (1.0) 165.5 450.8 783.9
1 Reclassification adjustments to correct share premium and retained earnings
reserves as at 31 December 2022.
Consolidated cash flow statement
for the year ended 31 December 2022
2022 2021
$m
$m
Operating activities:
(Loss)/profit for the year (51.1) 2.5
Adjustments for:
Other expenses 1.4 2.1
Finance income (9.9) (11.0)
Finance costs 22.3 27.8
Tax charge 10.7 3.3
Depreciation and amortisation 65.0 68.3
Impairment loss on property, plant, and equipment 23.0 -
(Decrease)/increase in provisions and financial liabilities (9.3) 0.8
Pension payments net of current service cost (1.0) (0.1)
Share based payments expense 3.4 5.1
Impairment of goodwill 103.4 52.3
Loss on disposal of business - 1.7
Operating cash flow before movement in working capital 157.9 152.8
Increase in inventories (72.1) (24.2)
Decrease/(increase) in trade and other receivables 4.6 (33.8)
Increase in trade and other payables 14.8 26.3
Cash generated by operations 105.2 121.1
Income taxes paid (13.4) (30.9)
Interest paid (14.8) (23.5)
Net cash flow from operating activities 77.0 66.7
Investing activities:
Interest received 0.2 0.3
Disposal of property, plant and equipment - 0.7
Purchase of property, plant and equipment (46.9) (52.7)
Purchase of business - (0.2)
Disposal of business - 0.5
Acquisition of intangible assets (0.2) (0.4)
Contingent consideration paid - (13.2)
Net cash flow from investing activities (46.9) (65.0)
Financing activities:
Issue of shares by the Company and the ESOT net of issue costs 0.9 0.1
Net movement on existing debt (51.6) (18.7)
Payment of interest on lease liabilities (1.4) (1.6)
Payment of gross lease liabilities (5.7) (5.1)
Net cash used in financing activities (57.8) (25.3)
Net decrease in cash and cash equivalents (27.7) (23.6)
Cash and cash equivalents at 1 January 84.6 111.0
Foreign exchange on cash and cash equivalents (2.0) (2.8)
Less: cash and cash equivalents classified as held for sale - -
Cash and cash equivalents at 31 December 54.9 84.6
Notes to the financial statements
1. Preparation of the preliminary announcement
The financial information in this statement does not constitute the Company's
statutory accounts for the years ended 31 December 2022 or 2021 but is derived
from those accounts. Statutory accounts for 2021 have been delivered to the
Registrar of Companies, and those for 2022 will be delivered in due course.
The auditor has reported on those accounts; their reports were (i)
unqualified, (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498(2) or (3) of the Companies
Act 2006.
This preliminary announcement was approved by the Board of Directors on 6
March 2023.
2. Basis of preparation
Elementis plc (the "Company") is incorporated in the UK. The information
within this document has been prepared based on the Company's consolidated
financial statements which are prepared in accordance with International
Financial Reporting Standards as adopted by the UK (adopted IFRS) and
consistent with the accounting policies as set out in the previous
consolidated financial statements.
The Group's financial statements have been prepared on the historical cost
basis except that derivative financial instruments are stated at their fair
value. Non-current assets held for sale are stated at the lower of carrying
amount and fair value less costs to sell. The preparation of financial
statements requires the application of estimates and judgements that affect
the reported amounts of assets and liabilities, revenues and costs and related
disclosures at the balance sheet date.
The accounting policies adopted are consistent with those of the previous
financial year.
Going concern
The Group and Company financial statements have been prepared on the going
concern basis, as the directors are satisfied that the Group and Company have
adequate resources to continue to operate for at least a period of 12 months
from the date of approval of the financial statements. An explanation of the
directors' assessment of using the going concern basis is given in the
Directors' report in the Annual Report and Accounts 2022 which will be made
available to shareholders on 22 March 2023.
Reporting currency
As a consequence of the majority of the Group's sales and earnings originating
in US dollars or US dollar linked currencies, the Group has chosen the US
dollar as its presentational currency. This aligns the Group's external
reporting with the profile of the Group, as well as with internal management
reporting.
3. Finance income
2022 2021
$m
$m
Interest on bank deposits 0.2 0.3
Penson and other post retirement liabilities 0.6 -
Fair value movement on derivatives 9.1 10.7
9.9 11.0
4. Finance costs
2022 2021
$m
$m
Interest on bank loans 19.5 23.2
Pension and other post retirement liabilities - 0.2
Unwind of discount on provisions 0.7 1.7
Interest on lease liabilities 1.4 1.6
21.6 26.7
5. Adjusting items and alternative performance measures
2022
$m
2022 Discontinued operations $m 2021 Discontinued operations
2022 2021 $m 2021
Total $m Total
$m $m
Business transformation 4.8 - 4.8 4.3 0.3 4.6
Environmental provisions
Increase in provisions due to additional remediation work identified 3.4 5.3 8.7 5.3 4.3 9.6
(Decrease)/Increase in provisions due to change in discount rate (7.2) (3.1) (10.3) (0.6) (0.7) (1.3)
Impairment of property, plant and equipment 23.0 - 23.0 - - -
Impairment of goodwill 103.4 - 103.4 52.3 - 52.3
Costs associated with Chromium disposal - 5.6 5.6 - - -
Sale of Montreal land - - - (1.0) - (1.0)
Amortisation of intangibles arising on acquisition 14.9 0.2 15.1 15.8 0.2 16.0
142.3 8.0 150.3 76.1 4.1 80.2
Sale of Business - - - 1.7 - 1.7
Unrealised mark to market of derivative financial instruments (6.6) - (6.6) (10.7) - (10.7)
Tax credit in relation to adjusting items (8.3) (1.7) (10.0) (10.5) (0.8) (11.3)
127.4 6.3 133.7 56.6 3.3 59.9
A number of items have been recorded under adjusting items by virtue of their
size and/or one time nature, in line with our accounting policy in Note 1 to
the consolidated financial statements, in order to provide additional useful
analysis of the Group's results. The Group considers the adjusted results to
be an important measure used to monitor how the businesses are performing as
they achieve consistency and comparability between reporting periods. The net
impact of these items on the Group profit before tax for the year is a debit
of $135.7m (2021: $67.1m). The items fall into a number of categories, as
summarised below:
Business transformation - In November 2020, the closure of the Charleston
plant was announced. Costs of $2.9m ($4.2m in 2021) including $0.4m of
depreciation ($0.4m in 2021) associated with the closure of the site are
classified as an adjusting item and the site is planned to be disposed of in
the future. Since November 2020, costs of $22.7m have been incurred in
relation to the closure of the site. In addition to this, costs of $1.9m have
been incurred in relation to the Talc integration and synergy projects. This
project was completed in 2022.
Environmental provisions - The Group's environmental provision is calculated
on a discounted cash flow basis, reflecting the time period over which
spending is estimated to take place. The movement in the provision relates to
a change in discount rates that has decreased the liability by $7.2m in the
year (2021: $0.6m) and extra remediation work identified in the year which has
resulted in a $3.4m increase to the liability (2021: $5.3m). As these costs
relate to non-operational facilities they are classified as adjusting items.
Impairment of property, plant and equipment - In 2022 the Group recognised a
non-cash $23.0m impairment in respect of non-operational bioleaching property,
plant and equipment in the Talc business. The Group determined that the
operational, health and safety and financial commitments required to operate
the equipment were not the best use of the Group's resources.
Impairment of goodwill - The performance of the Talc business was adversely
impacted by a lower demand environment, global inflationary pressures, higher
energy costs and the Russia/Ukraine conflict. These factors, as well as a
reduction in the near term forecasted profitability of the Talc business and a
rise in the pre-tax discount rate resulted in an impairment charge of $103.4m
being recognised (2021: $52.3m). Due to the currency in which the goodwill was
held, this impairment also gave rise to a $8.0m (2021: $0.8m) movement in
exchange differences on translation of foreign operations within other
comprehensive income.
Costs associated with Chromium disposal - As announced in November 2022, the
Group signed a sale and purchase agreement for the divestment of its Chromium
business. The transaction completed in January 2023. Costs totalling $5.6m
were incurred during 2022 as part of the divestiture process.
Sale of Montreal land - In 2021 the Group disposed of a non-core parcel of
land in Montreal, Canada. The profit on disposal has been treated as an
adjusting item.
Amortisation of intangibles arising on acquisition - Amortisation of $14.9m
(2021: $15.8m) represents the charge in respect of the Group's acquired
intangible assets. As in previous years, these are included in adjusting items
as they are a non-cash charge arising from historical investment activities.
Sale of Business - In 2021, the $1.7m loss on disposal of two non-core dental
businesses, Eisenbacher Dentalwaren ED GmbH and Adentatec GmbH, was treated as
an adjusting item.
Unrealised mark to market of derivatives - The unrealised movements in the
mark to market valuation of financial instruments that are not in hedging
relationships are treated as adjusting items as they are unrealised non-cash
fair value adjustments that will not affect the cash flows of the Group.
Tax on adjusting items - this is the net impact of tax relating to the
adjusting items listed above.
To support comparability with the financial statements as presented in 2022
the reconciliation to the adjusted consolidated income statement is shown
below.
2022 2022 Adjusting items 2022 2021 2021 Adjusting items 2021
Profit and loss
$m
Profit and loss after adjusting items
Profit and loss
$m
Profit and loss after adjusting items
$m
$m
$m $m
Revenue 736.4 - 736.4 709.4 - 709.4
Cost of sales (437.5) - (437.5) (420.4) - (420.4)
Gross profit 298.9 - 298.9 289.0 - 289.0
Distribution costs (125.0) - (125.0) (126.1) - (126.1)
Administrative expenses (215.7) 142.3 (73.4) (151.0) 76.1 (74.9)
Operating (loss)/profit (41.8) 142.3 100.5 11.9 76.1 88.0
Loss on disposal - - - (1.7) 1.7 -
Other expenses (1.3) - (1.3) (2.0) - (2.0)
Finance income 9.9 (6.6) 3.3 11.0 (10.7) 0.3
Finance costs (21.6) - (21.6) (26.7) - (26.7)
(Loss)/profit before income tax (54.8) 135.7 80.9 (7.5) 67.1 59.6
Tax (7.8) (8.3) (16.1) (0.4) (10.5) (10.9)
(Loss)/profit from continuing operations (62.6) 127.4 64.8 (7.9) 56.6 48.7
Profit from discontinued operations 11.5 6.3 17.8 10.4 3.3 13.7
(Loss)/profit for the year (51.1) 133.7 82.6 2.5 59.9 62.4
Attributable to:
Equity holders of the parent (51.1) 133.7 82.6 2.5 59.9 62.4
Earnings per share
From continuing operations
Basic (loss)/earnings (cents) (10.7) 21.8 11.1 (1.4) 9.8 8.4
Diluted (loss)/earnings (cents) (10.7) 21.6 10.9 (1.4) 9.7 8.3
From continuing and discontinued operations
Basic (loss)/earnings (cents) (8.8) 23.0 14.2 0.4 10.3 10.7
Diluted (loss)/earnings (cents) (8.8) 22.7 13.9 0.4 10.2 10.6
To support comparability with the financial statements as presented in 2022, a
reconciliation from reported profit/(loss) before interest to adjusted
operating profit/(loss) by segment is shown below for each year.
2022 Personal Care Coatings $m Talc Segment totals Central Total
$m
costs
$m
$m $m
$m
Reported operating profit/(loss) 44.4 69.2 (134.0) (20.4) (21.4) (41.8)
Adjusting Items
Business transformation - 2.9 1.9 4.8 - 4.8
Increase in environmental provisions due to additional remediation work - - - - 3.4 3.4
identified
Increase in environmental provisions due to change in discount rate - - - - (7.2) (7.2)
Impairment of property, plant and equipment - - 23.0 23.0 - 23.0
Impairment of goodwill - - 103.4 103.4 - 103.4
Amortisation of intangibles arising on acquisition 8.4 1.2 5.3 14.9 - 14.9
Adjusted operating profit /(loss) 52.8 73.3 (0.4) 125.7 (25.2) 100.5
Operating profit from discontinued operations 15.2
Adjusting items from discontinued operations 8.0
Adjusted operating profit from discontinued operations 23.2
Adjusted operating profit from total operations 123.7
2021 Personal Care Coatings $m Talc Segment totals Central Total
$m
costs
$m
$m $m
$m
Reported operating profit/(loss) 27.9 56.5 (44.3) 40.1 (28.2) 11.9
Adjusting Items
Business transformation 0.1 4.2 - 4.3 - 4.3
Increase in environmental provisions due to additional remediation work - - - - 5.3 5.3
identified
Increase in environmental provisions due to change in discount rate - - - - (0.6) (0.6)
Impairment of goodwill - - 52.3 52.3 - 52.3
Sale of Montreal land - - - - (1.0) (1.0)
Amortisation of intangibles arising on acquisition 8.7 1.1 6.0 15.8 - 15.8
Adjusted operating profit /(loss) 36.7 61.8 14.0 112.5 (24.5) 88.0
Operating profit from discontinued operations 14.5
Adjusting items from discontinued operations 4.1
Adjusted operating profit from discontinued operations 18.6
Adjusted operating profit from total operations 106.6
6. Income tax expense
2022 2021
$m
$m
Current tax:
UK corporation tax 11.2 12.5
Overseas corporation tax on continuing operations 6.5 4.2
Adjustments in respect of prior years:
United Kingdom (0.6) (1.0)
Overseas (3.8) (7.2)
Total current tax 13.3 8.5
Deferred tax:
United Kingdom 3.1 (2.8)
Overseas (8.4) (4.8)
Adjustment in respect of prior years:
United Kingdom - -
Overseas (0.2) (0.5)
Total deferred tax (5.5) (8.1)
Income tax (credit)/expense for the year 7.8 0.4
Comprising:
Income tax (credit)/expense for the year 7.8 0.4
Adjusting items (1)
Overseas taxation on adjusting items (6.3) (11.4)
UK taxation on adjusting items (2.0) 0.9
Taxation on adjusting items (8.3) (10.5)
Income tax expense for the year after adjusting items 16.1 10.9
( )
(1)See Note 5 for details of adjusting items.
The tax charge on profits represents an effective rate of 14.2% (2021: 5.3%)
and an effective tax rate after adjusting items of 20.0% (2021: 18.3%).
The tax impact of the adjusting items outlined within note 5 and within the
consolidated income statement relates to the following:
2022 2022 2021 2021
Tax impact
Tax impact
Gross
Gross
$m
$m $m
$m
Business transformation 4.8 1.1 4.3 0.9
Environmental provisions (3.8) (0.7) 4.7 0.9
M&A and disposal costs - - 1.7 -
Impairment of property, plant and equipment 23.0 4.9 - -
Impairment of goodwill 103.4 - 52.3 -
Mark to market of derivative financial instruments (6.6) (1.3) (10.7) (2.0)
Sale of Montreal land - - (1.0) -
Amortisation of intangibles arising on acquisition 14.9 2.9 15.8 3.5
Reversal of uncertain tax provision - 1.4 - 7.2
Total 135.7 8.3 67.1 10.5
The Group is international and has operations across a range of jurisdictions.
Accordingly, tax charges of the Group in future periods will be affected by
the profitability of operations in different jurisdictions and changes to tax
rates and regulations in the jurisdictions within which the Group has
operations. The Group's adjusted effective tax rate in 2022 is slightly lower
than its usual range due to beneficial adjustments in respect of prior years
and the recognition of previously unrecognised deferred tax assets. The
medium-term expectation for the Group's adjusted effective tax rate is around
25-26% due to the previously announced increase in UK corporation tax rates
from April 2023.
On 20 December 2021 the OECD published its Global Anti-Base Erosion Model
Rules (Pillar Two). The report provides a model for a coordinated system of
taxation that imposes a top-up tax on profits arising in a jurisdiction
whenever the effective tax rate, determined on a jurisdictional basis, is
below the minimum tax rate of 15%. Each OECD member nation is implementing
Pillar Two on slightly different timescales but certain jurisdictions have
announced their intentions to implement for accounting periods beginning on or
after 31 December 2023. The Group continues to consider the impact of the
announcements on its tax position.
The total charge for the year can be reconciled to the accounting profit as
follows:
2022 2022 2021 2021
$m
%
$m
%
Profit/(loss) before tax (54.8) (7.5)
Tax at 19.0% (2021: 19.0%) (10.4) (19.0) (1.4) (19.0)
Difference in overseas effective tax rates 2.3 4.2 1.5 20.0
Income not taxable and impact of tax efficient financing (0.4) (0.7) (1.0) (13.3)
Expenses not deductible for tax purposes 21.8 39.7 12.0 160.0
Adjustments in respect of prior years (4.6) (8.4) (8.8) (117.2)
Tax rate changes 0.2 0.4 (1.3) (17.2)
Movement in unrecognised deferred tax (1.1) (2.0) (0.6) (8.0)
Total charge/(credit) and effective tax rate for the year 7.8 14.2 0.4 5.3
The adjustment in respect of prior years relates primarily to the release of
uncertain tax provisions.
7. Earnings per share
The calculation of the basic and diluted earnings per share attributable to
the ordinary equity holders of the parent is based on the following:
2022 2021
$m
$m
2022 Discontinued operations 2021 2021 Discontinued operations
2022 $m $m $m
$m
Earnings:
(Loss)/earnings for the purpose of basic earnings per share (62.6) 11.5 (51.1) (7.9) 10.4 2.5
Adjusting items net of tax 127.4 6.3 133.7 56.6 3.3 59.9
Adjusted earnings 64.8 17.8 82.6 48.7 13.7 62.4
2022 2021
m
m
Number of shares:
Weighted average number of shares for the purposes of basic earnings per share 582.6 581.0
Effect of dilutive share options 9.7 7.8
Weighted average number of shares for the purposes of diluted earnings per 592.3 588.8
share
The dilutive (loss)/earnings per share calculation in the table below, does
not include the impact of the 9.7m dilutive share options (2021: 7.8m dilutive
share options), as the inclusion of these potential shares would have an
anti-dilutive impact on the diluted loss per share from continuing operations;
it would decrease the diluted loss per share from continuing operations.
2022 2021
cents
cents
2022 Discontinued operations cents 2021 2021 Discontinued operations cents
2022 cents
cents
Earnings per share:
Basic (loss)/earnings (10.7) 2.0 (8.8) (1.4) 1.8 0.4
Diluted (loss)/earnings (10.7) 2.0 (8.8) (1.4) 1.8 0.4
Basic after adjusting items 11.1 3.1 14.2 8.4 2.4 10.7
Diluted after adjusting items 10.9 3.0 13.9 8.3 2.3 10.6
8. Contingent liabilities
As is the case with other chemical companies, the Group occasionally receives
notice of litigation relating to regulatory and legal matters. A provision is
recognised when the Group believes it has a present legal or constructive
obligation as a result of a past event, and it is probable that an outflow of
economic benefits will be required to settle the obligation. Where it is
deemed that an obligation is merely possible and that the probability of a
material outflow is not remote, the Group would disclose a contingent
liability.
The Group has not received any notice of litigation relating to events arising
prior to the balance sheet date that is expected to lead to a material
exposure.
In 2013 the UK Government (through HMRC) introduced the UK Finance Company
Exemption ('FCE') regime. Elementis entered into the FCE regime during 2014.
In October 2017 the European Commission opened a State Aid investigation into
the regime. In April 2019 the European Commission concluded that the FCE
regime constituted State Aid in circumstances where Groups had accessed the
regime using a financing company with UK significant people functions; the
European Commission therefore instructed the UK Government to collect any
relevant State Aid amounts. The UK government and other UK based international
companies, including Elementis, appealed to the General Court of the European
Union against the decision in 2019.
In Spring 2020 HMRC requested that affected Groups submit their UK significant
people function analysis. The deadline for submission of these analyses was
delayed due to the impact of COVID-19 and Elementis submitted its analysis to
HMRC in July 2020. In December 2020 the UK government introduced legislation
to commence collection proceedings.
Elementis received a charging notice from HMRC on 5 February 2021 which
assessed for the maximum exposure of $19m (excluding interest). This was paid
to HMRC on 5 March 2021. A charging notice for associated interest of $1m was
received on 24 June 2021 and paid on 7 July 2021. Whilst Elementis lodged an
appeal against the charging notices that did not defer the payment of the tax
assessed.
The UK Government's appeal against the European Commission's decision was
heard by the General Court of the European Union during October 2021 and on 8
June 2022 the General Court of the European Union ruled against the UK
Government. The UK Government lodged a further appeal to the European Court of
Justice during Q3 2022. As Elementis continues to consider that the appeal
process will ultimately be successful, at 31 December 2022 an asset has been
recorded within non-current assets in the expectation that the charge will be
repaid in due course.
As part of an agreement entered into in 2002 on the acquisition of the
Chromium operations at Castle Hayne, the Group would be liable for part of the
cost of the closure of a quarry which is currently used for the deposit of
solid, non-toxic, waste materials from its manufacturing operations in the
event of such a closure. There are a number of potential options available to
management to either extend the current life of the quarry or to effect
closure of the quarry. The Group entered into a share purchase agreement with
Yildirim Group during November 2022 to divest its Chromium operations; as part
of that share purchase agreement the Yildirim Group will take on any future
liability associated with the closure of the quarry. The transaction to divest
the Chromium operations closed on 31 January 2023. Management's assessment is
therefore that as at 31 December 2022 while there is a present obligation,
there is not a probable outflow of resources associated with the closure of
the quarry and even in the event of a probable outflow it is not possible to
determine a reliable estimate.
In August 2022 the Brazilian tax authorities opened a tax audit into the
Group's Brazilian entity. The audit is focused on the customs classification
code used since 2017 for one of the entity's imported raw materials. The
potential exposure is $3.1m. Management have obtained legal advice on the
matter and, based on the advice received, management believes that the customs
classification coding used is correct. Management therefore concluded that as
at 31 December 2022 it is not probable that an outflow of economic resources
will be required to settle the matter.
9. Events after the balance sheet date
On 1 January 2023 the Talc and Coatings segments merged to form a new segment
called Performance Specialties.
On 31 January 2023 the Group completed the sale of its Chromium business to
the Yildirim Group for an enterprise value of $170m, of which total cash
proceeds of $119m were received.
On 31 January 2023 the Group repaid $83m of its US dollar borrowings and
€31.4m of its euro borrowings.
During February 2023 the Group was notified that the Administrative Court in
Finland had revoked its permit for the expansion of mining operations at the
Uutela mine located in Sotkamo, Finland. The permit was previously issued by
the Finnish Safety and Chemicals Agency; the body empowered to issue such
permits. The Group intends to appeal the decision. If the appeal were to be
unsuccessful the impact would be to reduce the Talc ore available to the Group
by approximately 6%.
There were no other significant events after the balance sheet date.
10. Goodwill and other intangible assets
2022 2021
$m
$m
Goodwill at 1 January 613.0 668.0
Exchange differences (28.7) (2.2)
Acquisitions - 0.5
Disposals - (1.0)
Impairment (103.4) (52.3)
Goodwill at 31 December 480.9 613.0
Other intangible assets at 31 December 179.3 202.7
Total goodwill and intangibles at 31 December 660.2 815.7
The performance of the Talc business was adversely impacted in the second half
of 2022 by a lower demand environment, global inflationary pressures, higher
energy costs and the Russia/Ukraine conflict. These factors, as well as a
reduction in the near term forecasted profitability of the Talc business and a
rise in the pre-tax discount rate resulted in an impairment charge of $103.4
million being recognised (2021: $52.3m). Due to the currency in which the
goodwill was held, this impairment also gave rise to a $8.0 million (2021:
$0.8m) movement in exchange differences on translation of foreign operations
within other comprehensive income.
The recoverable amount of $244.6m (2021: $440.7m) for the CGU was calculated
using forecasted cash flows based on budgets and plans for 2023 to 2027, a
pre-tax discount rate of 12.0% (2021: 10.0%), a long-term growth rate of 3.0%
(2021: 3.0%), and revenue growth of between 4.1% and 12.8% (2021: 5.0% and
8.0%). The pre-tax discount rate is based on the geographies in which the Talc
CGU operates. The increase in the pre-tax discount rate used in 2022 as
compared to 2021, was primarily driven by the increase in risk-free rates and
the pre-tax cost of debt. The long-term growth rates are supported by third
party studies which consider the long-term growth prospects for the Talc
industry. The revenue growth forecasts reflect market and independent data as
well as management's estimates regarding medium term growth in the Talc
industry. The movement in the revenue growth forecasts for 2022 as compared to
2021 reflects a steady recovery of the Talc business following the lower
demand noted in the second half of 2022.
The high end of reasonably possible changes, all in isolation, would have the
following impact: increasing the discount rate by 0.5% would result in a
further impairment charge $13.4m to amortising intangible assets; decreasing
the long-term growth rate by 1.0% would result in a further impairment charge
of $17.5m to amortising intangible assets; and decreasing the forecasted
revenue by 2.5%, yearly over each year in the 5 year forecasting model, would
result in a further impairment charge of $24.8m to amortising intangible
assets.
No impairment was identified for the Personal Care, Coatings and Chromium
CGUs.
ALTERNATIVE PERFORMANCE MEASURES AND UNAUDITED INFORMATION
Alternative performance measures
A reconciliation from reported profit for the year to earnings before
interest, tax, depreciation and amortisation (EBITDA) is provided to support
understanding of the summarised cash flow included within the Finance report.
2022 2021
Profit and Profit and
loss loss
$m $m
(Loss)/profit for the year (51.1) 2.5
Adjustments for
Profit from discontinued operations (11.5) (10.4)
Finance income (9.9) (11.0)
Finance costs and other expenses 22.9 28.7
Tax charge 7.8 0.4
Depreciation and amortisation 56.6 58.3
Excluding intangibles arising on acquisition (14.9) (15.8)
Loss on disposal - 1.7
Adjusting items before finance costs and depreciation 141.9 75.7
Adjusted EBITDA from continuing operations 141.8 130.1
Adjusted EBITDA from discontinued operations 31.3 28.4
Adjusted EBITDA from total operations 173.1 158.5
There are also a number of key performance indicators (KPIs) used in this
report. The reconciliations to these are given below.
Adjusted operating cash flow
Adjusted operating cash flow is defined as the net cash flow from operating
activities less net capital expenditure but excluding income taxes paid or
received, interest paid or received, pension contributions net of current
service cost and adjusting items.
2022 2021
$m
$m
Net cash flow from operating activities from total operations 77.0 66.7
Less: Capital expenditure (47.1) (52.4)
Add:
Income tax paid or received 13.4 30.9
Interest paid or received 14.8 23.5
Pension contributions net of current service cost 1.0 0.1
Adjusting items - non cash (0.1) (13.2)
Adjusting items - cash 5.2 20.4
Adjusted operating cash flow from total operations 64.2 76.0
Adjusted operating cash conversion
Adjusted operating cash conversion is defined as adjusted operating profit
divided by adjusted operating cash flow plus provisions and share based
payments.
2022 2021
$m
$m
Operating profit after adjusting items from total operations 123.7 106.6
Operating cash flow 64.2 76.0
Add:
Provisions and share based payments 3.6 (1.9)
67.8 74.1
Adjusted operating cash flow conversion from total operations 55% 70%
Contribution margin
The Group's contribution margin, which is defined as sales less all variable
costs, divided by sales and expressed as a percentage.
2022 2021
$m $m
Continuing operations Discontinued operations Total operations Continuing operations Discontinued operations Total operations
Revenue 736.4 185.0 921.4 709.4 170.7 880.1
Variable costs (388.3) (100.8) (489.1) (379.0) (100.2) (479.2)
Non variable costs (49.2) (34.2) (83.4) (41.4) (24.6) (66.0)
Cost of sales (437.5) (135.0) (572.5) (420.4) (124.8) (545.2)
Adjusted Group profit before tax
Adjusted Group profit before tax is defined as the Group profit before tax
from total operations (both continuing and discontinued) after adjusting
items, excluding adjusting items relating to tax.
Adjusted return on operating capital employed
The adjusted return on operating capital employed (ROCE) is defined as
operating profit from total operations after adjusting items divided by
operating capital employed, expressed as a percentage. Operating capital
employed comprises fixed assets (excluding goodwill), working capital and
operating provisions. Operating provisions include self-insurance and
environmental provisions but exclude retirement benefit obligations.
2022 2021
$m
$m
Operating profit from total operations after adjusting items 123.7 106.6
Fixed assets excluding goodwill 654.5 722.1
Working capital 231.9 164.0
Operating provisions (48.7) (61.8)
Operating capital employed 837.7 824.3
Adjusted return on capital employed 15% 13%
Average trade working capital to sales ratio
The trade working capital to sales ratio is defined as the 12 month average
trade working capital divided by sales, expressed as a percentage. Trade
working capital comprises inventories, trade receivables (net of provisions)
and trade payables. It specifically excludes repayments, capital or interest
related receivables or payables, changes due to currency movements and items
classified as other receivables and other payables.
Adjusted operating profit/operating margin
Adjusted operating profit is the profit derived from the normal operations of
the business. Adjusted operating margin is the ratio of operating profit,
after adjusting items, to sales.
Unaudited information
To support a full understanding of the performance of the Group, the
information below provides the calculation of Net Debt/EBITDA on a pre-IFRS 16
basis.
2022 2021
$m
$m
Revenue 921.4 880.1
Adjusted operating profit from total operations 123.7 106.6
Adjusted operating margin from total operations 13.4% 12.1%
Adjusted EBITDA from total operations 173.1 158.5
IFRS 16 adjustment (7.1) (6.8)
Adjusted EBITDA pre-IFRS 16 166.0 151.7
Net Debt* 366.8 401.0
Net Debt/EBITDA** 2.2 2.6
* Net debt excludes lease liabilities.
** Net Debt/EBITDA, where EBITDA is the adjusted EBITDA on total operations of
the Group on a pre IFRS16 basis.
*****************************************************
Related party transactions
The Company is a guarantor to the UK pension scheme under which it guarantees
all current and future obligations of UK subsidiaries currently participating
in the pension scheme to make payments to the scheme, up to a specified
maximum amount. The maximum amount of the guarantee is that which is needed
(at the time the guarantee is called on) to bring the scheme's funding level
up to 105 per cent of its liabilities, calculated in accordance with section
179 of the Pensions Act 2004. This is also sometimes known as a Pension
Protection Fund (PPF) guarantee, as having such a guarantee in place reduces
the annual PPF levy on the scheme.
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