REG - Elementis PLC - Preliminary results year ended 31 December 2023
07/03/2024 07:00
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RNS Number : 9074F Elementis PLC 07 March 2024
Elementis plc
Preliminary results for the year ended 31 December 2023
Resilient financial performance, material deleveraging and dividend reinstated
· Revenue down 3% to $713 million with pricing and mix benefits offset
by lower volumes due to underlying demand weakness and destocking.
· Adjusted(1) operating profit up 3% to $104 million, benefiting from
pricing and cost reduction and material improvement in Talc profit. Statutory
operating profit was $59 million.
· Adjusted operating margin improved from 13.6% to 14.6%.
· Net debt(2) of $202 million, was 45% lower than prior year,
benefiting from the proceeds from the sale of Chromium business. Net debt to
EBITDA(3) reduced to 1.4x from 2.2x.
· Dividend reinstated, with a final dividend of 2.1 cents per share.
New Capital Markets Day ("CMD") targets and strategic progress
· Record new business pipeline of $363 million, with 12 new products
launched in the year.
· Announced $90 million of above market revenue growth by 2026, driven
by seven growth platforms.
· New efficiency programmes initiated, targeting delivery of $30
million of annual savings by 2025.
· Talc business financial turnaround, with focus on further growth in
the near term.
Outlook
· Good start to the year, demand environment remains uncertain.
· Growth underpinned by $360m of NBO pipeline and 15 new products
in 2024.
· Continued focus on self-help.
· Efficiency programmes on track to deliver expected c.$12 million
of savings in 2024.
· Focused on delivery of CMD objectives.
Financial Summary
$m Statutory results (IFRS) Adjusted results(1)
2023 2022 Change 2023 2022 Change Change constant currency
Revenue ($m) 713 736 (3)% 713 736 (3)% (4)%
Operating profit/(loss) ($m) 59 (42) n/m 104 101 3% 2%
Diluted earnings/(loss) per share (c) 4.7 (10.7) n/m 10.8 10.9 (1)% (1)%
Net debt(2) ($m) 202 367 (45)% 202 367 (45)% (45)%
Net debt to EBITDA(3) 1.4x 2.2x
Ordinary dividend per share (c) 2.1 - n/m 2.1 - n/m
( )
Commenting on the results, Paul Waterman, CEO, said:
"In 2023 Elementis delivered a resilient profit performance and an improved
operating margin in the face of challenging market conditions.
We have made excellent progress on deleveraging, with net debt to EBITDA
falling from 2.2x to 1.4x at the end of the year.
In November, we announced new material growth and efficiency programmes,
underpinned by our strategy of Innovation, Growth and Efficiency. Seven growth
platforms targeting $90 million dollars of above market growth by 2026 will be
pursued across our Personal Care and Performance Specialties businesses. In
addition, two efficiency programmes have been actioned, that will generate $30
million of annual cost reduction by 2025. These programmes will support
delivery of 19%+ operating margins, operating cash conversion of over 90% and
return on capital employed of above 20% by 2026.
We are pleased to resume the dividend, highlighting our confidence in
Elementis' future performance.
While market conditions remain uncertain, we believe that the combination of
the growth and efficiency programmes will help us make material progress in
2024 against our 2026 financial targets."
Further information
A presentation for investors and analysts will be held at 09.00 am GMT on 7
March 2024 via a live webcast, and can be accessed via a
link:https://www.investis-live.com/elementis/65a66e3f4f875712008ef0ff/wjgj
(https://www.investis-live.com/elementis/65a66e3f4f875712008ef0ff/wjgj) .
Conference call dial in details:
UK: +44 (0) 20 3936 2999 Other: Global Dial-In Numbers
(https://nam12.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.netroadshow.com%2Fconferencing%2Fglobal-numbers%3FconfId%3D59949&data=05%7C02%7Ceva.hatfield%40elementis.com%7C4d6a210a49ad4186cb2a08dc18373a9d%7Cbddf226eb2554875a364b0ea4bfb7a5e%7C0%7C0%7C638411872795557451%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=hv1b%2BrwCnZMM37g0XFMBAndaB%2FP547Zyu%2BW7%2B6OCQ9w%3D&reserved=0)
Participant access code: 735342
Enquiries
Investors: Eva Hatfield, Elementis
plc Tel: +44 (0)
7553 340380
Press: Martin Robinson/Olivia Peters,
Teneo Tel: +44 (0) 20 7353 4200
Notes:
1. Adjusted figures exclude the adjusting items set out in Note 5.
2. Pre IFRS 16 basis, refer to unaudited information on page 30 for further
information.
3. Earnings before interest, tax, depreciation and amortization, refer to
unaudited information on page 30 for further information.
Chief Executive Officer's overview
Performance
Elementis delivered a resilient financial performance in 2023, with revenue of
$713 million, down 3% on prior year (2022: $736 million). Adjusted operating
profit increased 3% to $104 million (2022: $101 million), and adjusted
operating margin improved by 100bps to 14.6% (2022: 13.6%). Growth in profit
was driven by improved pricing and favourable product mix benefits, offsetting
lower volumes in the year. Statutory operating profit increased to $59 million
(2022: loss of $42 million).
Performance Specialties revenues were 4% lower than prior year at $504 million
(2022: $525 million) while profit was even with prior year at $70 million.
Talc performance recovery and $36 million of new business was offset by
continued Coatings de-stocking throughout 2023.
Coatings performance, which represents approximately half of Elementis
revenues, reflected a combination of customer destocking throughout the year
and a weaker demand environment. In Asia, where over 80% of our sales come
from industrial activity, we saw revenue up 2% on a constant currency basis,
with a modest growth across several countries including China, helped by the
easing of COVID restrictions in the second half of the year. The premium
decorative sector in the Americas region was affected by a weaker housing
market and customer destocking. European revenues were also lower, reflecting
the continued weak macroeconomic environment, and ongoing inflationary
pressure that impacted customer demand in both the decorative and industrial
coatings sectors. We continued to leverage new product launches and in 2023
worked on 19 customer joint development projects. The operating profit margin
of 15% (2022: 18%), demonstrates both the quality and resilience of this
business in challenging market conditions.
Talc revenue remained broadly flat on the prior year, with pricing actions and
better product mix offsetting lower volumes, due to weaker end market demand.
Sales into automotive plastics customers were below the prior year, impacted
by destocking. Despite the flat revenues, the self-help measures implemented
over the year led to a material improvement in Talc profitability, with much
improved operating margin of 10% (2022: negative 0.3%). Looking ahead, we see
attractive growth opportunities in higher value talc applications and remain
focused on driving improvement in this business.
Personal Care performed well during the year, with sales marginally lower
compared to the strong prior year and profit higher at $50 million (2022: $49
million). Revenues were impacted by lower market related volumes and
destocking in the second half of the year, and were partly offset by $15
million of new business, improved pricing and a higher value product mix. In
Cosmetics, we saw growth across all regions, with a particularly strong growth
in Asia, driven by continued investment in sales and marketing capabilities.
We also saw continued growth in Skin Care revenues, supported by new product
innovation. Antiperspirants ("AP") Actives sales were below the strong prior
year, reflecting input driven price adjustment and lower volumes. Overall,
in Personal Care, product mix improvements and price actions offset the weaker
volumes resulting in an improved segment operating margin of 24% (2022: 23%).
In 2023, we made a significant progress on our deleveraging ambition, with net
debt reducing to $202 million (2022: $367 million) benefitting from the $139
million of proceeds from the sale of Chromium earlier in the year and improved
profitability. As a result, the net debt to EBITDA ratio reduced to 1.4x
(2022: 2.2x), and we are pleased to reinstate dividend payments and propose a
final dividend of 2.1 cents per share. Going forward, we plan to pay a
sustainable progressive dividend, while further reducing leverage.
Strategic progress and new financial targets
We made good progress implementing our strategy, launching 12 new products,
and delivering $51 million of new business. We delivered 14% of revenues from
innovation sales and had a record new business opportunities pipeline of $363
million at the end of 2023. Through discipline and focus, we have managed both
costs and pricing well, and the financial recovery of our Talc business is on
track.
At the November CMD, we communicated the growth and efficiency initiatives
that will underpin our performance through 2026 as well as our sustainability
strategy. Going forward, we will focus on seven growth platforms across
Personal Care and Performance Specialties, targeting $90 million of above
market revenue growth by 2026. This will be driven by ongoing innovation,
utilising our advantaged technologies, supported by key industry trends.
We also announced two efficiency programmes that will deliver $30 million of
cost savings over the next two years. The Fit for the Future restructuring
programme will deliver $20 million cost savings by 2025. This programme is
well underway, with significant progress in the outsourcing and consultation
processes. We announced the opening of a new support base and research and
development laboratory in Porto, Portugal, with the build out and new hires in
this location already underway. A further $10 million annual savings by 2025
will come from supply chain optimisation and procurement savings. To underpin
this, we will further streamline our manufacturing footprint by consolidating
our AP Actives plants from three to two locations in 2024.
We believe the combination of growth and efficiency programmes announced in
November will deliver our ambitious 2026 performance objectives:
- Adjusted operating profit margin of 19%+
- Three-year average operating cash conversion above 90%
- Return on capital employed ("ROCE") (excluding goodwill) above 20%.
At the end of the year, we completed a multi-year project of transferring our
enterprise resource planning systems into a single global system. We expect
this to enable improved data standardisation and analytics, improving both
efficiency and effectiveness.
Safety
Safety is fundamental to the success of Elementis and a core part of our
culture. We made a good progress on our objective of becoming a zero-injury
business, continuing to drive our TogetherSAFE campaign across all our sites.
In 2023, we achieved a 50% reduction in work-related injuries, with 90% of our
sites remaining injury free over the year. We continued to strengthen our
processes in 2023 making good progress on our process safety management
improvement plan and developing enhanced HSE standards. The number of
environmental events increased over the year, with seven Tier 2 events
reported in 2023. A thorough analysis of each incident was conducted with
learnings communicated across our manufacturing sites to prevent future
occurrences.
Sustainability
We place sustainability at the core of our strategy. Our aim is to develop
high-performance additives that deliver positive, sustainable outcomes for the
environment and for society. We seek to design products that use fewer
resources and create less pollution. Our areas of focus include reducing
greenhouse gas ("GHG") emissions with an ambition to reach Net Zero by 2050;
improving water, waste and energy management; and leveraging improved product
design to deliver better lifecycle impacts.
In 2019, we set our 2030 environmental targets, and this year we have met the
waste and water emissions target reduction. We are working towards setting a
science-based emissions target, which we plan to finalise in 2024. In 2023, we
reduced Scope 1 and 2 (market based) GHG emissions by 7% compared to the prior
year, with 77% of our purchased electricity coming from renewable or low
carbon sources.
We focus our capabilities on finding unique solutions to emerging
sustainability challenges. For example, our organoclay-based gels improve the
water resistance of consumer sunscreens, increasing their effectiveness and
lowering loss to the environment. We have a high natural material content in
our product portfolio, and 68% of Group revenues (2022: 67%) were generated
from natural or naturally-derived ingredients (as defined by ISO16128). Our
products also help customers do more with less resources, such as additives
that help adhesives instantly grip heavy ceramic tiles without slipping, thus
saving materials, time and money.
We continue to improve our environmental, social and governance disclosure
processes and had our Sope 3 emissions verified by a third party for the first
time in 2023. We are also pleased to achieve a Gold rated score from EcoVadis
for the third year, and a B rating from Climate Disclosure Project.
People and culture
The financial results achieved this year are a testament to the hard work and
commitment of our people, who continue to be dedicated to the success of the
company. This year we launched a biannual engagement survey with a new
external provider, which will allow more regular employee engagement and
provide better opportunities to support our people.
In 2023, we have announced changes that have impacted our global workforce. In
January 2023 we sold our Chromium business and shortly after we started
working on a restructuring programme, Fit for the Future, that will streamline
and optimise our organisation. This restructuring programme, which will
trigger c.190 redundancies, was announced in September 2023, followed by
extensive consultations and support for employees impacted by these changes.
Our people have demonstrated incredible resilience as we make the required,
but difficult, changes that will position the company for future success. It
is encouraging to see how teams have supported one another through this
change, showcasing our values at their best.
I would like to thank the whole Elementis team for their fortitude,
adaptability and commitment over the year and look forward to together
creating a successful future for the Company.
Outlook
Elementis has seen a good start to the year, with sales ahead on the prior
year. The global macroeconomic environment remains uncertain. Notwithstanding
this, we are focused on executing our self-help efficiency and growth
programmes as this will support ongoing performance improvement, regardless of
the demand environment that we face.
We have a portfolio of high-quality businesses, and a clear and consistent
strategy based on Innovation, Growth and Efficiency. We have a strong pipeline
of new products that is driving new business, and we continue to invest in our
business for long-term growth. Most importantly, we have a talented and
dedicated team that is completely focused on delivering the 2026 objectives
communicated at our November CMD.
Finance report
Revenue
$m 2023 2022
Coatings 367.6 389.1
Talc 136.5 135.8
Performance Specialties 504.1 524.9
Personal Care 209.3 211.5
Revenue 713.4 736.4
Operating profit
$m 2023 Adjusting 2023 2022 Operating profit/(loss) Adjusting items 2022 Adjusted operating profit/(loss)(1)
items
Adjusted operating profit/(loss) (1)
Operating profit/(loss)
Coatings 55.2 0.9 56.1 66.2 4.1 70.3
Talc 8.6 5.4 14.0 (134.0) 133.6 (0.4)
Performance Specialties 63.8 6.3 70.1 (67.8) 137.7 69.9
Personal Care 43.2 7.1 50.3 40.6 8.4 49.0
Central costs (48.1) 31.6 (16.5) (14.6) (3.8) (18.4)
Operating profit/(loss) 58.9 45.0 103.9 (41.8) 142.3 100.5
1 After adjusting items, see Note 5 for detail.
Group results
In 2023 revenue decreased 3% on a reported basis to $713m (2022: $736m) with
improved pricing and mix offset by lower volumes across all businesses. On a
constant currency basis, revenue decreased 4%.
Reported operating profit increased to $59m (2022: loss of $42m) as a result
of a reduction in one-off items during 2023. Adjusted operating profit
increased 2% on a constant currency basis, 3% on reported basis to $104m
(2022: $101m), with cost savings and improved price/mix more than offsetting
the impact of lower volumes. Profit from continuing operations for the year
was $28m (2022: loss of $63m).
Adjusting items
In addition to the statutory results the Group uses alternative performance
measures, to provide additional 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 2023 resulted in a charge
of $44.7m before tax (2022: $135.7m). 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) Coatings Talc Performance Specialties Personal Care Central costs Total
$m
Business transformation (0.7) - (0.7) - (25.4) (26.1)
Environmental provisions - - - - (6.2) (6.2)
Amortisation of intangibles arising on acquisitions (0.2) (5.4) (5.6) (7.1) - (12.7)
Total charge to operating profit (0.9) (5.4) (6.3) (7.1) (31.6) (45.0)
Unrealised mark to market of derivatives - - - - (1.1) (1.1)
Interest on EU state aid receivables - - - - 1.4 1.4
Total (0.9) (5.4) (6.3) (7.1) (31.3) (44.7)
Business transformation
In November 2020, the closure of the Charleston plant was announced. Costs of
$0.7m (2022: $2.9m) 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, $23.4m has been incurred in relation to the closure of
the site. In September 2023, the Fit for the Future organisation restructuring
programme was announced, for which a restructuring provision of $25.4m was
recognised in 2023, in line with the requirements of IAS 37. Total overall
estimated costs for the programme are $31.3m, of which $5.4m was utilised in
2023. The programme is expected to be completed in 2025.
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 changes in discount rates
which has resulted in the reduction of $0.4m to the liability (2022: $7.2m),
and extra remediation work identified in the year which has resulted in a
$6.6m increase to the liability (2022: $3.4m). As these costs relate to
non-operational facilities they are classified as adjusting items.
Amortisation of intangibles arising on acquisitions
Amortisation of $12.7m (2022: $14.9m) 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.
Interest on EU state aid receivable
Finance income of $1.4m has been recognised in respect of interest due to the
Group if the EU state aid case settles in favour of the Group. Refer to Note 8
for further details on the tax recoverable asset.
Hedging
The Group uses cash flow hedges to manage exposure to interest rate and
commodity price risks, particularly those associated with US dollar and euro
interest payments and aluminium and nickel pricing. In 2023 interest rate and
commodity price movements resulted in a net gain from the hedge transactions
of $6.3m (2022: loss of $1.6m) recycled to the income statement.
Central costs
Central costs are those costs that are not identifiable as expenses of a
particular business segment and comprise expenditures of the Board of
Directors and corporate head office. Adjusted central costs reduced to $16.5m
(2022: $18.4m), reflecting continued focus on cost discipline.
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 $2.3m in 2023 (2022: $1.3m).
Net finance costs
$m 2023 2022
Finance income 0.5 0.2
Finance cost of borrowings (17.5) (19.5)
(17.0) (19.3)
Net pension finance income 1.0 0.6
Discount unwind on provisions (1.4) (0.7)
Fair value movement on derivatives 0.4 9.1
Interest on EU state aid receivable 1.4 -
Interest on lease liabilities (1.3) (1.4)
Net finance costs (16.9) (11.7)
Net finance costs increased to $16.9m (2022: $11.7m). 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/expense,
fair value movement on derivatives, interest receivable on the EU state aid
receivable balance and interest charged on lease liabilities.
The increase in net finance costs is primarily due a lower fair value movement
on derivatives of $0.5m (2022: $9.1m). Reduction in the fair value movement on
derivatives, which are unrealised mark to market movements on derivatives that
are not in hedging relationships, was driven by the contractual maturity of
these derivative contracts in 2023. These benefits are not expected to recur
in the next financial year.
Finance cost of borrowings have decreased by $2.0m, primarily due to a lower
net debt level during 2023.
Net pension finance income of $1.0m (2022: $0.6m) is a function of discount
rates under IAS 19, and the value of the schemes' deficit or surplus
positions.
The Group's environmental provisions are calculated on a discounted basis,
reflecting the time period over which the spending is estimated to take place.
The discount unwind on provisions of $1.4m in 2023 was greater than prior year
due to higher discount rates.
Interest receivable of $1.4m has been recognised in respect of interest due to
the Group if the EU state aid case settles in favour of the Group. Refer to
Note 8 for further details on the tax recoverable asset.
Both finance income and the interest on lease liabilities were broadly
consistent with the prior year.
Taxation
$m 2023 Effective rate $m 2022 Effective
%
rate
%
Reported tax charge/(credit) 11.5 29.0 7.8 (14.2)
Adjusting items tax credit (8.4) - (8.3) -
Adjusted tax charge 19.9 23.5 16.1 20.0
The Group incurred a tax charge of $19.9m (2022: $16.1m) on adjusted profit
before tax, resulting in an effective tax rate of 23.6% (2022: 20.0%). The
increase in the effective tax rate was largely due to the increase in the UK
corporation tax rate to 25% from April 2023.
Tax on adjusting items relates primarily to the amortisation of intangible
assets and the Fit for the Future restructuring programme.
The medium-term expectation for the Group's adjusted effective tax rate is
around 26%.
Earnings per share
To aid comparability of the underlying performance of the Group, earnings per
share ("EPS") reported under IFRS is adjusted for items classified as
adjusting.
2023 2022
Profit after tax ($m) 28.2 (62.6)
Adjusting items net of tax ($m) 36.3 127.4
Adjusted profit after tax ($m) 64.5 64.8
Weighted average number of shares for the purposes of basic EPS (m) 585.7 582.6
Effect of dilutive shares options (m) 11.2 9.7
Weighted average number of shares for the purposes of diluted EPS (m) 596.9 592.3
Basic EPS before adjusting items (cents) 4.8 (10.7)
Diluted EPS before adjusting items (cents) 4.7 (10.7)
Adjusted basic EPS (cents) 11.0 11.1
Adjusted diluted EPS (cents) 10.8 10.9
Adjusted diluted EPS decreased 1% to 10.8 cents (2022: 10.9 cents), primarily
due to a lower adjusted profit after tax. Basic EPS before adjusting items
increased to 4.8 cents (2022: negative 10.7 cents) principally due to a higher
profit after tax.
Note 7 provides disclosure of EPS calculations both including and excluding
the effects of adjusting items and the potential dilutive effects of
outstanding and exercisable options.
Distributions to shareholders
The Board has considered the strength of the balance sheet and the near-term
prospects for the business and recommended the reinstatement of the ordinary
dividend to an amount of 2.1 cents per share, which will be paid in pounds
sterling. Dividend of 1.65 pence per share has been determined by converting
the 2.1 cents into pounds sterling using the forward rate of £1.00:$1.2705,
as determined on 28 March 2023. If approved at the AGM, the dividend will be
paid on 31 May 2024 to shareholders included on the share register on 3 May
2024.
Cash flow
As per the statutory cash flow statement, net cash inflow from operating
activities of $76.8m (2022: $77.0m) was in line with prior year. A net working
capital inflow of $2.1m (2022: outflow of $37.2m) related to movements in
inventories, debtors and creditors, offset by higher interest and tax
payments, and net cash outflow from discontinued operations of $12.5m (2022:
inflow of $5.6m).
Net cash inflow in relation to investing activities increased to $101.1m
(2022: negative $46.9m) primarily due to the gross cash proceeds from the sale
of the Chromium business of $139.2m.
Net cash outflow in relation to financing activities increased to $168.0m
(2022: $57.8m) primarily due to the repayment of borrowings following the sale
of the Chromium business.
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
("APM") section.
Adjusted cash flow
$m 2023 2022
EBITDA(1) 145.8 141.8
Change in working capital 2.1 (43.3)
Capital expenditure (38.2) (33.1)
Other (4.4) 0.3
Adjusted operating cash flow 105.3 65.7
Pension payments (3.3) (0.7)
Interest (17.8) (14.4)
Tax (27.3) (13.3)
Adjusting items (5.6) (5.2)
Payment of lease liabilities (6.3) (7.1)
Free cash flow 45.0 25.0
Issue of shares, net of share repurchases by ESOT (1.0) 0.9
Dividends paid - -
Acquisitions and disposals 139.2 -
Discontinued operations (12.5) (2.1)
Currency fluctuations (5.9) 10.4
Movement in net debt 164.8 34.2
Net debt at start of year (366.8) (401.0)
Net debt at end of year (202.0) (366.8)
1 Earnings before interest, tax, adjusting items, depreciation and
amortisation.
Adjusted operating cash flow increased to $105.3m (2022: $65.7m), primarily
driven by a $2.1m working capital inflow compared to an outflow of $43.3m in
the prior year.
Free cash flow increased to $45.0m (2022: $25.0m), primarily driven by
improved operating cashflow, partly offset by higher tax payments as a result
of higher corporation tax rates in the countries in which the Group operates,
an increase in net interest paid and an increase in pension payments.
Net debt decreased to $202.0m (2022: $366.8m), a reduction of $164.8m. Net
debt to adjusted EBITDA decreased to 1.4x in 2023 on a pre-IFRS 16 basis
(2022: 2.2x). The decrease in leverage was largely driven by lower net debt as
well as the improvement in adjusted EBITDA, reflective of the Group's higher
earnings.
Balance sheet
$m 2023 2022
Intangible fixed assets 650.6 660.2
Tangible fixed assets 423.6 386.4
Working capital 147.2 141.5
Net tax liabilities (101.5) (102.2)
Provisions and retirement benefit obligations (48.8) (12.2)
Financial assets and liabilities 11.3 5.9
Lease liabilities (36.2) (36.3)
Unamortised syndicate fees 3.1 4.3
Net debt (202.0) (366.8)
Net assets held for sale - 103.1
Total equity 847.3 783.9
Group equity increased to $847.3m (2022: $783.9m), principally driven by lower
net debt. Intangible fixed assets decreased by $9.6m due to $13.3m of
amortisation, offset by $4.1m of foreign exchange gain. Increase in tangible
fixed assets was driven by gross additions of $66.6m, right-of-use asset
capitalisation of $5.1m and exchange gains of $24.0m, offset by depreciation
of $41.6m.
Working capital, which comprises inventories, trade and other receivables and
trade and other payables, increased to $147.2m (2022: $141.5m). The increase
was driven by lower payables and higher receivables, partially offset by lower
inventories at the end of the year.
Net tax liabilities decreased to $101.5m (2022: $102.2m) primarily as a result
of the amortisation of the intangible fixed assets leading to a reduction in
the associated deferred tax liability.
Adjusted ROCE (excluding goodwill) increased to 15% (2022: 14%), with higher
adjusted operating profit partially offsetting increased total operating
capital employed (see the APM section for detail).
Foreign currency
The financial information is presented in US dollars. The main dollar exchange
rates relevant to the Group are set out below.
Year end 2023 Year end 2022
Average
Average
Pounds sterling 0.78 0.81 0.83 0.81
Euro 0.91 0.93 0.94 0.95
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 2023, the Group held provisions of $81.9m (2022: $29.7m)
consisting of environmental provisions of $60.5m (2022: $27.5m),
self-insurance provisions of $0.5m (2022: $0.5m), restructuring provisions of
$20.1m (2022: $0.6m) and other provisions of $0.8m (2022: $1.1m).
The increase in environmental provisions was largely driven by additional
rehabilitation and closure costs of $28.4m in relation to the Group's Finnish
talc mines, arising from increased rehabilitation standards imposed by the
Finnish regulators. These costs will be incurred over the expected life of our
talc mines and are not expected to have a material cash impact in the near
term.
The remaining increase related to an expense of $6.6m relating to extra
remediation work required primarily at the Eaglescliffe site, which was
partially offset by a $0.4m credit relating to a change in the discount rate
applied to the liabilities. The remaining movement in the environmental
provisions relates to the unwind of the discount in the year of $1.5m, offset
by currency translation of $1.3m and utilisation of $4.4m.
The self-insurance provision represents the Group's estimate of its liability
arising from retained liabilities under the Group's insurance programme and
remained flat during the period.
The restructuring provision reflects the adjustments to head count and other
costs of restructuring where a need to do so has been identified by
management. The restructuring provision increased by $25.4m as a result of the
Fit for the Future restructuring programme, of which $5.4m was utilised in
2023.
Pensions and other post retirement benefits
$m 2023 2022
Net (surplus)/liability:
UK (38.7) (26.4)
US - 3.5
Other 5.6 5.4
(33.1) (17.5)
UK plan
The largest of the Group's retirement plans is the UK defined benefit pension
scheme ("UK Scheme"), which at the end of 2023 had a surplus, under IAS 19, of
$38.7m (2022: $26.4m). The UK Scheme is relatively mature, with approximately
two thirds of its gross liabilities represented by pensions in payment, and is
closed to new members. The increase in net surplus was largely driven by
returns on plan assets of $9.7m (2022: loss of $200.4m) which was offset by
liability adjustments, primarily due to lower discount rates, of $0.3m (2022:
$3.0m). Company contributions of $1.8m (2022: $0.5m) reflect the funding
agreement reached with the UK trustees following the 2020 triennial valuation,
which concluded in 2021. The 2023 triennial valuation will be concluded in
2024.
US plan
In the US, the Group reports two post retirement plans under IAS 19: a defined
benefit pension plan with a net surplus at the end of 2023 of $3.4m (2022:
$nil), and a post retirement medical plan with a liability of $3.4m (2022:
$3.5m). The US pension plans are smaller than the UK plan and in 2023 the
overall deficit on the US plans decreased by $3.5m, as a result of the return
on plan assets of $4.3m (2022: loss of $26.1m) and employer contributions of
$1.4m being offset by actuarial increases in the liability of $1.3m (2022:
$28.7m).
Other plans
Other pension plans amounted to $5.6m (2022: $5.4m) 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 are represented by net derivative financial assets of
$11.3m (2022: $5.9m) which relate 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
unrealised non-cash fair value adjustments and will not affect the cash flows
of the Group. The cross-currency swaps matured in 2023.
Events after the balance sheet date
On 6th March 2024, Elementis entered into an agreement to sell its former
Chromium manufacturing site at Eaglescliffe to Flacks Group for negative
purchase price consideration of £11.5m ($14.5m). Completion of the
transaction is conditional on regulatory approval.
There were no other significant events after the balance sheet date.
Business performance overview
$m 2023 Effect of Decrease 2023 2022
exchange
rates
Coatings 367.6 (1.5) (20.0) 389.1
Talc 136.5 3.1 (2.4) 135.8
Performance Specialties 504.1 1.6 (22.4) 524.9
Personal Care 209.3 1.3 (3.5) 211.5
Revenue 713.4 2.9 (25.9) 736.4
$m Operating Effect of Increase/ Operating
profit
exchange
profit/(loss)
2023(1)
rates (decrease)
2022(1)
2023
Coatings 56.1 0.3 (14.5) 70.3
Talc 14.0 (0.3) 14.7 (0.4)
Performance Specialties 70.1 - 0.2 69.9
Personal Care 50.3 1.2 0.1 49.0
Central costs (16.5) - 1.9 (18.4)
Adjusted operating profit 103.9 1.2 2.2 100.5
1 After adjusting items - see Note 5.
Personal Care
Personal Care revenue reduced 2% (or 1% excluding currency impact) to $209
million (2022: $212 million), reflecting strong growth in Cosmetics, which was
offset by weaker revenues in AP Actives.
Adjusted operating profit was slightly higher at $50.3 million (2022: $49.0
million), or flat on a constant currency basis. The adjusted operating margin
improved to 24.2% (2022: 23.2%), benefiting from pricing actions and a higher
value product mix.
Performance Specialties
Performance Specialties was created at the beginning of 2023, by combining
Talc and Coatings businesses. As the two businesses share many distribution
channels and end markets, the combined segment will enable a stronger end
market focus on attractive growth opportunities, under a single leadership
team. We will continue to report Coatings' and Talc's performance separately
for transparency.
Coatings
Overall revenue decreased 6% on a reported basis (5% excluding currency
impact) to $367.6 million (2022: $389.1 million) due to continued destocking
and weak customer demand throughout the year.
Coatings also includes our specialised Energy business, which accounts for
just over 10% of total Coatings sales.
Adjusted operating profit decreased 20% on both, the reported and constant
currency basis, to $56.1 million (2022: $70.3 million), reflecting lower
volumes and higher costs, offsetting price and mix benefits. Adjusted
operating margin of 15.3% (2022: 18.1%) demonstrates resilience in the
challenging market conditions.
Talc
Talc revenue remained broadly flat at $136.5 million (2022: $135.8 million) or
2% down excluding currency impact. Pricing actions and a better product mix
successfully offset lower volumes, due to weaker demands in many end markets.
Despite the flat revenues, we saw material improvement in Talc profitability,
with adjusted operating profit growing to $14.0 million (2022: loss $0.4
million). Profit growth was driven by improved pricing and product mix, which
offset the lower volumes. As a result, we delivered much improved adjusted
operating margin of 10.2% (2022: negative 0.3%).
Consolidated income statement
for the year ended 31 December 2023
$m 2023 2022
Revenue 713.4 736.4
Cost of sales (429.1) (437.5)
Gross profit 284.3 298.9
Distribution costs (108.7) (125.0)
Administrative expenses (116.7) (215.7)
Operating profit/(loss) 58.9 (41.8)
Other expenses(1) (2.3) (1.3)
Finance income 4.4 9.9
Finance costs (21.3) (21.6)
Profit/(loss) before income tax 39.7 (54.8)
Tax (11.5) (7.8)
Profit/(loss) from continuing operations 28.2 (62.6)
Profit from discontinued operations (1.7) 11.5
Profit/(loss)for the year 26.5 (51.1)
Attributable to:
Equity holders of the parent 26.5 (51.1)
Earnings per share
From continuing operations
Basic earnings/(loss) (cents) 4.8 (10.7)
Diluted earnings/(loss) (cents) 4.7 (10.7)
From continuing and discontinued operations
Basic (earnings/(loss) (cents) 4.5 (8.8)
Diluted earnings/(loss) (cents) 4.4 (8.8)
1 Other expenses comprise administration expenses for the Group's pension
schemes.
Consolidated statement of comprehensive income
for the year ended 31 December 2023
$m 2023 2022
Profit/(loss) for the year 26.5 (51.1)
Other comprehensive income:
Items that will not be reclassified subsequently to profit and loss:
Remeasurements of retirement benefit obligations 12.3 (18.5)
Deferred tax associated with retirement benefit obligations (2.8) 5.3
Items relating to discontinued operations, net of tax - 0.3
Items that may be reclassified subsequently to profit and loss:
Exchange differences on translation of foreign operations (5.1) (100.9)
Effective portion of change in fair value of net investment hedge 14.8 46.2
Tax associated with change in fair value of net investment hedge (0.1) (2.8)
Tax associated with changes in cashflow hedges (0.6) 0.8
Recycling of deferred foreign exchange gains on disposal 9.3 -
Effective portion of changes in fair value of cash flow hedges 12.7 (2.6)
Fair value of cash flow hedges transferred to income statement (6.3) 1.6
Exchange differences on translation of share options reserves 0.2 (0.9)
Other comprehensive income/(loss) 34.4 (71.5)
Total comprehensive income/(loss) for the year 60.9 (122.6)
Attributable to:
Equity holders of the parent 60.9 (122.6)
( )
Consolidated balance sheet
as at 31 December 2023
$m 2023 2022
31 December
31 December
Non-current assets
Goodwill and other intangible assets 650.6 660.2
Property, plant, and equipment 423.6 386.4
Tax recoverable 20.0 17.5
Financial assets 6.0 1.3
Deferred tax assets 19.6 24.8
Net retirement benefit surplus 42.1 26.4
Total non-current assets 1,161.9 1,116.6
Current assets
Inventories 163.3 182.0
Trade and other receivables 101.8 94.9
Financial assets 7.4 10.7
Current tax assets 11.2 7.0
Cash and cash equivalents 65.8 54.9
Total current assets 349.5 349.5
Assets classified as held for sale - 160.9
Total assets 1,511.4 1,627.0
Current liabilities
Bank overdrafts and loans - (2.7)
Trade and other payables (117.9) (135.4)
Financial liabilities - (3.3)
Current tax liabilities (13.6) (20.2)
Lease liabilities (5.9) (6.1)
Provisions (21.5) (5.8)
Total current liabilities (158.9) (173.5)
Non-current liabilities
Loans and borrowings (264.7) (414.7)
Retirement benefit obligations (9.0) (8.9)
Deferred tax liabilities (138.7) (131.3)
Lease liabilities (30.3) (30.2)
Provisions (60.4) (23.9)
Financial liabilities (2.1) (2.8)
Total non-current liabilities (505.2) (611.8)
Liabilities classified as held for sale - (57.8)
Total liabilities (664.1) (843.1)
Net assets 847.3 783.9
Equity
Share capital 52.5 52.3
Share premium 239.2 238.7
Other reserves 70.1 42.1
Retained earnings 485.5 450.8
Total equity attributable to equity holders of the parent 847.3 783.9
Total equity 847.3 783.9
Consolidated statement of changes in equity
for the year ended 31 December 2023
$m Share Share Translation reserve Hedging Other Retained Total
capital
premium
reserve
reserves
earnings
equity
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 loss:
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 cash flow hedges - - - - - 0.8 0.8
Tax associated with changes in fair value of net investment hedge - - - - - (2.8) (2.8)
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 (loss)/income - - (54.7) 6.8 (4.9) (18.7) (71.5)
Total comprehensive (loss)/income - - (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 - (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
Comprehensive income:
Profit for the year - - - - - 26.5 26.5
Other comprehensive income:
Exchange differences - - 9.7 - 0.2 - 9.9
Fair value of cash flow hedges transferred to the - - - (6.3) - - (6.3)
income statement
Effective portion of changes in fair value - - - 12.7 - - 12.7
of cash flow hedges
Tax associated with changes in cashflow hedges - - - - - (0.6) (0.6)
Tax associated with change in fair value of net - - - - - (0.1) (0.1)
investment hedge
Remeasurements of retirement benefit obligations - - - - - 12.3 12.3
Deferred tax adjustment on pension scheme deficit - - - - - (2.8) (2.8)
Recycling of deferred foreign exchange losses on disposal - - 9.3 - - - 9.3
Transfer - - - - (2.3) 2.3 -
Total other comprehensive income/(loss) - - 19.0 6.4 (2.1) 11.1 34.4
Total comprehensive income/(loss) - - 19.0 6.4 (2.1) 37.6 60.9
Transactions with owners:
Issue of shares by the Company 0.2 0.5 - - - - 0.7
Purchase of shares by Employee Share Options Trust - - - - - (1.6) (1.6)
Deferred tax on share based payments recognised within equity - - - - - (1.3) (1.3)
Share based payments - - - - 4.2 - 4.2
Fair value of cash flow hedges transferred to net assets - - - 0.5 - - 0.5
Total transactions with owners 0.2 0.5 - 0.5 4.2 (2.9) 2.5
Balance at 31 December 2023 52.5 239.2 (103.4) 5.9 167.6 485.5 847.3
Consolidated cash flow statement
for the year ended 31 December 2023
$m 2023 2022
Operating activities:
Profit/(loss) from continuing operations 28.2 (62.6)
Adjustments for:
Other expenses 2.3 1.3
Finance income (4.4) (9.9)
Finance costs 21.3 21.6
Tax charge 11.5 7.8
Depreciation and amortisation 55.7 56.9
Impairment loss on property, plant, and equipment - 23.0
Increase/(decrease) in provisions and financial liabilities 16.7 (7.7)
Pension payments net of current service cost (3.1) (0.7)
Share based payments expense 4.4 3.4
Impairment of goodwill - 103.4
Operating cash flow before movement in working capital 132.6 136.5
Decrease/(increase) in inventories 22.5 (57.5)
(Increase)/decrease in trade and other receivables (0.3) 6.5
(Decrease)/increase in trade and other payables (20.1) 13.8
Cash generated by operations 134.7 99.3
Income taxes paid (27.3) (13.3)
Interest paid (18.1) (14.6)
Net cash flow used in operating activities from discontinued operations (12.5) 5.6
Net cash flow from operating activities 76.8 77.0
Investing activities:
Interest received 0.4 0.2
Disposal of property, plant and equipment - (0.4)
Purchase of property, plant and equipment (38.1) (33.1)
Disposal of business 139.2 -
Acquisition of intangible assets (0.1) (0.2)
Net cash flow used in investing activities from discontinued operations (0.3) (13.4)
Net cash flow from investing activities 101.1 (46.9)
Financing activities:
Issue of shares by the Company and the ESOT net of issue costs (1.0) 0.9
Net movement on existing debt (160.5) (51.6)
Payment of interest on lease liabilities (1.3) (1.4)
Payment of gross lease liabilities (5.2) (5.7)
Net cash used in financing activities (168.0) (57.8)
Net decrease in cash and cash equivalents 9.9 (27.7)
Cash and cash equivalents at 1 January 54.9 84.6
Foreign exchange on cash and cash equivalents 1.0 (2.0)
Less: cash and cash equivalents classified as held for sale - -
Cash and cash equivalents at 31 December 65.8 54.9
Notes to the financial statements
1. Preparation of the preliminary announcement
The financial information in this statement does not constitute the Company's
statutory accounts for the years ended 31 December 2023 or 2022 but is derived
from those accounts. Statutory accounts for 2022 have been delivered to the
Registrar of Companies, and those for 2023 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 2024.
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 2023 which will be made
available to shareholders on 26 March 2024.
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
$m 2023 2022
Interest on bank deposits 0.5 0.2
Penson and other post retirement liabilities 1.0 0.6
Fair value movement on derivatives 1.5 9.1
Interest on EU state aid receivable 1.4 -
4.4 9.9
4. Finance costs
$m 2023 2022
Interest on bank loans 17.5 19.5
Unwind of discount on provisions 1.4 0.7
Interest on lease liabilities 1.3 1.4
Fair value movements on derivatives 1.1 -
21.3 21.6
5. Adjusting items and alternative performance measures
$m 2023 2022
Business transformation 26.1 4.8
Environmental provisions
Increase in provisions due to additional remediation work identified 6.6 3.4
(Decrease)/Increase in provisions due to change in discount rate (0.4) (7.2)
Impairment of property, plant and equipment - 23.0
Impairment of goodwill - 103.4
Amortisation of intangibles arising on acquisition 12.7 14.9
45.0 142.3
Unrealised mark to market of derivative financial instruments 1.1 (6.6)
Interest on EU state aid receivable (1.4) -
Tax credit in relation to adjusting items (8.4) (8.3)
36.3 127.4
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 $44.7m (2022: $135.7m). 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 $0.7m ($2.9m in 2022) 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, $23.4m has been
incurred in relation to the closure of the site.
In September 2023, the Fit for Future organisation restructuring programme was
announced, for which a restructuring provision of $25.4m was recognised in
2023; reflecting the discounted future expected cash outflows for the
programme. Total estimated costs for the programme are $31.3m, of which $5.4m
was utilised in 2023. The programme is expected to be completed in 2025.
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 $0.4m in the
year (2022: $7.2m) and extra remediation work identified in the year which has
resulted in a $6.6m increase to the liability (2022: $3.4m). 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 - In 2022, 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 in 2022.
Amortisation of intangibles arising on acquisition - Amortisation of $12.7m
(2022: $14.9m) 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.
Interest on EU state aid receivables - Finance income of $1.4m has been
recognised in respect of interest due to the Group if the EU state aid case
settles in favour of the Group. Refer to Note 8 for further details on the tax
recoverable asset.
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 2023
the reconciliation to the adjusted consolidated income statement is shown
below.
2023 2022
$m Profit and loss Adjusting items Profit and loss after adjusting items Profit and loss Adjusting items Profit and loss after adjusting items
Revenue 713.4 - 713.4 736.4 - 736.4
Cost of sales (429.1) - (429.1) (437.5) - (437.5)
Gross profit 284.3 - 284.3 298.9 - 298.9
Distribution costs (108.7) - (108.7) (125.0) - (125.0)
Administrative expenses (116.7) 45.0 (71.7) (215.7) 142.3 (73.4)
Operating profit/(loss) 58.9 45.0 103.9 (41.8) 142.3 100.5
Other expenses (2.3) - (2.3) (1.3) - (1.3)
Finance income 4.4 (1.4) 3.0 9.9 (6.6) 3.3
Finance costs (21.3) 1.1 (20.2) (21.6) - (21.6)
Profit/(loss) before income tax 39.7 44.7 84.4 (54.8) 135.7 80.9
Tax (11.5) (8.4) (19.9) (7.8) (8.3) (16.1)
Profit/(loss) from continuing operations 28.2 36.3 64.5 (62.6) 127.4 64.8
Earnings per share
From continuing operations
Basic earnings/(loss) (cents) 4.8 6.2 11.0 (10.7) 21.8 11.1
Diluted earnings/(loss) (cents) 4.7 6.1 10.8 (10.7) 21.6 10.9
To support comparability with the financial statements as presented in 2023, a
reconciliation from reported profit/(loss) before interest to adjusted
operating profit/(loss) by segment is shown below for each year.
2023 Coatings Talc Performance Specialties totals Personal Care Segment totals Central Total
costs
$m
Reported operating profit/(loss) 55.2 8.6 63.8 43.2 107.0 (48.1) 58.9
Adjusting Items
Business transformation 0.7 - 0.7 - 0.7 25.4 26.1
Increase in environmental provisions due to additional remediation work - - - - - 6.6 6.6
identified
Decrease in environmental provisions due to change in discount rate - - - - - (0.4) (0.4)
Amortisation of intangibles arising on acquisition 0.2 5.4 5.6 7.1 12.7 - 12.7
Adjusted operating profit /(loss) 56.1 14.0 70.1 50.3 120.4 (16.5) 103.9
2022 Talc Performance Specialties Personal Care Segment totals Central Total
costs
$m Coatings totals
Reported operating profit/(loss) 69.2 (134.0) (64.8) 44.4 (20.4) (21.4) (41.8)
Adjusting Items
Business transformation 2.9 1.9 4.8 - 4.8 - 4.8
Increase in environmental provisions due to additional remediation work - - - - - 3.4 3.4
identified
Decrease in environmental provisions due to change in discount rate - - - - - (7.2) (7.2)
Impairment of goodwill - 23.0 23.0 - 23.0 - 23.0
Sale of Montreal land - 103.4 103.4 - 103.4 - 103.4
Amortisation of intangibles arising on acquisition 1.2 5.3 6.5 8.4 14.9 - 14.9
Adjusted operating profit /(loss) 73.3 (0.4) 72.9 52.8 125.7 (25.2) 100.5
6. Income tax expense
$m 2023 2022
Current tax:
UK corporation tax 6.2 11.2
Overseas corporation tax on continuing operations 8.7 6.5
Adjustments in respect of prior years:
United Kingdom (0.7) (0.6)
Overseas (3.0) (3.8)
Total current tax 11.2 13.3
Deferred tax:
United Kingdom (0.2) 3.1
Overseas (1.6) (8.4)
Adjustment in respect of prior years:
United Kingdom - -
Overseas 2.1 (0.2)
Total deferred tax 0.3 (5.5)
Income tax expense for the year 11.5 7.8
Comprising:
Income tax expense for the year 11.5 7.8
Adjusting items (1)
Overseas taxation on adjusting items (4.0) (6.3)
UK taxation on adjusting items (4.4) (2.0)
Taxation on adjusting items (8.4) (8.3)
Income tax expense for the year after adjusting items 19.9 16.1
1 See Note 5 for details of adjusting items.
The tax charge on profits represents an effective rate of 29.0% (2022: 14.2%)
and an effective tax rate after adjusting items of 23.5% (2022: 20.0%).
The tax impact of the adjusting items outlined within note 5 and within the
consolidated income statement relates to the following:
2023 2022
$m Gross Tax impact Gross Tax impact
Business transformation 26.1 5.2 4.8 1.1
Environmental provisions 6.2 1.3 (3.8) (0.7)
Impairment of property, plant and equipment - - 23.0 4.9
Impairment of goodwill - - 103.4 -
Mark to market of derivative financial instruments 1.1 0.2 (6.6) (1.3)
Interest on EU state aid receivable (1.4) (0.4) - -
Amortisation of intangibles arising on acquisition 12.7 2.1 14.9 2.9
Reversal of uncertain tax provision - - - 1.4
Total 44.7 8.4 135.7 8.3
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 2023 is higher than the
prior year due to an increase in the UK corporation tax rate to 25% from April
2023.The medium-term expectation for the Group's adjusted effective tax rate
is around 26%.
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%. The UK enacted legislation to enshrine this
into domestic law in July 2023. The Group is below the revenue threshold for
the legislation to apply and therefore there is no impact on the financial
statements.
The total charge for the year can be reconciled to the accounting profit as
follows:
2023 2022
$m % $m %
Profit/(loss) before tax 39.7 (54.8)
Tax at 23.5% (2022: 19.0%) 9.4 23.5 (10.4) (19.0)
Difference in overseas effective tax rates 1.9 4.9 2.3 4.2
Income not taxable and impact of tax efficient financing - - (0.4) (0.7)
Expenses not deductible for tax purposes 7.1 17.9 21.8 39.7
Adjustments in respect of prior years (1.5) (3.7) (4.6) (8.4)
Tax rate changes - - 0.2 0.4
Tax associated with disposal of discontinued operations (12.8) (32.2) - -
Movement in unrecognised deferred tax 7.4 18.6 (1.1) (2.0)
Total charge and effective tax rate for the year 11.5 29.0 7.8 14.2
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:
$m 2023 2022
Earnings:
Adjusted earnings 64.5 64.8
Adjusting items net of tax (36.3) (127.4)
Earnings/(loss) for the purpose 28.2 (62.6)
of basic earnings per share
(Loss)/earnings from discontinued operations (1.7) 11.5
Earnings from continuing and discontinued operations 26.5 (51.1)
m 2023 2022
Number of shares:
Weighted average number of shares for the purposes of basic earnings per share 585.7 582.6
Effect of dilutive share options 11.2 9.7
Weighted average number of shares for the purposes of diluted earnings per 596.9 592.3
share
The dilutive (loss)/earnings per share calculation for 2022 in the table
below, does not include the impact of the 9.7m 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.
cents 2023 2022
Earnings per share from continuing operations:
Basic earnings/(loss) 4.8 (10.7)
Diluted earnings/(loss) 4.7 (10.7)
Basic after adjusting items 11.0 11.1
Diluted after adjusting items 10.8 10.9
Earnings per share from discontinued operations:
Basic (loss)/earnings (0.3) 2.0
Diluted (loss)/earnings (0.3) 2.0
Earnings per share from continuing and discontinued operations:
Basic earnings/(loss) 4.5 (8.8)
Diluted earnings/(loss) 4.4 (8.8)
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 and the case was heard during January 2024,
with a decision expected during Q2 2024. As Elementis continues to consider
that the appeal process will ultimately be successful, at 31 December 2023 an
asset has been recorded within non-current assets in the expectation that the
charge will be repaid in due course.
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 $7.6m. Management have appealed the decision of the tax
authorities and based on legal advice obtained have concluded that as at 31
December 2023 it is not probable that an outflow of economic resources will be
required to settle the matter.
During 2022 the Group terminated a distribution agreement with one of its
distributors. The distributor has brought a claim for compensation as a result
of the termination. This matter has now proceeded to arbitration and
management have concluded at this stage that the obligation cannot be measured
with sufficient reliability.
9. 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.
10. Events after the balance sheet date
On 6th March 2024, Elementis entered into an agreement to sell its former
Chromium manufacturing site at Eaglescliffe to Flacks Group for negative
purchase price consideration of £11.5m ($14.5m). Completion of the
transaction is conditional on regulatory approval.
There were no other significant events after the balance sheet date.
Alternative performance measures and unaudited information
Alternative performance measures
A reconciliation from reported profit for the year to earnings before
interest, tax, depreciation and amortisation (EBITDA) is provided to support
understanding of the summarised cash flow included within the Finance report.
Profit and loss $m 2023 2022
Profit/(loss) for the year 26.5 (51.1)
Adjustments for
(Loss)/profit from discontinued operations 1.7 (11.5)
Finance income (4.4) (9.9)
Finance costs and other expenses 23.5 22.9
Tax charge 11.5 7.8
Depreciation and amortisation 54.7 56.6
Excluding intangibles arising on acquisition (12.7) (14.9)
Loss on disposal - -
Adjusting items before finance costs and depreciation 45.0 141.9
Adjusted EBITDA 145.8 141.8
There are also a number of key performance indicators (KPIs) used in this
report. The reconciliations to these are given below.
Adjusted operating cash flow
Adjusted operating cash flow is defined as the net cash flow from operating
activities less net capital expenditure but excluding income taxes paid or
received, interest paid or received, pension contributions net of current
service cost and adjusting items.
$m 2023 2022
Net cash flow from operating activities 76.8 77.0
Less:
Net cash flow used in operating activities from discontinued operations 12.4 (5.6)
Capital expenditure (38.2) (33.7)
Add:
Income tax paid or received 27.3 13.3
Interest paid or received 18.1 14.6
Pension contributions net of current service cost 3.1 0.7
Adjusting items - non cash 0.2 (2.6)
Adjusting items - cash 5.6 2.0
Adjusted operating cash flow 105.3 65.7
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.
$m 2023 2022(1)
Adjusted operating profit 103.9 123.7
Adjusted operating cash flow 105.3 64.2
Add:
Provisions and share based payments 4.4 3.6
109.7 67.8
Adjusted operating cash flow conversion 106% 55%
1 2022 includes discontinued operations.
Contribution margin
The Group's contribution margin, which is defined as sales less all variable
costs, divided by sales and expressed as a percentage.
$m 2023 2022
Revenue 713.4 736.4
Variable costs (361.2) (388.3)
Non variable costs (67.9) (49.2)
Cost of sales (429.1) (437.5)
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.
$m 2023 2022
Operating profit from total operations after adjusting items 103.9 100.5
Fixed assets excluding goodwill 612.0 503.2
Working capital 147.2 141.5
Operating provisions (81.9) (28.6)
Operating capital employed 677.3 695.0
Adjusted return on capital employed 15% 14%
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.
$m 2023 2022
$m
Revenue 727.8 921.4
Adjusted operating profit from total operations 104.1 123.7
Adjusted operating margin from total operations 14.3% 13.4%
Adjusted EBITDA from total operations 146.8 173.1
IFRS 16 adjustment (6.5) (7.1)
Adjusted EBITDA pre-IFRS 16 140.3 166.0
Net Debt (1) 202.0 366.8
Net Debt/EBITDA (2) 1.4 2.2
1 Net debt excludes lease liabilities.
2 Net Debt/EBITDA, where EBITDA is the adjusted EBITDA on total operations
of the Group on a pre IFRS16 basis.
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