REG - Eurocell plc - Preliminary results for the year ended 31 Dec 2022
16/03/2023 07:00
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RNS Number : 1416T Eurocell plc 16 March 2023
16 March 2023
EUROCELL PLC (Symbol: ECEL)
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022
Solid financial performance and continuing to gain market share
Eurocell plc is a market leading, vertically integrated UK manufacturer,
distributor and recycler of innovative window, door and roofline PVC building
products
Key financial performance measures ((1)) 2022 2021 Change
Revenue (£ million) 381.2 339.8 12%
Underlying measures ((2))
Adjusted operating profit (£ million) 31.3 29.7 5%
Adjusted operating profit margin (%) 8.2% 8.7% (0.5)%
Adjusted profit before tax (£ million) 28.7 27.7 4%
Adjusted basic earnings per share (pence) 21.4 19.4 10%
Reported measures
Operating profit (£ million) 29.1 29.7 (2)%
Profit before tax (£ million) 26.2 27.7 (5)%
Loss after tax from discontinued operations (2.3) (0.5) (1.8)
Basic earnings per share (pence) 19.6 19.4 1%
Capital investment (£ million) 12.3 16.7 (4.4)
Net debt (£ million) ((3)) 78.1 69.7 8.4
Net debt, pre-IFRS 16 (£ million) ((3)) 14.4 11.0 3.4
Total dividends per share for the year (pence) 10.7 9.6 11%
Financial headlines
• Delivered a solid financial performance against an increasingly challenging
backdrop and strong 2021 comparatives
• Continued successful deployment of commercial strategies, with sales up 12% vs
2021, including:
- Profiles up 15% and Building Plastics up 10%
- New build, large contract and RMI((4)) project work robust throughout the year
- Slowdown in smaller discretionary RMI work experienced by trade fabricators
and the branch network in H2
• Price was the significant driver of sales growth in 2022
- Selling price increases and surcharges recovering unprecedented input cost
inflation
- H2 margins reflected lower volumes and not all cost inflation being fully
recovered until early in 2023
• Cyber incident in July / August, resulted in temporary disruption and some
financial impact
- Incident efficiently resolved, with the business remaining operational
throughout
- Insurance claim partially resolved, with compensation income of £1.1 million
recognised in 2022
- Steps taken to implement further resilience and security measures
• Adjusted operating profit from continuing operations up 5% vs 2021
- Adjusted operating profit margin of 8.2% (2021: 8.7%), reflecting the dilutive
impact of inflation
• Adjusted profit before tax from continuing operations up 4% vs 2021,
reflecting lower sales volumes, cost control, operating efficiencies and
recovery of significant input cost inflation
• Investment in business growth and resilience, with capex of £12.3 million,
including substantial completion of operating capacity expansion and the start
of a programme to improve IT infrastructure
• Strong balance sheet and liquidity, with pre-IFRS 16 net debt of £14.4
million (31 December 2021: £11.0 million)
- Average pre-IFRS 16 net debt of £17.0 million in 2022
- £75 million unsecured sustainable revolving credit facility refinanced in May
2022
• Proposed final dividend of 7.2 pence per share (2021: 6.4 pence per share),
resulting in total dividends for the year of 10.7 pence per share up 11%,
reflecting solid financial performance and a lower tax rate in 2022
Operational headlines
• Increased run rate on Profiles fabricator wins, with 29 new accounts in 2022
(2017-21: average 15 per annum)
• In Building Plastics, 2023 focus on optimising performance from existing
branch estate
• New warehouse and expanded manufacturing capacity now delivering improved
operating efficiencies
• Decisive action taken on costs to prepare the business for 2023
- Reduced operating costs by c.£5 million per annum from the beginning of 2023,
with the related redundancy costs and asset impairment charges (together £2.2
million) included as a non-underlying item in the financial statements
- Following a review, streamlined the business via the disposal of Security
Hardware in December, with loss on sale and trading loss (together £2.3
million) presented as a discontinued operation in the financial statements
Sustainability headlines
• Strong on sustainability as the leading UK-based recycler of PVC windows:
- Further improvement in proportion of recycled material used to 29% (2021: 27%)
- 82% of waste recycled in 2022 (2021: 82%)
- c.£1.5 million investment in solar panels to be installed at our primary
manufacturing facilities
Mark Kelly, Chief Executive of Eurocell plc said:
"In 2022, the business responded well to major challenges to report solid
financial results for the year, with progress in sales and adjusted profits
against a very strong 2021.
"Looking ahead, in preparation for tougher market conditions, we completed a
restructuring programme in Q4 2022 to reduce operating costs, and in December,
to further simplify the business, we sold the trade and assets of Security
Hardware.
"We continue to take market share and have increased the run rate on new
fabricator account acquisitions, with our pipeline of other potential new
customers remaining healthy. Market share gains are further supported by the
impact of maturing branches and a widening product range, all underpinned by
very high product availability and increasingly efficient operations.
"For the current year, the latest construction industry forecasts((5))
recognise the currently challenging market conditions and ongoing
macroeconomic uncertainty. However, we have acted swiftly on cost to prepare
the business for 2023 and we expect our strategy to enable us to optimise
performance in our markets."
Notes
(1) Stated on a continuing basis i.e. excluding discontinued operations.
(2) Non-underlying items of £2.5 million in 2022 include restructuring costs of
£2.2 million (redundancy payments of £1.6 million and tangible and
right-of-use asset impairment charges of £0.6 million) and £0.3 million of
costs relating to the refinancing of the Group's £75 million Revolving Credit
Facility. There were no non-underlying items in 2021.
(3) Net debt is bank overdrafts, borrowings and lease liabilities less cash and
cash equivalents and deferred consideration. Pre-IFRS 16 net debt excludes
lease liabilities and is provided as our financial covenants are measured on
this basis.
(4) RMI is repair, maintenance and improvement.
(5) Construction Products Association Forecasts 2022-24, published January 2023,
predicting declines in the RMI and new build markets of 9% and 11%
respectively for 2023.
Analyst presentation
There will be an audiocast presentation for analysts and investors at 9am
today. The presentation can be accessed remotely via a live audiocast link as
follows: https://streamstudio.world-television.com/782-2007-35360/en
(https://streamstudio.world-television.com/782-2007-35360/en)
Alternatively, you can join via conference call as follows:
United Kingdom (local) +44 20 3936 2999
United Kingdom (toll free) +44 800 640 6441
United States +1 646 664 1960
All other locations https://www.netroadshow.com/events/global-numbers?confId=47959
(https://protect-eu.mimecast.com/s/RuBdC87NuX4GZ2S1tmh8?domain=netroadshow.com)
Participant access code 352865
A copy of the presentation will be made available from 7am on 16 March on
the Group's website: https://investors.eurocell.co.uk/investors/
(https://investors.eurocell.co.uk/investors/)
Following the presentation, a recording of the audiocast will also be made
available on the Group's website (link above).
CHAIRMAN'S STATEMENT
Introduction
The last twelve months have seen major changes and significant challenges for
the Group and in our markets. The progress we made during 2022 is testament to
the commitment, hard work and dedication of our teams in every part of the
Company, so I start this year's report by offering, on behalf of shareholders
and of the Board, my sincere thanks to them all.
Financial and operating performance
Against a backdrop of unprecedented levels of inflation and weakening markets,
particularly in the second half of the year, the business has delivered a
solid financial performance in 2022, keeping pace with an exceptionally strong
comparative period.
Sales for the year were £381 million, up 12% compared to 2021, and adjusted
profit before tax from continuing operations was up 4% at £28.7 million
(2021: £27.7 million). Reported profit before tax, also on a continuing
basis, was down 5% at £26.2 million (2021: £27.7 million), reflecting the
cost of a restructuring programme, which will benefit our financial results in
2023.
We are mindful of the uncertain macroeconomic background and its impact on our
markets and we have therefore taken steps to prepare the business for 2023 and
beyond. This included a restructuring programme completed in the fourth
quarter of 2022, which will reduce operating costs by c.£5 million per annum
from the start of 2023. In December, following a review, and to further
simplify the business, we completed the disposal of Security Hardware, a
supplier of window hardware with sales of c.£3 million per annum. These
actions leave the business better placed for 2023.
Net debt at 31 December 2022 on a pre-IFRS 16 basis stood at £14.4 million
(31 December 2021: £11.0 million). We have significant headroom on our bank
facility and a strong balance sheet, which provides flexibility and options
for the future.
Dividends
We paid an interim dividend of 3.5 pence per share in October 2022. The Board
proposes a final dividend of 7.2 pence per share (2021: 6.4 pence per share),
which results in total dividends for the year of 10.7 pence per share, up 11%
(2021: 9.6 pence per share), reflecting our solid financial performance and a
lower tax rate in 2022.
Strategy
In November, the Board conducted a review of the Group's strategy, our markets
and activities. We concluded that our overall strategic objective, to deliver
sustainable growth in shareholder value by increasing sales and profits above
our market growth rates, remains appropriate.
Over the last few years, we have targeted seven strategic priorities to
deliver this objective. We agreed that, whilst the seven priorities remain
relevant for the medium to long term, we will focus on certain specific
aspects of the strategy in 2023. In particular, we have an opportunity to
exploit our spare operational capacity and grow market share in Profiles by
acquiring new fabricator customers. We also intend to temporarily pause our
branch opening programme until the economic outlook is clearer, and will
instead focus on optimising returns from the existing branch estate. We will
also continue to develop and improve the rewards and other benefits of working
for Eurocell for our employees. Finally, we agreed that acquisitions would not
be a focus for 2023.
The key aspects of our performance against each of the seven priorities is
described in the Chief Executive Officer's Review.
Overall, we are confident that, through the successful progression of our
strategy, we will continue to outperform our markets and deliver sustainable
growth in shareholder value.
Board changes and governance
This has also been a period of transition for the Board.
I succeeded Bob Lawson as Chair, following his retirement in July 2022, and I
would like to thank Bob for his tremendous contribution to the development of
Eurocell since our IPO in 2015.
Kate Allum and Alison Littley joined the Board in July 2022 and Iraj Amiri
joined in November, all as independent Non-executive Directors. Kate, Alison
and Iraj bring valuable commercial insight and extensive board committee and
ESG knowledge, as well as recent and relevant financial experience, and have
strengthened the expertise of the Board in these areas.
Sucheta Govil left the Board in July and Martyn Coffey has indicated his
intention to step down at our AGM in May. I would also like to thank Sucheta
and Martyn for their contribution to the Group.
As previously announced, in January 2023, Mark Kelly, Chief Executive Officer,
notified the Board of his intention to retire later this year. He will be
succeeded as CEO by Darren Waters, currently Chief Operating Officer of
Ibstock plc, who will join the Board as Chief Executive Designate in April.
Mark has led the Group successfully from 2016, overseeing positive change
throughout the business, delivering on significant growth since then, as well
as completing substantial investment to expand capacity and provide a strong
platform for the future. We are extremely grateful to Mark for his immense
contribution to the Group, and on behalf of the Board, I thank him for his
significant achievements and we wish him all the very best for the future.
To ensure a smooth transition, Mark will remain in his role until a handover
period has been completed, following which he will retire from the Board and
the position of Chief Executive Officer at the Group's AGM in May.
Darren has extensive experience and knowledge of the building products and
fenestration sectors in the UK, both from his current role at Ibstock and from
his previous position at Tyman plc, where he was the Chief Executive of UK and
Ireland from 2012 to 2020.
Whilst this has been a period of significant change, I am very pleased that we
have been able to attract such high-calibre individuals into the Company.
Finally, I can confirm that we aim to comply with the UK Corporate Governance
Code and that as a Board, we are committed to the highest standards of
corporate governance and ensuring effective communication with shareholders.
Derek Mapp
Chair
CHIEF EXECUTIVE OFFICER'S REVIEW
INTRODUCTION
We entered 2022 well placed to take advantage of favourable conditions in our
markets and delivered a strong first six months of the year. However, whilst
new build, large contract and repair, maintenance and improvement (RMI)
project work continued to be robust throughout the second half, this was
offset by the impact of the previously reported cyber incident and a slow-down
in smaller discretionary RMI work experienced by our branch network and trade
fabricators in H2.
Price was the significant driver of sales growth in 2022. Whilst we continue
to recover input cost inflation with selling price increases and surcharges,
we experienced margin pressure in the second half, reflecting lower volumes
and not all cost inflation being fully recovered until early in 2023.
Overall, despite these second half challenges, and against an exceptionally
strong prior period, we reported progress in sales and adjusted profits for
the year.
After a period of very strong demand, the Construction Product Association's
latest forecast, published in January, predicts declines in the RMI and new
build markets of 9% and 11% respectively for 2023, before starting to recover
in 2024.
In anticipation of weaker markets in 2023, we completed a restructuring
programme in Q4, which along with other measures will reduce operating costs
by approximately £5 million per annum from the start of 2023. Following a
review, and to further streamline the business, in December we completed the
sale of Security Hardware, a supplier of window hardware to the RMI market
with annual third-party sales of c.£3 million, to UAP Limited, a UK-based
door hardware supplier, who will supply hardware to all our branches.
Looking ahead, we continue to take market share and have increased the run
rate on new fabricator account acquisitions, with our pipeline of other
potential new fabricator customers remaining healthy. Market share gains are
further supported by the impact of maturing branches and a widening product
range, all underpinned by good product availability and increasingly efficient
operations, reflecting the benefit of our recent investments in operating
capacity.
FINANCIAL RESULTS
We delivered a solid financial performance in 2022, against a very strong
prior period.
Sales for the year were £381 million, or 12% above 2021 and adjusted profit
before tax from continuing operations was £28.7 million, up 4% or £1.0
million on 2021 (£27.7 million).
Reported profit before tax was down 5% at £26.2 million (2021: £27.7
million), after non-underlying costs totalling £2.5 million, primarily
reflecting the cost of our Q4 2022 restructuring programme. Following the sale
of Security Hardware, we have presented the trading loss for the year and loss
on disposal of that business (in total £2.3 million) as a discontinued
operation.
Further information on our financial performance is included in the Chief
Financial Officer's Review and Divisional Reviews.
SUSTAINABILITY
Our objective is to continue to improve the sustainability of the Group. We
have a defined suite of environmental and social targets and KPIs against
which to measure our progress.
Central to our environmental targets, which cover both the circular economy as
well as emissions and energy management, is reducing the carbon footprint of
the business and our products. Our social objectives are broad and cover areas
such as health & safety, diversity and education. In addition to the
matters covered by these KPIs, we are progressing similar work on related
topics such as transport emissions, employee well-being and community
engagement. Our objectives align well with several relevant UN Sustainable
Development Goals, as well the UK's transition towards a net zero carbon
economy. We report our progress against these KPIs on an annual basis.
Looking forward there are four key themes to our work on sustainable
development:
• Carbon, energy and water - defining our pathway to carbon neutrality and net
zero, which will be driven primarily by reducing Scope 1 and 2 emissions in
extrusion and recycling;
• Waste minimisation and circularity - further strengthening materials recovery
and process optimisation;
• People and places - becoming the regional employer of choice and stepping up
community engagement; and
• Governance - reporting progress against published ESG targets and aligning
with recognised sustainability indices.
As a measure of commitment to achieving our goals, our new £75 million
sustainable Revolving Credit Facility (refinancing completed in May, see the
Chief Financial Officer's Review) contains annual recycling, emissions and
waste reduction targets, with modest adjustments to the margin based upon
performance.
In May, we also approved a c.£1.5 million investment in solar panels to be
installed at our primary manufacturing facilities, which will supply more than
5% of the energy used in the manufacture of our extruded products.
Towards the end of 2022, the Group's Social Values and ESG Committee was
formed to provide formal and transparent oversight of the Group's ESG
programme. This includes sustainability, employee welfare and responsible
business practices, as well as our contribution to the societies we operate
in. The committee also monitors progress against our sustainability KPIs. It
is comprised of two independent Non-executive Directors; Alison Littley
(Chair) and Iraj Amiri, as well as the Group's Sustainability Manager, Simon
Drury, and Human Resources Director, Bruce Stephen.
OPERATIONAL PERFORMANCE
Health and safety
The safety and wellbeing of our employees and contractors is our first
operational priority and we continue to maintain a good safety performance.
Our Lost Time Injury Frequency Rate ('LTIR') was 1.0 in 2022, compared to 0.8
in 2021. Our RIDDOR (Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations 2013) performance was better than the industry average. There were
no major injuries and 23 minor accidents recorded under RIDDOR in the year
(2021: no major injuries, 28 minor injuries). We have improved the reporting
of near misses and unsafe acts and conditions, as part of a proactive approach
to risk management, with the aim of reducing the likelihood of future
workplace injuries. This improvement, when combined with the effective and
timely implementation of corrective and preventive action, supports our
positive safety culture and we are targeting an improvement in the LTIR in
2023.
Production
In 2022 we manufactured 54.1k tonnes of rigid and foam PVC profiles at our
primary extrusion facilities, 5% lower than 2021. This reflects our work to
start reducing inventories, after the very high levels of production in 2021,
when we built stock to mitigate the risk of raw material supply interruption
and volatile pricing.
Overall Equipment Effectiveness ('OEE', a measure which takes into account
machine availability, performance and yield) increased to 71% in 2022 (2021:
68%) due to improved efficiency and labour availability across our operations.
In addition, our initiatives to increase compliance with the production plan
at a line-item level have been successful, which helped drive a reduction in
manufactured stock of c.£5 million in the second half.
Recycling
We have made further progress in 2022, with the use of recycled material in
our primary extrusion increasing to 29% (16.7k tonnes) of materials consumed,
compared to 27% in 2021. This drives significant cost and carbon savings
compared to the use of virgin material. In addition, substantially all scrap
generated in extrusion is recycled back into our production processes, further
reducing waste sent to landfill.
SUPPLY CHAIN AND INFLATION
Strong demand in our markets over the last two years put sector supply chains
under pressure, and we experienced tighter supply and an inflationary
environment, with prices of certain raw materials, particularly PVC resin,
rising significantly over this period.
Throughout this period we have taken effective action to offset ongoing input
cost inflation, including a dynamic approach to selling prices and surcharges.
Higher resin costs were also partially offset by our market-leading recycling
plants. In addition, our progressive forward hedging policy for electricity
provided some protection from rising energy costs in 2022.
The cost of key raw materials does now appear to be stabilising, and in some
cases beginning to fall. However, the delay on recovering some raw material
cost increases from the second half of 2022, combined with continued
significant increases in the cost of energy and labour, has resulted in the
implementation of further selling price increases from the beginning of 2023.
STRATEGY
Strategic priorities
Our overall strategic objective remains to deliver sustainable growth in
shareholder value, by increasing sales and profits above our market growth
rates. We have seven strategic priorities to help us achieve this objective.
Grow market share in Profiles
In 2018 we became the leading supplier of rigid PVC profile to the UK market,
with a share of c.15%. We continue to consolidate our position and believe we
now have a share of around 20%. Our objective is to increase this over the
medium term.
We have a sector-led strategy, with initiatives focused primarily on the trade
/ retail and new build sectors. We aim to be recognised as the number one
choice for the trade / retail fabricator, and to further consolidate our
position as the leading supplier to the new build market. Central to our plans
for 2023 is exploiting our spare operational capacity to acquire new
fabricator customers in both sectors. See the Profiles Divisional Review.
Expand the branch network
Our medium term strategic objective for Building Plastics is to achieve
sector-leading operations from 270-300 sites. The growth will come mostly by
taking market share from independent operators, who currently have more than
60% market share. In 2022 we believe we continued to take market share, and
estimate that we now have c.25% of the UK roofline market.
Our aim is to be the number one choice for relevant trades across the UK, by
creating the market-leading proposition and becoming recognised as first for
service to the tradesperson.
Given the uncertain macroeconomic outlook, we will for now pause our branch
opening programme, and focus in 2023 on optimising returns from the existing
estate. See the Building Plastics Divisional Review.
Increase the use of recycled material
Expanding recycling improves product and business sustainability, with less
plastic going to landfill. Recycling also increases our profits, because the
cost of recycled compound is typically lower through the cycle than the price
of virgin material. This is very important at the moment, with the price of
virgin resin reaching historic high levels in 2022.
We have been investing to increase our recycling capability through the
expansion of our two recycling plants and by investment in co-extrusion
tooling, which allows a greater proportion of recycled material to be used in
our products.
We are now the leading UK-based recycler of PVC windows. As well as keeping
pace with increased demand, we have continued to improve the proportion of
recycled material consumed in our primary extrusion operations. Usage
increased from 9% of materials consumed (or 4.1k tonnes) in 2015 to 29% of
consumption (or 16.7k tonnes) in 2022, driving a significant cost saving
compared to the use of virgin material. Our objective is to increase this to
around 33% over the next few years.
In 2022, we estimate that our recycling operation saved the equivalent of c.3
million end-of-life window frames from landfill and c.47k tonnes of carbon
compared to the use of virgin PVC (equivalent to the annual CO(2) output of
over 7,000 UK homes). Furthermore, we are finding more ways of using all the
product generated by our recycling plants and expect to progressively reduce
waste sent to landfill to less than 5% in the near term.
A weaker RMI market and less window replacements restricted feedstock
availability for our recycling business in the second half of 2022, leading to
increased purchase prices. However, we are making good progress securing
additional sources of feedstock for 2023.
Develop innovative new products
We are committed to maintaining market leadership by offering the very latest
in product improvement, both through development of existing products and the
introduction of new ones. We work closely with our customers and technical
advisors on development and to help maintain our product pipeline. Highlights
for 2022 include:
• Improved conservatory and roof system range, including more contemporary
styles and design features that rival the specialist conservatory companies,
with a "fitter friendly" installation process;
• A new aluminium flat rooflight (Luma), with security accreditation and strong
thermal characteristics;
• A premium garden room (Kyube Plus), with a canopy and additional glazing /
cladding options; and
• Expansion of our outdoor living range to include premium pergolas and verandas
(aluminium-clad and maintenance-free).
Looking forward to 2023, we will continue to work with housebuilders to
further develop fit-for-purpose window and door solutions for the Future Homes
Standard. In addition, reflecting the continuing strong demand for affordable
extra work and leisure space at home, we are developing "extension kits",
which provide an alternative and affordable method to add space at a fraction
of the cost, time and inconvenience compared to traditional extensions or
moving house.
Deliver sustained operational excellence
Historical manufacturing and warehousing constraints have now been resolved
through major investments in new capacity, thereby providing a strong platform
for efficient future sales and market share growth.
With the addition of five new lines in 2022, we have now increased extrusion
capacity by c.40% compared to 2018, thereby providing good headroom against
current levels of demand. Transition to our new state-of-the-art warehouse,
completed in 2021, was also central to increasing capacity and to delivering
improvements in operational efficiencies. This new site also unlocked the
operational footprint for the Group, via the conversion in 2021 of our old
warehouse to a specialist manufacturing site, and the relocation of secondary
operations, including foiling and conservatory roofs, providing a better
environment to drive these businesses forward. In addition, this freed up
space to future-proof extrusion capacity for the medium-term.
Operating efficiencies in 2022 were good, with OEE improving to 71% (2021:
68%). Our focus is now on delivering further efficiencies from the new
warehouse and production facilities. Whilst the unprecedented level of
inflation of the last 18 months has provided a major headwind to operating
margin expansion, looking ahead, with constraints resolved, we expect the
benefit of sales growth to flow through to improved margins.
Develop a sector-leading digital proposition
Stakeholders increasingly require full end-to-end digital solutions, a trend
accelerated by the COVID pandemic. We expect a sector-leading digital
proposition to act as an enabler to our other priorities and improve the
supplier, customer and employee experience, making Eurocell an even better
business partner all round.
Having selected software for a new website (including an integrated product
management system and e-commerce platform) and an employee management system
in 2021, our focus in 2022 was on the development of these two key components
of our digital strategy. These projects are now well advanced, with both
systems due to be launched in 2023.
Following a full review in 2022, we believe that the age profile of our
principal Enterprise Resource Planning ('ERP') operating system has become a
limiting factor in the development of our business. This conclusion recognises
that our current SAP system was implemented in 2006, when the Group was
primarily a manufacturer of PVC profile, with no recycling and only a small
branch operation. We are therefore starting a project to upgrade or replace
our SAP system, with the principal tasks for 2023 being scoping and system
selection. Thereafter, we anticipate implementation to be a 2-3 year process
and, whilst it is very early in the process, we estimate the total capital
costs of the project will be in the region of £6-8 million.
Explore potential bolt-on acquisitions
Exploring potential acquisitions in the markets in which we operate remains a
medium to long term option for the Group, but will not be a priority in 2023.
SUMMARY AND OUTLOOK
In 2022, the business responded well to major challenges to report solid
financial results for the year, with progress in sales and adjusted profits
against a very strong 2021.
Looking ahead, in preparation for tougher market conditions, we completed a
restructuring programme in Q4 2022 to reduce operating costs, and in December,
to further simplify the business, we sold the trade and assets of Security
Hardware.
We continue to take market share and have increased the run rate on new
fabricator account acquisitions, with our pipeline of other potential new
fabricator customers remaining healthy. Market share gains are further
supported by the impact of maturing branches and a widening product range, all
underpinned by very high product availability and increasingly efficient
operations.
For the current year, the latest construction industry forecasts recognise the
currently challenging market conditions and ongoing macroeconomic uncertainty.
However, we have acted swiftly on cost to prepare the business for 2023 and we
expect our strategy to enable us to optimise performance in our markets.
Mark Kelly
Chief Executive Officer
DIVISIONAL REVIEWS
PROFILES
Strategy
In 2018 we became the leading supplier of rigid PVC profile to the UK market,
with a share of c.15%. We continue to consolidate our position and believe we
now have a share of around 20%. Our strategic objective is to increase this
over the medium term.
The demand created by our specification and marketing teams, together with
continuing new product introductions, have supported growth for our existing
fabricator customers over the last few years. We have also increased the run
rate on new fabricator account acquisitions and our pipeline of other
potential new fabricator customers remains healthy. Looking forward, there is
an opportunity to capitalise on our recent investments in warehousing and
production plant, to exploit spare operational capacity and continue to grow
market share in Profiles.
Our plans to achieve this are sector-led, with initiatives focused primarily
on the trade / retail and new build sectors, which together represent c.90% of
Profiles sales (c.55% for trade and c.35% for new build).
There is a compelling case for larger trade fabricators to switch to Eurocell.
This includes a strong product range and continued product development e.g.
better aesthetics (such as flush windows), a more contemporary look to roofing
and door products and improved environmental characteristics. In addition, the
benefits of pull-through profile specifications and increasing opportunities
to supply our branches, all delivered via improving service, remain attractive
to prospective fabricator accounts.
Expanding our share of the new build market has been key to recent growth,
driven by sales of cavity closures where we are the clear market leader.
Looking forward, building regulations for windows are becoming increasingly
complicated and our technical teams are working with our larger customers to
enable them to conform, including development of new product applications to
meet changing requirements.
This includes the Future Homes Standard, which will complement the existing
Building Regulations to ensure new homes built from 2025 produce 75-80% less
carbon emissions than homes delivered under the old regulations. The
housebuilders have already taken significant steps to reduce emissions through
walls, floors and roofs. However, to comply with the proposed new regulations,
solutions to reduce emissions through windows and doors are likely to be
required. This plays well to Eurocell's technical expertise and we are working
with the housebuilders and our customers to design a fit-for-purpose solution.
We have strong relationships with large and medium-sized housebuilders,
maintained by our specification and technical teams. We now plan to target
regional housebuilders to further consolidate our position of strength within
the new build sector.
2022 2021 Change
£m £m %
Third-party revenue 161.7 140.7 15%
Inter-segmental revenue 72.3 63.9 13%
Total revenue 234.0 204.6 14%
Adjusted((1)) operating profit 20.2 20.7 (2)%
Operating profit 19.3 20.7 (7)%
(1) Adjusted performance measures are stated before non-underlying items.
Profiles third-party revenue for the year was £161.7 million, 15% higher than
2021, with price the significant driver of higher sales.
As described above, we continue to take market share. During 2017-21 we added
c.75 new accounts (an average of 15 per annum). A further 29 accounts were
added in 2022, which are coming online progressively (typically 6 months from
the point of signing) and will provide support for 2023, and our prospect
pipeline remains healthy.
Adjusted operating profit for 2022 of £20.2 million was 2% below the previous
year (2021: £20.7 million), reflecting flat volumes and cost control, but
with not all cost inflation being fully recovered until early in 2023.
Reported operating profit is stated after non-underlying restructuring costs
and associated asset impairments totalling £0.9 million. Further information
on non-underlying items is included in the Chief Financial Officer's Review.
BUILDING PLASTICS
Strategy
Our overall medium term strategic objective for Building Plastics is to
achieve sector-leading operations from 270-300 sites. Growth will come mostly
by taking market share from independent operators, who currently have more
than 60% market share (measured by number of sites). In 2022 we believe we
continued to take market share, and estimate that we now have c.25% of the UK
roofline market.
Our aim is to be the number one choice for relevant trades across the UK, by
creating the market-leading proposition and being recognised as first for
service to the tradesperson.
We are mindful of the uncertain macroeconomic background and its impact on our
markets. We therefore intend to temporarily pause our branch opening programme
until the economic outlook is clearer. However, this allows our team to review
and focus on improvements we can make to the existing estate, which will also
support the future expansion and growth of the network.
Our review is already in progress, and includes a deep dive to better
understand the key characteristics of our best performing branches, with a
view to replicating these across the network and improving returns on invested
capital. This includes consideration of branch format, scale and
infrastructure costs (including rent), product range and new product
development, labour turnover (and other people metrics), value added services
and operational efficiencies.
We have two branch formats: standard (209 branches), and large (10 branches),
the latter with bigger display areas and a wider product range available. Both
current and potential future formats are part of the review.
Customer centric new product development is also a fundamental pillar of our
strategy to expand the branch network. In 2022 this included development of
our conservatory and roofs proposition, launch of a new flat roof lantern and
expansion of our outdoor living product range to include pergolas and
verandas.
Our best performing branches are generally those with the lowest rates of
labour turnover. Our initiatives to reduce labour attrition across the network
are focused on four key drivers: systems and processes; environment and
engagement; pay and reward; and training.
We believe we can drive further growth in the network by developing value
added services for our customers. For example, we expect our recently
established Select Installer scheme for conservatory roofs to create a
nationwide network of Eurocell advocates, as we channel customer leads through
the installer community.
Finally, we also expect to support profitability and returns in the network
through a series of ongoing continuous improvement activities. These are
focused on margin control, underperforming branches, asset protection, range
simplification and stock optimisation.
2022 2021 Change
£m £m %
Third-party revenue 219.5 199.1 10%
Inter-segmental revenue 0.3 0.5 (40)%
Total revenue 219.8 199.6 10%
Adjusted((1)) operating profit 12.2 12.6 (3)%
Operating profit 10.9 12.6 (13)%
(1) Adjusted performance measures are stated before non-underlying items.
Building Plastics third-party revenue for the year was £219.5 million, 10%
higher than 2021, with price the significant driver of sales growth.
Adjusted operating profit for 2022 was £12.2 million, 3% below the previous
year (2021: £12.6 million), reflecting lower volumes and cost control, but
with not all cost inflation being fully recovered until early in 2023.
Reported operating profit is stated after non-underlying restructuring costs
and associated asset impairments totalling £1.3 million. As part of the
restructuring exercise, we concluded that 5 underperforming branches would be
closed in Q1 2023, leaving a network of 214 sites. These branches were
selected based on performance, remaining lease duration and ability to
transfer sales to other nearby sites.
Further information on non-underlying items is included in the Chief Financial
Officer's Review.
CHIEF FINANCIAL OFFICER'S REVIEW
2022 2021
£m £m
Revenue 381.2 339.8
Gross profit 184.5 172.1
Gross margin % 48.4% 50.6%
Overheads (130.4) (119.7)
Other income((3)) 1.1 -
Adjusted((2)) EBITDA 55.2 52.4
Depreciation and amortisation (23.9) (22.7)
Adjusted((2)) operating profit 31.3 29.7
Finance costs (2.6) (2.0)
Adjusted((2)) profit before tax 28.7 27.7
Taxation (4.7) (6.1)
Adjusted((2)) profit after tax 24.0 21.6
Adjusted((2)) basic earnings per share (pence) 21.4 19.4
Non-underlying overheads (2.2) -
Non-underlying finance costs (0.3) -
Tax on non-underlying items 0.5 -
Reported operating profit 29.1 29.7
Reported profit before tax 26.2 27.7
Reported profit after tax 22.0 21.6
Loss after tax from discontinued operations (2.3) (0.5)
Reported basic earnings per share (pence) 19.6 19.4
Profit for the year 19.7 21.1
(1) Results are stated on a continuing basis i.e. before discontinued
operations (see below).
(2) See alternative performance measures.
(3) Other income is amounts received under the Group's cyber insurance
policy, net of excess paid, in respect of business interruption to the Group's
continuing trading activities as a result of a cyber incident in July and
August 2022.
INTRODUCTION
The business overcame significant challenges in 2022 to deliver solid
financial results for the year, with, on a continuing basis, sales of £381.2
million up 12% and adjusted profit before tax of £28.7 million up 4% on 2021.
We also took decisive action to prepare the business for 2023, with the
completion of a restructuring programme and disposal of Security Hardware.
Reported profit before tax was £26.2 million (2021: £27.7 million), stated
after the cost of the restructuring programme.
After a strong first half, our markets began to slow down in H2, particularly
smaller discretionary RMI work. However, the inflationary environment
continued throughout the year, and whilst we continued to offset input cost
inflation with selling price increases and surcharges, we experienced margin
pressure in the second half, reflecting lower volumes and not all cost
inflation being fully recovered until early in 2023, when additional selling
price increases were implemented.
As reported at the Half Year, we experienced a cyber incident towards the end
of July, which resulted in some temporary disruption. The incident was
efficiently resolved, with the business remaining operational throughout and
trading normally from mid-August. We have now partially resolved our cyber
insurance claim and recognised compensation of £1.1 million as underlying
other income in our 2022 financial statements, primarily for business
interruption. Work is ongoing with the insurer to resolve the remaining
aspects of the claim.
In anticipation of weaker markets in 2023, we completed a restructuring
programme in Q4 2022, which along with other cost saving measures, will reduce
operating costs by approximately £5 million per annum from the start of 2023.
The programme included a headcount reduction and closure of five
underperforming branches. The costs associated with this restructuring have
been classified as a non-underlying item.
Following a review, and to further streamline the business, in December 2022
we completed the sale of Security Hardware to UAP Limited for a total
consideration of £1.2 million. Security Hardware has been classified as a
discontinued operation, as it represents a major line of business, is material
and was an operating segment (reported as part of the Building Plastics
division). Discontinued operations are excluded from the results of continuing
operations and are presented in the income statement as a single amount as
profit or loss after tax from discontinued operations. The loss after tax from
discontinued operations was £2.3 million, comprised of a trading loss of
£1.1 million (inclusive of costs incurred to prepare the business for sale)
and a loss on disposal of £1.2 million.
REVENUE
Revenue for 2022 was £381.2 million, 12% higher than 2021 (£339.8 million),
with price the significant driver of sales growth.
GROSS MARGIN
Gross margin for the year was 48.4%, down from 50.6% in 2021. As described
above, we experienced margin pressure in the second half, reflecting lower
volumes and not all cost inflation being fully recovered until early in 2023.
However, the cost of key raw materials does now appear to be stabilising, and
in some cases beginning to fall.
DISTRIBUTION COSTS AND ADMINISTRATIVE EXPENSES (OVERHEADS) AND OTHER INCOME
Underlying overheads were together £130.4 million, up 9% on 2021 (£119.7
million) reflecting the impact of inflation on our cost base.
Other income is the amount received under our cyber insurance policy in
compensation for business interruption (lost sales) suffered due to the cyber
incident in July and August.
DEPRECIATION AND AMORTISATION
Depreciation and amortisation was £23.9 million compared to £22.7 million in
2021.
ALTERNATIVE PERFORMANCE MEASURES
Alternative performance measures are used alongside statutory measures to
facilitate a better understanding of financial performance and comparison with
prior periods, and in order to provide audited financial information against
which the Group's bank covenants, which are all measured on a pre-IFRS 16
basis, can be assessed.
Adjusted EBITDA, adjusted operating profit and adjusted profit before tax all
exclude non-underlying items. Adjusted profit after tax and adjusted earnings
per share exclude non-underlying items and the related tax effect.
Pre-IFRS 16 EBITDA is stated inclusive of operating lease rentals under IAS 17
Leases. Pre-IFRS 16 net debt is defined as total borrowings and lease
liabilities less cash and cash equivalents, excluding the impact of IFRS 16
Leases.
We classify some material items of income and expense as non-underlying when
the nature and infrequency merit separate presentation. Alongside statutory
measures, this facilitates a better understanding of financial performance and
comparison with prior periods.
NON-UNDERLYING ITEMS
Non-underlying items for 2022 of £2.5 million included restructuring costs of
£2.2 million, comprising £1.6 million of redundancy payments and £0.6
million of asset impairment charges. Also included are finance costs of £0.3
million arising as a result of the refinancing of our Revolving Credit
Facility in May (see below).
No non-underlying items were recognised in 2021.
FINANCE COSTS AND TAXATION
Underlying finance costs for 2022 were £2.6 million, compared to £2.0
million in 2021. Total finance costs of £2.9 million include £0.3 million of
unamortised borrowing costs expensed to the Consolidated Income Statement
following the refinancing of the Group's Revolving Credit Facility (see
below).
The underlying tax charge for 2022 was £4.7 million (2021: £6.1 million).
The effective tax rate on underlying profit before tax for 2022 of 16.4% is
lower than the standard rate of corporation tax of 19% due to the benefit of
Patent Box relief.
We were pleased to retain the Fair Tax Mark accreditation in 2022, reflecting
our commitment to paying the right amount of tax at the right time.
PROFIT BEFORE TAX AND EARNINGS PER SHARE
Adjusted profit before tax for the year was £28.7 million compared to £27.7
million in 2021, up 4% reflecting lower sales volumes (including the impact of
the cyber incident), cost control, operating efficiencies and the recovery of
significant cost inflation.
Reported profit before tax in 2022 was £26.2 million (2021: £27.7 million),
reflecting the above, and £2.5 million of non-underlying items.
Adjusted basic earnings per share for the year were 21.4 pence (2021: 19.4
pence), reflecting the increased profitability and lower tax charge. Adjusted
diluted earnings per share for the year were 21.3 pence (2021: 19.3 pence).
Total basic and diluted earnings per share were 19.6 pence and 19.5 pence
respectively (2021: 19.4 pence and 19.3 pence respectively).
DIVIDENDS
We paid an interim dividend of 3.5 pence per share in October 2022 (£3.9
million). The Board proposes a final dividend of 7.2 pence per share (2021:
6.4 pence per share), which results in total dividends for the year of 10.7
pence per share, or £12.0 million, up 11% (2021: 9.6 pence or £10.8
million). This reflects our solid financial performance and a lower tax rate
in 2022. The dividend will be paid on 17 May 2023 to Shareholders registered
at the close of business on 21 April 2023. The ex-dividend date will be 20
April 2023.
Retained earnings as at 31 December 2022 were £91.7 million (2021: £83.1
million). The Company takes steps to ensure distributable reserves are
maintained at an appropriate level through intra-Group dividend flows.
CAPITAL EXPENDITURE
Capital expenditure for 2022 was £12.3 million (2021: £16.7 million). 2022
includes c.£4 million to expand manufacturing capacity across a number of key
product lines and c.£2 million for IT infrastructure improvements, our new
website and HR information system, both of which will be launched in the first
half of 2023. The remaining c.£6 million relates mostly to maintenance capex,
and includes warehouse improvements, branch refurbishments and critical spares
in recycling, as well as solar panels for our primary manufacturing
facilities.
CASH FLOW
Net cash generated from operating activities was £35.1 million (2021: £29.6
million).
A net outflow from working capital for 2022 of £13.1 million includes the
substantial impact of inflation (c.£8 million net across all working capital
components). The outflow is comprised of an increase in stocks of £5.7
million, an increase in trade and other receivables of £5.6 million and a
decrease in trade and other payables of £1.8 million. For stocks, the
inflation impact alone is c.£7 million. This compares to a net outflow from
working capital of £19.4 million in 2021, which also included a significant
inflationary component (c.£8 million).
Other items include payments for capital investments of £12.4 million (2021:
£15.5 million), net proceeds from the disposal of Security Hardware of £0.3
million and financing costs paid of £1.2 million (2021: £0.6 million). Tax
paid in the year was £3.6 million (2021: £3.5 million). Dividends of £11.1
million were paid in the year (2021: £3.6 million).
The principal elements of lease payments of £13.3 million (2021: £10.1
million) are presented within cash flows arising from financing activities.
The finance elements of lease payments were £1.4 million (2021: £1.2
million).
NET DEBT
Net debt on a pre-IFRS 16 basis at 31 December 2022 was £14.4 million (31
December 2021: £11.0 million).
Lease liabilities increased by £5.0 million. Reported net debt at 31 December
2022 was £78.1 million (31 December 2021: £69.7 million).
2022 2021 Change
£m £m £m
Cash 5.1 6.6 (1.5)
Deferred consideration 0.8 - 0.8
Bank overdrafts - (5.9) 5.9
Borrowings (20.3) (11.7) (8.6)
Net debt (pre-IFRS 16) (14.4) (11.0) (3.4)
Lease liabilities (63.7) (58.7) (5.0)
Net debt (reported) (78.1) (69.7) (8.4)
BANK FACILITY
We have an unsecured multi-currency Revolving Credit Facility ('RCF') of £75
million. In May 2022 the Group refinanced this facility, with the key terms
unchanged. The facility is held with Barclays Bank plc, NatWest Bank plc and
Bank of Ireland, and expires in May 2026. The facility is a Sustainable RCF,
where modest adjustments to the margin are applied based on our achievement
against annual targets for usage of recycling in our products, waste recycled
and carbon emissions.
We operate comfortably within the terms of the facility and in compliance with
our financial covenants, which are measured on a pre-IFRS 16 basis.
Michael Scott
Chief Financial Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
Year ended 31 December 2022 Year ended 31 December 2021
(re-presented((3)))
Underlying ((1))Non- Total Underlying ((1))Non- Total
underlying underlying
Note £m £m £m £m £m £m
Revenue 3 381.2 - 381.2 339.8 - 339.8
Cost of sales (196.7) - (196.7) (167.7) - (167.7)
Gross profit 184.5 - 184.5 172.1 - 172.1
Distribution costs (23.9) (0.4) (24.3) (23.0) - (23.0)
Administrative expenses (130.4) (1.8) (132.2) (119.4) - (119.4)
Other income((2)) 1.1 - 1.1 - - -
Operating profit 3 31.3 (2.2) 29.1 29.7 - 29.7
Finance expense (2.6) (0.3) (2.9) (2.0) - (2.0)
Profit before tax from continuing operations 3 28.7 (2.5) 26.2 27.7 - 27.7
Taxation 4 (4.7) 0.5 (4.2) (6.1) - (6.1)
Profit after tax from continuing operations 24.0 (2.0) 22.0 21.6 - 21.6
Discontinued operations
Loss after tax from discontinued operations 5 (2.3) (0.5)
Profit for the year and total comprehensive income 19.7 21.1
Basic earnings per share from continuing operations 6 21.4p 19.6p 19.4p 19.4p
Diluted earnings per share from continuing operations 6 21.3p 19.5p 19.3p 19.3p
(1) Non-underlying items in 2022 are detailed in Note 2.
(2) Other income is amounts received under the Group's cyber insurance
policy, net of excess paid, in respect of business interruption to the Group's
continuing trading activities as a result of a cyber incident in July and
August 2022.
(3) The prior year comparatives have been re-presented to remove the
results of Security Hardware, which have been presented as discontinued
operations in both the current and prior year following the sale of the
business on 2 December 2022.
Consolidated Statement of Financial Position
As at 31 December 2022
2022 2021
£m £m
Assets
Non-current assets
Property, plant and equipment 61.7 59.2
Right-of-use assets 59.7 54.8
Intangible assets 16.9 18.6
Total non-current assets 138.3 132.6
Current assets
Inventories 59.9 55.9
Trade and other receivables 50.0 44.5
Corporation tax 0.2 -
Deferred consideration 0.8 -
Cash and cash equivalents 5.1 6.6
Total current assets 116.0 107.0
Total assets 254.3 239.6
Liabilities
Current liabilities
Trade and other payables (47.4) (48.7)
Lease liabilities (13.0) (11.9)
Bank overdrafts - (5.9)
Provisions (0.2) (0.7)
Total current liabilities (60.6) (67.2)
Non-current liabilities
Borrowings (20.3) (11.7)
Trade and other payables - (0.3)
Lease liabilities (50.7) (46.8)
Provisions (1.0) (0.8)
Deferred tax (6.8) (6.6)
Total non-current liabilities (78.8) (66.2)
Total liabilities (139.4) (133.4)
Net assets 114.9 106.2
Equity attributable to equity holders of the parent
Share capital 0.1 0.1
Share premium account 22.2 21.9
Share-based payment reserve 0.9 1.1
Retained earnings 91.7 83.1
Total equity 114.9 106.2
Consolidated Cash Flow Statement
For the year ended 31 December 2022
Year ended Year ended
31 December 31 December
2022 2021
Note £m £m
Cash generated from operations 8 38.7 33.1
Income taxes paid (3.6) (3.5)
Net cash generated from operating activities 35.1 29.6
Investing activities
Purchase of property, plant and equipment (11.9) (15.1)
Purchase of intangible assets (0.5) (0.4)
Net cash flow arising on sale of business 0.3 -
Net cash used in investing activities (12.1) (15.5)
Financing activities
Proceeds from new share capital issued 0.2 0.5
Repayment of bank and other borrowings (22.0) (1.0)
Proceeds from bank borrowings 31.0 -
Bank borrowings arrangement costs (0.8) -
Principal elements of lease payments (13.3) (10.1)
Finance elements of lease payments (1.4) (1.2)
Finance expense paid (1.2) (0.6)
Dividends paid to equity Shareholders 7 (11.1) (3.6)
Net cash used in financing activities (18.6) (16.0)
Net increase/(decrease) in cash and cash equivalents((1)) 4.4 (1.9)
Cash and cash equivalents((1)) at beginning of year 0.7 2.6
Cash and cash equivalents((1)) at end of year 5.1 0.7
(1) Cash and cash equivalents includes bank overdrafts.
(2) Cash flows arising on discontinued operations are outlined in Note 5.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2022
Share Share-based
Share premium payment Retained Total
capital account reserve earnings equity
£m £m £m £m £m
Balance at 1 January 2022 0.1 21.9 1.1 83.1 106.2
Comprehensive income for the year
Profit for the year - - - 19.7 19.7
Total comprehensive income for the year - - - 19.7 19.7
Contributions by and distributions to owners
Exercise of share options - 0.3 - - 0.3
Share-based payments - - (0.2) - (0.2)
Dividends paid - - - (11.1) (11.1)
Total transactions with owners recognised directly in equity - 0.3 (0.2) (11.1) (11.0)
Balance at 31 December 2022 0.1 22.2 0.9 91.7 114.9
Share Share-based
Share premium payment Retained Total
capital account reserve earnings equity
£m £m £m £m £m
Balance at 1 January 2021 0.1 21.1 0.5 65.5 87.2
Comprehensive income for the year
Profit for the year - - - 21.1 21.1
Total comprehensive income for the year - - - 21.1 21.1
Contributions by and distributions to owners
Exercise of share options - 0.8 (0.6) 0.1 0.3
Share-based payments - - 1.2 - 1.2
Dividends paid - - - (3.6) (3.6)
Total transactions with owners recognised directly in equity - 0.8 0.6 (3.5) (2.1)
Balance at 31 December 2021 0.1 21.9 1.1 83.1 106.2
1 BASIS OF PREPARATION
The financial information for the year ended 31 December 2022 was approved by
the Board on 15 March 2023. This financial information does not constitute the
statutory accounts of the Company within the meaning of Section 435 of the
Companies Act 2006, but is derived from those accounts, which have been
prepared in accordance with UK-adopted international accounting standards and
with the requirements of the Companies Act 2006 as applicable to companies
reporting under those standards.
This information has been prepared under the historical cost method, using all
standards and interpretations required for financial periods beginning 1
January 2022. The functional currency is Sterling, and the Financial
Statements are presented in millions, unless otherwise stated. No standards or
interpretations have been adopted before the required implementation date.
Statutory accounts for the year ended 31 December 2021 have been delivered to
the Registrar of Companies. Statutory accounts for the year ended 31 December
2022 will be delivered to the Registrar of Companies following the Company's
Annual General Meeting.
The auditors have reported on those accounts. Their reports were not
qualified, did not include a reference to any matters to which the auditors
drew attention by way of emphasis without qualifying their report, and did not
contain a statement under Section 498 (2) or (3) of the Companies Act 2006.
Going concern
The Group funds its activities through a £75 million Revolving Credit
Facility, provided by Barclays, NatWest and Bank of Ireland, which matures in
May 2026. The facility includes two key financial covenants, which are tested
at 30 June and 31 December each year on a pre-IFRS 16 basis. These are that
net debt should not exceed three times adjusted EBITDA (Leverage), and that
adjusted EBITDA should be at least four times the interest charge on the debt
(Interest Cover). Adjusted EBITDA is defined as operating profit before
depreciation, amortisation and non-underlying items. See alternative
performance measures (see Chief Financial Officer's Review).
No covenants were breached during the year ended 31 December 2022. For the
next measurement period, being 30 June 2023, and going forward, the Group
expects to comply with its covenants.
In assessing going concern, the Directors have considered financial
projections for the period to December 2024, which is consistent with the
Board's strategic planning horizons. These forecasts have been compiled based
on the best estimates of our commercial and operational teams. This includes a
severe but plausible 'Downside' scenario, which reflects demand for our
products being severely weakened.
In all scenarios tested, including sensitivities reducing sales forecasts to
10% below management's estimates for the period 2023-24, the Group operates
with significant headroom on its RCF facility and remains compliant with its
original covenants.
After reviewing the Group's projected financial performance and financing
arrangements, the Directors consider that the Group has adequate resources to
continue operating and that it is therefore appropriate to continue to adopt
the going concern basis in preparing the Financial Statements.
Changes in accounting policies and disclosures applicable to the Company and
the Group
The Group has applied the following amendments for the first time for the
financial reporting period commencing 1 January 2022, with no material impact:
● Property, Plant and Equipment: proceeds before intended
use - amendments to IAS 16;
● Reference to the Conceptual Framework - amendments to
IFRS 3;
● Onerous Contracts: cost of fulfilling a contract -
amendments to IAS 37; and
● Annual Improvements to IFRS Standards 2018 - 20.
The following new accounting standards, amendments to accounting standards and
interpretations have been published that are not mandatory for 31 December
2022 reporting periods and have not been early adopted by the Group:
● IFRS 17 Insurance Contracts;
● Classification of Liabilities as Current or Non-current
- amendments to IAS 1;
● Disclosure of Accounting Policies - amendments to IAS 1
and IFRS Practice Statement 2;
● Definition of Accounting Estimates - amendments to IAS
8; and
● Deferred Tax related to Assets and Liabilities arising
from a Single Transaction - amendments to IAS 12.
These standards, amendments or interpretations are not expected to have a
material impact on the Group in the current or future reporting periods and on
foreseeable future transactions.
2 NON-UNDERLYING ITEMS
Amounts included in the Consolidated Statement of Comprehensive Income are as
follows:
2022 2021
£m £m
Restructuring costs 1.6 -
Asset impairment charges 0.6 -
Non-underlying operating expenses 2.2 -
Finance expense 0.3 -
Total non-underlying expenses 2.5 -
Taxation (0.5) -
Impact on profit after tax 2.0 -
Restructuring costs
Restructuring costs relate to redundancies, with 63 roles impacted at a
one-off cost of £1.6 million. These costs are classified as non-underlying as
they relate to roles that no longer exist within the organisation and
therefore would not re-occur in future reporting periods.
Assets impairment charges
Tangible fixed assets and right-of-use asset impairment charges amounting to
£0.6 million were recognised in respect of five branches which, at 31
December 2022, the Group had announced its intention to close in early 2023.
Finance expense
The Group refinanced its Revolving Credit Facility in May 2022. Unamortised
arrangement fees relating to the previous facility, which had been due to
expire in December 2023, were expensed to the Consolidated Income Statement,
and have been presented as non-underlying as the facility to which they relate
no longer exists.
There were no non-underlying items in the prior year.
Of the £2.5 million non-underlying expenses, £1.1 million was settled in
cash at 31 December 2022, and £0.5 million will be settled within 12 months
of the balance sheet date. The remaining £0.9 million relates to non-cash
asset impairment charges.
3 SEGMENTAL INFORMATION
The Group organises itself into a number of operating segments that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies. Internal
reporting provided to the chief operating decision-maker, which has been
identified as the executive management team including the Chief Executive
Officer and the Chief Financial Officer, reflects this structure.
The Group has aggregated its operating segments into three reported segments,
as these business units have similar products, production processes, types of
customer, methods of distribution, regulatory environments, and economic
characteristics:
• Profiles - extrusion and sale of PVC window and building products to the new
and replacement window market across the UK. This segment includes Vista
Panels, S&S Plastics and Eurocell Recycle North.
• Building Plastics - sale of building plastic materials across the UK. This
segment includes Kent Building Plastics and Trimseal.
• Corporate - represents costs relating to the ultimate Parent Company and
includes amortisation in respect of acquired intangible assets.
Inter-segmental sales relate to manufactured products distributed by the
Building Plastics division.
2022 Profiles Building Plastics Corporate Total
£m £m £m £m
Revenue
Total revenue 234.0 219.8 - 453.8
Inter-segmental revenue (72.3) (0.3) - (72.6)
Total revenue from external customers 161.7 219.5 - 381.2
Adjusted EBITDA 32.7 21.0 1.5 55.2
Amortisation of intangible assets - - (1.8) (1.8)
Depreciation of property, plant and equipment (7.0) (1.1) (0.7) (8.8)
Depreciation of right-of-use assets (5.5) (7.7) (0.1) (13.3)
Adjusted operating profit/(loss) 20.2 12.2 (1.1) 31.3
Non-underlying operating expenses (0.9) (1.3) - (2.2)
Operating profit/(loss) 19.3 10.9 (1.1) 29.1
Finance expense (2.9)
Profit before tax from continuing operations 26.2
2021 (re-presented) Profiles Building Plastics Corporate Total
£m £m £m £m
Revenue
Total revenue 204.6 199.6 - 404.2
Inter-segmental revenue (63.9) (0.5) - (64.4)
Total revenue from external customers 140.7 199.1 - 339.8
EBITDA 31.8 21.5 (0.9) 52.4
Amortisation of intangible assets - - (1.9) (1.9)
Depreciation of property, plant and equipment (6.0) (1.0) (0.7) (7.7)
Depreciation of right-of-use assets (5.1) (7.9) (0.1) (13.1)
Operating profit/(loss) 20.7 12.6 (3.6) 29.7
Finance expense (2.0)
Profit before tax from continuing operations 27.7
Profiles Building Corporate Total
Plastics
2022 2022 2022 2022
£m £m £m £m
Additions to plant, property, equipment and intangible assets 7.6 1.4 3.3 12.3
Segment assets 145.1 89.4 19.8 254.3
Segment liabilities (61.3) (43.2) (7.8) (112.3)
Borrowings (20.3)
Deferred tax liability (6.8)
Total liabilities (139.4)
Total net assets 114.9
Profiles Building Corporate Total
Plastics
2021 2021 2021 2021
£m £m £m £m
Additions to plant, property, equipment and intangible assets 13.2 2.5 1.0 16.7
Segment assets 132.6 87.9 19.1 239.6
Segment liabilities (61.2) (45.0) (8.9) (115.1)
Borrowings (11.7)
Deferred tax liability (6.6)
Total liabilities (133.4)
Total net assets 106.2
Geographical information
Revenue Non-current assets Revenue Non-current assets
2022 2022 2021((2)) 2021
£m £m £m £m
United Kingdom 379.3 138.3 338.3 132.6
Republic of Ireland((1)) 1.9 - 1.5 -
Total 381.2 138.3 339.8 132.6
((1)) The net book value of non-current assets in the Republic of Ireland was
less than £50,000 in both years.
((2)) Re-presented.
4 TAXATION
2022 2021
£m £m
Current tax expense
Current tax on profits for the year 3.2 2.7
Adjustment in respect of prior years 0.3 0.1
Total current tax 3.5 2.8
Deferred tax expense
Origination and reversal of temporary differences 0.7 2.2
Adjustment in respect of change in rates 0.2 0.9
Adjustment in respect of prior years (0.7) -
Total deferred tax 0.2 3.1
Total tax expense 3.7 5.9
2022 2021
£m £m
Continuing operations 4.2 6.1
Discontinued operations (0.5) (0.2)
Total tax expense 3.7 5.9
The reasons for the difference between the actual current tax charge for the
year and the standard rate of corporation tax in the United Kingdom applied to
profits for the year are as follows:
2022 2021
£m £m
Profit before tax from continuing operations 26.2 27.7
Loss before tax from discontinued operations (2.8) (0.7)
Profit before tax 23.4 27.0
Expected tax charge based on the standard rate of corporation tax in the UK of 4.4 5.1
19.0% (2021: 19.0%)
Taxation effect of:
Expenses not deductible for tax purposes 0.4 0.5
Capital allowance super-deduction utilised (0.3) (0.7)
Patent Box claims (0.4) -
Deferred tax impact of share-based payments - 0.2
Adjustments in respect of prior years 0.3 0.1
Tax effect of accelerated capital allowances (0.9) (2.4)
Current tax expense 3.5 2.8
The reasons for the difference between the total tax charge for the year and
the standard rate of corporation tax in the United Kingdom applied to profits
for the year are as follows:
2022 2021
£m £m
Profit before tax from continuing operations 26.2 27.7
Loss before tax from discontinued operations (2.8) (0.7)
Profit before tax 23.4 27.0
Expected tax charge based on the standard rate of corporation tax in the UK of 4.4 5.1
19.0% (2021: 19.0%)
Taxation effect of:
Expenses not deductible for tax purposes 0.2 0.5
Capital allowance super-deduction utilised (0.3) (0.7)
Patent Box claims (0.4) -
Adjustments in respect of prior years (0.4) 0.1
Adjustment in respect of change in rates 0.2 0.9
Total tax expense 3.7 5.9
Changes in tax rates and factors affecting the future tax charge
An increase in the mainstream rate of UK corporation tax from 19% to 25% from
April 2023 was enacted during 2021. Consequently, deferred taxes were
re-measured using a higher rate based on expected reversal dates and reflected
in the financial statements.
There are no material uncertain tax provisions.
Tax included in Other Comprehensive Income
The tax credit arising on share-based payments within Other Comprehensive
Income is £nil (2021: £nil).
Based on the current investment plans of the Group, and assuming the rates of
capital allowances on capital expenditure continue into the future, there is
little prospect of any significant part of the deferred tax liability becoming
payable over the next three years.
Tax residency
Eurocell plc and its subsidiaries are all registered in the United Kingdom and
are resident in the UK for tax purposes, except as described below.
The Group has two branches in the Republic of Ireland, with combined annual
revenues of £1.9 million (2021: £1.5 million), total assets of less than
£50,000 (2021: less than £50,000) and eight full time employees (2021: eight
full time employees). For tax purposes these two trading locations form a
single branch within Eurocell Building Plastics Limited, and therefore any
profits generated are subject to tax in the Republic of Ireland. The tax
charge in relation to the Group's Republic of Ireland operations in 2022 is
€nil (2021: €nil) and no tax payments were made during the year (2021:
€nil). This is due to utilisation of losses brought forward. No deferred
tax assets are recognised on unutilised losses due to the uncertainty of
future profits.
5 LOSS AFTER TAX FROM DISCONTINUED OPERATIONS
As part of a restructuring exercise, on 2 December 2022 the Group completed
the sale of the trade and assets of its Security Hardware business for a total
consideration of £1.2 million. Security Hardware was a separate operating
segment which had previously been aggregated and presented as part of the
Building Plastics reported segment.
2022 2021
£m £m
Revenue 2.9 3.3
Cost of sales (2.2) (2.0)
Gross profit 0.7 1.3
Distribution costs (0.8) (0.8)
Administrative expenses (1.2) (1.2)
Operating loss (1.3) (0.7)
Finance expense - -
Loss before tax from discontinued operations (1.3) (0.7)
Taxation 0.2 0.2
Loss after tax from discontinued operations (1.1) (0.5)
Loss on sale of trade and assets after tax (1.2) -
Loss from discontinued operations (2.3) (0.5)
The loss on sale of £1.2 million is comprised of the following:
2022
£m
Consideration received
Cash 0.4
Deferred consideration 0.8
Total consideration 1.2
Carrying value of net assets sold (2.6)
Transaction costs (0.1)
Loss on sale before tax (1.5)
Taxation 0.3
Loss on sale after tax (1.2)
The carrying values of assets and liabilities as at 2 December 2022 were as
follows:
£m
Property, plant and equipment 0.4
Right-of-use assets 0.3
Intangible assets 0.3
Inventories 1.9
Lease liabilities (0.3)
Carrying value of net assets sold 2.6
The net cash flows arising were as follows:
2022 2021
£m £m
Net cash outflow from operating activities (0.2) (0.6)
Net cash inflow from investing activities 0.1 -
Net cash outflow from financing activities - -
Net decrease in cash generated by discontinued operations (0.1) (0.6)
Losses per share were as follows:
2022 2021
Pence Pence
Basic losses per share from discontinued operations (2.0) (0.5)
Diluted losses per share from discontinued operations (2.0) (0.5)
6 EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the net profit for the year
attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the year. Adjusted earnings per share
excludes the impact of non-underlying items. Earnings per share from
continuing operations excludes the impact of discontinued operations.
Diluted earnings per share is calculated by adjusting the earnings and number
of shares for the effects of dilutive options. In the event that a loss is
recorded for the period, share options are not considered to have a dilutive
effect.
2022 2021((1))
£m £m
Profit from continuing operations attributable to ordinary shareholders 24.0 21.6
excluding non-underlying items
Profit from continuing operations attributable to ordinary shareholders 22.0 21.6
Loss from discontinued operations (2.3) (0.5)
Profit attributable to ordinary shareholders 19.7 21.1
Number Number
Weighted average number of shares - basic 112,036,668 111,709,049
Dilutive impact of share options granted 747,137 510,270
Weighted average number of shares - diluted 112,783,805 112,219,319
Pence Pence
Continuing operations 19.6 19.4
Basic earnings per share
Adjusted basic earnings per share 21.4 19.4
Diluted earnings per share 19.5 19.3
Adjusted diluted earnings per share 21.3 19.3
Discontinued operations (2.0) (0.5)
Basic losses per share
Diluted losses per share (2.0) (0.5)
Total
Basic earnings per share 17.6 18.9
Diluted earnings per share 17.5 18.8
( )
((1)) Re-presented.
7 DIVIDENDS
2022 2021
£m £m
Dividends paid during the year
Interim dividend for 2022 of 3.5p per share (2021: 3.2p per share) 3.9 3.6
Final dividend for 2021 of 6.4p per share 7.2 -
11.1 3.6
Dividends proposed
Final dividend for 2022 of 7.2p per share 8.1 -
Final dividend for 2021 of 6.4p per share - 7.2
8.1 7.2
8 RECONCILIATION OF PROFIT AFTER TAX TO CASH GENERATED FROM OPERATIONS
2022 2021
£m £m
Profit after tax from continuing operations 22.0 21.6
Loss after tax from discontinued operations (2.3) (0.5)
Profit after tax 19.7 21.1
Taxation (Note 4) 3.7 5.9
Finance expense 2.9 2.0
Operating profit 26.3 29.0
Adjustments for:
Depreciation of property, plant and equipment 8.8 7.7
Depreciation of right-of-use assets 13.3 13.1
Amortisation of intangible assets 1.8 1.9
Impairment/(reversal of impairment) of tangible and right-of-use assets 0.6 (0.4)
Loss on disposal of business 1.5 -
Share-based payments (0.2) 1.2
Increase in inventories (5.7) (17.8)
Increase in trade and other receivables (5.6) (6.0)
(Decrease)/increase in trade and other payables (1.8) 4.4
Decrease in provisions (0.3) -
Cash generated from operations 38.7 33.1
9 EVENTS AFTER THE BALANCE SHEET DATE
The Directors are not aware of any material events that have occurred after 31
December 2022 which would require disclosure under IAS 10.
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