REG - Eurocell plc - PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DEC 2023
20/03/2024 07:00
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RNS Number : 4968H Eurocell plc 20 March 2024
20 March 2024
EUROCELL PLC (Symbol: ECEL)
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2023
Profits in line with expectations; strong cash flow
Eurocell plc, the market leading, vertically integrated UK manufacturer,
distributor and recycler of innovative window, door and roofline PVC products,
today announces its preliminary results for the year ended 31 December 2023.
Summary
• Profits in line with expectations, despite further market deterioration in the
second half
• Challenging backdrop, with weak RMI((1)) market and particularly severe
decline in new build housing
• Early and decisive action taken on cost in response to lower volumes and to
position the business well for when markets recover
• Efficient inventory management driving strong cash flow performance,
maintaining strong balance sheet and liquidity
• Review of strategy complete, with pathway to organic growth and improved
margins identified
Key financial performance measures ((2)) 2023 2022 Change
Revenue (£ million) 364.5 381.2 (4)%
Underlying measures ((3))
Adjusted operating profit (£ million) 18.4 31.3 (12.9)
Adjusted profit before tax (£ million) 15.2 28.7 (13.5)
Adjusted basic earnings per share (pence) 11.0 21.4 (10.4)
Reported measures
Operating profit (£ million) 14.9 29.1 (14.2)
Profit before tax (£ million) 11.7 26.2 (14.5)
Basic earnings per share (pence) 8.6 19.6 (11.0)
Capital investment (£ million) 8.9 12.3 (3.4)
Net cash generated from operating activities 52.8 35.1 17.7
(£ million)
Net debt (£ million) ((4)) (58.2) (78.1) 19.9
Net cash/(debt), pre-IFRS 16 (£ million) ((4)) 0.4 (14.4) 14.8
Total dividends per share for the year (pence) 5.5 10.7 (5.2)
Financial headlines
• Group sales down 4% on a strong 2022 comparative period, with volume 6% lower,
including:
- Profiles down 4%: reduced RMI((1)) and significantly weaker new build
activity, partially offset by benefit of market share gains, with volumes 7%
below 2022
- Building Plastics down 4%: RMI volumes in our branches 5% below 2022
• Increased competition for limited demand leading to pressure on margins in the
branch network
• Continued input cost inflation, offset with selling price increases where
possible:
- Particularly labour, recycling feedstock and electricity, where we operate a
rolling 12-month forward hedging policy
- Some easing on input cost pricing through the second half of the year
• Adjusted profit before tax from continuing operations down 47% vs 2022
- Lower sales volumes, input cost inflation and margin pressure in the branches,
partially offset by selling price increases, operational improvements and cost
reduction
• Net cash generated from operating activities up 50% vs 2022
- Efficient stock management driving a net working capital inflow of £13.4
million (2022: net outflow £13.1 million)
• Strong balance sheet and liquidity, with pre-IFRS 16 net cash of £0.4 million
(31 December 2022: net debt of £14.4 million)
- Average pre-IFRS 16 net debt of £9.5 million in 2023 (2022: £17.3 million)
• Proposed final dividend of 3.5 pence per share, resulting in total dividends
for the year of 5.5 pence per share (2022: 10.7 pence per share)
• £5 million share buyback programme commenced in January 2024
- As of 15 March 2024, 2.0 million shares purchased under the programme at a
cash cost of £2.5 million
Operational and sustainability headlines
• Early and decisive action taken on operating costs in response to lower
volumes
- Q4 2022 restructuring reduced operating costs by £5 million per annum from
the start of 2023
- Further headcount reduction in Q2 2023 to deliver savings of c.£2 million in
the second half and c.£4 million per annum thereafter, with the related
redundancy costs (£2.7 million) included as a non-underlying item
• Continuing programme of operational improvements
• Strong on sustainability as the leading UK-based recycler of PVC windows, with
the proportion of recycled material used improving to 32% (2022: 29%)
Review of strategy complete
• Pathway identified to building a £500 million revenue business generating a
10% operating margin within 5 years
Darren Waters, Chief Executive of Eurocell plc said:
"The trends reported at our half year results in September continued for the
remainder of 2023, with some further modest weakening in our key markets.
Against this challenging backdrop, we are pleased to report profits for the
year in line with expectations and strong cash flow generation.
"We took early and decisive action on costs in response to lower volumes and
have continued to focus on efficient working capital management, driving a
good cash flow performance. Whilst the near-term outlook for our markets
remains challenging, these actions leave us well placed to benefit from a
market recovery when it comes.
"Our review of strategy is now complete and I am very pleased with the
outcome. Looking ahead, we have identified a clear pathway to building a
£500m revenue business, generating a 10% operating margin over a five-year
period, built around four pillars; Customer Growth, Business Effectiveness,
People First and ESG Leadership. This is an ambitious vision, but when we
aggregate the growth opportunities, and apply a degree of sensitivity, we
believe it is an achievable target, with the potential to create significant
shareholder value."
Notes
(1) RMI is repair, maintenance and improvement.
(2) Stated on a continuing basis i.e. excluding discontinued operations.
(3) Non-underlying items of £3.5 million in 2023 include restructuring costs of
£2.7 million and £0.8 million of costs relating to strategic IT projects
which are classified as an expense as they use cloud computing. 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.
(4) Net cash/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.
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/782-2007-39185/en
(https://url.uk.m.mimecastprotect.com/s/eZloC67NuVj9AwcpEvlj?domain=streamstudio.world-television.com)
Alternatively, you can join via conference call as follows:
Dial-in +44 (0) 33 0551 0200
Toll free (UK) 0808 109 0700
Participant access code 0510
A copy of the presentation will be made available from 7am on 20 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).
CHAIR'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 2023 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 difficult backdrop, including a weak repair, maintenance and
improvement ('RMI') market and a severe decline in new build housing, we
delivered some resilience in the Group's sales performance. Revenues for the
year were £364.5 million, down 4% against a strong 2022 comparative period.
Adjusted profit before tax from continuing operations was down 47% at £15.2
million (2022: £28.7 million), reflecting the impact of lower volumes and
margin pressure.
In response, the business took decisive action on costs, including a
restructuring programme completed in Q2, and continued to focus on efficient
working capital management, to drive a good cash flow performance and maintain
a strong balance sheet and liquidity.
Reported profit before tax, also on a continuing basis, was down 55% at £11.7
million (2022: £26.2 million), reflecting the cost of the Q2 restructuring
programme, which will also benefit our financial results in 2024.
Net cash generated from operations was £52.8 million, up 50% on 2022,
including an inflow from working capital of £13.4 million. As a result, net
cash at 31 December 2023 on a pre-IFRS 16 basis stood at £0.4 million (31
December 2022: net debt of £14.4 million).
Earnings per share and dividends
Adjusted basic earnings per share for the year were 11.0 pence (2022: 21.4
pence). Reported basic earnings per share were 8.6 pence (2022: 19.6 pence).
We paid an interim dividend of 2.0 pence per share in October 2023. The Board
proposes a final dividend of 3.5 pence per share, which results in total
dividends for the year of 5.5 pence per share (2022: 10.7 pence per share).
Capital allocation
The Board is focused on enhancing shareholder returns and recognises the
importance of our ordinary dividend. We will periodically consider
supplementary distributions, whilst always seeking to maintain a strong
financial position.
Taking into account expected organic investment requirements and our
successful cash flow management in 2023, we launched a £5 million share
buyback programme in January 2024. Following the Board's decision that
employee incentivisations by equity should be through shares acquired rather
than issued, the first 642,000 shares repurchased under the buyback programme
will be held in treasury and used to satisfy employee share options over the
next two years. All other shares repurchased will be cancelled.
As of 15 March 2024, we had purchased 2.0 million shares at a cash cost of
£2.5 million under the programme.
Strategy
Following the arrival of Darren Waters as Chief Executive, the Board conducted
a review of the Group's strategy, including the optimisation and expansion of
the Branch Network, an enhanced customer proposition and simplified business
structures.
With this review now complete, we have reset our ambition for the business and
identified a clear strategy for organic growth and improved operating margins,
which has the potential to create significant shareholder value.
The headlines from our work on strategy are summarised in the Chief
Executive's Review.
Board changes and governance
Following our AGM in May, Darren Waters assumed the position of Chief
Executive and Mark Kelly retired. In addition, Martyn Coffey stood down from
the Board and Will Truman was appointed as an independent Non-executive
Director and member of the Audit and Risk, Nomination and ESG and Social
Values Committees. We were also pleased to announce the appointment of Angela
Rushforth as an independent Non-executive Director and member of the
Nomination and ESG and Social Values Committees in January 2024.
Looking ahead, after nine years of service, Frank Nelson intends to step down
from the Board at the 2024 AGM and I would like to thank him for his
significant contribution to the Group. Alison Littley will be appointed Senior
Independent Non-executive Director when Frank leaves.
Whilst this has been a period of significant change for the Board, our new
appointments bring extensive experience and knowledge of the UK building
materials and fenestration sectors, as well as valuable commercial insight,
and I am very pleased that we have been able to attract such high-calibre
individuals into the Company.
In accordance with the UK Corporate Governance Code ('the Code'), an external
evaluation of the Board's performance was conducted towards the end of 2023.
The review concluded that the composition of the Board, and its committees,
provides an appropriate balance of skills, experience, independence and
knowledge to allow the Board to discharge its responsibilities effectively.
Finally, I can confirm that we aim to comply with the 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'S REVIEW
INTRODUCTION
With demand softening towards the end of 2022, we completed a restructuring
programme in Q4 of that year and entered 2023 prepared for tougher markets.
However, conditions in the first half of 2023 were more challenging than we
had anticipated, with RMI activity impacted by low consumer confidence and
higher costs of living. In addition, a steep decline in new build activity
followed successive interest rate rises and falling house prices, with
housebuilders reducing build rates in anticipation of falling sales.
Thereafter, these trends continued for the remainder of 2023, with some
further modest weakening in our key markets in H2.
Input cost inflation also continued through the first half, particularly for
labour, electricity and recycling feedstock prices, which we offset with
selling price increases where possible. As expected, we experienced some
easing of input cost pricing in H2.
In response to lower sales volumes, we took further decisive action on costs,
with a second restructuring programme implemented in Q2 2023. We also
continued to focus on efficient cash and working capital management to drive a
good cash flow performance for the year.
As reported in September, we have been reviewing our strategy. Through this
work, we have identified a route to organic growth and a healthy improvement
in operating margins over a five-year period. The headlines are summarised
below.
FINANCIAL RESULTS
Against the challenging market backdrop, we have delivered some resilience in
the Group's sales performance. Revenues for the year were £364.5 million,
down 4% on 2022, with volumes 6% lower against a strong 2022 comparative
period.
As expected, adjusted profit before tax from continuing operations was £15.2
million, down £13.5 million on 2022, with the reduction driven by lower sales
volumes, input cost inflation and margin pressure in the branches, partially
offset by selling price increases, operational improvements and cost
reduction.
Reported profit before tax was £11.7 million (2022: £26.2 million), after
non-underlying costs totalling £3.5 million (2022: £2.5 million), reflecting
the impact of a restructuring programme and cloud-based computing expenses.
Reflecting our focus on cash management, we delivered improved net cash
generated from operations of £52.8 million, up 50% on 2022, including an
inflow from working capital of £13.4 million, compared to an outflow of
£13.1 million in the previous year.
Detailed information on our Group financial performance is set out in the
Chief Financial Officer's Review. A summary of divisional financial
performance is included below.
OPERATIONAL PERFORMANCE
Production
Overall Equipment Effectiveness ('OEE', a measure which takes into account
machine availability, performance and yield) was 78% in 2023, a significant
improvement on the 71% reported for 2022, and ahead of our target of 75%,
reflecting the benefit of improving manufacturing efficiencies and a tighter
conformance to production planning. As a result, having built inventories to
mitigate the impact of supply chain disruption in 2021/22, we delivered a
reduction of c.£13 million in 2023, including the benefit of lower input
costs.
Recycling
We are the leading UK-based recycler of PVC windows, now saving the equivalent
of c.3 million window frames from landfill each year. We have made further
progress in 2023, with usage increasing to 32% of materials consumed in
production, compared to 29% in 2022, driving lower carbon emissions and cost
savings compared to the use of virgin material.
A weaker RMI market and fewer window replacements restricted feedstock
availability for our recycling business, resulting in a significant increase
in purchase prices (21%) compared to 2022. However, the impact was most
significant in the first half of the year and we are making good progress
securing additional sources of feedstock, which, alongside reduced demand and
lower virgin resin prices, saw prices beginning to ease in H2.
Furthermore, we are finding more ways of using all the waste product generated
by our plants and expect to progressively reduce waste sent to landfill.
Health and safety
The safety and well-being of our employees, contractors and branch customers
is our number one priority, and we have delivered a significantly improved
safety performance in 2023. Our Lost Time Injury Frequency Rate ('LTIFR') was
5.7 in 2023, compared to 10.0 in 2022. Our RIDDOR (Reporting of Injuries,
Diseases and Dangerous Occurrences Regulations 2013) performance remains
better than the industry average. There were no major injuries and 11 minor
accidents recorded under RIDDOR in the year (2022: no major injuries and 23
minor injuries).
Health and Safety is now the first agenda item for key internal meetings. We
have enhanced 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, when combined with the
effective and timely implementation of corrective and preventive action,
supports our positive and improving safety culture.
DIVISIONAL PERFORMANCE - PROFILES
2023 2022 Change
£m £m %
Third-party revenue 154.9 161.7 (4)%
Inter-segmental revenue 64.9 72.3 (10)%
Total revenue 219.8 234.0 (6)%
Adjusted((1)) operating profit 11.9 20.2 (41)%
Operating profit 10.1 19.3 (48)%
(1) Adjusted performance measures are stated before non-underlying items.
Profiles third-party revenue for the year was £154.9 million, 4% lower than
2022, with reduced RMI activity and a significantly weaker new build market
partially offset by market share gains, leaving volumes 7% below 2022.
Cost of living pressures, successive interest rate increases and falling house
prices have all had a significant adverse impact on demand for our products.
However, we have continued to acquire new fabricator accounts, supported by a
reduction in UK capacity following the closure of the Duraflex extrusion
business in September. In addition, some of our existing fabricators have
benefited from an increase in volume following the administration of Safestyle
in October.
Profiles adjusted operating profit for 2023 of £11.9 million was 41% below
the previous year (2022: £20.2 million), reflecting lower sales volumes and
input cost inflation (particularly labour, recycling feedstock and
electricity), partially offset by selling price increases, operational
improvements and cost reduction.
Reported operating profit is stated after non-underlying restructuring costs
totalling £1.8 million (2022: £0.9 million).
Further information on non-underlying items is included in the Chief Financial
Officer's Review. A summary of our strategy for Profiles is set out below.
DIVISIONAL PERFORMANCE - BUILDING PLASTICS (BRANCH NETWORK)
2023 2022 Change
£m £m %
Third-party revenue 209.6 219.5 (4)%
Inter-segmental revenue 0.4 0.3 33%
Total revenue 210.0 219.8 (4)%
Adjusted((1)) operating profit 8.9 12.2 (27)%
Operating profit 8.2 10.9 (25)%
(1) Adjusted performance measures are stated before non-underlying items.
Third-party revenues in the Branch Network were £209.6 million, 4% lower than
2022, with volume down 5%.
RMI volumes in the branches were subdued throughout the year, as homeowners
have pulled back on discretionary expenditure, most likely in response to
higher costs of living and interest rates. However, we still see reasonable
volumes of high-value project work (such as our roof lanterns, conservatory
roofs, windows and bi-fold doors) and sales in our outdoor living range
(fencing, decking and garden rooms) of £11.6 million remain broadly
consistent with 2022.
Branch Network adjusted operating profit for 2023 was £8.9 million, 27% below
the previous year (2022: £12.2 million), reflecting lower sales volumes and
pressure on margins as a result of increased competition for limited demand,
partially offset by selling price increases and cost reduction.
Reported operating profit is stated after non-underlying restructuring costs
totalling £0.7 million (2022: £1.3 million).
Further information on non-underlying items is included in the Chief Financial
Officer's Review. A summary of our strategy for the Branch Network is set out
below.
STRATEGY
We began a review of our strategy in the summer. The review is now complete,
with the headlines summarised below.
By way of context, since Eurocell listed on the London Stock Exchange in 2015,
sales have more than doubled, through a mixture of branch expansion, market
share gains and acquisitions. We have also significantly increased our use of
recycled PVC in primary manufacturing operations.
Whilst the business has done well growing the top line, operating margins fell
steadily down to 8% in 2022. This has been driven by operational issues, now
fixed with investment, and our ability to recover the full margin impact of
input cost increases with selling prices. Margins were lower again in 2023,
driven by higher input costs and the operational gearing impact of declining
volumes.
With this strategic review, we are resetting the ambition for the business.
Our new strategy identifies a pathway to building a £500m revenue business,
generating a 10% operating margin over a five-year period. This is an
ambitious vision, but we believe it is an achievable target.
Our strategy is built around four strategic pillars: Customer Growth, Business
Effectiveness, People First and ESG Leadership. The following paragraphs
describe these pillars and the initiatives which support them.
Customer Growth
Our aim is to become the trade customer's preferred choice, in all markets and
segments where we operate. We believe the biggest opportunity for growth will
come from expansion of the branch network, including the sale of windows and
doors, plus our extended living spaces range of garden rooms and extensions.
This is all underpinned by an increased investment in digital, to raise
awareness of our products and home improvement solutions and thereby acquire
new customers.
Branch Network
We have concluded that the optimum branch network size is up to c.250
branches. Therefore, after a two-year break, we are planning to recommence
opening new branches from Spring 2024 and expect to add c.30 new branches over
the next three to four years. We will supplement this with a number of branch
relocations, to optimise our existing footprint.
We are aiming to sell more doors, windows and conservatory roofs through the
branches. Following an improvement in our window and door proposition, we ran
a trial across six branches in Q4 and the results exceeded our expectations.
We plan to add a further 24 branches progressively into the trial in 2024, and
if successful, we will complete the roll-out across the remaining network
through 2025.
Extended living spaces
Extended living spaces comprises garden rooms and extensions. With our strong
customer proposition, experienced sales professionals and efficient end-to-end
processes, we believe there is a good opportunity to gain market share and
drive growth through this product range.
For example, since launching our garden room range three years ago, we have
steadily built a strong market presence, competing well with the established
market participants.
With our extensions range, we are using modern methods of construction that
piece together in an innovative kit form, thereby creating a cost-effective,
energy-efficient building solution for homeowners who are looking to convert
and extend their properties, with installation times of weeks not months.
Profiles
In Profiles, following a period of strong growth, we believe we are now the
leading supplier of rigid PVC profile to the UK market. With markets currently
weak, we believe targeting further significant share gains would lead to price
erosion, which would have a detrimental effect on our business.
Our strategy for Profiles is therefore to protect our existing business and
maintain our value-added service propositions that support our customers. We
will continue to leverage our leading position with housebuilders and
commercial developers to ensure we maintain specifications to support a robust
pipeline of work for our fabricator customers. We are recognised across the
industry as the leading technical systems house, and we will continue to
leverage this advantage too.
The planned growth in window sales through our branch network provides
incremental growth opportunities for our fabricator partners, and we are
proactively working with them to secure additional capacity.
Business Effectiveness
Our objective is to make Eurocell a lean and efficient business, therefore we
are upgrading our business systems and streamlining processes to increase
efficiencies and improve the customer experience.
As previously announced, we are in the process of replacing our Enterprise
Resource Planning ('ERP') system. The first stage of this process is to
implement a new trade counter system in the branch network. Having now
selected a new system, we plan to transition at the beginning of 2025. This
will transform the way we interact and transact with our customers in the
branches.
The second stage is to select and implement an ERP system to support all other
functions of the business, including manufacturing, recycling, warehousing,
distribution and finance. For ERP, we expect to select a system later in 2024,
with transition to be completed around mid-2026.
We are also embedding a continuous improvement philosophy, which is already
highlighting significant opportunities for efficiencies, particularly in our
manufacturing and recycling operations.
Our initiative to sell more doors and windows through our branches will
utilise spare capacity that we have in our rigid extrusion manufacturing
operations and composite door business, thereby making us more efficient.
People First
The objective of our People First strategic pillar is to make Eurocell a great
place to work, through a relentless focus on health and safety, an enhanced
employee value proposition, improved levels of engagement and effective talent
management.
For health and safety, we are focused on improving relevant leadership skills
and providing appropriate safety education. In terms of our employee value
proposition, we are developing a wellbeing framework, recognition schemes and
better induction and onboarding programmes. Key priorities for employee
engagement include a new internal communications framework, colleague forums
and stepping up community and charity work. Finally, effective talent
management includes talent development, succession planning and an increasing
use of apprenticeships.
ESG Leadership
We want to earn a reputation for being a truly responsible company. Eurocell
is already a leader in PVC recycling, which is preventing millions of windows
being sent to landfill. But that is just one aspect of ESG and, looking ahead,
we aim to excel in all areas.
We are now working with CEN-ESG, a specialist ESG consultancy, to support the
development of our ESG strategy and improve our ESG data and disclosures. The
results of our work so far includes:
• A materiality assessment, which helped us determine the most important
sustainability topics to the business. With this analysis we have surveyed a
selection of employees, suppliers, customers, banks and shareholders
• A baseline carbon footprint for the business (Scope 1, 2 and 3), identifying
key decarbonisation levers
We have used the outputs from this work to define ESG objectives and targets
and develop a sustainability strategy, supported by appropriate governance and
internal controls. Looking forward, a key focus for our work in 2024 will be
to determine a path to reach Net Zero by our target date of 2045, albeit this
will be heavily dependent on reduced emissions in our raw material supply
chain.
SUMMARY AND OUTLOOK
The trends reported at our half year results in September continued for the
remainder of 2023, with some further modest weakening in our key markets.
Against this challenging backdrop, we are pleased to report profits for the
year in line with expectations and strong cash flow generation.
We took early and decisive action on costs in response to lower volumes and
have continued to focus on efficient working capital management, driving a
good cash flow performance. Whilst the near-term outlook for our markets
remains challenging, these actions leave us well placed to benefit from a
market recovery when it comes.
Our review of strategy is now complete and I am very pleased with the outcome.
Looking ahead, we have identified a clear pathway to building a £500m revenue
business, generating a 10% operating margin over a five-year period, built
around four pillars; Customer Growth, Business Effectiveness, People First and
ESG Leadership. This is an ambitious vision, but when we aggregate the growth
opportunities, and apply a degree of sensitivity, we believe it is an
achievable target, with the potential to create significant shareholder value.
Darren Waters
Chief Executive
CHIEF FINANCIAL OFFICER'S REVIEW
2023 2022
£m £m
Revenue 364.5 381.2
Gross profit 173.8 184.5
Gross margin % 47.7% 48.4%
Overheads (131.1) (130.4)
Other income((3)) 0.4 1.1
Adjusted((2)) EBITDA 43.1 55.2
Depreciation and amortisation (24.7) (23.9)
Adjusted((2)) operating profit 18.4 31.3
Finance costs (3.2) (2.6)
Adjusted((2)) profit before tax 15.2 28.7
Taxation (2.9) (4.7)
Adjusted((2)) profit after tax 12.3 24.0
Adjusted((2)) basic earnings per share (pence) 11.0 21.4
Non-underlying overheads (3.5) (2.2)
Non-underlying finance costs - (0.3)
Tax on non-underlying items 0.8 0.5
Reported operating profit 14.9 29.1
Reported profit before tax 11.7 26.2
Reported profit after tax 9.6 22.0
Loss after tax from discontinued operations - (2.3)
Profit for the year 9.6 19.7
Reported basic earnings per share (pence) 8.6 19.6
(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
Market conditions deteriorated progressively through the first half of the
year, driven by ongoing cost inflation, successive base rate increases and
falling real wages, all of which put unprecedented pressure on household
budgets, resulting in lower levels of activity in the private housing RMI
market and reduced demand for new build housing. These trends continued in the
second half of the year, with some further weakening in our key markets.
However, we also experienced some easing in input cost pricing in H2.
As expected, profits were down compared to 2022, reflecting lower sales
volumes, input cost inflation and margin pressure in the branches, partially
offset by selling price increases, operational improvements and cost
reduction.
In response to lower sales volumes, we acted quickly to reduce our cost base,
securing savings of £7 million for the year. We also continued to focus on
efficient inventory management to drive good cash flow performance.
We believe that these actions leave us well placed to progress the strategic
initiatives described in the Chief Executive's Review, as well as benefit from
a market recovery when it comes.
REVENUE
Revenue for 2023 was £364.5 million, 4% lower than 2022 (£381.2 million),
with volumes down 6% against a strong 2022 comparative period, reflecting weak
market conditions.
GROSS MARGIN
Gross margin for the year was 47.7%, down from 48.4% in 2022. Input cost
inflation continued in the first half of 2023, particularly for labour,
recycling feedstock and electricity (where we operate a rolling 12-month
forward hedging policy, so were paying rates locked in during H1 2022, when
wholesale energy prices peaked). We offset these higher costs with selling
price increases where possible. We also experienced some progressive easing of
input cost pricing throughout the second half of the year and continued to
deliver operational improvements. As a result, gross margin increased to 49.5%
in H2, compared to 46.0% for H1.
DISTRIBUTION COSTS AND ADMINISTRATIVE EXPENSES (OVERHEADS) AND OTHER INCOME
Underlying overheads were together £131.1 million, up 1% on 2022 (£130.4
million). We experienced general overhead and wage inflation in 2023, but this
was also recovered via selling prices increases where possible, and further
mitigated by operational improvements and our cost reduction initiatives.
We completed a restructuring programme in Q4 2022, which reduced operating
costs by £5 million per annum from the start of 2023. With end markets
continuing to weaken in the first half of 2023, and given the more challenging
outlook for the remainder of the year, we completed a further headcount
reduction in June, which reduced operating costs by c.£2 million in H2 and by
c.£4 million per annum thereafter. Costs associated with this restructuring
have been presented as non-underlying items (see below).
Other income is amounts received under our cyber insurance policy in
compensation for business interruption (lost sales) suffered due to the cyber
incident in July and August 2022.
DEPRECIATION AND AMORTISATION
Depreciation and amortisation was £24.7 million compared to £23.9 million in
2022.
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 of the circumstances 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 2023 of £3.5 million included restructuring costs of
£2.7 million, comprising redundancy payments and related employee benefit
termination costs. Also included are £0.8 million of cloud computing costs
incurred on strategic IT projects involving 'Software as a Service'
arrangements, which are expensed as incurred rather than being capitalised as
intangible assets. Such items are considered to be non-underlying in nature
because they relate to multi-year programmes to deliver strategic IT
implementations which are material in size, with overall spend estimated to be
in the region of £8 -10 million over the next three years. Our strategic IT
projects comprise a new customer-facing website, an employee management system
and, most significantly, the replacement of our Enterprise Resource Planning
(ERP) system. We expect these projects will drive major improvements in our
customers' experience and significantly increase the efficiency of our
operations.
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.
FINANCE COSTS AND TAXATION
Underlying finance costs for 2023 were £3.2 million, compared to £2.6
million in 2022. Total finance costs in 2022 of £2.9 million included £0.3
million of unamortised borrowing costs expensed to the Consolidated Income
Statement following the refinancing of the Group's Revolving Credit Facility,
which was classified as a non-underlying item.
The underlying tax charge for 2023 was £2.9 million (2022: £4.7 million).
The total tax charge for 2023 was £2.1 million (2022: £4.2 million). The
effective tax rate on underlying profit before tax for 2023 of 18.8% is lower
than the standard rate of corporation tax of 23.5% due to Patent Box relief.
We were pleased to retain the Fair Tax Mark accreditation in 2023, 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 £15.2 million compared to £28.7
million in 2022, down £13.5 million, reflecting lower sales volumes, input
cost inflation and margin pressure in the branches, partially offset by
selling price increases, operational improvements and cost reduction. Reported
profit before tax in 2023 was £11.7 million (2022: £26.2 million),
reflecting the above, and £3.5 million of non-underlying items (2022: £2.5
million).
Adjusted basic earnings per share for the year were 11.0 pence (2022: 21.4
pence). Adjusted diluted earnings per share for the year were 11.0 pence
(2022: 21.3 pence). Total basic and diluted earnings per share were both 8.6
pence (2022: 19.6 pence and 19.5 pence respectively).
DIVIDENDS AND SHARE BUYBACK PROGRAMME
We paid an interim dividend of 2.0 pence per share in October 2023 (£2.2
million). The Board proposes a final dividend of 3.5 pence per share, which
results in total dividends for the year of 5.5 pence per share, or £6.0
million, down 49% (2022: 10.7 pence or £12.0 million). The dividend will be
paid on 22 May 2024 to Shareholders registered at the close of business on 26
April 2024. The ex-dividend date will be 25 April 2024.
The retained earnings of Eurocell plc as at 31 December 2023 were £25.0
million (2022: £31.4 million). The Company takes steps to ensure
distributable reserves are maintained at an appropriate level through
intra-Group dividend flows.
The Board is focused on enhancing shareholder returns and recognises the
importance of our ordinary dividend. We will also periodically consider
supplementary distributions, whilst always seeking to maintain a strong
financial position. Taking into account expected organic investment
requirements and our successful cash flow management in 2023 (see below), we
launched a £5 million share buyback programme in January 2024. As of 15 March
2024, we had purchased 2.0 million shares at a cash cost of £2.5 million
under the programme.
CAPITAL EXPENDITURE
Capital expenditure for 2023 was £8.9 million (2022: £12.3 million). 2023
includes £1.5 million for site refurbishments and improved staff welfare
facilities across the branch network. Other capital expenditure in the period
is largely maintenance capex.
CASH FLOW
Net cash generated from operating activities was £52.8 million (2022: £35.1
million), reflecting our focus on efficient working capital management. This
includes a net inflow from working capital for 2023 of £13.4 million,
comprised of a decrease in inventories (£13.2 million), and decreases in
trade and other receivables (£6.0 million) and trade and other payables
(£5.8 million). This compares to a net outflow from working capital of £13.1
million in 2022, which included a significant inflationary component (c.£8
million).
The significant reduction in inventories arose as a result of an optimisation
programme, commenced in H2 2022, and includes c.£5 million as a result of
lower raw material prices. The decreases in receivables and payables since
December 2022 are primarily a result of lower sales and production volumes.
Other items include payments for capital investments of £9.1 million (2022:
£12.4 million), including payments to capital creditors of £0.2 million, net
proceeds from the disposal in December 2022 of Security Hardware of £0.8
million and financing costs paid of £1.4 million (2022: £1.2 million). Tax
paid in the year was £1.4 million (2022: £3.6 million). Dividends paid in
the year were £10.3 million (2022: £11.1 million).
The principal elements of lease payments of £13.8 million (2022: £13.3
million) are presented within cash flows arising from financing activities.
The finance elements of lease payments were £1.8 million (2022: £1.4
million).
NET CASH/DEBT
Net cash on a pre-IFRS 16 basis at 31 December 2023 was £0.4 million (31
December 2022: net debt of £14.4 million). Lease liabilities decreased by
£5.1 million. Reported net debt at 31 December 2023 was £58.2 million (31
December 2022: £78.1 million).
2023 2022 Change
£m £m £m
Cash 0.4 5.1 (4.7)
Deferred consideration - 0.8 (0.8)
Borrowings - (20.3) 20.3
Net cash/(debt) (pre-IFRS 16) 0.4 (14.4) 14.8
Lease liabilities (58.6) (63.7) 5.1
Net debt (reported) (58.2) (78.1) 19.9
BANK FACILITY
In May, we completed a one-year extension to our £75 million unsecured,
sustainable Revolving Credit Facility, which now matures in 2027. The facility
is provided by Barclays, NatWest and Bank of Ireland, and is competitively
priced with the key terms remaining unchanged. In terms of sustainability,
modest adjustments to the margin are applied based on our achievement against
annual targets for usage of recycled material 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 2023
Year ended 31 December 2023 Year ended 31 December 2022
Underlying ((1))Non- Total Underlying ((1))Non- Total
underlying underlying
Note £m £m £m £m £m £m
Revenue 3 364.5 - 364.5 381.2 - 381.2
Cost of sales (190.7) - (190.7) (196.7) - (196.7)
Gross profit 173.8 - 173.8 184.5 - 184.5
Distribution costs (25.3) (0.1) (25.4) (23.9) (0.4) (24.3)
Administrative expenses (130.5) (3.4) (133.9) (130.4) (1.8) (132.2)
Other income((2)) 0.4 - 0.4 1.1 - 1.1
Operating profit 3 18.4 (3.5) 14.9 31.3 (2.2) 29.1
Finance expense (3.2) - (3.2) (2.6) (0.3) (2.9)
Profit before tax from continuing operations 3 15.2 (3.5) 11.7 28.7 (2.5) 26.2
Taxation 4 (2.9) 0.8 (2.1) (4.7) 0.5 (4.2)
Profit after tax from continuing operations 12.3 (2.7) 9.6 24.0 (2.0) 22.0
Discontinued operations
Loss after tax from discontinued operations 5 - (2.3)
Profit for the year and total comprehensive income 9.6 19.7
Basic earnings per share from continuing operations 6 11.0p 8.6p 21.4p 19.6p
Diluted earnings per share from continuing operations 6 11.0p 8.6p 21.3p 19.5p
(1) Non-underlying items 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.
Consolidated Statement of Financial Position
As at 31 December 2023
2023 2022
£m £m
Assets
Non-current assets
Property, plant and equipment 59.9 61.7
Right-of-use assets 55.1 59.7
Intangible assets 15.8 16.9
Total non-current assets 130.8 138.3
Current assets
Inventories 46.7 59.9
Trade and other receivables 45.3 50.0
Corporation tax 0.6 0.2
Deferred consideration - 0.8
Cash and cash equivalents 0.4 5.1
Total current assets 93.0 116.0
Total assets 223.8 254.3
Liabilities
Current liabilities
Trade and other payables (41.6) (47.4)
Lease liabilities (12.9) (13.0)
Provisions (0.2) (0.2)
Total current liabilities (54.7) (60.6)
Non-current liabilities
Borrowings - (20.3)
Lease liabilities (45.7) (50.7)
Provisions (1.1) (1.0)
Deferred tax (8.0) (6.8)
Total non-current liabilities (54.8) (78.8)
Total liabilities (109.5) (139.4)
Net assets 114.3 114.9
Equity attributable to equity holders of the parent
Share capital 0.1 0.1
Share premium account 22.2 22.2
Treasury shares (0.1) -
Share-based payment reserve 0.9 0.9
Retained earnings 91.2 91.7
Total equity 114.3 114.9
Consolidated Cash Flow Statement
For the year ended 31 December 2023
Year ended Year ended
31 December 31 December
2023 2022
Note £m £m
Cash generated from operations 8 54.2 38.7
Income taxes paid (1.4) (3.6)
Net cash generated from operating activities 52.8 35.1
Investing activities
Purchase of property, plant and equipment (9.0) (11.9)
Purchase of intangible assets (0.1) (0.5)
Net cash flow arising on sale of business 0.8 0.3
Net cash used in investing activities (8.3) (12.1)
Financing activities
Proceeds from new share capital issued - 0.2
Purchase of own shares held as treasury shares (0.7) -
Repayment of bank and other borrowings (21.0) (22.0)
Proceeds from bank borrowings - 31.0
Bank borrowings arrangement costs (0.2) (0.8)
Principal elements of lease payments (13.8) (13.3)
Finance elements of lease payments (1.8) (1.4)
Finance expense paid (1.4) (1.2)
Dividends paid to equity Shareholders 7 (10.3) (11.1)
Net cash used in financing activities (49.2) (18.6)
Net (decrease)/increase in cash and cash equivalents((1)) (4.7) 4.4
Cash and cash equivalents((1)) at beginning of year 5.1 0.7
Cash and cash equivalents((1)) at end of year 0.4 5.1
(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 2023
Share Share-based
Share premium Treasury payment Retained Total
capital account shares reserve earnings equity
£m £m £m £m £m £m
Balance at 1 January 2023 0.1 22.2 - 0.9 91.7 114.9
Comprehensive income for the year
Profit for the year - - - - 9.6 9.6
Total comprehensive income for the year - - - - 9.6 9.6
Contributions by and distributions to owners
Exercise of share options - - 0.6 (0.8) 0.2 -
Share-based payments - - - 0.8 - 0.8
Purchase of own shares - - (0.7) - - (0.7)
Dividends paid - - - - (10.3) (10.3)
Total transactions with owners recognised directly in equity - - (0.1) - (10.1) (10.2)
Balance at 31 December 2023 0.1 22.2 (0.1) 0.9 91.2 114.3
Share Share-based
Share premium Treasury payment Retained Total
capital account shares reserve earnings equity
£m £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
1 BASIS OF PREPARATION
The financial information for the year ended 31 December 2023 was approved by
the Board on 19 March 2024. 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 2023. 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 2022 have been delivered to
the Registrar of Companies. Statutory accounts for the year ended 31 December
2023 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 2027, following a one year extension that was completed in May 2023. 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 2023. For the
next measurement period, being 30 June 2024, 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 2025, which is consistent with the
Board's strategic planning horizon and reflects a period of at least 12 months
from the date of approval of the Financial Statements. These forecasts have
been compiled based on the best estimates of the Group's commercial and
operational teams. This includes a severe but plausible 'Downside' scenario,
which reflects demand for the Group's products being severely weakened.
In all scenarios tested, including sensitivities reducing sales forecasts to
10% below management's estimates for the period 2024 - 25, key raw material
prices increasing by 33% over that period and both scenarios combined. 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 2023, with no material impact:
● IFRS 17 Insurance Contracts;
● Amendments to IFRS 17 Insurance Contracts (Amendments to
IFRS 17 and IFRS 4);
● Deferred Tax related to Assets and Liabilities arising
from a Single Transaction (Amendments to IAS 12)
● Disclosure of Accounting Policies (Amendments to IAS 1
and IFRS Practice Statement 2);
● Definition of Accounting Estimates (Amendments to IAS
8); and
● International Tax Reform - Pillar Two Model Rules
(Amendments to IAS 12).
The following new accounting standards, amendments to accounting standards and
interpretations have been published that are not mandatory for 31 December
2023 reporting periods and have not been early adopted by the Group:
● Classification of Liabilities as Current or Non-current
(Amendments to IAS 1);
● Lease Liability in a Sale and Leaseback (Amendments to
IFRS 16);
● Supplier Finance Arrangements (Amendments to IAS 7 and
IFRS 7);
● Non-current Liabilities with Covenants (Amendments to
IAS 1); and
● Lack of Exchangeability (Amendments to IAS 21).
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:
2023 2022
£m £m
Restructuring costs 2.7 1.6
Asset impairment charges - 0.6
Cloud computing expenses 0.8 -
Non-underlying operating expenses 3.5 2.2
Finance expense - 0.3
Total non-underlying expenses 3.5 2.5
Taxation (0.8) (0.5)
Impact on profit after tax 2.7 2.0
Restructuring costs
Restructuring costs relate to redundancy payments and related employee benefit
termination costs, with 119 roles impacted (2022: 63) at a one-off cost of
£2.7 million (2022: £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.
Included is a credit of £0.2 million in respect of the release of a provision
relating to a restructuring exercise announced in 2022 and completed in early
2023.
Asset impairment charges
The 2022 charges of £0.6 million relate to the closure of five branches in
early 2023, which had been announced as at 31 December 2022.
Cloud computing expenses
Cloud computing expenses relate to costs incurred on strategic IT projects
involving 'Software as a Service' arrangements which are expensed as incurred
rather than being capitalised as intangible assets.
Such items are considered to be non-underlying in nature because they relate
to multi-year programmes to deliver strategic IT implementations which are
material in size. Our strategic IT projects comprise a new customer-facing
website, an employee management system and, most significantly, the
replacement of the Group's Enterprise Resource Planning ('ERP') system, with
overall spend estimated to be in the region of £8-10 million over the next
three years.
Finance expense
The 2022 charges relate to the Group having 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.
Impact on cash flow
Of the £3.5 million non-underlying expenses recognised, £3.2 million was
settled in cash at 31 December 2023. The remaining £0.3 million relates to
non-cash asset impairment charges.
Of the £2.5 million non-underlying expenses recognised in 2022, £1.4 million
had been settled in cash at 31 December 2023, and £0.2 million had been
credited to the income statement. 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 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.
● Corporate - represents costs relating to the ultimate Parent Company and
includes the assets and related amortisation in respect of acquired intangible
assets.
Inter-segmental sales, which are eliminated on consolidation, are transacted
at an arms' length basis and relate to manufactured products distributed by
the Building Plastics division.
2023 Profiles Building Plastics Corporate Total
£m £m £m £m
Revenue
Total revenue 219.8 210.0 - 429.8
Inter-segmental revenue (64.9) (0.4) - (65.3)
Total revenue from external customers 154.9 209.6 - 364.5
Adjusted EBITDA 25.5 17.4 0.2 43.1
Amortisation of intangible assets - - (1.7) (1.7)
Depreciation of property, plant and equipment (7.3) (1.2) (0.8) (9.3)
Depreciation of right-of-use assets (6.3) (7.3) (0.1) (13.7)
Adjusted operating profit/(loss) 11.9 8.9 (2.4) 18.4
Non-underlying operating expenses (1.8) (0.7) (1.0) (3.5)
Operating profit/(loss) 10.1 8.2 (3.4) 14.9
Finance expense (3.2)
Profit before tax from continuing operations 11.7
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
Profiles Building Corporate Total
Plastics
2023 2023 2023 2023
£m £m £m £m
Additions to plant, property, equipment and intangible assets 6.9 1.5 0.5 8.9
Segment assets 126.9 78.5 18.4 224.3
Segment liabilities (53.3) (43.7) (4.5) (101.5)
Deferred tax liability (8.0)
Total liabilities (109.5)
Total net assets 114.3
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
Geographical information
Revenue Non-current assets Revenue Non-current assets
2023 2023 2022 2022
£m £m £m £m
United Kingdom 362.5 130.8 379.3 138.3
Republic of Ireland((1)) 2.0 - 1.9 -
Total 364.5 130.8 381.2 138.3
((1)) The net book value of non-current assets in the Republic of Ireland was
less than £50,000 in both years.
4 TAXATION
2023 2022
£m £m
Current tax expense
Current tax on profits for the year 2.0 3.2
Adjustment in respect of prior years (1.1) 0.3
Total current tax 0.9 3.5
Deferred tax expense
Origination and reversal of temporary differences 0.4 0.7
Adjustment in respect of change in rates - 0.2
Adjustment in respect of prior years 0.8 (0.7)
Total deferred tax 1.2 0.2
Total tax expense 2.1 3.7
2023 2022
£m £m
Continuing operations 2.1 4.2
Discontinued operations - (0.5)
Total tax expense 2.1 3.7
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:
2023 2022
£m £m
Profit before tax from continuing operations 11.7 26.2
Loss before tax from discontinued operations - (2.8)
Profit before tax 11.7 23.4
Expected tax charge based on the standard rate of corporation tax in the UK of 2.7 4.4
23.5% (2022: 19.0%)
Taxation effect of:
Expenses not deductible for tax purposes 0.4 0.4
Capital allowance super-deduction utilised - (0.3)
Patent Box claims (0.5) (0.4)
Deferred tax impact of share-based payments 0.1 -
Adjustments in respect of prior years (1.1) 0.3
Tax effect of accelerated capital allowances (0.7) (0.9)
Current tax expense 0.9 3.5
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:
2023 2022
£m £m
Profit before tax from continuing operations 11.7 26.2
Loss before tax from discontinued operations - (2.8)
Profit before tax 11.7 23.4
Expected tax charge based on the standard rate of corporation tax in the UK of 2.7 4.4
23.5% (2022: 19.0%)
Taxation effect of:
Expenses not deductible for tax purposes 0.2 0.2
Capital allowance super-deduction utilised - (0.3)
Patent Box claims (0.5) (0.4)
Adjustments in respect of prior years (0.3) (0.4)
Adjustment in respect of change in rates - 0.2
Total tax expense 2.1 3.7
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. This gave rise to a blended standard rate
of 23.5% in 2023.
There are no material uncertain tax provisions.
Tax included in Other Comprehensive Income
The tax charge arising on share-based payments within Other Comprehensive
Income is £nil (2022: £nil).
Based on the current investment plans of the Group, and assuming the rates of
capital allowances on capital expenditure continue into the future, the vast
majority of the deferred tax liability is expected to unwind over a period of
greater than one year.
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 £2.0 million (2022: £1.9 million), total assets of less than
£50,000 (2022: less than £50,000) and eight full time employees (2022: 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 2023 is
€nil (2022: €nil) and no tax payments were made during the year (2022:
€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 in the Republic of Ireland.
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.
The results of the business for the prior year are set out below.
2022
£m
Revenue 2.9
Cost of sales (2.2)
Gross profit 0.7
Distribution costs (0.8)
Administrative expenses (1.2)
Operating loss (1.3)
Finance expense -
Loss before tax from discontinued operations (1.3)
Taxation 0.2
Loss after tax from discontinued operations (1.1)
Loss on sale of trade and assets after tax (1.2)
Loss from discontinued operations (2.3)
The loss on sale of £1.2 million, recognised in the prior year, 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:
2023 2022
£m £m
Net cash outflow from operating activities - (0.2)
Net cash inflow from investing activities 0.8 0.1
Net increase/(decrease) in cash generated by discontinued operations 0.8 (0.1)
Losses per share were as follows:
2022
Pence
Basic losses per share from discontinued operations (2.0)
Diluted losses per share from discontinued operations (2.0)
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, excluding treasury shares.
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.
2023 2022
£m £m
Profit from continuing operations attributable to ordinary shareholders 12.3 24.0
excluding non-underlying items
Profit from continuing operations attributable to ordinary shareholders 9.6 22.0
Loss from discontinued operations - (2.3)
Profit attributable to ordinary shareholders 9.6 19.7
Number Number
Weighted average number of shares - basic 111,885,083 112,036,668
Dilutive impact of share options granted 53,451 747,137
Weighted average number of shares - diluted 111,938,534 112,783,805
Pence Pence
Continuing operations 8.6 19.6
Basic earnings per share
Adjusted basic earnings per share 11.0 21.4
Diluted earnings per share 8.6 19.5
Adjusted diluted earnings per share 11.0 21.3
Discontinued operations - (2.0)
Basic losses per share
Diluted losses per share - (2.0)
Total
Basic earnings per share 8.6 17.6
Diluted earnings per share 8.6 17.5
7 DIVIDENDS
2023 2022
£m £m
Dividends paid during the year
Interim dividend for 2023 of 2.0p per share (2022: 3.5p per share) 2.2 3.9
Final dividend for 2022 of 7.2p (2021: 6.4p per share) 8.1 7.2
10.3 11.1
Dividends proposed
Final dividend for 2023 of 3.5p per share 3.8 -
Final dividend for 2022 of 7.2p per share - 8.1
3.8 8.1
8 RECONCILIATION OF PROFIT AFTER TAX TO CASH GENERATED FROM OPERATIONS
2023 2022
£m £m
Profit after tax from continuing operations 9.6 22.0
Loss after tax from discontinued operations - (2.3)
Profit after tax 9.6 19.7
Taxation (Note 4) 2.1 3.7
Finance expense 3.2 2.9
Operating profit 14.9 26.3
Adjustments for:
Depreciation of property, plant and equipment 9.3 8.8
Depreciation of right-of-use assets 13.7 13.3
Amortisation of intangible assets 1.7 1.8
Impairment of tangible and right-of-use assets 0.3 0.6
Loss on disposal of business - 1.5
Share-based payments 0.8 (0.2)
Decrease/(increase) in inventories 13.2 (5.7)
Decrease/(increase) in trade and other receivables 6.0 (5.6)
Decrease in trade and other payables (5.8) (1.8)
Increase/(decrease) in provisions 0.1 (0.3)
Cash generated from operations 54.2 38.7
9 ALTERNATIVE PERFORMANCE MEASURES
The Group uses alternative performance measures 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.
EBITDA is defined as operating profit before depreciation and amortisation
charges. Pre-IFRS 16 EBITDA is stated inclusive of operating lease rentals
under IAS 17 Leases.
Adjusted EBITDA, profits and earnings per share exclude non-underlying items.
Adjusted profit measures allow users of the Financial Statements to better
understand financial performance in the year by removing certain material
items of income and expense that are unusual due to their nature or
infrequency, thus facilitating better comparison with prior periods.
Covenants are assessed on a pre-IFRS 16 adjusted EBITDA, continuing basis.
2023 2022
£m £m
Operating profit 14.9 29.1
Depreciation and amortisation 24.7 23.9
EBITDA 39.6 53.0
Non-underlying items 3.5 2.2
Adjusted EBITDA 43.1 55.2
Operating lease rentals under IAS 17 (15.2) (14.4)
Pre-IFRS 16 adjusted EBITDA 27.9 40.8
Pre-IFRS 16 total net (cash)/debt is defined as total borrowings and lease
liabilities less cash and cash equivalents and deferred consideration,
excluding the impact of leases recognised under IFRS 16 Leases.
2023 2022
£m £m
Total net debt 58.2 78.1
Lease liabilities (58.6) (63.7)
Pre-IFRS 16 net (cash)/debt (0.4) 14.4
10 EVENTS AFTER THE BALANCE SHEET DATE
In January 2024 the Group launched a £5 million share buyback programme. As
of 15 March 2024, 2.0 million shares had been purchased at a cash cost of
£2.5 million under the programme.
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