REG - Eurocell plc - Preliminary results for the year ended 31 Dec 2021
18/03/2022 07:00
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RNS Number : 2087F Eurocell plc 18 March 2022
18 March 2022
EUROCELL PLC (Symbol: ECEL)
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021
Strong 2021 performance and well positioned for 2022
Eurocell plc is a market leading, vertically integrated UK manufacturer,
distributor and recycler of innovative window, door and roofline PVC building
products
2021 2020 Change 2019 Change
Key financial performance measures
Revenue (£ million) 343.1 257.9 33% 279.1 23%
Gross margin % 50.5 49.4 110bps 51.2 (70)bps
Profit/(loss) before tax (£ million) ((1)) 27.0 (1.5) n/a 22.7 19%
Basic earnings/(losses) per share (pence) ((1) (2)) 18.9 (2.0) n/a 19.3 (2)%
Capital investment (£ million) 16.7 13.7 3.0 15.2 1.5
Net debt (£ million) ((3)) 69.7 58.3 11.4 68.7 1.0
Net debt, pre-IFRS 16 (£ million) ((3)) 11.0 9.9 1.1 34.6 (23.6)
Total dividends per share (pence) 9.6 - 9.6 3.2 6.4
For the purposes of this report, where appropriate we have compared financial
and operating performance to 2020 and 2019, with the latter a more meaningful
comparator given the disruption in 2020 due to the COVID-19 pandemic.
Financial headlines
• Continued successful deployment of commercial strategies supported by strong
underlying demand in our end markets, with revenue up 23% vs 2019, including:
- Profiles up 22%: good contribution from trade and new build fabricators, as
well as a very strong performance from Vista doors
- Building Plastics up 24%: excellent performance across full range of
manufactured products and traded goods
- c.8% from selling price increases and a surcharge implemented to recover raw
material price inflation
• Surcharge successfully recovered higher raw material costs, but dilutive to
gross margin percentage
• Profit before tax up 19% vs 2019, driven by higher sales volumes
• Continued investment in business growth, with capex of £16.7 million
including c.£7 million to expand manufacturing capacity, c.£2 million to
increase logistics capability and c.£2 million for new branches
• Robust balance sheet and liquidity, with pre-IFRS 16 net debt of £11.0
million (2020: £9.9 million)
• Final dividend proposed of 6.4 pence per share, taking total dividends for the
year to 9.6 pence, or £10.8 million
Operational headlines
• Decisive action taken in response to significant supply chain challenges -
recovered the impact of unprecedented raw material cost inflation and secured
the materials, labour and transport needed to service demand
• Fit-out of new warehouse and next phase of manufacturing capacity expansion
completed - key to delivering future improvements in operating efficiencies
and margins
• 12 new branches opened in 2021 (of which 4 are new larger format), resulting
in a total estate of 219 sites
Sustainability
• Strong performance on sustainability as the leading UK-based recycler of PVC
windows:
- Further improvement in proportion of recycled material used to 27% (2020: 25%)
- More than 3 million end-of-life window frames recycled, avoiding landfill and
driving a significant carbon reduction (more than 48k tonnes) and substantial
cost saving compared to the use of virgin materials
• Commitment to substantial further progress on sustainability, with KPIs
published covering the circular economy, emissions and energy management, and
social targets
• Received the London Stock Exchange's Green Economy Mark, awarded to companies
that derive more than 50% of revenues from environmental solutions, and
reflects contributions to the global green economy
• Supporting PVC sector on sustainable development initiatives
Medium-term ambitions
• 3 to 5 year objectives:
- Revenue - outperform our markets
- Recycling - 33% of raw material consumption from recycled material
- Operating profit margin - targeting improvement of 150bps
Mark Kelly, Chief Executive of Eurocell plc said:
"We entered 2021 well placed to take advantage of the continued recovery in
our markets. A very good sales performance has been underpinned by the success
of our commercial strategies and high levels of demand in the RMI((4)) market,
and we are very pleased to report good profit growth and a return to the
payment of dividends.
"We expect supply chain constraints to ease over the coming months, and the
actions we took last year have ensured we have the resources necessary to
operate efficiently and support our growth aspirations for revenue and
margins.
"The RMI sector remains robust, new build continues to grow and customer
demand levels are good. With operating constraints resolved, our focus for
2022 will be on delivering improved returns from our strong sales growth.
"Notwithstanding the events in Ukraine and the attendant macroeconomic
uncertainties, the year has started well, with sales volumes to the end of
February up 6% on 2021. We therefore continue to see good potential to
outperform our markets and deliver further progress."
Notes
(1) 2020 is stated after non-underlying items((5)) and the related tax
effect. There were no non-underlying items in 2021 or 2019.
(2) Based on a weighted average number of shares of 111.7 million for
2021, 108.2 million for 2020 and 100.3 million for 2019.
(3) Net debt is cash and cash equivalents less bank overdrafts, borrowings
and lease liabilities. Pre-IFRS 16 net debt excludes lease liabilities.
(4) RMI is repair, maintenance and improvement.
(5) Non-underlying items for 2020 of £10.0 million included a goodwill
impairment charge of £5.8 million, right-of-use asset impairment charges of
£0.9 million, restructuring costs of £0.6 million and warehouse dual-running
costs of £2.7 million.
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/782-2007-32092/en
(https://streamstudio.world-television.com/782-2007-32092/en)
Alternatively, you can join via conference call as follows:
United Kingdom (local) 020 3936 2999
United Kingdom (toll free) 0800 640 6441
United States 1 646 664 1960
All other locations +44 20 3936 2999
Participant access code 101966
A copy of the presentation will be made available from 7am on 18 March on
the Group's web site: 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 web site (link above).
CHAIRMAN'S STATEMENT
Introduction
The business has responded remarkably well to the impact of COVID-19, and to
the new challenges posed in 2021, including supply chain disruption, major raw
material cost inflation and tight labour markets. So I start this year's
report by offering, on behalf of shareholders and of the Board, my sincere
thanks to our teams in every part of the Group. The progress we made during
2021 is testament to their commitment, hard work and dedication during a
period of continuing and unprecedented uncertainty.
Financial and operating performance
The business has delivered good results for 2021, underpinned by a strong
repair, maintenance and improvement ('RMI') market and the continued
successful deployment of our strategy. We acted decisively in response to
significant supply chain challenges, recovered successfully the impact of
unprecedented raw material cost inflation and secured the resources we need to
service demand, despite tight labour markets.
Fit-out of our new warehouse was completed during the year, alongside the next
phase of our manufacturing capacity expansion, leaving the business well
placed to deliver ongoing sustainable growth with good operating efficiencies
and improving returns.
Sales for the full year were £343 million, up 23% compared to 2019 and 33%
compared to 2020, and profit before tax was £27.0 million (2020: loss of
£1.5 million; 2019: profit of £22.7 million).
Net debt at 31 December 2021 on a pre-IFRS 16 basis stood at £11.0 million
(31 December 2020: £9.9 million), demonstrating significant headroom on our
bank facility. We have a strong balance sheet, which provides flexibility and
options for the future.
Dividends
We paid an interim dividend of 3.2 pence per share in October 2021. The Board
proposes a final dividend of 6.4 pence per share, resulting in total dividends
for the year of 9.6 pence per share. No dividends were paid in respect of 2020
due to the impact of COVID-19.
Strategy
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 deliver this objective, and we
continue to make good progress against each of them, with the key aspects of
our performance described in the Chief Executive Officer's Review.
In 2021, we made further progress developing our approach to improving the
sustainability of the Group, including carbon footprint and emissions
reduction, supporting our people and their wellbeing, and improving the
environment in which they work.
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.
Governance
As a Board, we are committed to the highest standards of corporate governance
and we continue to comply with the UK Corporate Governance Code.
After 7 enjoyable years as Chair of Eurocell, I have notified the Board of my
intention to step down and a process to recruit my successor has begun, led by
Frank Nelson, the Senior Independent Director. During my tenure, it has been a
delight to lead the Board and witness the transformation of Eurocell by the
executive team, to become the market-leading business that it is today.
I would like to thank my fellow Board and Committee members for their valuable
contribution and support throughout my whole tenure.
Finally, I would like to wish everyone at Eurocell, and all of its
stakeholders, continued success for the future.
Bob Lawson
Chair
CHIEF EXECUTIVE'S REVIEW
INTRODUCTION
We entered 2021 well placed to take advantage of the continued recovery in our
markets.
We have delivered a very good sales performance for the year, underpinned by
the success of our commercial strategies and ongoing high levels of demand in
the RMI market. Our products have continued to resonate well with customers
seeking to improve their homes and create more usable space, both inside and
outside their properties.
We also navigated successfully the challenges posed by supply chain
disruption, major raw material cost inflation and tight labour markets. As a
result, we have reported good financial results for the year.
Fit-out of our new warehouse was completed in 2021, along with a further step
up in the expansion of our manufacturing capacity. With constraints resolved,
we can now focus on delivering improved operating efficiencies from the new
warehouse and production facilities.
Whilst demand has moderated from the unprecedented levels experienced in H2
2020 and H1 2021, the RMI sector remains strong and customer demand levels are
good going into 2022. We also expect continued growth in new build and the
return of commercial projects, which struggled to gain traction through 2021.
FINANCIAL RESULTS
For the purposes of this report, where appropriate, we have compared financial
and operating performance to 2020 and 2019, with the latter a more meaningful
comparator given the disruption in 2020 due to COVID-19.
Sales for the year were £343 million, or 33% above 2020 and 23% above 2019.
We reported a profit before tax of £27.0 million, up 19% or £4.3 million on
2019 (£22.7 million), driven by higher sales volumes.
Adjusted profit before tax for 2020 was lower at £8.5 million, reflecting the
impact of COVID-19. The reported loss before tax was £1.5 million.
Further information on our financial performance is included in the Chief
Financial Officer's Review and Divisional Reviews.
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 0.8 in 2021, compared to 0.7
in 2020 and 0.9 in 2019. There were no major injuries and 28 minor accidents
recorded under the Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations 2013 ('RIDDOR') in the year (2020 and 2019: 19 and 17 minor
injuries respectively). We have improved our procedures for incident reporting
during the year, leading to more incidents being included in the data, which
contributed to the slight deterioration in the reported figures for 2021.
COVID-19 safety procedures remained a priority throughout the year, with many
good practices retained, despite the relaxation in government guidance.
Production
In 2021 we manufactured 57.2k tonnes of rigid and foam PVC profiles at our
primary extrusion facilities, 26% higher than 2020 and 5% higher than 2019.
This reflects the sales for each year, as well as, in 2019, higher production
to increase stock holding at our branches and to mitigate the risk of raw
material supply interruption due to Brexit. Overall Equipment Effectiveness
('OEE', a measure which takes into account machine availability, performance
and yield) was 68% in 2021, (2020 and 2019: 75% and 73% respectively), with
2021 impacted by supply chain disruption and labour availability (see below).
Having resolved these issues, we expect OEE to improve, with our target for
2022 being to reach 75% for the year.
RAW MATERIAL SUPPLY CHAIN, LABOUR AND TRANSPORT
Strong demand in our markets put sector supply chains under pressure, and we
have experienced tighter supply and an inflationary environment, with prices
of certain raw materials, particularly PVC resin, rising significantly in
2021. However, we have continued to secure the raw materials we require and we
expect past constraints to ease over the coming months. We have also recovered
raw material cost inflation with selling price increases and surcharges.
Our market-leading recycling plants also supported continuity of supply of
resin in tight markets, whilst continuing to improve the proportion of
recycled material used in our primary extrusion operations. These plants
supplied 27% of our raw material consumption for the year (2020: 25%), driving
significant cost and carbon savings compared to the use of virgin material
(see Recycling below).
Availability of the incremental operational labour we needed to service strong
demand in 2021 was very tight, and we also experienced an elevated level of
absence through the summer months due to employees being required to
self-isolate. In addition, in the light of a well-publicised shortage of HGV
drivers in the UK, our outsourced transport provider faced challenges
providing the required number of vehicles to service higher than expected
sales. However, the decisive action we took during the year to secure more
labour and transport ensured that we have the resources necessary to operate
efficiently and support our growth aspirations for revenue and margins.
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
• Expand the branch network
• Increase the use of recycled materials
• Develop innovative new products
• Explore potential bolt-on acquisition opportunities
• Deliver sustained operational excellence
• Develop a sector-leading digital proposition
We have made good progress with our strategic priorities in 2021, with the key
aspects described throughout this report.
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 18%. Our objective is to increase this to at least
22% over the medium term. See the Profiles Divisional Review for further
information on our progress.
Expand the branch network
Our strategic objective for Building Plastics is to achieve sector-leading
operations from 270-300 sites. The growth will come by taking business from
independent operators, who currently have more than 60% market share. We
opened 12 new branches in 2021, resulting in a total estate of 219 sites. See
the Building Plastics Divisional Review for further information on our
progress.
Increase the use of recycled material
In 2021 we increased our use of recycled material to 27% of materials consumed
(2020: 25%). Our objective is to increase this to around 33% over the next few
years. See Sustainability for further information on our progress.
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.
Particularly for new build, we have been cooperating on product designs to
meet technical compliance with Future Homes building regulations, which come
into force in 2022, with a further upgrade in 2025.
Highlights for 2021 include:
• Development of the Aspect bi-fold door system to include flush French doors,
which complement our Modus and Logik range of flush sash windows.
• Following the launch of our slate-effect Envirotile composite roof tiles in
2020, we have now extended the offering to include a solid tiled Equinox
conservatory roof.
• Skypod Plus was added to the Skypod roof lantern range in 2021, with improved
architectural aesthetics.
• Composite fencing products, made from sustainable materials, have been added
to our decking range.
• Following the launch of the Kyube garden room in 2020, the range was expanded
in 2021 to reflect continuing strong demand for affordable extra work and
leisure space at home.
Outdoor living products have been one of our strongest growth categories in
2021, with sales of £8.6 million compared to £5.6 million in 2020 and £2.9
million in 2019. Conservatories, warm roofs, fencing and decking have all been
particularly strong, alongside new products such as garden rooms. Building on
this success, looking forward to 2022 we will be launching a new range of
modern conservatories, alongside other garden products such as pergolas and
awnings.
Explore potential bolt-on acquisitions
We have completed six acquisitions since our IPO in 2015. This remains an
important strategic objective for the Group and we will continue to assess and
consider bolt-on acquisition opportunities in the markets in which we operate
as and when they arise.
Deliver sustained operational excellence
In 2021 we introduced a new strategic priority to 'deliver sustained
operational excellence'. Through 2016-19, the success of our commercial
strategies resulted in a strong compound annual growth rate in sales of 12%,
which is well-ahead of our markets. However, profits for that period were
impacted by sales running substantially ahead of our expectations, thereby
exceeding the available operating capacity and leading to inefficiencies and
extra costs.
Manufacturing and warehousing constraints have now been resolved through major
investments in new capacity. Transition to the new warehouse was completed
successfully in 2021, against a background of record volumes and supply chain
disruption. As well as being central to increasing capacity, the facility is
key to delivering further improvements in operational efficiencies as the new
plant, systems and processes become embedded.
The new warehouse has also unlocked the operational footprint for the whole
Group. In 2021, we converted our old warehouse to a specialist manufacturing
site, relocating secondary operations, including foiling and conservatory
roofs, providing a better environment to drive these businesses forward. This
also freed up space to future-proof extrusion capacity for the medium-term.
We increased our extrusion capacity by more than 20% in 2018/19. With ongoing
strong growth, we completed a further expansion in 2021, with the addition of
five new extrusion lines, along with the associated mixing plant upgrade and
tooling. With space now available, we plan to add a further five lines in
2022. Together, these investments increase extrusion capacity by more than 15%
compared to the end of 2020, thereby enabling future sales and market share
growth.
Our focus in 2022 will be on delivering improved operating efficiencies from
the new warehouse and production facilities. Looking ahead, with constraints
resolved, we expect the benefit of our strong sales growth to flow through to
improved margins.
Develop a sector-leading digital proposition
Also in 2021, we introduced a new strategic priority to '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.
During the year we selected platforms for a new website, product information
management system, e-commerce solution and employee management system.
Development is under way, with these systems expected to launch in 2022 and
2023.
SUSTAINABILITY
Sustainability strategy and KPIs
During 2021 we published our sustainability strategy. Our objective is to
continue to improve the sustainability of the Group. We have defined a suite
of environmental and social targets and KPIs against which to measure our
progress.
Our KPIs recognise the breadth of the Environmental, Social and Governance
('ESG') agenda. Taking into account the specific circumstances of 2021, we
made good progress against these targets in the year.
However, increasing our use of recycled PVC compound in the manufacture of
co-extruded rigid profiles will always be at the heart of sustainability for
Eurocell, and therefore this Chief Executive's Review is focused on our
environmental targets. The full suite of KPIs and commentary on our 2021
performance is set out in the Responsible Business section of the Annual
Report.
Recycling (circular economy)
Expanding recycling improves product and business sustainability, with less
plastic going to landfill. Closed-loop recycling (where windows being replaced
are recycled into the new product) is attractive to decision makers such as
local authorities and architects, which helps us develop tight specifications
for our products. Recycling also increases our profits, because the cost of
recycled compound is typically lower through the cycle than the price of
virgin material, and it reduces our exposure to volatile commodity prices.
This is very important at the moment, with the price of virgin resin reaching
historic high levels in 2021.
We have been investing to increase our recycling capability through the
expansion of our two market-leading recycling plants and by investment in new
co-extrusion tooling, which allows a greater proportion of recycled material
to be used in our products.
We have become 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 27%
of consumption (or 16.8k tonnes) in 2021. In doing so, in 2021 we saved the
equivalent of more than 3 million end-of-life window frames from landfill.
Overall, we estimate that our recycling operation saved more than 48k tonnes
of carbon in the year compared to the use of virgin PVC (equivalent to the
annual CO(2) output of over 7,000 UK homes). In terms of economic benefits, in
2021 our recycling operation drove a substantial cost saving compared to the
use of virgin PVC compound, reflecting increased volumes and much higher
prices for virgin compound.
In addition, substantially all scrap generated in extrusion is recycled back
into our production processes, further reducing waste sent to landfill.
Emissions and energy management
Central to our environmental targets is reducing the carbon footprint of the
business and our products. Our target is to deliver a 5% reduction in both the
energy use intensity ratio and emissions intensity ratio by 2025, compared to
the 2020 baseline.
The emissions intensity ratio was 51 tCO₂e per £m sales in 2021, resulting
in a 27% reduction compared to 2020. The energy use intensity ratio was £222
MWh / £m sales in 2021, representing a 17% reduction compared to 2020.
The main drivers for these reductions in emissions and energy usage ratios are
the increasing proportion of renewable electricity in the national mix,
alongside the improving energy efficiency of our own plant and machinery
reflecting our recent investments (new extrusion lines are significantly more
efficient than our legacy fleet).
Responsible PVC sector
There are a number of major initiatives in progress across the PVC industry to
address sustainability challenges, which Eurocell is proud to support. These
initiatives look through the value chain at extraction and refining of raw
materials, energy production and supply, and resource inputs and emissions.
There is also a strong sector focus on recycling, and on seeking to
differentiate between short life single-use plastics and those with longer
more circular life cycles.
For example, VinylPlus 2030 is a 10-year commitment from the European PVC
industry to a framework of sustainable development. The British Plastics
Federation ('BPF') has established targets to increase energy efficiency and
reduce CO₂ emissions, and launched Operation Clean Sweep, an initiative to
reduce plastic pellet loss to the environment.
Eurocell is also aligned with the Ellen MacArthur Foundation New Plastics
Vision, which seeks to: (i) eliminate the plastics we do not need, (ii)
innovate to ensure the plastics we do use can be recycled and (iii) circulate
the plastics we use, to keep them in the economy and out of the environment.
Inovyn is Europe's leading chlorovinyls producer and the largest supplier of
PVC resin to UK window profile systems houses, including Eurocell. They are
focused on sustainable development, including responsible production, carbon
neutrality and circularity. Inovyn's carbon footprint for PVC is well below
the industry average.
Inovyn has now launched the world's first commercially produced bio-attributed
PVC (Biovyn), made using renewable feedstock derived via wood-based residue
from sustainable forestry. The supply chain for Biovyn has been certified by
the Roundtable on Sustainable Biomaterials to deliver a 90% greenhouse gas
saving compared to conventional PVC.
Products such as Biovyn provide the potential for our longer-term transition
towards carbon neutrality and net zero for PVC. We intend to begin trials
using small quantities of Biovyn in our primary extrusion processes in 2022.
Looking to a sustainable future
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.
• Governance - reporting progress against published ESG targets and aligning
with recognised sustainability indices.
SUMMARY AND OUTLOOK
We entered 2021 well placed to take advantage of the continued recovery in our
markets. A very good sales performance has been underpinned by the success of
our commercial strategies and high levels of demand in the RMI market, and we
are very pleased to report good profit growth and a return to the payment of
dividends.
We expect supply chain constraints to ease over the coming months, and the
actions we took last year have ensured we have the resources necessary to
operate efficiently and support our growth aspirations for revenue and
margins.
The RMI sector remains robust, new build continues to grow and customer demand
levels are good. With operating constraints resolved, our focus for 2022 will
be on delivering improved returns from our strong sales growth.
Notwithstanding the events in Ukraine and the attendant macroeconomic
uncertainties, the year has started well, with sales to the end of February up
6% on 2021. We therefore continue to see good potential to outperform our
markets and deliver further progress.
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 18%. Our strategic objective is to increase this to
at least 22% over the medium term.
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 and hardware specifications and increasing
opportunities to supply our branches, all delivered via improving service,
remain attractive to prospective fabricator accounts.
In the Profiles division, new build represents approximately one-third of
sales. Expanding our share of the new build market has been a key driver of
recent growth, driven by sales of cavity closures where we are the clear
market leader, and we believe favourable market dynamics are set to continue.
We have strong relationships with large and medium-sized housebuilders,
maintained by our specification and technical teams. Building regulations for
windows are becoming increasingly complicated and our technical teams are
working with our larger customers to enable them to conform to the
regulations, including development of new product applications to meet
changing requirements. In addition, with a focus on sustainability, we believe
our use of recycled material is becoming increasingly attractive to
housebuilders.
In the commercial sector, energy efficiency and lower cost underpin a strong
case for the benefits of using PVC profile over aluminium, particularly in
sub-sectors such as private rentals, build-to-rent, purpose-built student
accommodation, education and local authority refurbishment - all habitual
users of aluminium.
2021 2020 Change 2019 Change
£m £m % £m %
Third-party revenue 140.7 99.7 41% 115.7 22%
Inter-segmental revenue 63.9 56.4 13% 59.5 7%
Total revenue 204.6 156.1 31% 175.2 17%
Adjusted operating profit((1)) 20.7 7.9 162% 17.9 16%
Operating profit/(loss) 20.7 (1.0) n/a 17.9 16%
(1) Before non-underlying items (no non-underlying items in 2019 and
2021).
Revenue
Profiles third-party revenue for the year was £140.7 million, 41% higher than
2020 and up 22% on 2019. We have seen good contributions from trade
fabricators, who are substantially focused on the RMI market, and a very
strong performance from Vista doors. New build has also enjoyed good sales,
with increasing housing market activity supported by continued high levels of
mortgage approvals and demand.
During the last five years we have added 75 new accounts, and our prospect
pipeline remains good.
Operating profit
Adjusted operating profit for 2021 was £20.7 million, 162% higher than 2020
and up 16% on 2019, with the growth against both prior periods reflecting
higher sales volumes.
The adjusted operating profit in 2020 is net of support received under the
Coronavirus Job Retention Scheme (c.£3.5 million), offset by an increase to
the IFRS 9 impairment charge (bad debts) in respect of certain fabricator
customers (£0.7 million). The overall operating loss of £1.0 million is
stated after non-underlying charges of £8.9 million, comprising the
impairment of goodwill (£5.8 million), the impairment of right-of-use assets
(£0.6 million), warehouse dual running costs (£2.3 million) and
restructuring costs (£0.2 million). Further information on non-underlying
charges is included in the Chief Financial Officer's Review.
BUILDING PLASTICS
Strategy
Our strategic objective for Building Plastics is to achieve world class
operations from 270-300 sites. The growth will come mostly from independent
operators, who currently have more than 60% market share.
Our goal is to be recognised as first for service for the tradesperson,
seamlessly connecting the customer shopping journey from online through to the
branches, with clear data-driven customer engagement plans (including
targeting lapsed customers) and through the development of a sector-leading
digital platform.
In terms of products, we intend to create the market leading proposition,
including a redesigned best-in-class conservatory offering, and to exploit a
significant market opportunity to extend our outdoor living product range,
including decking, fencing and garden rooms.
In the existing estate, we are now testing an improved format for standard
size branches, which better showcases the breadth of our range. We will also
continue to identify opportunities for large format stores, with an expanded
trade counter and showroom-style displays designed to engage customers and
drive big-ticket purchases, such as windows and doors. This follows successful
trials of this format in 2019/20.
We also continue to test an opportunity to develop and implement a
sector-leading consumer online windows and doors proposition, using the branch
network to provide infrastructure where needed (e.g. delivery point for
installers). We began a trial in the North West towards the end of 2020. This
proposition aligns well with our commercial strategy of continuing to create
pull-through demand for our products, and we will provide a progress update in
due course.
2021 2020 Change 2019 Change
£m £m % £m %
Third-party revenue 202.4 158.2 28% 163.4 24%
Inter-segmental revenue 0.5 1.3 (62)% 1.3 (62)%
Total revenue 202.9 159.5 27% 164.7 23%
Adjusted operating profit((1)) 11.9 4.0 198% 8.6 38%
Operating profit 11.9 3.4 250% 8.6 38%
(1) Before non-underlying items (no non-underlying items in 2019 and
2021).
(2) Like-for-like excludes new branches opened in 2019/20/21.
Revenue
Building Plastics third-party revenue for the year was £202.4 million, 28%
higher than 2020 and up 24% on 2019. This is equivalent to like-for-like((2))
sales growth of 20% compared to 2019, representing a strong performance across
our full range of own-manufactured products and traded goods.
We opened 12 branches in total in 2021, with 8 new standard format branches,
and 4 the new larger format. We are also making good progress reducing the
time taken to reach break-even in new stores. At 31 December 2021, we had a
total of 219 branches providing national coverage across the UK, which offers
a significant competitive advantage. Branches opened in 2019/20/21 added £6.0
million to sales in 2021.
Operating profit
Adjusted operating profit for 2021 was £11.9 million, 198% higher than 2020
and up 38% on 2019, with the profit growth against both prior periods
reflecting strong sales and good cost control.
The adjusted operating profit in 2020 is net of support received, including
the Coronavirus Job Retention Scheme (£3.0 million) and retail grants /
business rates relief (£1.8 million), offset by an increase to the IFRS 9
impairment charge (bad debts) to reflect higher risk in the Building Plastics
receivables book (£1.5 million). The overall operating profit in 2020 of
£3.4 million is stated after non-underlying costs of £0.6 million,
comprising right-of-use asset impairment charges (£0.3 million) and
restructuring costs (£0.3 million). Further information on non-underlying
charges is included in the Chief Financial Officer's Review.
CHIEF FINANCIAL OFFICER'S REVIEW
2021 2020 2019
£m £m £m
Revenue 343.1 257.9 279.1
Gross profit 173.4 127.4 142.9
Gross margin % 50.5% 49.4% 51.2%
Overheads (122.4) (93.9) (99.0)
IFRS 9 impairments 0.7 (3.7) (1.5)
Adjusted((1)) EBITDA 51.7 29.8 42.4
Depreciation and amortisation (22.7) (19.5) (17.8)
Adjusted((1)) operating profit 29.0 10.3 24.6
Finance costs (2.0) (1.8) (1.9)
Adjusted((1)) profit before tax 27.0 8.5 22.7
Taxation (5.9) (1.5) (3.4)
Adjusted((1)) profit after tax 21.1 7.0 19.3
Adjusted((1)) basic earnings per share (pence per share) 18.9 6.5 19.3
Non-underlying items - (10.0) -
Tax on non-underlying items - 0.8 -
Reported operating profit 29.0 0.7 24.6
Reported profit/(loss) before tax 27.0 (1.5) 22.7
Reported profit/(loss) after tax 21.1 (2.2) 19.3
Reported basic earnings/(losses) per share (pence) 18.9 (2.0) 19.3
(1) See alternative performance measures.
INTRODUCTION
Our effective response to the challenges of supply chain disruption, major raw
material cost inflation and tight labour markets has allowed the business to
capitalise on the continued strength in the RMI market and report good
financial results for 2021.
REVENUE
Revenue for 2021 was £343.1 million, 33% higher than 2020 (£257.9 million)
and up 23% on 2019 (£279.1 million). Growth compared to 2019 is comprised of
15% from volume and 8% from selling price increases / surcharges.
We experienced an inflationary environment in 2021, with prices for certain
raw materials, particularly PVC resin increasing significantly. We recovered
these higher costs through our market-leading recycling plants, as well as
through selling price increases and a surcharge adjusted monthly in response
to cost changes, with selling price inflation becoming a larger component of
sales growth as the year progressed.
Growth compared to 2019 is also equivalent to a like-for-like increase of 21%,
representing a strong performance across the business. Like-for-like excludes
new branches opened in 2019/20/21.
GROSS MARGIN
Gross margin for the year was 50.5%, up from 49.4% in 2020 but down 70 basis
points compared to 2019. As described above, the surcharge successfully
recovered the higher material costs in 2021, and is therefore broadly neutral
to profit, but it is dilutive to the margin percentage.
DISTRIBUTION COSTS AND ADMINISTRATIVE EXPENSES (OVERHEADS) AND IFRS 9
IMPAIRMENTS
Overheads and IFRS 9 impairments were together £121.7 million, up 25% on
underlying costs in 2020 (£97.6 million) and 21% higher than 2019 (£100.5
million), reflecting higher production and sales volumes.
Underlying overheads in 2020 included COVID-related UK Government support of
£8.3 million, comprising receipts under the Job Retention Scheme of £6.5
million, retail grants of £0.7 million and retail rates relief of £1.1
million. Overheads in 2021 include retail rates relief of £1.0 million.
Following the first COVID-19 lockdown, we assessed the level of customer
credit risk to have increased materially. As a result, IFRS 9 impairment
charges of £3.7 million were reflected in the underlying income statement
2020. Subsequently, cash receipts have been good and the ageing profile in our
ledgers has improved, and consequently an IFRS 9 credit of £0.7 million has
been recorded in 2021.
DEPRECIATION AND AMORTISATION
Depreciation and amortisation was £22.7 million compared to an underlying
charge of £19.5 million in 2020 (reported: £20.8 million) and £17.8 million
in 2019.
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
No non-underlying items were recognised in 2021 and 2019.
Non-underlying items for 2020 of £10.0 million included a non-cash goodwill
impairment charge of £5.8 million, right-of-use asset impairment charges of
£0.9 million, restructuring costs of £0.6 million and warehouse dual-running
costs of £2.7 million.
FINANCE COSTS AND TAXATION
Finance costs for 2021 were £2.0 million, compared to £1.8 million in 2020
on an underlying basis and £2.2 million in total, with £0.4 million of IFRS
16 lease interest classified as non-underlying in 2020, as it related to
warehouse dual-running costs (see Non-underlying items).
The tax charge for 2021 was £5.9 million (2020: £1.5 million on an
underlying basis, and £0.7 million in total). The effective tax rate on
underlying profit before tax for 2021 of 22.0% is higher than the standard
rate of corporation tax of 19% due to the impact of the change in the standard
rate that will take effect in 2023 on the measurement of deferred taxes.
The effective underlying tax rate in 2020 of 17.6% was lower than the standard
rate of 19%, due to the benefit of Patent Box relief. The effective tax rate
on non-underlying items was 7.0% due to the £5.8 million goodwill impairment
charge being non-deductible for tax purposes.
We were pleased to retain the Fair Tax Mark accreditation in 2021, reflecting
our commitment to paying the right amount of tax at the right time.
PROFIT/(LOSS) BEFORE TAX AND EARNINGS/(LOSSES) PER SHARE
The profit before tax for the year was £27.0 million compared to an adjusted
profit before tax of £8.5 million in 2020 and a profit before tax of £22.7
million in 2019. Improved profits compared to 2020 and 2019 reflect higher
sales volumes.
The reported loss before tax in 2020 was £1.5 million.
Basic earnings per share for the year were 18.9 pence (2020: adjusted basic
earnings per share of 6.5 pence; 2019: 19.3 pence), reflecting the increase in
the weighted average number of shares issued (2021: 111.7 million shares;
2020: 108.2 million shares; 2019: 100.3 million shares). Reported basic losses
per share for 2020 were 2.0 pence.
Diluted earnings per share for the year were 18.8 pence (2019: 19.2 pence). As
a loss was recorded in 2020, share options were not considered to have a
dilutive effect.
DIVIDENDS
We paid an interim dividend 3.2 pence per share in October 2021 (£3.6
million). The Board proposes a final dividend of 6.4 pence per share, taking
total dividends for the year to 9.6 pence, or £10.8 million (2019: 3.2 pence
or £3.2 million). The dividend will be paid on 18 May 2022 to Shareholders
registered at the close of business on 22 April 2022. The ex-dividend date
will be 21 April 2022.
Retained earnings as at 31 December 2021 were £83.1 million (2020: £65.5
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 2021 was £16.7 million (2020: £13.7 million). 2021
includes c.£7 million to expand manufacturing capacity across a number of key
product lines, c.£2 million to increase logistics capability and c.£2
million for new branches. Other capital expenditure in the period of c.£6
million includes recycling, branch refurbishments, IT and maintenance capex.
CASH FLOW
Net cash generated from operating activities was £29.6 million (2020: £32.9
million).
A net outflow from working capital for 2021 of £19.4 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 £17.8
million, an increase in trade and other receivables of £6.0 million and an
increase in trade and other payables of £4.4 million. For stocks, the
inflation impact alone is c.£7 million, with the year-on-year increase also
including a build in Q4, when PVC resin was readily available, providing an
opportunity to protect against any adverse impact from COVID-19 isolations in
Q1 2022. This compares to a net inflow from working capital of £4.7 million
in 2020.
Other items include payments for capital investments of £15.5 million (2020:
£14.0 million) and financing costs paid of £0.6 million (2020: £0.7
million). Tax paid in the year was £3.5 million (2020: £1.0 million).
Dividends of £3.6 million were paid in the year (none paid in 2020).
The principal elements of lease payments of £10.1 million (2020: £10.7
million) are presented within cash flows arising from financing activities.
The finance elements of lease payments were £1.2 million (2020: £1.3
million).
NET DEBT
Net debt on a pre-IFRS 16 basis at 31 December 2021 was £11.0 million (31
December 2020: £9.9 million).
Lease liabilities increased by £10.3 million. Reported net debt at 31
December 2021 was £69.7 million (31 December 2020: £58.3 million).
2021 2020 Change
£m £m £m
Cash 6.6 7.1 (0.5)
Bank overdrafts (5.9) (4.5) (1.4)
Borrowings (11.7) (12.5) 0.8
Net debt (pre-IFRS 16) (11.0) (9.9) (1.1)
Lease liabilities (58.7) (48.4) (10.3)
Net debt (reported) (69.7) (58.3) (11.4)
BANK FACILITY
We have an unsecured Revolving Credit Facility ('RCF') of £75 million which
matures at the end of 2023. In 2020 we converted the facility into a
Sustainable RCF, where modest adjustments to the margin are applied based on
our achievement against annual recycling targets. We were pleased to meet our
target for 2021, and plan to invest the interest saved in
sustainability-related initiatives.
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 2021
Year ended 31 December 2021 Year ended 31 December 2020
Underlying ((1))Non- Total Underlying ((1))Non- Total
underlying underlying
Note £m £m £m £m £m £m
Revenue 3 343.1 - 343.1 257.9 - 257.9
Cost of sales (169.7) - (169.7) (130.5) - (130.5)
Gross profit 173.4 - 173.4 127.4 - 127.4
Distribution costs (24.5) - (24.5) (15.8) - (15.8)
Administrative expenses (120.6) - (120.6) (97.6) (3.8) (101.4)
Impairment of goodwill((2)) - - - - (5.8) (5.8)
IFRS 9 impairments((2)) 0.7 - 0.7 (3.7) - (3.7)
Operating profit 3 29.0 - 29.0 10.3 (9.6) 0.7
Finance expense (2.0) - (2.0) (1.8) (0.4) (2.2)
Profit/(loss) before tax 3 27.0 - 27.0 8.5 (10.0) (1.5)
Taxation 4 (5.9) - (5.9) (1.5) 0.8 (0.7)
Profit/(loss) for the year and total comprehensive income/(expense) 21.1 - 21.1 7.0 (9.2) (2.2)
Basic earnings/(losses) per share 5 18.9p 18.9p 6.5p (2.0)p
Diluted earnings/(losses) per share 5 18.8p 18.8p 6.5p (2.0)p
(1) Non-underlying items in 2020 are detailed in Note 2.
(2) The impairment of goodwill and IFRS 9 impairments have been disclosed
on the face of the Consolidated Statement of Comprehensive Income due to the
material nature of the credits/(charges).
Consolidated Statement of Financial Position
As at 31 December 2021
2021 2020
£m £m
Assets
Non-current assets
Property, plant and equipment 59.2 50.8
Right-of-use assets 54.8 47.0
Intangible assets 18.6 19.9
Total non-current assets 132.6 117.7
Current assets
Inventories 55.9 38.1
Trade and other receivables 44.5 38.5
Cash and cash equivalents 6.6 7.1
Total current assets 107.0 83.7
Total assets 239.6 201.4
Liabilities
Current liabilities
Trade and other payables (48.7) (42.8)
Lease liabilities (11.9) (8.9)
Bank overdrafts (5.9) (4.5)
Provisions (0.7) (0.8)
Corporation tax - (0.7)
Total current liabilities (67.2) (57.7)
Non-current liabilities
Borrowings (11.7) (12.5)
Trade and other payables (0.3) (0.3)
Lease liabilities (46.8) (39.5)
Provisions (0.8) (0.7)
Deferred tax (6.6) (3.5)
Total non-current liabilities (66.2) (56.5)
Total liabilities (133.4) (114.2)
Net assets 106.2 87.2
Equity attributable to equity holders of the parent
Share capital 0.1 0.1
Share premium account 21.9 21.1
Share-based payment reserve 1.1 0.5
Retained earnings 83.1 65.5
Total equity 106.2 87.2
Consolidated Cash Flow Statement
For the year ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Note £m £m
Cash generated from operations 7 33.1 33.9
Income taxes paid (3.5) (1.0)
Net cash generated from operating activities 29.6 32.9
Investing activities
Purchase of property, plant and equipment (15.1) (13.8)
Purchase of intangible assets (0.4) (0.2)
Net cash used in investing activities (15.5) (14.0)
Financing activities
Proceeds from new share capital issued 0.5 19.2
Costs relating to the issuance of new shares - (0.5)
Repayment of bank and other borrowings (1.0) (27.2)
Principal elements of lease payments (10.1) (10.7)
Finance elements of lease payments (1.2) (1.3)
Finance expense paid (0.6) (0.7)
Dividends paid to equity Shareholders 6 (3.6) -
Net cash used in financing activities (16.0) (21.2)
Net decrease in cash and cash equivalents (1.9) (2.3)
Cash and cash equivalents at beginning of year 2.6 4.9
Cash and cash equivalents at end of year 0.7 2.6
Consolidated Statement of Changes in Equity
For the year ended 31 December 2021
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
Share Share-based
Share premium payment Retained Total
capital account reserve earnings equity
£m £m £m £m £m
Balance at 1 January 2020 0.1 2.4 0.9 67.1 70.5
Comprehensive expense for the year
Loss for the year - - - (2.2) (2.2)
Total comprehensive expense for the year - - - (2.2) (2.2)
Contributions by and distributions to owners
Share capital issued - 17.1 - - 17.1
Exercise of share options - 1.6 (0.6) 0.6 1.6
Share-based payments - - 0.3 - 0.3
Deferred tax on share-based payments - - (0.1) - (0.1)
Total transactions with owners recognised directly in equity - 18.7 (0.4) 0.6 18.9
Balance at 31 December 2020 0.1 21.1 0.5 65.5 87.2
1 BASIS OF PREPARATION
The financial information for the year ended 31 December 2021 was approved by
the Board on 17 March 2022. 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 international accounting standards in conformity
with the requirements of the Companies Act 2006 ('IFRS') and the applicable
legal requirements of the Companies Act 2006. On 31 December 2020, IFRS as
adopted by the European Union at that date was brought into UK law and became
UK adopted international accounting standards, with future changes being
subject to endorsement by the UK Endorsement Board. The Group transitioned to
UK-adopted international accounting standards in its Consolidated Financial
Statements on 1 January 2021. There were no changes in accounting policies
arising from the transition, and therefore no impact on recognition,
measurement or disclosure in the periods reported.
This information has been prepared under the historical cost method, using all
standards and interpretations required for financial periods beginning 1
January 2021. 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 2020 have been delivered to
the Registrar of Companies. Statutory accounts for the year ended 31 December
2021 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 ('RCF'), provided by Barclays and HSBC, which matures in December
2023. The facility includes two key financial covenants, which are tested at
30 June and 31 December on a pre-IFRS 16 basis. These are that net debt should
not exceed 3 times adjusted EBITDA (Leverage), and that adjusted EBITDA should
be at least 4 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 in the Chief
Financial Officer's Review.
For the next measurement period, being 31 December 2021, 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
'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 2022-24, 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 these 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 2021, with no material impact:
• Interest Rate Benchmark Reform - Phase 2 - amendments to IFRS 9, IAS 39, IFRS
7, IFRS 4 and IFRS 16; and
• COVID-19-Related Rent Concessions - amendments to IFRS 16.
Certain new accounting standards, amendments to accounting standards and
interpretations have been published that are not mandatory for 31 December
2021 reporting periods and have not been early adopted by the Group. 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:
2021 2020
£m £m
Impairment of goodwill - 5.8
Impairment of right-of-use assets - 0.9
Warehouse dual-running costs - 2.3
Restructuring costs - 0.6
Non-underlying operating expenses - 9.6
Finance expense - 0.4
Total non-underlying expenses - 10.0
Tax on non-underlying expenses - (0.8)
Impact on profit after tax - 9.2
There were no non-underlying items in the current year.
Goodwill impairment charge
The goodwill in respect of Eurocell Recycle North ('ERN', formerly Ecoplas)
was impaired in full in 2020, leading to a non-underlying charge of £5.8m.
This charge arose as a result of lower projected short-term cash flows than
previously expected, reflecting the impact of COVID-19 on selling prices,
customer demand and production volumes (and therefore profitability) of the
ERN Cash Generating Unit.
Right-of-use assets impairment charge
Right-of-use assets impairment charges were made in respect of a small number
of loss-making branches and a number of leased assets no longer required
following transition to the new warehouse. In total, right-of-use asset
impairment charges amounted to £0.9 million in 2020. The majority of the
lease contracts in relation to these assets have subsequently been terminated.
Warehouse dual-running costs
In January 2020 the Group entered into a lease arrangement for a new warehouse
and Head Office facility close to its primary manufacturing operations. The
warehouse was fitted-out during the year and was brought into active service
in early 2021. Certain costs incurred during the fit-out process in 2020, such
as IFRS 16 lease charges (including the related IFRS 16 finance expense),
rates and other property-related costs were classified as non-underlying, as
the warehouse was not operational in 2020, and therefore not contributing to
the underlying performance of the business in that period.
Restructuring costs
Restructuring costs in 2020 relate to redundancies, with 35 roles impacted at
a one-off cost of £0.6 million in the second half of 2020. These costs were
classified as non-underlying as they related to roles that no longer exist
within the organisation and therefore would not reoccur in future reporting
periods.
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 Security Hardware, 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.
Profiles Building Plastics Corporate Total
2021 2021 2021 2021
£m £m £m £m
Revenue
Total revenue 204.6 202.9 - 407.5
Inter-segmental revenue (63.9) (0.5) - (64.4)
Total revenue from external customers 140.7 202.4 - 343.1
EBITDA((1)) 31.8 20.8 (0.9) 51.7
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 11.9 (3.6) 29.0
Finance expense (2.0)
Profit before tax 27.0
((1)) Included within EBITDA are IFRS 9 impairment credits of £1.0 million
(Profiles) and charges of £0.3 million (Building Plastics).
Profiles Building Plastics Corporate Total
2020 2020 2020 2020
£m £m £m £m
Revenue
Total revenue 156.1 159.5 - 315.6
Inter-segmental revenue (56.4) (1.3) - (57.7)
Total revenue from external customers 99.7 158.2 - 257.9
Adjusted EBITDA((2)) 16.5 12.7 0.6 29.8
Amortisation of intangible assets - - (1.6) (1.6)
Depreciation of property, plant and equipment (5.1) (1.1) (0.6) (6.8)
Depreciation of right-of-use assets (3.5) (7.6) - (11.1)
Adjusted operating profit 7.9 4.0 (1.6) 10.3
Impairment of goodwill (5.8) - - (5.8)
Non-underlying operating expenses (3.1) (0.6) (0.1) (3.8)
Operating (loss)/profit (1.0) 3.4 (1.7) 0.7
Finance expense (2.2)
Loss before tax (1.5)
((2)) Included within EBITDA are IFRS 9 impairment and bad debt charges of
£3.7 million (Profiles £1.7 million; Building Plastics £2.0 million).
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
Profiles Building Corporate Total
Plastics
2020 2020 2020 2020
£m £m £m £m
Additions to plant, property, equipment and intangible assets 12.3 0.9 0.5 13.7
Segment assets((3)) 116.6 64.9 19.9 201.4
Segment liabilities (57.6) (32.9) (7.0) (97.5)
Borrowings (12.5)
Corporation tax payable (0.7)
Deferred tax liability (3.5)
Total liabilities (114.2)
Total net assets 87.2
((3)) Adjusted to reflect a more consistent classification between the
segments.
Geographical information
Revenue Non-current assets Revenue Non-current assets
2021 2021 2020 2020
£m £m £m £m
United Kingdom 341.6 132.6 256.3 117.7
Republic of Ireland((4)) 1.5 - 1.6 -
Total 343.1 132.6 257.9 117.7
((4)) Non-current assets in the Republic of Ireland are less than £50,000.
4 TAXATION
2021 2020
£m £m
Current tax expense/(credit)
Current tax on profits/(losses) for the year 2.7 (0.1)
Adjustment in respect of prior years 0.1 -
Total current tax 2.8 (0.1)
Deferred tax expense
Origination and reversal of temporary differences 2.2 0.5
Adjustment in respect of change in rates 0.9 0.1
Adjustment in respect of prior years - 0.2
Total deferred tax 3.1 0.8
Total tax expense 5.9 0.7
The reasons for the difference between the actual current tax charge/(credit)
for the year and the standard rate of corporation tax in the United Kingdom
applied to profits/(losses) for the year are as follows:
2021 2020
£m £m
Profit/(loss) before tax 27.0 (1.5)
Expected tax charge based on the standard rate of corporation tax in the UK of 5.1 (0.3)
19.0%
Taxation effect of:
Expenses not deductible for tax purposes 0.5 0.4
Capital allowance super-deduction utilised (0.7) -
Impairment of goodwill not deductible for tax purposes - 1.1
Patent Box claims - (0.7)
Deferred tax impact of share-based payments 0.2 -
Tax impact of share-based payments recognised in equity - (0.1)
Adjustments in respect of prior years 0.1 -
Tax effect of accelerated capital allowances (2.4) (0.5)
Total tax expense/(credit) 2.8 (0.1)
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:
2021 2020
£m £m
Profit/(loss) before tax 27.0 (1.5)
Expected tax charge based on the standard rate of corporation tax in the UK of 5.1 (0.3)
19.0%
Taxation effect of:
Expenses not deductible for tax purposes 0.5 0.4
Capital allowance super-deduction utilised (0.7) -
Impairment of goodwill not deductible for tax purposes - 1.1
Patent Box claims - (0.7)
Adjustments in respect of prior years 0.1 0.2
Tax on share-based payments recognised in equity - (0.1)
Adjustment in respect of change in rates 0.9 0.1
Total tax expense 5.9 0.7
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. Consequently, deferred taxes have been
remeasured 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 (2020: £110,000).
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 £1.5 million (2020: £1.6 million), total assets of less than
£50,000 (2020: below £50,000) and 8 full-time employees (2020: 8 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 2021 is €nil (2020: €1,000)
and no tax payments were made during the year (2020: €1,000). 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 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.
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.
2021 2020
£m £m
Profit/(loss) attributable to ordinary shareholders 21.1 (2.2)
Profit attributable to ordinary shareholders excluding non-underlying items 21.1 7.0
Number Number
Weighted average number of shares - basic 111,709,049 108,218,827
Weighted average number of shares - diluted 112,219,319 108,218,827
Pence Pence
Basic earnings/(losses) per share 18.9 (2.0)
Adjusted basic earnings per share 18.9 6.5
Diluted earnings/(losses) per share 18.8 (2.0)
Adjusted diluted earnings per share 18.8 6.5
6 DIVIDENDS
2021 2020
£m £m
Dividends paid during the year
Interim dividend for 2021 of 3.2p per share 3.6 -
Dividends proposed
Final dividend for 2021 of 6.4p per share 7.2 -
7 RECONCILIATION OF PROFIT/(LOSS) AFTER TAX TO CASH GENERATED FROM OPERATIONS
2021 2020
£m £m
Profit/(loss) after tax 21.1 (2.2)
Taxation 5.9 0.7
Finance expense 2.0 2.2
Operating profit 29.0 0.7
Adjustments for:
Depreciation of property, plant and equipment 7.7 6.8
Depreciation of right-of-use assets 13.1 12.4
Amortisation of intangible assets 1.9 1.6
Impairment of goodwill - 5.8
Impairment of right-of-use assets (0.4) 0.9
Share-based payments 1.2 0.3
Increase in inventories (17.8) (0.8)
(Increase)/decrease in trade and other receivables (6.0) 2.4
Increase in trade and other payables 4.4 3.1
Increase in provisions - 0.7
Cash generated from operations 33.1 33.9
8 EVENTS AFTER THE BALANCE SHEET DATE
The Directors are not aware of any material events that have occurred after 31
December 2021 which would require disclosure under IAS 10.
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