REG - Genuit Group PLC - Final Results
14/03/2023 07:00
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RNS Number : 8144S Genuit Group PLC 14 March 2023
14 March 2023
Genuit Group plc
Audited results for the year ended 31 December 2022
Delivering a strong foundation for future growth
Genuit Group plc ("Genuit", the "Company" or the "Group"), the UK's largest
value-added manufacturer of sustainable water, climate and ventilation
products for the built environment, today announces its audited results for
the year ended 31 December 2022.
Joe Vorih, Chief Executive Officer, said:
"As I reflect on my first full year as Chief Executive Officer of Genuit, I
would like to thank our talented and purpose-driven team for delivering a
record level of revenue and profit despite considerable inflation, housing
market uncertainty and supply chain disruption. As committed, we have improved
our pricing processes, begun the simplification of the business to unlock
synergies and lower structural costs, and strengthened our sustainability
leadership with the adoption of our Science-Based Targets (SBTs) and a
reduction in carbon intensity through the year.
Further, our new Sustainable Solutions for Growth strategy has been
well-received by investors and employees alike. We have put in place a new
business structure and are focusing on climate-driven long-term investment to
deliver above-market organic growth and profitability with clear mid-term
targets. While short-term market instability will likely remain through much
of 2023, our self-help measures, the Genuit Business System, and investment
for sustainability-driven growth should position us well to deliver against
our financial and strategic commitments."
Financial Results
2022 2021 Change
Statutory measures
Revenue £622.2m £594.3m 4.7%
Operating profit £53.4m £67.1m (20.4)%
Profit before tax £45.4m £62.9m (27.8)%
Basic earnings per share 14.7p 16.7p (12.0)%
Dividend per share 12.3p 12.2p 0.8%
Alternative performance measures
Underlying operating profit(1) £98.2m £95.3m 3.0%
Underlying operating margin(1) 15.8% 16.0% (20)bps
Underlying profit before tax(1) £90.6m £91.1m (0.5)%
Underlying basic earnings per share(1) 30.8p 30.6p 0.7%
Underlying cash generated from operations(2) £62.6m £57.2m 9.4%
Leverage(3) (times pro forma EBITDA(4)) 1.2 1.2 -
Financial highlights
· Revenue increase of 4.7% on a strong comparative year
· Operating performance marginally ahead of expectations
· Underlying basic earnings per share of 30.8 pence, an increase of
0.7% despite increased borrowing costs
· Strong operational cash management and balance sheet, net debt
1.2x pro forma EBITDA
· Continued strategic investment in business, capital expenditure
of £41.1m
· Increased investment in new product development, increasing
recyclate use and organisational capability augmented by simplification of the
business
· Proposed final dividend of 8.2 pence (2021: 8.2 pence), taking the
full year 2022 dividend to 12.3 pence (2021: 12.2 pence) per share
Environmental, Social and Governance
We submitted our SBTs for verification in August 2022, which are initially
based upon improvements by 2027, at which point we will re-calibrate and set
targets for the following five years. This first phase of SBTs build upon the
2025 targets which we previously published and put us on a trajectory for
being Net Zero by 2050.
We made progress against our 2025 targets in a challenging 2022 environment
with reduced Scopes 1 and 2 carbon intensity(5) despite inefficiencies caused
by lower production volume levels. Since we began to measure ourselves in this
way, we have reduced our carbon intensity by 50.2%.
Our use of recycled polymers remains broadly unchanged at 48.7% of our total
tonnage, (2021: 49.4%) and capacity to use more recyclate has recently become
available. A lower mix of underground products (there were fewer housing
starts), that have a greater recyclate content, muted further progress.
The proportion of our employees that are in structured training programmes
(e.g. apprenticeships, formal graduate programmes or sponsored students)
reached 3.5% (2021: 3.2%).
Outlook
This year has started well and has traded in line with expectations, although
we expect challenging and uncertain market conditions to continue into 2023
amongst macro-economic uncertainty, with continued lower volumes as seen in
the second half of 2022. Our expectations for the year have been based upon
the CPA Winter Forecast. If there are any deviations from this forecast, the
business has proven resilience and agility to adapt in those conditions.
However, the actions taken on pricing and the other self-help measures started
last year, including further simplification of the business, will maintain the
Group's resilience and enhance our capability to respond to improvements in
the market.
Through reinvesting these synergies in our people and growth initiatives and
keeping a continual focus on margins and cash flow, we are confident that we
will start to make measurable progress towards our mid-term commitments.
Further, our focus on climate-driven growth, leadership in sustainable
materials and enhancing the power of our people through the Genuit Business
System, will position us well for the long term. Most importantly, we are
building a strong team, with a single sustainable purpose, and look forward to
the next chapter in our Sustainable Solutions for Growth strategy.
(1) Underlying profit and earnings measures exclude certain non-underlying
items and, where relevant, the tax effect of these items. The Directors
consider that these measures provide a better and more consistent indication
of the Group's underlying financial performance and more meaningful comparison
with prior and future periods to assess trends in our financial performance.
(2) Underlying cash generated from operations is defined as cash generated
from operations, adjusted for non-underlying cash items, after movement in net
working capital and capital expenditure net of proceeds from disposals of
property, plant, and equipment.
(3) Leverage is defined as net debt divided by pro forma EBITDA. Net debt
within the leverage calculation is defined as loans and borrowings net of
unamortised issue costs less cash and cash equivalents, excluding the effects
of IFRS 16.
(4) Pro forma EBITDA is defined as underlying operating profit before
depreciation and amortisation for the 12 months preceding the balance sheet
date, adjusted, where relevant, to include a full year of EBITDA from
acquisitions made during those 12 months.
(5) Carbon intensity defined as tonnes of carbon per tonne of output using the
market-based method.
Enquiries:
Genuit +44 (0) 1138 315380
Joe Vorih, Chief Executive Officer
Paul James, Chief Financial Officer
Brunswick +44 (0) 20 7404 5959
Nina Coad
Tom Pigott
A copy of this report will be available on our website www.genuitgroup.com
(http://www.genuitgroup.com) today from 0700hrs (GMT).
There will be a presentation for analysts and investors at 0830hrs (GMT) on
Tuesday 14 March 2023 at Brunswick Group's offices, 16 Lincoln's Inn Fields,
London, WC2A 3ED. Please contact Genuit@brunswickgroup.com
(mailto:Genuit@brunswickgroup.com) to confirm your attendance.
The presentation will also be available to listen into via webcast. Please
register for access to the webcast via the following link:
https://www.investis-live.com/genuit-group/63f734d03e92bb0c00f12eac/evlot
(https://protect-eu.mimecast.com/s/j8FICD1qmUjDWKpUWzbOi?domain=investis-live.com)
We recommend you register by 0815hrs (GMT).
The webcast will be recorded and a replay will be available shortly after the
webcast ends via the same link above.
The presentation will also be available on the Reports, results and
presentation page on Genuit's website at http://investors.genuit.com/
(http://investors.genuit.com/)
Notes to Editors:
Genuit Group plc ("Genuit", the "Company" or the "Group"), a leading provider
of sustainable water, climate and ventilation products for the built
environment, is the largest manufacturer in the UK, and among the ten largest
manufacturers in Europe, of piping systems for the residential, commercial,
civils and infrastructure sectors by revenue. It is also a leading designer
and manufacturer of energy efficient solutions in water-based heating systems
in the UK.
The Group operates from thirty facilities in total and manufactures the UK's
widest range of solutions for heating, plumbing, drainage and ventilation. The
Group primarily targets the UK and European building and construction markets
with a presence in Italy and the Netherlands and sells to specific niches in
the rest of the world.
Genuit Group plc changed its name from Polypipe Group plc on 6 April 2021. The
Group was established in 1980 and has been listed on the premium segment of
the London Stock Exchange since 2014.
Group Results
The year was characterised by many themes carried over from 2021 with
continued constraints in the supply of key raw materials and cost inflation
dominant. However, more recently, there are signs that cost inflation
associated with raw materials such as prime PVC is starting to ameliorate.
Group revenue for the year ended 31 December 2022 was 4.7% higher than the
prior year at £622.2m (2021: £594.3m). On a like-for-like basis, excluding
the impact of acquisitions, revenue was 3.1% higher than the prior year. The
Group continued with price leadership in the market and began a concerted
program of restructurings to drive further cost efficiencies - both measures
offsetting to a certain extent the effects of raw material cost inflation. The
Group was also impacted in Q2 by a cyber incident that affected our production
facility in south Wales. Much work was undertaken to mitigate the effect of
the cyber incident and most lost sales were recovered in the second half of
the year. The Group has invested heavily since in further cyber defences.
The Group continued to focus on its medium-term drivers - a structural UK
housing shortage, the regulatory and environmental drivers around water and
climate management and the need for improved indoor air quality. The three
acquisitions made in February 2021 completed their first full year within the
Group. Adey has been impacted by the effects of an upstream constraint in the
supply of printed circuit boards ("PCBs") to boiler manufacturers, but we
expect this situation to improve during 2023. Partly because of this (and the
significant increase in discount rates), the Group took the decision to write
down £14.8m of goodwill and other intangibles through non-underlying results
as non-cash items.
Underlying operating profit of £98.2m was 3.0% higher than the prior year
(2021: £95.3m) and represents a record year of underlying operating profit -
with an underlying operating margin of 15.8% (2021: 16.0%).
Underlying finance costs of £7.6m (2021: £4.2m) were significantly up on the
prior year, driven by higher interest rates that grew throughout the year but
had a particular impact in the second half. Interest cover was 16.0x for the
year (2021: 31.3x).
Net debt, pre IFRS 16, was largely unchanged at £143.1m (2021: £145.1m).
Including the impact of IFRS 16, net debt was £166.2m (2021: £165.7m). Cash
conversion for the year was 63.7% (2021: 60.0%), leaving net debt to pro forma
EBITDA at 1.2x (2021: 1.2x).
Profit before tax was £45.4m (2021: £62.9m), impacted by heightened levels
of non-underlying items. These increased to £40.0m (2021: £34.1m) and were
driven by non-cash amortisation and impairment charges of £30.0m (2021:
£14.2m) in respect of intangible assets arising from acquisitions since 2015,
£3.3m (2021: £6.6m) of costs related to acquisitions and other M&A
costs, a product liability claim of £1.0m (2021: £2.6m), one off costs of
£1.2m relating to an isolated cyber incident at Nuaire and restructuring
costs of £9.3m (2021: £1.1m).
The total tax charge for the year of £8.9m (2021: £21.9m) represents an
effective tax rate of 19.6% (2021: 34.8%). The underlying effective tax rate
of 15.6% (2021: 17.6%) was lower than the standard UK rate of tax of 19.0%
(2021: 19.0%) primarily due to the benefit of patent box relief and
super-deduction capital allowances.
Underlying net profit for the year was in line with the prior year at £76.5m
(2021: £75.1m), with underlying basic earnings per share at 30.8 pence (2021:
30.6 pence).
Chief Executive Officer Review
Our Results: Progress in the face of challenge
I am pleased to report that Group has delivered the highest annual underlying
profit performance yet, against a prior year of strong comparatives with
revenue from continuing operations 4.7% higher than prior year at £622.2m
(2021: £594.3m), underlying operating profit 3.0% higher than prior year at
£98.2m (2021: £95.3m) and underlying basic earnings per share 0.7% higher
than prior year at 30.8 pence (2021: 30.6 pence), despite the impact of
increased financing costs.
This was a year of considerable macro-economic and political uncertainty with
continued levels of high inflation in materials, energy and labour costs,
constraints in the supply of key components (affecting us both directly, and
indirectly through the supply chains of our customers) and with an isolated
cyber incident in Q2. I am proud of how our teams responded to all these
challenges to deliver these results and I would like to thank them for their
dedication and hard work.
As we committed last year, we have improved our commercial excellence and
pricing responsiveness in the face of significant inflation. Several robust
market-leading price increases throughout the year with shortened
implementation periods, combined with trimming the cost base and boosting
operational efficiency to help offset inflation and somewhat weaker demand in
the second half. We have also prioritised higher margin business, exiting some
less profitable product lines during the year. The tougher trading conditions
in the latter part of the year precluded any normal Autumn seasonal uplift -
especially in RMI activity - and subdued trading continued until the end of
the year.
Our underlying operating margin of 15.8% (2021:16.0%) was the result of
improved pricing realisation from the second quarter largely offsetting the
increase in material costs, costs of the cyber incident and constrained boiler
supply. We have focused on a more streamlined organisation that will realise
synergies, better positioning us for 2023 as profit margins improved to 16.8%
for the second half.
We remain a highly cash-generative business, and even after significant
capital investment to upgrade our manufacturing and invest in growth, we
generated £62.6m cash (2021: £57.2m). Accordingly, the Board has approved a
final dividend of 8.2 pence (2021: 8.2 pence).
Our Customers: Long-Term Climate Tailwinds, Short-Term Market Turbulence
Although we are in a period of short-term turbulence, the Group continues to
focus on segments that benefit from secular trends and growth drivers. The
transition to low carbon and more efficient heating and cooling, the need to
provide the built environment with resilience to the impacts of climate
change, and the increasing demands from our customers to help them reduce the
carbon content of their supply chains, all provide tailwinds that will drive
above market growth in the medium term. Even now, some of these tailwinds are
helping us to grow despite subdued markets. Our Nu-Heat underfloor heating and
heat pump-based solutions, for example, have grown 21.0% compared to prior
year as customers are attracted to the combination of more sustainable
products and lower energy bills. The policy landscape also continues to
provide tailwinds, with Parts L&F of the Building Regulations, as well as
the roll out of the Flood and Water Management Act, all helping to increase
adoption of our products through the changes in specification and design.
Reducing the carbon equivalent content of our products is fundamental to how
we make our business more sustainable, and increasingly it is a source of
competitive advantage as our customers recognise that their purchasing
decisions are a key driver of their own Scope 3 impacts.
Housing supply remains a key issue facing the UK. Although developers have
reacted to the short-term issues around interest rates, affordability, and the
resultant dip in reservation rates by slowing their site opening and starts,
we still see a structural housing shortage as being a medium-term growth
driver. Despite the Government's declared target of 300,000 units per annum,
2022 was only the second year since 2007 that saw over 200,000 units completed
(Source: CPA), and despite the forecast of a dip in 2023, the sector is
expected to return to growth in the latter part of the year.
Extreme weather events continue to occur with increasing frequency, and
designers and engineers now need to cater for this in terms of greater
rainfall and its associated impact on drainage and surface water management.
Similarly, our summers are getting hotter, and the need for sustainable
cooling solutions has never been greater. We continue to develop innovative
solutions across all our businesses to address climate adaptation challenges
and improve built environment resilience.
Our Strategy: Sustainable Solutions for Growth
At our Capital Markets Day in November, we introduced the strategic evolution
of Genuit with our Sustainable Solutions for Growth strategy following a
thorough review and refocusing of our strategic plans. The key elements of
this new strategy - which has been well-received by both markets and,
importantly, our own employees - are as follows:
First, we will focus on higher growth sustainability driven markets. While the
broader construction market is expected to grow at low single digits through
the cycle, climate-driven investment should drive outperformance in our
strategic segments including energy-efficient heating, green urbanisation, and
stormwater management.
Second, we will strengthen our current position by becoming the lowest carbon
choice supplier for our customers. As our customers implement their Net Zero
commitments, access to the lowest embedded-carbon solutions - an area we
already lead - will become increasingly important.
Third, we will simplify the business - making it more focused, agile and
profitable. By retaining a decentralised operating model while realising
more internal synergy and efficiency with our Business Units, we can invest
more in our future growth and improve our profitability.
Fourth, we have committed to creating increasing value for all our
stakeholders as we develop and embed the Genuit Business System in all that we
do. A relentless focus on improving customer service, simplifying our
operations and engendering creative problem-solving with all our people will
unlock the full potential of our businesses.
Fifth, we will use this stronger platform to make disciplined and strategic
M&A - when the time is right. Our Group will continue to add
solution-enhancing, accretive acquisitions while maintaining appropriate
levels of leverage and cash generation.
To put this strategy into action and make progress clear, we have reorganised
the business into three Business Units - Climate Management Solutions ("CMS"),
Water Management Solutions ("WMS") and Sustainable Building Solutions ("SBS")
- each of good scale and with clear long-term green revenue drivers.
CMS is focused on solving the challenges of low-carbon heating, energy
efficiency and clean, healthy air - and includes Nuaire, Nu-Heat, Surestop and
Adey.
WMS has the most upward margin potential. It includes some of our compelling
blue-green roof and storm water attenuation businesses with the potential to
offer more complete solutions and move upstream in the design and
specification cycle. Polypipe Civils and Green Urbanisation, Permavoid, Plura
and Alderburgh (with our latest Keytec services acquisition) form part of this
business.
Of course, SBS is Genuit's strong core - including Polypipe Building
Products, Manthorpe and the Polypipe Building Services businesses. With this
strong market position, these businesses have the potential to continue to
drive share as the lowest carbon choice for the construction industry.
We believe that this structure will leverage our larger scale and lower our
cost base, while providing greater strategic alignment and clear focus on
growth. Further, we will make this our reporting structure from 2023 onward -
transparency that should help our own people and investors alike track the
results of our strategy.
As we take Genuit through this transition, we have set ambitious but
achievable mid-term targets. We will work to outperform the UK construction
market by 2 to 4% through the cycle - organically. We intend to drive
operating margin expansion to 20% and beyond - from self-help, continuous
improvement, and operating leverage. We will return to, and then maintain, at
least 90% operating cash conversion, and will drive our return on capital to
15% or greater. Of course, we will keep to our Net Zero and Science-Based
Targets commitments and invest in our people - with a measurable goal of
achieving The 5% Club "gold status".
Our Path to Net Zero: Leading the Way
We submitted our SBTs for verification in August 2022. This followed work with
a leading consultancy to conduct a thorough carbon inventory so that we are
now fully informed on the key components of our carbon impact. Our SBTs are
initially based upon improvements by 2027, at which point we will re-calibrate
and set targets for the following five years. This first phase of SBTs build
upon the 2025 targets which we previously published and put us on a trajectory
for being Net Zero by 2050.
Our Science-Based Targets as submitted are:
· Reduction of the Group's absolute Scopes 1 and 2 GHG emissions by
30% by 2027 from a 2021 base year.
· Commitment that 84% of the Group-wide supplier base, covering
purchased goods and services, will have submitted SBTs by 2027.
· Reduction of absolute Scope 3 GHG emissions by 13% for our
purchased goods and services by 2027 from a 2021 base year.
Our sustainability targets are already a key component of executive and senior
management remuneration, and we are now also adding an annual measure of
carbon reduction into the annual bonus arrangements for a wider cohort of our
managers to ensure reward is fully aligned with our strategic priorities.
In 2022, we reduced our Scopes 1 and 2 carbon intensity by 3.6% versus prior
year. Given the reduction in production volumes in 2022, it is pleasing to
report that we still managed to achieve this despite the inherent pressure on
efficiencies, and the increased relevance of our base load energy consumption.
Since we began to measure ourselves in this way, we have reduced our carbon
intensity by 50.2%.
Our use of recycled polymers was broadly similar to the prior year at 48.7% of
our total tonnage (2021: 49.4%). Progress was hampered by product mix
issues, particularly as housing starts slowed in the second half, and in
general we are more able to utilise recyclate in below ground applications
rather than, for example, above ground plumbing and heating pipes. We were
also slightly delayed in implementing some of the product change projects
which form the pathway to our 62% target but expect this to be rectified
during 2023.
The proportion of our employees that are in structured training programs (e.g.
apprenticeships, formal graduate programs or sponsored students) reached 3.5%
(2021: 3.2%). The share of our net revenue sales derived from products
developed in the last five years (Vitality Index) rose to 24.7% (2021: 20.2%).
Our People and Culture: Purpose-driven Performance
Genuit's success is founded on our great people. We are investing in the three
key areas of talent, engagement and culture to unlock the full potential of
the business and secure Genuit's position as a premium employee brand -
crucial to attracting and retaining the best talent.
During 2022, we have strengthened our executive team with the promotion of
Matthew Webber as Managing Director of CMS, and by welcoming Steve Currier
as Managing Director of SBS. We have launched the Genuit Leadership Team -
the seventy or so top leaders across the Group and have made key additions to
this team including talent development, lean leadership and financial
management.
We have rolled out a new talent development process and created a Group-wide
talent pipeline. This includes expanding our commitment to graduate schemes
and apprenticeships and strengthening our accredited learning programmes -
which have always been important at Genuit. We are investing in technology to
benefit our people - we are implementing Workday as our human resources
platform, Peakon as our engagement platform and have already deployed
Workplace by Meta to communicate and connect with our people.
Building a high-performance culture takes time, but I am encouraged by our
progress following my first ever Group-wide leadership conference. We are
focusing on the things that matter most - transparency and respect,
encouraging a growth-mindset and continuous improvement, and elevating
diversity and inclusion as key to our future; something I am very passionate
about.
Outlook
This year has started well and has traded in line with expectations, although
we expect challenging and uncertain market conditions to continue into 2023
amongst macro-economic uncertainty, with continued lower volumes as seen in
the second half of 2022. Our expectations for the year have been based upon
the CPA Winter Forecast. If there are any deviations from this forecast, the
business has proven resilience and agility to adapt in those conditions.
However, the actions taken on pricing and the other self-help measures started
last year, including further simplification of the business, will maintain the
Group's resilience and enhance our capability to respond to improvements in
the market.
Through reinvesting these synergies in our people and growth initiatives and
keeping a continual focus on margins and cash flow, we are confident that we
will start to make measurable progress towards our mid-term commitments.
Further, our focus on climate-driven growth, leadership in sustainable
materials and enhancing the power of our people through the Genuit Business
System, will position us well for the long term. Most importantly, we are
building a strong team, with a single sustainable purpose, and look forward to
the next chapter in our Sustainable Solutions for Growth strategy.
Joe Vorih
Chief Executive Officer
Financial Review
REVENUE AND OPERATING MARGIN
Revenue and operating profit and margin 2021 Change
2022 £m
£m
Revenue 622.2 594.3 4.7%
Underlying operating profit 98.2 95.3 3.0%
Underlying operating margin 15.8% 16.0% (20)bps
Revenue by geographic destination 2021 Change
2022 £m
£m
UK 560.8 534.1 5.0%
Rest of Europe 32.4 38.3 (15.4)%
Rest of World 29.0 21.9 32.4%
Group 622.2 594.3 4.7%
Group revenue for the year ended 31 December 2022 was £622.2m (2021:
£594.3m), an increase of 4.7% on a strong comparative year. UK revenue
increased by 5.0% during a period of economic uncertainty that worsened in the
second half of the year. This outperformed UK construction more broadly,
which grew 1.6% (Source: CPA) versus prior year, or 1.0% when the impact of
infrastructure expenditure is excluded. New housing is expected to have
grown by 2.4%, after a strong first half, where starts were some 5.0% ahead of
prior year (Source: UK Government DLUHC). Housing RMI declined from its 2021
historic peak by 3.1% as economic uncertainty and disposable incomes worsened
during the year, as well as the macro-effect of the decline in residential
property transactions of 14.8% versus prior year (Source: HMRC). The
performance in the Rest of Europe was impacted by the Group's decision to exit
the Russian market.
Underlying operating profit was £98.2m (2021: £95.3m), an increase of 3.0%
despite considerable inflation, housing market uncertainty and supply chain
disruption. The Group improved pricing processes, began the simplification of
the business to unlock synergies and lower structural costs to enhance
resilience for 2023. The Group underlying operating margin decreased
marginally by 20 basis points to 15.8% (2021: 16.0%).
This has been expedited in 2022 through a transformation project, which has
involved reviews of direct and indirect purchasing costs and also transition
to the new operating structure for 2023 announced at the November 2022 Capital
Markets Day.
Profit before tax was £45.4m (2021: £62.9m), a decrease of 27.8%, driven by
several factors including a write down of intangibles and increased borrowing
costs.
The Group continued to invest in product development and innovation throughout
the year. In 2022, underlying operating profit benefited from £1.2m of HMRC
approved Research and Development expenditure credit, relating to the year
ended 31 December 2022.
BUSINESS REVIEW
Revenue 2021 Change LFL
2022 £m % Change
£m %
Residential Systems 394.3 372.9 5.7 5.0
Commercial and Infrastructure Systems 227.9 221.4 2.9 0.5
622.2 594.3 4.7 3.1
Underlying operating profit 2021 ROS Change
2022 ROS £m % %
£m %
Residential Systems 79.1 20.1 73.1 19.6 8.2
Commercial and Infrastructure Systems 19.1 8.4 22.2 10.0 (14.0)
98.2 15.8 95.3 16.0 3.0
Residential Systems
Revenue in our Residential Systems segment was 5.7% higher than the prior year
at £394.3m (2021: £372.9m), partially driven by the full year effect of the
acquisitions of Adey and Nu-Heat in February 2021 with like-for-like revenue
excluding acquisitions 5.0% higher than 2021.
The process of integrating Adey and Nu-Heat is now complete. Both these
businesses have fitted well into the Group in a commercial, operational and a
cultural sense - so much so that Adey's CEO at the time of acquisition has
just been promoted to be Managing Director for one of the three new Business
Units. We are driving both revenue and cost synergies aggressively. Adey has
been adversely affected by the constraint in upstream boiler manufacturing
caused by the shortage in the global supply of printed circuit boards
("PCBs"). This shortage is ongoing. Nu-Heat is performing well, benefitting
from the positive mix effect of remaining market RMI spend moving into funding
more efficient forms of heating homes.
During 2022 at our Broomhouse Lane and Neale Road sites in Doncaster, we took
delivery of and installed 25 moulding machines for the manufacture of our
mainstream products. This underpins our commitment to sustainability as the
new machines will give significant energy savings over those that they
replaced. The new machines will also allow us to become more flexible in our
approach to using recycled content in our moulding facility than previously,
which again supports our commitment to sustainability.
New product innovation remains strong. In Residential Systems, we launched
several new ranges in the first half of the year, including Nuaire's DX
Cooling modules designed to work in conjunction with existing Mechanical
Ventilation with Heat Recovery (MVHR) ventilation units to tackle the
challenges of overheating in apartments. Adey launched a number of new
products to expand their range of performance enhancing heating system
additives, including the new MCXS leak sealant additive.
Robust price leadership and cost saving initiatives helped Residential Systems
deliver strong underlying operating profit growth of 8.2% to £79.1m (2021:
£73.1m) representing a 20.1% margin (2021: 19.6%).
Commercial and Infrastructure Systems
The UK Commercial and Infrastructure markets proved to be a tougher operating
environment and the segment's revenue was 2.9% higher at £227.9m (2021:
£221.4m). On a like-for-like basis, excluding the effects of the Plura
acquisition in February 2021 and the Keytec acquisition in March 2022,
year-on-year revenue was broadly flat.
Divisional performance was impacted in Q2 by an isolated cyber incident that
impacted Group profitability by over c.£4m at the time. It was ultimately an
unsuccessful attempt but resulted in temporary disruption to manufacturing and
sales in April and May. We implemented new, stronger protection across the
Group in the first half and I am pleased to report that most of this business
was recovered in the second half of the year as systems came back on stream.
However, our Nuaire commercial business was further impacted in the second
half of the year by a shortage in supply of key components such as blowers.
Thanks to the arduous work and ingenuity of our local teams, alternative
sources of supply have now been secured for 2023 and beyond, although
difficulties remain.
In Commercial and Infrastructure Systems, our Civils and Green Urbanisation
business launched SciClone X, a new stormwater treatment device for removing
pollutants from surface water runoff.
We expanded our site at Horncastle via a land purchase that allows
optimisation of site layout and flexibility for any possible future
manufacturing footprint reviews. This site also commissioned a new Polysewer
line in 2022 with product due to be supplied from early 2023 that will reduce
carbon emissions by reducing long-distance transportation. Material handling
capabilities have also been modernised using high efficiency vacuum pumps
whilst reducing the risk of material spillages. At our Aylesford site in Kent,
we made a major investment in multi-layer extrusion technology, allowing us to
significantly increase recyclate use, propelling us on our journey towards the
medium-term ESG target that 62% of our input materials must come from recycled
sources.
Commercial and Infrastructure Systems delivered an underlying operating profit
of £19.1m (2021: £22.2m) and represents an 8.4% margin (2021: 10.0%). The
key driver of reduced margin in the year in this segment relates to
operational leverage on reduced UK volumes, particularly driven by constraints
in supply of key components.
ACQUISITIONS
On 31 March 2022, the Group acquired Keytec Geomembranes Holding Company
Limited (Keytec), a supplier and installer of stormwater attenuation products,
geomembranes, and gas protection products for an initial cash consideration of
£2.5m on a cash free and debt free basis plus a deferred consideration of
£0.6m due no later than 12 months from completion. The total initial cash
consideration of £2.9m included a payment for net cash and working capital
commitments on completion of £0.4m.
NON-UNDERLYING ITEMS
Profit before tax was £45.4m (2021: £62.9m), impacted by an increase in
non-underlying items. These increased to £40.0m (2021: £34.1m) after tax.
These were driven by non-cash amortisation of £15.2m (2021: £14.2m) and
impairment charges of £12.0m (2021: nil) respectively. The impaired goodwill
originally arose from the 2021 acquisitions and the £2.8m impairment of
intangible assets arose from a customer relationship agreement ending early.
Of the other items, £3.3m (2021: £6.6m) of costs related to acquisitions and
other M&A costs, a product liability claim of £1.0m (2021: £2.6m), one
off costs of £1.2m relating to an isolated cyber incident at Nuaire and
restructuring costs of £9.3m (2021: £1.1m).
Non-underlying items comprised:
2022 2021
£m £m
Amortisation of intangible assets 15.2 14.2
Impairment of goodwill 12.0 -
Impairment of intangible assets 2.8 -
Restructuring costs 9.3 1.1
Contingent consideration on Plura acquisition 3.1 1.9
Product liability claims 1.0 2.6
Isolated cyber incident 1.2 -
Unamortised deal costs 0.4 -
Acquisition costs 0.2 4.7
Fair value adjustments on acquisitions - 3.7
Non-underlying items before taxation 45.2 28.2
Tax effect on non-underlying items (5.2) (3.4)
Impact of change in statutory tax rate - 9.3
Non-underlying items after taxation 40.0 34.1
EXCHANGE RATES
The Group trades predominantly in Sterling but has some revenue and costs in
other currencies, mainly the US Dollar and the Euro, and takes appropriate
forward cover on these cash flows using forward currency derivative contracts
in accordance with its hedging policy.
FINANCE COSTS
Underlying finance costs increased to £7.6m (2021: £4.2m) due to
significantly higher Standard Overnight Index Average (SONIA) interest rates
partially offset by lower level of RCF borrowings. Interest cover was 16.0x
for the year (2021: 31.3x).
Interest was payable on the RCF at SONIA (2021: LIBOR) plus an interest rate
margin ranging from 0.90% to 2.75%. The interest rate margin at 31 December
2022 was 1.60% (2021: 1.40%). With effect from 4 January 2022, LIBOR was
replaced by SONIA.
Taxation
Underlying taxation:
The underlying tax charge in 2022 was £14.1m (2021: £16.0m) representing an
effective tax rate of 15.6% (2021: 17.6%). This was below the UK standard tax
rate of 19.0% (2021: 19.0%). Patent box relief contributes to a lowering of
the underlying effective tax rate by some 1.8 percentage points.
Taxation on non-underlying items:
The non-underlying taxation credit of £5.2m (2021: £5.9m net charge)
represents an effective rate of 11.5% (2021: 20.9%).
EARNINGS PER SHARE
2022 2021
Pence per share:
Basic 14.7 16.7
Underlying basic 30.8 30.6
Diluted 14.6 16.5
Underlying diluted 30.5 30.2
The Directors consider that the underlying basic earnings per share (EPS)
measure provides a better and more consistent indication of the Group's
underlying financial performance and more meaningful comparison with prior and
future periods to assess trends in our financial performance.
Underlying basic EPS increased by 0.7% in 2022.
Dividend
The final dividend of 8.2 pence (2021: 8.2 pence) per share is being
recommended for payment on 24 May 2023 to shareholders on the register at the
close of business on 21 April 2023. The ex-dividend date will be 20 April
2023.
Our dividend policy is normally to pay a minimum of 40% of the Group's annual
underlying profit after tax. The Directors intend that the Group will pay the
total annual dividend in two tranches, an interim dividend and a final
dividend, to be announced at the time of announcement of the interim and
preliminary results, respectively, with the interim dividend being
approximately one half of the prior year's final dividend.
Balance Sheet
The Group's balance sheet is summarised below:
2022 2021
£m £m
Property, plant and equipment 169.9 151.7
Right-of-use assets 22.3 20.6
Goodwill 455.4 467.7
Other intangible assets 159.7 175.1
Net working capital 33.8 22.0
Taxation (47.9) (47.4)
Other current and non-current assets and liabilities 0.1 (6.3)
Net debt (loans and borrowings, and lease liabilities, net of cash and cash (166.2) (165.7)
equivalents)
Net assets 627.1 617.7
The net value of property, plant and equipment has increased by £18.2m
following the acquisition of additional land at one of our sites and the
Group's continued strategic investment in its businesses. The value of
right-of-use assets has increased by £1.7m.
Pensions
The Group does not have any defined benefit pension schemes and only has
defined contribution pension arrangements in place. Pension costs for the year
amounted to £6.5m (2021: £5.4m) reflecting the inclusion of the acquisitions
made in the previous year and an overall increase in the number of scheme
participants.
Cash Flow and Net Debt
The Group's cash flow statement is summarised below:
2022 2021
£m £m
Operating cash flows before movement in net working capital 113.6 111.4
Add back non-underlying cash items 9.6 6.9
Underlying operating cash flows before movement in net working capital 123.2 118.3
Movement in net working capital (19.7) (27.0)
Capital expenditure net of proceeds from sale (40.9) (34.1)
Underlying cash generated from operations after net capital expenditure 62.6 57.2
Income tax paid (7.0) (9.5)
Interest paid (3.7) (2.9)
Non-underlying cash items (9.6) (6.9)
Settlement of deferred and contingent consideration (0.5) -
Acquisition of businesses (2.6) (236.4)
Net proceeds from issue of share capital - 93.5
Debt issue costs (3.1) -
Dividends paid (30.5) (21.7)
Proceeds from exercise of share options net of purchase of own shares 0.4 2.1
Other (4.0) (5.7)
Movement in net debt - excluding IFRS 16 2.0 (130.3)
Movement in IFRS 16 (2.5) (7.7)
Movement in net debt - including IFRS 16 (0.5) (138.0)
Delivery of good cash generation remains core to the Group's strategy.
Underlying cash generated from operations after net capital expenditure at
£62.6m (2021: £57.2m) represents a conversion rate of 63.7% (2021: 60.0%).
The Group remains committed to achieving a conversion rate of 90.0% over the
medium term.
Working capital movement in the year was driven by a rebuilding of inventory
to improve customer service performance following the recovery in demand after
the pandemic, as well as the effects of cost inflation.
Net capital expenditure investment increased to £40.9m (2021: £34.1m) as the
Group continued to focus on investing in key, strategic and innovative
projects. In 2023, we anticipate that capital expenditure will be
approximately £40.0m.
Net debt of £166.2m comprised:
2022 2021 Change
£m £m £m
Bank loans (195.9) (198.0) 2.1
Cash and cash equivalents 50.0 52.3 (2.3)
Net debt (excluding unamortised debt issue costs) (145.9) (145.7) (0.2)
Unamortised debt issue costs 2.8 0.6 2.2
IFRS 16 (23.1) (20.6) (2.5)
Net debt (166.2) (165.7) (0.5)
FINANCING
The Group has a Sustainability Linked Loan ("SLL") committed through to August
2027 with two further uncommitted annual renewals through to August 2029
following a refinancing with the existing bank syndicate during the year. The
facility limit is £350.0m with an uncommitted 'accordion' facility of up to
£50.0m on top. At 31 December 2022, £170.9m of the RCF was drawn down.
Additionally, the Group entered a fixed rate £25m seven-year private
placement loan note until August 2029 with an uncommitted shelf facility of an
additional £125m.
The Group is subject to two financial covenants. At 31 December 2022, there
was significant headroom and facility interest cover and net debt to EBITDA
covenants were comfortably achieved:
Covenant Covenant requirement Position at
31 December 2022
Interest cover >4.0:1 16.0:1
Leverage <3.0:1 1.2:1
GOING CONCERN
The Group continues to meet its day-to-day working capital and other funding
requirements through a combination of long-term funding and cash deposits. The
Group's bank financing facilities consist of a £350.0m Sustainability Linked
Loan with an uncommitted 'accordion' facility of £50.0m and a seven-year
private placement loan note of £25.0m with an uncommitted £125.0m shelf
facility. At 31 December 2022, liquidity headroom (cash and undrawn committed
banking facilities) was £229.1m (2021: £154.3m). Our focus will continue to
be on deleveraging, and our net debt to EBITDA ratio stood at 1.2x pro forma
EBITDA at 31 December 2022 (2021: 1.2x), increasing to 1.4x (2021: 1.4x) pro
forma EBITDA including the effects of IFRS 16. This headroom means the Group
is well-positioned with a strong balance sheet.
As a result, the Directors have satisfied themselves that the Group has
adequate financial resources to continue in operational existence for a period
of at least the next 21 months. Accordingly, they continue to adopt the going
concern basis in preparing the consolidated financial statements.
Principal Risks and Uncertainties
The Board continually assesses and monitors the key risks of the Business and
the Group has developed a risk management framework to identify, report, and
manage its principal risks and uncertainties. The principal risks and
uncertainties that could have a material impact on the Group's performance and
prospects, and the mitigating activities which are aimed at reducing the
impact or likelihood of a major risk materialising are those detailed in the
Group's Annual Report and Accounts. They have not changed significantly during
the year.
Forward-Looking Statements
This report contains various forward-looking statements that reflect
management's current views with respect to future events and financial and
operational performance. These forward-looking statements involve known and
unknown risks, uncertainties, assumptions, estimates and other factors, which
may be beyond the Group's control, and which may cause actual results or
performance to differ materially from those expressed or implied from such
forward-looking statements. All statements (including forward-looking
statements) contained herein are made and reflect knowledge and information
available as of the date of preparation of this report and the Group disclaims
any obligation to update any forward-looking statements, whether as a result
of new information, future events or results or otherwise. There can be no
assurance that forward-looking statements will prove to be accurate, as actual
results and future events could differ materially from those anticipated in
such statements. Accordingly, readers should not place undue reliance on
forward-looking statements due to the inherent uncertainty therein. Nothing in
this report should be construed as a profit forecast.
Directors' Responsibilities
Each of the Directors confirms that, to the best of their knowledge, the
consolidated financial statements, prepared in accordance UK-Adopted
International Accounting Standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group and
undertakings included in the consolidation taken as a whole; and the Group
Results, Chief Executive Officer Review and Financial Review includes a fair
review of the development and performance of the business and the position of
the Group and undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that they
face.
Annual General Meeting
The Annual General Meeting is scheduled to be held on 18 May 2023.
By order of the Board.
Joe Vorih Paul James
Chief Executive Officer Chief Financial Officer
Group income statement
FOR THE YEAR ENDED 31 DECEMBER 2022
2022 2021
Notes Underlying Non- Total Underlying Non- Total
£m underlying £m £m underlying £m
£m £m
Revenue 2 622.2 - 622.2 594.3 - 594.3
Cost of sales 3 (372.1) (2.5) (374.6) (348.8) (6.5) (355.3)
Gross profit 250.1 (2.5) 247.6 245.5 (6.5) 239.0
Selling and distribution costs (81.5) - (81.5) (81.8) - (81.8)
Administration expenses 4 (70.2) (12.3) (82.5) (68.3) (7.5) (75.8)
Trading profit 98.4 (14.8) 83.6 95.4 (14.0) 81.4
Amortisation of intangible assets 4 (0.2) (15.2) (15.4) (0.1) (14.2) (14.3)
Impairment of intangible assets 4 - (2.8) (2.8) - - -
Impairment of goodwill 4 - (12.0) (12.0) - - -
Operating profit 2, 3 98.2 (44.8) 53.4 95.3 (28.2) 67.1
Finance costs 4, 5 (7.6) (0.4) (8.0) (4.2) - (4.2)
Profit before tax 2 90.6 (45.2) 45.4 91.1 (28.2) 62.9
Income tax 6 (14.1) 5.2 (8.9) (16.0) (5.9) (21.9)
Profit for the year attributable to the owners of the parent company 76.5 (40.0) 36.5 75.1 (34.1) 41.0
Basic earnings per share (pence) 7
14.7 16.7
Diluted earnings per share (pence) 7
14.6 16.5
Dividend per share (pence) - interim 8
4.1 4.0
Dividend per share (pence) - final 8
8.2 8.2
8 12.3 12.2
( )
Group statement of comprehensive income
for the year ended 31 december 2022
2022 2021
£m £m
Profit for the year attributable to the owners of the parent company 36.5 41.0
Other comprehensive income:
Items which may be reclassified subsequently to the income statement:
Exchange differences on translation of foreign operations - (0.4)
Effective portion of changes in fair value of forward foreign currency 0.1 (0.1)
derivatives
Tax relating to items which may be reclassified subsequently to the income - -
statement
Other comprehensive income for the year net of tax 0.1 (0.5)
Total comprehensive income for the year attributable to the owners of the 36.6 40.5
parent company
Group balance sheet
at 31 december 2022
Notes 31 December 2022 31 December 2021
£m £m
Non-current assets
Property, plant and equipment 9 169.9 151.7
Right-of-use assets 10 22.3 20.6
Intangible assets 11 615.1 642.8
Total non-current assets 807.3 815.1
Current assets
Inventories 89.9 80.8
Trade and other receivables 68.1 76.7
Income tax receivable 2.2 1.1
Cash and cash equivalents 50.0 52.3
Assets held for sale 10.7 -
Total current assets 220.9 210.9
Total assets 1,028.2 1,026.0
Current liabilities
Trade and other payables 13 (124.2) (135.5)
Lease liabilities 13 (5.8) (4.5)
Deferred and contingent consideration 13 - (0.5)
Liabilities held for sale 13 (2.6) (0.1)
Total current liabilities (132.6) (140.6)
Non-current liabilities
Loans and borrowings 13 (193.1) (197.4)
Lease liabilities 13 (17.3) (16.1)
Deferred and contingent consideration 13 (8.0) (4.3)
Other liabilities 13 - (1.4)
Deferred income tax liabilities (50.1) (48.5)
Total non-current liabilities (268.5) (267.7)
Total liabilities (401.1) (408.3)
Net assets 627.1 617.7
Capital and reserves
Equity share capital 0.2 0.2
Share premium 93.6 93.6
Capital redemption reserve 1.1 1.1
Hedging reserve - (0.1)
Other reserves 116.5 116.5
Retained earnings 415.7 406.4
Total equity 627.1 617.7
Group statement of changes in equity
for the year ended 31 december 2022
Equity Capital Hedging Foreign Retained Total
share redemption reserve currency earnings equity
capital Share premium £m reserve £m retranslation Other reserves £m £m
£m £m reserve £m
£m
At 31 December 2020 0.2 - 1.1 - 0.4 116.5 382.7 500.9
Profit for the year - - - - - - 41.0 41.0
Other comprehensive income - - - (0.1) (0.4) - - (0.5)
Total comprehensive income for the year - - - (0.1) (0.4) - 41.0 40.5
Dividends paid - - - - - - (21.7) (21.7)
Issue of share capital - 96.3 - - - - - 96.3
Transaction costs on issue of share capital - (2.7) - - - - - (2.7)
Share-based payments charge - - - - - - 2.2 2.2
Share-based payments settled - - - - - - 2.1 2.1
Share-based payments excess tax benefit - - - - - - 0.1 0.1
At 31 December 2021 0.2 93.6 1.1 (0.1) - 116.5 406.4 617.7
Profit for the year - - - - - - 36.5 36.5
Other comprehensive income - - - 0.1 - - - 0.1
Total comprehensive income for the year - - - 0.1 - - 36.5 36.6
Dividends paid - - - - - - (30.5) (30.5)
Share-based payments charge - - - - - - 2.9 2.9
Share-based payments settled - - - - - - 0.4 0.4
Share-based payments excess tax benefit - - - - - - - -
At 31 December 2022 0.2 93.6 1.1 - - 116.5 415.7 627.1
Group cash flow statement
for the year ended 31 december 2022
Notes 2022 2021
£m
£m
Operating activities
Profit before tax 45.4 62.9
Finance costs 5 8.0 4.2
Operating profit 53.4 67.1
Non-cash items:
Profit on disposal of property, plant and equipment (0.7) (0.2)
Transaction costs on issue of share capital - 0.1
Research and development expenditure credit (1.2) (2.0)
Warranty provision release (1.0) -
Non-underlying items:
- amortisation of intangible assets arising on business combinations 4 15.2 14.2
- impairment of intangible assets arising on business combinations 4 2.8 -
- impairment of goodwill arising on business combinations 4 12.0 -
- provision for acquisition costs 4 3.3 6.6
- unwind of inventory fair value adjustment 4 - 3.7
- provision for restructuring costs 4 9.3 1.1
- provision for product liability claim 4 1.0 2.6
- Isolated cyber incident 4 1.2 -
Depreciation of property, plant and equipment 9 19.4 18.4
Depreciation of right-of-use assets 10 5.4 4.4
Amortisation of internally generated intangible assets 0.2 0.1
Share-based payments 2.9 2.2
Cash items:
- settlement of acquisition costs (0.2) (6.9)
- settlement of restructuring costs (8.2) -
- settlement of isolated cyber incident (1.2) -
Operating cash flows before movement in working capital 113.6 111.4
Movement in working capital:
Receivables 7.8 (0.9)
Payables (10.4) (6.2)
Inventories (17.1) (19.9)
Cash generated from operations 93.9 84.4
Income tax paid (7.0) (9.5)
Net cash flows from operating activities 86.9 74.9
Investing activities
Settlement of deferred and contingent consideration (0.5) -
Acquisition of businesses net of cash at acquisition (2.6) (236.4)
Proceeds from disposal of property, plant and equipment 2.9 0.5
Purchase of property, plant and equipment (41.1) (33.1)
Patent and development costs expenditure (2.7) (1.5)
Net cash flows from investing activities (44.0) (270.5)
Financing activities
Issue of share capital - 96.3
Transaction costs on issue of share capital - (2.8)
Debt issue costs (3.1) -
Drawdown of bank loan 266.2 148.0
Repayment of bank loan (268.3) (10.0)
Interest paid (3.7) (2.9)
Dividends paid 8 (30.5) (21.7)
Proceeds from exercise of share options 0.4 2.1
Settlement of lease liabilities 10 (6.2) (5.1)
Net cash flows from financing activities (45.2) 203.9
Net change in cash and cash equivalents (2.3) 8.3
Cash and cash equivalents at 1 January 52.3 44.1
Net foreign exchange difference - (0.1)
Cash and cash equivalents at 31 December 50.0 52.3
1. Basis of preparation
The preliminary results for the year ended 31 December 2022 have been prepared
in accordance with UK-Adopted International Accounting Standards (UK-Adopted
IAS). Whilst the financial information included in this preliminary
announcement has been computed in accordance with the recognition and
measurement requirements of IFRS, this announcement does not itself contain
sufficient information to comply with IFRS. The accounting policies adopted
have been consistently applied in all material aspects to all the periods
presented.
The financial information set out in this announcement does not constitute the
statutory accounts for the Group within the meaning of Section 435 of the
Companies Act 2006. The statutory accounts for the year ended 31 December 2021
have been filed with the Registrar of Companies. The statutory accounts for
the year ended 31 December 2022 will be filed in due course. The auditor's
report on these accounts was not qualified or modified and did not contain any
statement under Sections 498(2) or (3) of the Companies Act 2006 or any
preceding legislation.
There were no accounting standards or interpretations that have become
effective in the current reporting period which had an impact on disclosures,
financial position or performance.
The Directors have made enquiries into the adequacy of the Group's financial
resources, through a review of the Group's budget and medium-term financial
plan, including cash flow forecasts. The Group has modelled a range of
scenarios, with the base forecast being one in which, over the 24 months
ending 31 December 2024, sales volumes grow in line with or moderately above
external construction industry forecasts.
In addition, the Directors have considered several downside scenarios,
including adjustments to the base forecast, a period of significantly lower
like-for-like sales, profitability and cash flows. Consistent with our
Principal Risks and Uncertainties these downside scenarios included, but were
not limited to, loss of production, loss of a major customer, product failure,
recession, increases in interest rates and increases in raw material prices.
Downside scenarios also included a combination of these risks, and reverse
stress testing. The Directors have considered the impact of climate-related
matters on the going concern assessment and it is not expected to have a
significant impact on the Group's going concern.
At 31 December 2022, the Group had available £179.1m of undrawn committed
borrowing facilities in respect of which all conditions precedent had been
met. The Group's borrowing facilities, which were originally due to expire in
November 2023, were renewed on 10 August 2022 and included an increase in the
RCF facility of £50.0m to £350.0m available until at least August 2027,
subject to covenant headroom, and a seven-year private placement loan note of
£25.0m repayable August 2029. The Directors are satisfied that the Group has
sufficient liquidity and covenant headroom to withstand reasonable variances
to the base forecast, as well as the downside scenarios. In addition, the
Directors have noted the range of possible additional liquidity options
available to the Group, should they be required.
As a result, the Directors have satisfied themselves that the Group has
adequate financial resources to continue in operational existence for a period
of at least the next 21 months. Accordingly, they continue to adopt the going
concern basis in preparing the consolidated financial statements.
There have been no related party transactions in the period to 31 December
2022.
Four non-statutory measures have been used in preparing the condensed set of
consolidated financial statements:
· Underlying profit and earnings measures exclude certain
non-underlying items and, where relevant, the tax effect of these items. The
Directors consider that these measures provide a better and more consistent
indication of the Group's underlying financial performance and more meaningful
comparison with prior and future periods to assess trends in our financial
performance.
· Underlying cash generated from operations is defined as cash
generated from operations, adjusted for non-underlying cash items, after
movement in net working capital and capital expenditure net of proceeds from
disposals of property, plant and equipment.
· Pro forma EBITDA is defined as underlying operating profit before
depreciation and amortisation for the 12 months preceding the balance sheet
date, adjusted, where relevant, to include a full year of EBITDA from
acquisitions made during those 12 months.
· Leverage is defined as net debt divided by pro forma EBITDA. Net
debt within the leverage calculation is defined as loans and borrowings net of
unamortised issue costs less cash and cash equivalents, excluding the effects
of IFRS 16.
2. Segment information
IFRS 8, Operating Segments, requires operating segments to be identified based
on the internal financial information reported to the Chief Operating Decision
Maker (CODM). The Group's CODM is deemed to be the Board of Directors, who are
primarily responsible for the allocation of resources to segments and the
assessment of performance of the segments.
The Group has two reporting segments - Residential Systems and Commercial and
Infrastructure Systems. The reporting segments sell products which are unique
to that segment, and products which are common to both segments. They are
however organised and distinguished as separate reporting segments based on
the nature of the end markets served. Inter-segment sales are on an arm's
length basis in a manner similar to transactions with third parties. During
the period one acquired business was added to the Commercial and
Infrastructure Systems segment (see Note 12).
2022 2021
Residential Systems Commercial & Infrastructure Systems Total Residential Systems Commercial & Infrastructure Systems Total
£m £m £m £m £m £m
Segmental revenue 400.4 238.6 639.0 378.0 231.8 609.8
Inter-segment revenue (6.1) (10.7) (16.8) (5.1) (10.4) (15.5)
Revenue 394.3 227.9 622.2 372.9 221.4 594.3
Underlying operating profit* 73.1 22.2 95.3
79.1 19.1 98.2
Non-underlying items - segmental (18.5) (8.8) (27.3)
(31.2) (9.3) (40.5)
Segmental operating profit 54.6 13.4 68.0
47.9 9.8 57.7
Non-underlying items - Group (0.9)
(4.3)
Operating profit 53.4 67.1
Non-underlying items - finance costs
(0.4) -
Finance costs (7.6) (4.2)
Profit before tax 45.4 62.9
* Underlying operating profit is stated before non-underlying items as
defined in the Group Accounting Policies in the Annual Report and Accounts and
is the measure of segment profit used by the Group's CODM. Details of the
non-underlying items of £45.2m (2021: £28.2m) are set out below at
non-underlying items before tax.
Geographical analysis
Revenue by destination 2022 2021
£m £m
UK 560.8 534.1
Rest of Europe 32.4 38.3
Rest of World 29.0 21.9
Total - Group 622.2 594.3
3. Operating profit
2022 2021
£m £m
Income statement charges
Depreciation of property, plant and equipment (owned) 19.4 18.4
Depreciation of right-of-use assets 5.4 4.4
Cost of inventories recognised as an expense 318.3 290.4
Research and development costs expensed 8.8 8.8
Income statement credits
Research and development expenditure credit 1.2 2.0
Profit on disposal of property, plant and equipment 0.7 0.2
4. Non-underlying items
Non-underlying items comprised:
2022 2021
Gross Tax Net Gross Tax Net
£m £m £m £m £m £m
Cost of sales: Unwind of inventory fair value adjustment - - - 3.7 - 3.7
Cost of sales: - - - 0.2 - 0.2
Restructuring costs
Cost of sales: Restructuring costs - stock write down 1.5 (0.3) 1.2 - - -
Cost of sales: 1.0 - 1.0 2.6 (0.5) 2.1
Product liability claim
Administration expenses: Isolated cyber incident 1.2 (0.2) 1.0 - - -
Administration expenses: Acquisition costs - acquisition and other M&A 3.3 - 3.3 6.6 - 6.6
activity
Administration expenses: Restructuring costs 7.8 (1.5) 6.3 0.9 (0.2) 0.7
Amortisation of intangible assets 15.2 (2.6) 12.6 14.2 6.6 20.8
Impairment of intangible assets 2.8 (0.5) 2.3 - - -
Impairment of Goodwill 12.0 - 12.0 - - -
Finance costs: Unamortised deal fees 0.4 (0.1) 0.3 - - -
Total non-underlying items 45.2 (5.2) 40.0 28.2 5.9 34.1
Restructuring costs incurred in relation to the reorganisation of the group.
This included an inventory write down for items immediately taken off the
market, that do not sit within the new Genuit product strategy and on this
basis the inventory holding was deemed obsolete, a closure of a business and
the reorganisation of the segmental units and consultancy fees for advisory
support and organisation design.
The product liability claim is associated with a historic acquisition,
including the prior year charge recognised in non-underlying costs, this takes
the total amount recognised as a liability on the balance sheet at 31 December
2022 to £3.3m.
During 2022 there was an isolated cyber incident at one of the Group's
businesses, which resulted in temporary disruption to manufacturing and sales
in April and May 2022.
Acquisition costs in 2022 relate predominantly to a £3.1m charge arising in
connection with contingent consideration treated as remuneration in respect of
the acquisition of Plura as detailed in see note 12. Acquisition costs in 2021
related to the acquisitions of Nu-Heat, Plura and Adey as detailed in note 12.
Impairment of intangible assets (£2.8m) is in respect to a customer
relationship agreement ending early and impairment of goodwill relates to a
2021 acquisition (see note 12).
Amortisation charge relates to intangible assets arising on business
combinations. In 2021 the non-underlying tax charge relating to amortisation
included a £9.3m charge in respect of restating the deferred income tax
liability on the intangible assets as a result of the change in the main UK
corporation tax rate (see note 6).
5. Finance costs
2022 2021
£m £m
Interest on bank loan 6.2 2.5
Debt issue cost amortisation 0.5 0.5
Unwind of discount on lease liabilities 0.8 0.7
Other finance costs 0.1 0.5
7.6 4.2
6. Income tax
(a) Tax expense reported in the income statement
2022 2021
£m £m
Current income tax:
UK income tax 7.7 9.5
Overseas income tax 0.1 0.5
Current income tax 7.8 10.0
Adjustment in respect of prior years (0.5) 0.4
Total current income tax 7.3 10.4
Deferred income tax:
Origination and reversal of temporary differences 0.4 (1.3)
Effects of changes in income tax rates 1.3 11.7
Deferred income tax 1.7 10.4
Adjustment in respect of prior years (0.1) 1.1
Total deferred income tax 1.6 11.5
Total tax expense reported in the income statement 8.9 21.9
Details of the non-underlying tax credit of £5.2m (2021: £5.9m net charge)
are set out in Note 4.
(b) Reconciliation of the total tax expense
A reconciliation between the tax expense and the product of accounting profit
multiplied by the UK standard rate of income tax for the years ended 31
December 2022 and 2021 is as follows:
2022 2021
£m £m
Accounting profit before tax 45.4 62.9
Accounting profit multiplied by the UK standard rate of income tax of 19.0% 12.0
(2021: 19.0%)
8.6
Expenses not deductible for income tax 3.4 1.8
Non-taxable income (0.4) (1.0)
Adjustment in respect of prior years (0.6) 1.5
Effects of patent box (1.6) (1.6)
Effects of changes in income tax rates - 11.4
Effects of tax losses 1.3 (1.1)
Effects of super deduction (1.8) (0.6)
Effects of other tax rates/credits - (0.5)
Total tax expense reported in the income statement 8.9 21.9
The effective rate for the full year was 19.6% (2021: 34.8%). If the impact of
non-underlying items is excluded, the underlying income tax rate would be
15.6% (2021: 17.6%).
(c) Deferred income tax
The deferred income tax included in the Group balance sheet is as follows:
31 December 2022 31 December 2021
£m £m
Deferred income tax liabilities/(assets)
Short-term timing differences 37.8 41.3
Capital allowances in excess of depreciation 16.9 11.1
Share-based payments (2.1) (2.3)
Tax losses (2.5) (1.6)
50.1 48.5
The Group offsets tax assets and liabilities if, and only if, it has a legally enforceable right to offset current income tax assets and current income tax liabilities and the deferred income tax assets and deferred income tax liabilities relate to income taxes levied by the same tax authority.
A reconciliation of deferred income taxes for the years ended 31 December 2022
and 2021 is as follows:
2022 2021
£m £m
Deferred income tax reported in the income statement 1.7 11.5
Deferred income tax reported in other comprehensive income - -
Share-based payments excess tax benefit (0.1) (0.1)
Deferred income tax acquired - 26.3
1.6 37.7
(d) Change in corporation tax rate
The Finance (No.2) Act 2015 reduced the main UK corporation tax rate to 19%,
effective from 1 April 2017. A further reduction in the main UK corporation
tax rate to 17% was expected to come into effect from 1 April 2020 (as enacted
by the Finance Act 2016 on 15 September 2016). However, legislation introduced
in the Finance Act 2020 (enacted on 22 July 2020) repealed the reduction of
the rate, thereby maintaining the current rate of 19%.
On 24 May 2021, legislation was passed which substantively enacted an increase
in UK corporation tax rate from 19% to 25% from April 2023. Deferred income
tax on the balance sheet at 31 December 2022 was therefore measured at 19% or
25% depending on when the deferred income tax asset or liability is expected
to reverse.
(e) Unrecognised tax losses
No deferred income tax has been recognised on non-trading losses and other
timing differences of £1.3m (2021: £1.4m) as the Directors do not consider
that they will be utilised in the foreseeable future.
7. Earnings per share
Basic earnings per share amounts are calculated by dividing profit for the
year attributable to the owners of the parent company by the weighted average
number of ordinary shares outstanding during the year. The diluted earnings
per share amounts are calculated by dividing profit for the year attributable
to the owners of the parent company by the weighted average number of ordinary
shares outstanding during the year plus the weighted average number of
potential ordinary shares that would be issued on the conversion of all the
dilutive share options into ordinary shares.
The calculation of basic and diluted earnings per share is based on the
following:
2022 2021
Weighted average number of ordinary shares for the purpose of basic earnings 245,097,578
per share
248,001,063
Effect of dilutive potential ordinary shares 2,414,364 3,168,838
Weighted average number of ordinary shares for the purpose of diluted earnings 248,266,416
per share
250,415,426
Underlying earnings per share is based on the result for the year after tax
excluding the impact of non-underlying items of £40.0m (2021: £34.1m). The
Directors consider that this measure provides a better and more consistent
indication of the Group's underlying financial performance and more meaningful
comparison with prior and future periods to assess trends in our financial
performance. The underlying earnings per share is calculated as follows:
2022 2021
Underlying profit for the year attributable to the owners of the parent 75.1
company (£m)
76.5
Underlying basic earnings per share (pence) 30.8 30.6
Underlying diluted earnings per share (pence) 30.5 30.2
8. Dividend per share
2022 2021
£m £m
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2021 of 8.2p per share (2020: 20.3 11.8
4.8p)
Interim dividend for the year ended 31 December 2022 of 4.1p per share (2021: 10.2 9.9
4.0p)
30.5 21.7
Proposed final dividend for the year ended 31 December 2022 of 8.2p per share 20.3 20.3
(2021: 8.2p)
The proposed final dividend is subject to approval by shareholders at the
Annual General Meeting and has not been included as a liability in these
consolidated financial statements.
9. Property, plant and equipment
Freehold Plant Total
land and and other £m
buildings equipment
£m £m
Cost
At 1 January 2021 54.3 160.4 214.7
Additions 3.9 28.9 32.8
Disposals (1.0) (7.7) (8.7)
Transfer to intangible assets - (0.8) (0.8)
Acquisition of businesses 1.2 3.0 4.2
Exchange adjustment - (0.3) (0.3)
At 31 December 2021 58.4 183.5 241.9
Additions 4.9 36.1 41.0
Disposals (0.1) (10.6) (10.7)
Acquisition of businesses - 0.4 0.4
Exchange adjustment - 0.4 0.4
Transfer to assets held for sale - (6.4) (6.4)
At 31 December 2022 63.2 203.4 266.6
At 1 January 2021 8.5 72.0 80.5
Provided during the year 1.6 16.8 18.4
Disposals (1.0) (7.4) (8.4)
Transfer to intangible assets - (0.1) (0.1)
Exchange adjustment - (0.2) (0.2)
At 31 December 2021 9.1 81.1 90.2
Provided during the year 1.7 17.7 19.4
Disposals - (8.7) (8.7)
Exchange adjustment - (0.2) (0.2)
Transfer to assets held for sale - (4.0) (4.0)
At 31 December 2022 10.8 85.9 96.7
Net book value
At 31 December 2022 52.4 117.5 169.9
At 31 December 2021 49.3 102.4 151.7
Included in freehold land and buildings is non-depreciable land of £18.2m
(2021: £17.7m).
Capital commitments
At 31 December 2022, the Group had commitments of £2.8m (2021: £5.4m)
relating to plant and equipment purchases.
10. Right-of-use assets and lease liabilities
Freehold land and buildings Plant and other equipment Motor vehicles Total Lease liabilities
£m £m £m £m £m
At 1 January 2021 5.9 6.9 0.1 12.9 (12.9)
Additions 2.9 2.5 - 5.4 (5.4)
Acquisition of businesses 6.0 0.8 - 6.8 (6.8)
Depreciation (2.1) (2.3) - (4.4) -
Unwind of discount - - - - (0.7)
Settlements - - - - 5.1
Exchange adjustment - (0.1) - (0.1) 0.1
At 31 December 2021 12.7 7.8 0.1 20.6 (20.6)
Additions 3.2 3.8 1.1 8.1 (8.2)
Disposals (0.5) (0.6) - (1.1) -
Depreciation of right-of-use assets (2.2) (2.7) (0.5) (5.4) -
Depreciation on disposal of right - of - use asset 0.1 0.4 - 0.5 -
Transfer to assets held for sale (0.4) - - (0.4) 0.3
Unwind of discount on lease liabilities - - - - (0.8)
Settlement of lease liabilities - - - - 6.2
At 31 December 2022 12.9 8.7 0.7 22.3 (23.1)
11. Intangible assets
Goodwill Patents Brand Customer Licences Customer Development Total
£m £m names relationships £m order book costs £m
£m £m £m £m
Cost
At 1 January 2021 345.4 34.4 30.3 17.4 0.8 - - 428.3
Additions - 0.3 - - - - 1.2 1.5
Transfer from tangible assets - - - - - - 0.8 0.8
Acquisition of businesses 122.3 4.8 36.2 96.9 - 0.9 - 261.1
At 31 December 2021 467.7 39.5 66.5 114.3 0.8 0.9 2.0 691.7
Additions - 0.5 - - - - 2.3 2.8
Acquisition of businesses
2.9 - - - - - - 2.9
Transfer to Assets held for sale
(3.2) - - - - - - (3.2)
At 31 December 2022 467.4 40.0 66.5 114.3 0.8 0.9 4.3 694.2
Amortisation and impairment losses
At 1 January 2021 - 12.1 14.3 7.9 0.2 - - 34.5
Charge for the year - 3.3 4.9 5.5 0.1 0.4 0.1 14.3
Transfer from tangible assets 0.1
- - - - - - 0.1
At 31 December 2021 - 15.4 19.2 13.4 0.3 0.4 0.2 48.9
Charge for the year - 3.4 5.1 6.1 0.1 0.5 0.2 15.4
Impairment losses 12.0 - - 2.8 - - - 14.8
At 31 December 2022 12.0 18.8 24.3 22.3 0.4 0.9 0.4 79.1
Net book value
At 31 December 2022 455.4 21.2 42.2 92.0 0.4 - 3.9 615.1
At 31 December 2021 467.7 24.1 47.3 100.9 0.5 0.5 1.8 642.8
11. Intangible assets (continued)
Goodwill arising on the acquisition of Keytec Geomembranes Limited was
increased by £2.9m as detailed in Note 12.
Impairment testing of goodwill
Goodwill is not amortised but is subject to annual impairment testing.
Goodwill has been allocated for impairment testing purposes to a number of
cash-generating units (CGUs) which represent the lowest level in the Group at
which goodwill is monitored for internal management purposes. The carrying
amount of goodwill allocated to each of the CGUs is as follows:
CGU 31 December 2022 31 December 2021
£m £m
Building Services & International 30.4 33.6
Infrastructure & Landscape 43.6 40.7
Residential Systems 169.6 169.6
Ventilation & Climate 93.7 93.7
Adey 92.8 104.8
Nu-Heat 17.3 17.3
Others (comprising Surestop and Ulster) 8.0 8.0
455.4 467.7
At 31 December 2022 £3.2m of goodwill has been allocated to assets held for
sale from the Building Services & International CGU, in relation to
Polypipe Italia SRL.
Impairment tests on the carrying amounts of goodwill are performed by
analysing the carrying amount allocated to each CGU against its value-in-use.
Value-in-use is calculated for each CGU as the net present value of that CGU's
discounted future pre-tax cash flows covering a 5-year period. These pre-tax
cash flows are based on budgeted cash flows information for a period of one
year, construction industry forecasts of growth for the following year and
managements forecast of growth between 2.0% to 5.0% for years 3 to 5 (2021:
2.74% to 2.80%). Terminal growth rates of 2% (2021: 2%) have been applied
beyond this, based on historical macroeconomic performance and projections of
the sector served by the CGUs.
When assessing for impairment of goodwill, management have considered the
impact of climate change, particularly in the context of the risks and
opportunities, and have not identified any material short-term impacts from
climate change that would impact the carrying value of goodwill. Over the
longer term, the risks and opportunities are more uncertain, and management
will continue to assess the quantitative impact of risks at each reporting
period.
A pre-tax discount rate of 12.9% (2021: 10.4%) has been applied in determining
the recoverable amounts of CGUs. The pre-tax discount rate is estimated based
on the Group's risk adjusted cost of capital.
The Group has applied sensitivities to assess whether any reasonably possible
changes in assumptions could cause an impairment that would be material to
these consolidated financial statements. Due to a removal of longer term
overseas strategic growth opportunities and increasing cashflow risks, ongoing
headwinds from the upstream boiler manufacturing shortages driven by a global
lack of printed circuit boards and the significantly increased pre-tax
discount rate there has been a reduction in the value in use of the Adey CGU.
This has resulted in an impairment charge of £12.0m in the year to reflect
that the discounted present value of future cash flows did not support the
full carrying value of the asset. As an impairment loss has been recognised in
Adey in the current year, the recoverable amount is equal to its carrying
value at the year end and therefore any negative changes in key assumptions
would result in the recognition of an additional impairment loss.
12. Acquisitions
Acquisition-related deferred and contingent consideration comprised:
31 December 31 December
2022 2021
£m £m
Deferred consideration on Keytec acquisition 0.6 -
Deferred and contingent consideration on Plura acquisition 7.4 4.3
Contingent consideration on Permavoid acquisition - 0.5
8.0 4.8
Acquisition-related cash flows comprised:
2022 2021
£m £m
Operating cash flows - settlement of acquisition costs
Nu-Heat - 0.6
Plura 0.1 0.7
Adey - 3.1
Permavoid - 2.5
Keytec 0.1 -
0.2 6.9
2022 2021
£m £m
Investing cash flows - settlement of deferred and contingent consideration
Permavoid 0.5 -
0.5 -
2022 2021
£m £m
Investing cash flows - acquisition of businesses net of cash at acquisition
Keytec 2.6 -
Nu-Heat - 25.8
Plura - 1.8
Adey - 208.6
Tree Ground Solutions - 0.2
2.6 236.4
Keytec:
On 31 March 2022, the Group acquired 100% of the voting rights and shares of
Keytec Geomembranes Holding Company Limited (Keytec), for an initial cash
consideration of £2.5m on a cash free and debt free basis plus a deferred
consideration of £0.6m due no later than 12 months from completion. The total
cash consideration of £2.9m included a payment for net cash and working
capital commitments on completion of £0.4m. Keytec is a supplier and
installer of stormwater attenuation products, geomembranes, and gas protection
products.
Details of the acquisition, including fair value adjustments, were as follows:
Fair
value
£m
Property, plant and equipment 0.1
Inventories 0.1
Trade and other receivables 0.7
Cash and cash equivalents 0.3
Trade and other payables (0.5)
Income tax payable (0.1)
Net identifiable assets 0.6
Goodwill on acquisition 2.9
Total cash consideration 3.5
Less: deferred consideration (0.6)
Initial cash consideration 2.9
No material intangible assets have been identified. The goodwill arising on
the acquisition primarily represented the assembles workforce, technical
expertise and market share. The goodwill is allocated entirely to the
Commercial System segment.
12. Acquisitions (continued)
The fair value of trade and other receivables was £0.7m. The gross amount of
trade and other receivables was £0.7m and it is expected that the full
contractual amounts will be collected.
Post-acquisition Keytec contributed £5.3m revenue and £0.6m underlying
operating profit which were included in the Group income statement. If Keytec
had been acquired on 1 January 2022, the Group's results for the twelve months
ended 31 December 2022 would have shown revenue of £616.9m and underlying
operating profit of £97.6m.
Nu-Heat
On 2 February 2021, the Group acquired 100% of the voting rights and shares of
Nu-Heat (Holdings) Limited (Nu-Heat), the leading supplier of sustainable
underfloor heating solutions, air and ground source heat pumps, and other
renewable heating systems, for a consideration of £27.0m on a cash-free,
debt-free basis. The total cash consideration of £24.8m included a payment of
£5.7m for net cash on completion and was net of loans and borrowings at
acquisition of £6.7m. Additional debt and debt like items amounted to £1.2m.
The 'Nu-Heat' brand, order book and customer relationships have been
recognised as specific intangible assets as a result of this acquisition. Fair
value adjustments principally related to the recognition of intangible assets
and deferred income tax arising on these adjustments. The goodwill arising on
the acquisition primarily represented the assembled workforce, technical
expertise and market share. The goodwill is allocated entirely to the
Residential Systems segment.
Plura
On 5 February 2021, the Group acquired 51% of the voting rights and shares of
Plura Composites Ltd (Plura) for an initial cash consideration of £1.25m, and
further payment in respect of the remaining 49% of between £6.0m and £16.4m
depending on the EBITDA performance of Plura in the 12-month period ending no
earlier than 5 February 2024 and no later than 31 July 2024 as well as the
continued employment of key personnel.
Customer relationships is the only material intangible asset that has been
recognised as a result of this acquisition. Fair value adjustments principally
related to the recognition of intangible assets and deferred income tax
arising on these adjustments. The goodwill arising on the acquisition is
immaterial.
An amount of £3.1m has been recognised as a non-underlying expense in the
income statement in the year ended 31 December 2022 in respect of the Plura
contingent consideration arrangement. This takes the total amount recognised
as a liability on the balance sheet at 31 December 2022 to £7.4m.
Accordingly, the aggregate final consideration is expected to be approximately
£11.9m. Contingent consideration was determined using the Directors'
assessment of the likelihood that financial targets will be achieved. There is
no material difference between the estimated cash consideration and the fair
value. The estimated cash consideration is derived from the budgets and
forecasts for Plura.
Adey
On 10 February 2021, the Group acquired 100% of the voting rights and shares
of London Topco Limited (Adey) for a consideration of £210.0m on a cash-free,
debt-free basis. Adey is the UK's leading provider of magnetic filters,
chemicals and related products, which protect against magnetite and other
performance constraints in water-based heating systems and improve energy
efficiency, operating in predominantly residential end markets. The cash
consideration of £86.6m included a payment of £7.3m for net cash on
completion and was net of loans and borrowings at acquisition of £129.3m.
Additional debt and debt like items amounted to £1.4m.
Customer relationships, the 'Adey' brand and patents have been recognised as
specific intangible assets as a result of this acquisition. Fair value
adjustments principally related to the recognition of intangible assets and
deferred income tax arising on these adjustments. The goodwill arising on the
acquisition primarily represented the assembled workforce, technical expertise
and market share. The goodwill is allocated entirely to the Residential
Systems segment.
13. Financial liabilities
31 December 31 December
2022 2021
£m £m
Non-current loans and borrowings:
Bank loan - principal 170.9 198.0
- unamortised debt issue costs (2.8) (0.6)
Loan notes 25.0 -
Total non-current loans and borrowings 193.1 197.4
Cash at bank and in hand (50.0) (52.3)
Net debt excluding lease liabilities 143.1 145.1
31 December 31 December
2022 2021
£m £m
Other financial liabilities:
Trade and other payables 124.2 135.5
Lease liabilities 23.1 20.6
Other liabilities - 1.4
Deferred and contingent consideration 8.0 4.8
Derivative financial instruments - 0.1
155.3 162.4
Bank loan
On 19 November 2018, the Group entered into an Amendment and Restatement
Agreement with various lenders in respect of the Group's previous revolving
credit facility agreement dated 4 August 2015. The bank loan, which comprised
a £300.0m revolving credit facility and £50.0m uncommitted accordion
facility, was secured and would have matured in November 2023 (with two
further uncommitted annual renewals through to November 2025 possible). The
Group incurred £1.7m of debt issue costs in respect of entering into the
Amendment and Restatement Agreement dated 19 November 2018 which were
capitalised and are being amortised to the income statement over the term of
the facility, upon renewal, an amount was subsequently written off to
non-underlying items in August 2022.
On 10 August 2022 the Group renewed its banking facilities and entered a
Sustainability Linked Loan revolving credit facility agreement for £350.0m
with a £50.0m uncommitted accordion facility expiring in August 2027 and a
separate agreement for private placement loan notes of £25.0m with an
uncommitted £125.0m shelf facility repayable August 2029. The group incurred
debt issue costs of £3.1m, in respect of entering into both agreements, have
been capitalised and are amortised to the income statement over the whole term
of each facility, respectively.
Interest is payable on the bank loan at SONIA plus an interest margin ranging
from 0.90% to 2.75% which is dependent on the Group's leverage (net debt
excluding lease liabilities as a multiple of pro forma EBITDA) and reduces as
the Group's leverage reduces. The interest margin at 31 December 2022 was
1.60% (2021: 1.40%). Pro forma EBITDA for the year was £120.3m (2021:
£117.9m) and is defined as pre-IFRS 16 underlying operating profit before
depreciation, amortisation and share-based payment charges, for the 12 months
preceding the balance sheet date adjusted where relevant to include a full
year of EBITDA from acquisitions made during those 12 months. Interest is
payable semi-annually on the loan notes and is fixed at 4.44% per annum for
the period of the loan term.
2022 2021
£m £m
Pro forma EBITDA (12 months preceding the balance sheet)
Underlying operating profit 98.2 95.3
Depreciation of property, plant and equipment 19.4 18.4
Amortisation of internally generated intangible assets 0.2 0.1
Unwind of discount on lease liabilities (0.8) (0.7)
Share-based payments charge 3.1 2.5
120.1 115.6
EBITDA from acquisitions 0.2 2.3
120.3 117.9
13. Financial liabilities (continued)
At 31 December 2022, the Group had available, subject to covenant headroom,
£179.1m (2021: £102.0m) of undrawn committed borrowing facilities in respect
of which all conditions precedent had been met.
The Group is subject to a number of covenants in relation to its bank loan
which, if breached, would result in the bank loan becoming immediately
repayable. These covenants specify certain maximum limits in terms of net
debt, excluding lease liabilities, as a multiple of pro forma EBITDA and
interest cover. At 31 December 2022, the Group was not in breach of any bank
covenants. The covenant position was as follows:
Covenant Covenant Position at
requirement 31 December
2021
Interest cover (Underlying operating profit: Finance costs excluding debt >4.0:1 16.0:1
issue cost amortisation)
Leverage (Net debt excluding lease liabilities: pro forma EBITDA) <3.0:1 1.2:1
The interest cover and leverage covenants remain at 4.0:1 and 3.0:1,
respectively, throughout the remaining term of the sustainability linked loan
to August 2027, though there exists the option to apply to extend the leverage
covenant to 3.5:1 for a limited period of time if the Group makes an
acquisition.
The interest rate on the Group's £350m sustainability linked loan is
variable, being payable at SONIA (2021: LIBOR) plus a margin.
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