TIDMECEL
RNS Number : 0279S
Eurocell plc
12 March 2021
12 March 2021
EUROCELL PLC (Symbol: ECEL)
PRELIMINARY RESULTS FOR THE YEARED 31 DECEMBER 2020
Strong second half - well positioned for 2021
Eurocell plc is a market leading, vertically integrated UK
manufacturer, distributor and recycler of innovative window, door
and roofline PVC building products
2020 2019 Change
Key financial performance measures
Revenue (GBP million) 257.9 279.1 (8)%
Gross margin % 49.4 51.2 (180)bps
Adjusted profit before tax
(GBP million) (1) 8.5 22.7 (14.2)
Adjusted basic earnings per
share (pence) (1) 6.5 19.3 (12.8)
Net debt, pre-IFRS 16 (GBP
million) (2) 9.9 34.6 24.7
Other statutory accounting
measures
(Loss)/profit before tax (GBP
million) (1.5) 22.7 (24.2)
Basic (losses)/earnings per
share (pence) (2.0) 19.3 (21.3)
Total dividends per share (pence) - 3.2 n/a
Capital investment (GBP million) 13.7 15.2 (1.5)
Net debt (GBP million) (2) 58.3 68.7 10.4
------ ------ ---------
Operational Headlines
-- Major impact of COVID-19 on the business in H1 2020, with decisive action taken in response
- Closed all sites from late March to mid-May, in line with UK Government guidance
- Health & safety, operational and financial measures taken
to protect the business and stakeholders
- Good operating performance and efficiencies in H2 2020, with all sites open since July
-- Now operating from state-of-the-art new warehouse
- Key to increasing capacity and delivering anticipated
operating efficiencies in 2021 and beyond
- Final stages of transition expected to complete in Q2
-- Strong on sustainability, as the leading UK-based recycler of PVC windows
- Use of recycled material increased to 25% of material consumption (2019: 23%)
- Bank facility converted to a Sustainable RCF, with adjustments
to the margin based on annual recycling targets
Financial Headlines
-- Sales for the year 8% lower than 2019, comprised of:
- H1 sales down 31%, reflecting business closed from late March to mid-May
- Strong second half, with sales up 15% compared to H2 2019
- Full year like-for-like(3) sales up 6%
-- Gross margin down 180bps to 49.4%:
- H1 gross margin of 46.8%, reflecting reduced production
volumes and therefore lower recovery of direct costs
- 50.9 % in H2, with gross margins improving as volumes increased
-- Underlying overheads down 3%, includ ing support received
under the Coronavirus Job Retention Scheme of GBP6.5 million and
retail grants / rates relief of GBP1.8 million, partially offset by
an increase to IFRS 9 impairment charges (bad debts) of GBP2.2
million (substantially incurred in H1)
-- Adjusted(1) profit before tax of GBP8.5 million (2019: GBP22.7 million) reflecting:
- H1 loss, driven by lower sales volumes and the impact of operational gearing
- Strong sales and good operating efficiencies in the second
half, with profits well up on H2 2019
-- Reported loss before tax of GBP1.5 million includes non-cash
goodwill impairment charge (GBP5.8 million) and dual running costs
of the new warehouse (GBP2.7 million)
-- Capex of GBP13.7 million (2019: GBP15.2 million), including
GBP8.0 million in relation to fit-out of the new warehouse
-- Strong balance sheet and liquidity, with pre-IFRS 16 net debt
of GBP9.9 million (31 December 2019: GBP34.6 million), reflecting
focus on cash flow management and benefit of April share placing
(GBP17.1 million, net)
Mark Kelly, Chief Executive of Eurocell plc said:
"COVID-19 has created unprecedented challenges. Our first
priority continues to be the health, safety and well-being of our
employees. Through their hard work and dedication, we have
implemented safe working practices in line with recommended
guidelines, and I would like to thank them all again for their
continued commitment and support.
"In response to the pandemic, we took a number of decisive
actions to safeguard our future and ensure the business was
well-placed to capitalise on opportunities as markets
developed.
"The repair, maintenance and improvement ('RMI') market was
stronger than we anticipated throughout the second half. Sales
exceeded our expectations, particularly in the branch network,
operating efficiencies were good and gross margins improved as
volumes increased. As a result, we were very pleased to report
strong profit growth for H2.
"Our focus now includes completing the warehouse transition
successfully, thereby facilitating future growth and the delivery
of anticipated operating efficiencies. Whilst the current levels of
uncertainty mean it is difficult to predict the outcome for the
year, 2021 has started well with sales to the end of February up 8%
on 2020 and it remains our intention to return to paying dividends
this year. We continue to see good potential to outperform our
markets, take share and deliver further progress."
Notes
(1) Adjusted measures are stated before non-underlying items(4) and the related tax effect.
(2) Net debt is cash and cash equivalents less bank overdrafts,
borrowings and lease liabilities. Pre-IFRS 16 net debt excludes
lease liabilities.
(3) Like-for-like excludes acquisitions and new branches opened
in 2019/20, and is calculated by comparing average sales per
trading day in 2020 (i.e. 212 days, excluding days closed) with
average sales per trading day in 2019 (249 days).
(4) Non-underlying items for 2020 of GBP10.0 million includes a
goodwill impairment charge of GBP5.8 million, right-of use asset
impairment charges of GBP0.9 million, restructuring costs of GBP0.6
million and warehouse dual-running costs of GBP2.7 million. There
were no non-underlying items in 2019.
Analyst presentation
There will be an audiocast presentation for analysts and
investors at 9am today.
To register for the audiocast, please contact Teneo on
eurocell@teneo.com .
Following the presentation, a recording of the audiocast will be
made available on the Group's web site:
https://investors.eurocell.co.uk/investors/
CHAIRMAN'S STATEMENT
Introduction
The business responded remarkably well to the unique challenges
posed by COVID-19. 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 2020
is testament to their commitment, hard work and dedication during a
period of unprecedented uncertainty.
Our priority was to protect the business and ensure the safety
of all our people, customers and suppliers by mandating COVID-safe
working practices as detailed in the Chief Executive's Review. We
also secured our financial position and substantially completed
major investments in new operating capacity. This good work leaves
the business well-placed for the future.
Financial and operating performance
The first half of the year was dominated by the impact of the
first lockdown on our operational and financial performance, with
the business closed from late March until mid-May. As a result,
sales fell 31% in H1, and we reported an adjusted loss before
tax.
However, we prepared well during this period for re-opening,
designing, testing and implementing a range of COVID-safe working
practices, to protect our employees, suppliers and customers. We
also took the opportunity to review and revise our operating,
support and management structures, to ensure that the business is
as efficient as possible.
We were therefore ready to capitalise on a strong repair,
maintenance and improvement ('RMI') market in the second half. We
reported sales growth of 15%, and, thanks also to a good
operational performance, delivered adjusted profit before tax well
up on H2 2019, signalling that the inefficiencies experienced in
2018 and 2019 are now behind us.
Sales for the full year were GBP258 million, or 8% below 2019
and adjusted profit before tax was GBP8.5 million (2019: profit of
GBP22.7 million).
The measures we took in the first half to conserve cash were
effective and we were grateful to receive support from investors
with a share placing in April. Thereafter, cash conversion in H2
was good. As a result, net debt at 31 December 2020 on a pre-IFRS
16 basis reduced to GBP9.9 million (31 December 2019: GBP34.6
million), demonstrating significant headroom on our bank facility.
We also have a strong balance sheet, which provides flexibility and
options for the future.
Dividends
Due to the impact of COVID-19, the dividend declared in March
2020 was subsequently cancelled and no dividends will be paid in
respect of 2020. However, it remains our intention to return to
paying dividends in 2021.
Governance
As a Board, we are committed to the highest standards of
corporate governance and ensuring effective communication with
shareholders. We continue to comply with the UK Corporate
Governance Code.
Strategy
Our overall strategic objective remains to deliver sustainable
growth in shareholder value by increasing sales and profits above
our market growth rates. Over the last five years, we have targeted
five strategic priorities to deliver this objective. We have made
good progress against each of them, with the key aspects of our
performance described in the Chief Executive's Review.
Early in 2021 we conducted a review of the Group's strategy, our
markets and activities. We decided that, whilst the five existing
priorities remain relevant, we would refine one of them and
introduce two new priorities, making seven in all.
It is therefore our intention in 2021 to develop our existing
strategic priority to increase the use of recycled material, into a
'sustainability strategy' for the whole business, thereby linking
our own objectives to the relevant UN Sustainable Development Goals
and the UK Government's transition towards a net zero carbon
economy. We will communicate further on sustainability later in
2021.
We will also introduce a new strategic priority to 'deliver
sustained operational excellence'. The project to fit-out our new
warehouse progressed well throughout 2020 and I was delighted to
see we reached a major milestone in January 2021, with commercial
operations beginning from the new site. With recent operational
constraints now substantially resolved through major investments in
new manufacturing and warehousing capacity, we expect sustained
operational excellence to result in the benefit of our sales growth
flowing through to improved profits and margins.
Finally, we intend to introduce a new strategic priority to
'develop a sector-leading digital proposition'. Offering an
end-to-end digital solution is becoming increasingly important to
our stakeholders and will act as an enabler to our other
priorities. Our objective is to improve the supplier, customer and
employee experience, making Eurocell an even better business
partner all round.
Overall, we are confident that, through the successful
progression of our strategic priorities, we will outperform our
markets and deliver sustainable growth in shareholder value.
Bob Lawson
Chair
CHIEF EXECUTIVE'S REVIEW
INTRODUCTION
We started 2020 in a good position. With manufacturing
constraints resolved through investment in 2019, our intended focus
for the year was the delivery of operating efficiencies and the
successful transition to our new warehouse. However, 2020 was
shaped by the challenges posed by COVID-19.
The initial measures implemented by the UK Government to control
the pandemic had a major impact on our operations and financial
performance in the first half. However, we took decisive action to
protect our employees, the business and our other stakeholders,
leaving the Group well-placed to capitalise on opportunities as we
emerged from the first lockdown towards the end of Q2. Since then,
our operating performance has been strong.
The repair, maintenance and improvement ('RMI') market was
stronger than we anticipated throughout the second half. House
building activity has also been increasing, supported by high
levels of mortgage approvals. Our products have resonated well with
customers seeking, possibly as a result of the pandemic, to improve
their homes and create more usable space, both inside and outside
of their properties. Products such as conservatories, warm roofs
and garden rooms have been particularly strong.
With H2 sales exceeding expectations and good operating
efficiencies delivered throughout this period, we were very pleased
to report good financial performance and strong profit growth for
the second half.
ACTIONS IN RESPONSE TO COVID-19
Operational actions
In line with UK Government guidance issued towards the end of
March 2020, we closed our manufacturing plants, branch network,
distribution and recycling operations. The shut-down was carefully
controlled, in order to leave the business ready to recommence
operations and trading when appropriate to do so.
Following updated guidance from the Government in mid-May, which
permits tradesmen to work in domestic dwellings so long as
appropriate precautions are taken, we commenced a phased
re-opening. This process was successful, with COVID protection
measures working effectively. All sites have been open since July
and operating efficiencies since then have been good.
Health and safety actions
Prior to re-opening, we conducted a thorough review of work
practices and implemented a range of COVID protection measures.
Extensive work was undertaken to examine how COVID risks would
impact operational activities; to define more extensive standards
for protection (referencing UK Government and HSE guidance); and to
develop programmes for effective implementation. Our employees were
very actively engaged in supporting this process. The approach
addressed various aspects, including: social distancing, physical
barriers, screen and other protections, workplace hygiene and
cleaning, personal hygiene and handwashing, personal protective
equipment and swift case/symptom reporting, response and post-case
sanitisation.
The restart was carefully phased and controlled to ensure that
our COVID protection measures were effective with rising employee
numbers. Employees returning to work were provided with relevant
training, and personal protective equipment where necessary, before
re-entering their workplace.
Thereafter, we have continued to review and develop our
protection measures in accordance with official guidance and
emerging best practice. We continually monitor the effectiveness of
and compliance with these measures.
Financial actions
We increased our bank facility from GBP60 million to GBP75
million in March 2020.
At the outset of the pandemic, we took several actions to
conserve cash, including the deferral of non-essential capex and
other discretionary expenditure and cancellation of the proposed
final dividend for 2019. In April we raised GBP17.1 million (net)
by way of a share placing, with the proceeds to be used to ensure
we retain headroom on our bank facility, even under an extended
shut-down, and to provide sufficient liquidity to continue
investment in the new warehouse. We also utilised Government
support measures, including the Job Retention Scheme, through which
we received payments of GBP6.5 million.
Cash flow management has continued to be a key priority for the
business and the measures taken in 2020 to improve our cash
position have been effective, with net debt at 31 December 2020 on
a pre-IFRS 16 basis reduced to GBP9.9 million (31 December 2019:
GBP34.6 million), demonstrating significant headroom on our bank
facility.
Cost savings and operating efficiency improvements
During the year, we performed a full review of our operating,
support and management structures to ensure that the business is as
efficient as possible. We identified several opportunities to
streamline the organisation, which resulted in a small reduction in
headcount. Approximately 50 positions (representing c.3% of our
workforce) were impacted, although a significant proportion relate
to vacancies that were not filled. As a result, non-underlying
restructuring costs of GBP0.6 million were incurred in H2
(primarily redundancy). These changes result in a more efficient
structure and deliver fixed cost savings, but have no impact on
production capacity or our ability to satisfy customer demand.
We were concerned that COVID-safe working methods might impact
on our operating efficiencies, but through careful management and
with the full cooperation of our employees, we have seen no
negative impact.
Our COO, Mark Hemming, is leading the work to continually
improve operational efficiencies, which will be further enhanced as
anticipated when the new warehouse is fully operational, expected
to be in Q2 2021.
FINANCIAL RESULTS
Sales for the year were GBP258 million, or 8% below 2019. We
reported an adjusted profit before tax of GBP8.5 million (2019:
GBP22.7 million).
As described above, the first lockdown had a major impact on our
H1 performance. Sales for the first six months of 2020, which
includes the period from late-March to mid-May when the business
was closed, were 31% below H1 2019, and we reported an adjusted
loss before tax, driven by significantly lower sales volumes and
the impact of operational gearing.
However, throughout the second half our markets were stronger
than we had anticipated, we continued to gain share and our
operational performance was good. Sales for the six months ended 31
December 2020 grew by 15% on H2 2019, and we reported an adjusted
profit before tax for the period well up on H2 2019.
The statutory loss before tax for the year was GBP1.5 million,
which includes a non-cash goodwill impairment charge of GBP5.8
million and dual running costs of the new warehouse of GBP2.7
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 well-being of our employees and contractors is
always our first operational priority and we continue to maintain
good health and safety performance. Our Lost Time Injury Frequency
Rate ('LTIR') was 0.7 in 2020, compared to 0.9 in 2019. There were
no major injuries and 19 minor accidents (2019: no major injuries,
17 minor injuries) recorded under the Reporting of Injuries,
Diseases and Dangerous Occurrences Regulations 2013 ('RIDDOR').
Production
In 2020 we manufactured 45.5k tonnes of rigid and foam PVC
profiles at our primary extrusion facilities, down from 54.6k
tonnes in 2019, a decrease of 17%. This reflects lower sales in H1
2020 as a result of the first COVID lockdown. In addition, 2019
production included a stock build programme to increase
availability at our branches and mitigate the risk of raw material
supply interruption due to Brexit.
Also in 2019, we completed a substantial capex programme, at a
cost of c.GBP5 million, to improve manufacturing efficiency and
increase co-extrusion and foam capacity by 30% and 15%
respectively. In extrusion, Overall Equipment Effectiveness
('OEE'), a measure which takes into account machine availability,
performance and yield, improved to 75% in 2020 (2019: 73%).
Recycling
We used 12.4k tonnes of recycled PVC compound alongside virgin
resin in the manufacture of co-extruded rigid profiles,
representing 25% of overall material consumption, up from 23%
(13.4k tonnes) in 2019, driving a substantial saving compared to
the cost of using virgin material.
BREXIT AND SUPPLY CHAIN
We took several steps to protect the business from the potential
negative effects of Brexit. In this context, it is worth noting
that over 95% of our sales are to UK-based customers and that the
vast majority of our workforce has the right to work in the UK.
Some of our key raw materials do originate from Europe, so any
disruption in supplies could impact our manufacturing operations.
With that in mind, whilst we have only limited capacity to hold
additional raw materials at our own sites, we completed a
significant investment in additional stocks in 2019, adding c.GBP5
million to finished goods for key product lines, most of which
remained in place throughout 2020.
Now that the nature of the future trading relationship between
the UK and the EU has been substantially defined, the risks
relating to the imposition of import tariffs are largely behind
us.
More generally, whilst the impact of increased demand, supplier
production outages and new administrative requirements for EU
imports have together put sector supply chains under pressure, we
have continued to secure the raw materials we require. So far, we
have not experienced any significant adverse effects from the
delays at UK ports.
However, PVC resin prices began to increase towards the end of
2020 and this trend has continued into the new year. We are
therefore implementing selling price increases, starting in
February 2021, to recover this and other cost inflation.
WAREHOUSING CAPACITY EXPANSION
Towards the end of 2019 we concluded that our existing main
warehouse was a major constraint to future growth and operating
efficiency. Early in 2020 we secured a new facility, located within
three miles of our primary manufacturing site, existing main
warehouse and head office. The new site has 260,000 square feet of
high bay, state-of-the-art warehouse accommodation, dedicated
office space and car parking.
In designing the new facility, we have taken the opportunity to
modernise our storage solutions, using cantilever racking to store
up to 12 stillages high (our existing warehouse is restricted to
seven); and mobile racking to allow high density storage, which has
increased capacity by more than 60%. Similarly, we have modernised
picking processes, with the use of mobile platforms to replace
manual techniques, thereby providing a safer and more productive
solution.
The project to fit-out the new warehouse has progressed well and
remains on track. We achieved a major milestone in January 2021,
with commercial operations beginning successfully from the new
site. In line with our plans, transition will continue over the
coming weeks, with the final stages expected to complete in Q2
2021.
We will convert our existing warehouse to a specialist
manufacturing site, relocating, beginning later in 2021, secondary
operations including foiling and conservatory roofs. This will free
up space to future-proof extrusion capacity.
We are excited about the opportunities for growth opened up by
this investment. As well as being central to increasing capacity,
the new warehouse is key to delivering anticipated improvements in
operating efficiencies.
STRATEGY
Strategic priorities overview
Our overall strategic objective is to deliver sustainable growth
in shareholder value by increasing sales and profits at or above
market growth rates. Over the last five years we have targeted five
strategic priorities to help us achieve this objective and have
delivered significant progress in each of them as follows:
-- Grow market share in Profiles - now the largest supplier of
rigid PVC profile to the UK market (c.17% share)
-- Expand the branch network - 208 sites in 2020 compared to 141 in 2015
-- Increase the use of recycled materials - 25% of material
consumption in 2020 compared to 9% in 2015
-- Develop innovative new products - sales from products
introduced since 2017 were c.GBP24 million of 2020 revenue
-- Explore potential bolt-on acquisition opportunities - six acquisitions completed since 2015.
Further information in relation to these priorities is set out
in the following paragraphs. More recently, we have assessed
whether they remain relevant for the next five years and our
conclusions are also described below.
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 17%. Our
objective is to increase this to at least 20%.
In the Profiles division, trade fabrication currently represents
c.60% of sales. There is a compelling case for larger trade
fabricators to switch to Eurocell. This includes: a strong product
range, continued product development, the benefits of pull-through
profile and hardware specifications and the opportunity to supply
our branches, all delivered via best-in-class service.
New build represents c.30% of Profiles sales. Expanding our
share of the new build market has been a key driver of recent
growth and we believe favourable market dynamics and low interest
rates are set to continue. We have strong relationships with large
and medium-sized housebuilders, maintained by our specification and
technical teams. In addition, with a focus on sustainability, we
believe our use of recycled material is becoming increasingly
attractive to housebuilders.
In the commercial sector (c.10% of profiles sales), 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.
Expand the branch network
Our strategic objective for Building Plastics is to achieve
sector-leading operations from 270 - 300 sites. The growth will
come mostly at the expense of independent operators, who currently
have more than 60% market share.
In the existing estate (208 branches at 31 December 2020), we
are implementing plans to improve up-selling and cross-selling
opportunities, to target lapsed customers, and to tighten margin
controls. We also intend to enhance promotional activities with
support from key suppliers. In terms of products, we are focusing
on improving conversion rates for high value made-to-order items
and extending our range, including the introduction of a new suite
of outdoor living products.
With additional warehousing capacity now coming on line, we plan
to open up to 12 new sites in 2021, with the final number to be
determined based on the economic environment and business
performance. Up to six of these will be in a new, larger format
store, with 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 continue to robustly test an opportunity to develop and
implement a sector-leading consumer online windows and doors
proposition, using our branch network to provide infrastructure
where needed (e.g. delivery point for installers). We began a trial
in the North West in Q3 2020 and will provide an update on our
progress later in 2021. This proposition directly aligns with our
commercial strategy of continuing to create pull-through demand for
our products.
Increase the use of recycled material
Expanding the use of recycled material 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. It also 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.
We have been investing to increase our recycling capability
through the expansion of Eurocell Recycle Midlands, the acquisition
of Eurocell Recycle North 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. Our
use of recycled material increased from 4.1k tonnes (or 9% of
materials consumed) in 2015 to 13.4k tonnes (or 23% of consumption)
in 2019 and 12.4k tonnes (or 25% of consumption) in 2020, with
volumes in the latter reduced by the impact of COVID. In doing so,
in both 2019 and 2020 we saved the equivalent of c.3 million window
frames from landfill.
We expect internal demand for recycled material to increase.
This can be satisfied largely through the expansion of Eurocell
Recycle North.
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. Recent highlights for Profiles
include the introduction of a flush window sash for the popular
Logik range, a new sliding patio door system (Syncro) and
development of a through-colour grey substrate profile. In Building
Plastics, the Equinox conservatory roof system has been developed
to include a skylight (Vega) and our new suite of outdoor living
products, including the Kyube garden room, has been very well
received.
Explore potential bolt-on acquisitions
We have completed six acquisitions since our IPO in 2015. We
will continue to assess and consider bolt-on acquisition
opportunities in the markets in which we operate over the
medium-term. However, our focus for 2021 will be delivering
operating efficiencies from recent investments in manufacturing and
warehousing capacity.
2021 strategy update
Early in 2021 we conducted a review of the Group's strategy, our
markets and activities. We reaffirmed our overall strategic
objective of sustainable growth in shareholder value. We also
decided that, whilst the five priorities described above remain
relevant, we would refine one of them and introduce two new
priorities, making seven in all.
It is therefore our intention in 2021 to develop the existing
recycling priority into a 'sustainability strategy' for the whole
business. We are working now to define long-term sustainability
objectives, linked to the relevant UN Sustainable Development Goals
and the UK Government's transition towards a net zero carbon
economy, along with an implementation plan and appropriate KPIs
against which to measure progress. We will communicate further on
sustainability later in 2021.
We will also introduce 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%. However, profits for that period were
impacted by sales running substantially ahead of our expectations,
thereby exceeding the available operating capacity thus leading to
inefficiencies and extra costs. Manufacturing and warehousing
constraints have now been resolved through major investments in new
capacity. Looking ahead, we expect sustained operational excellence
to result in the benefit of our sales growth flowing through to
improved profits and margins.
Finally, we will introduce a new strategic priority to 'develop
a sector-leading digital proposition'. Stakeholders in most
organisations increasingly require full end-to-end digital
solutions; a trend exacerbated by the COVID pandemic. We now intend
to make the continued development of our digital proposition a
strategic priority. 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.
Overall, we are confident that, through the successful
progression of our strategic priorities, we will outperform our
markets and deliver sustainable growth in shareholder value.
OUTLOOK
COVID-19 has created unprecedented challenges. Our first
priority continues to be the health, safety and well-being of our
employees. Through their hard work and dedication, we have
implemented safe working practices in line with recommended
guidelines, and I would like to thank them all again for their
continued commitment and support.
In response to the pandemic, we took a number of decisive
actions to safeguard our future and ensure the business was
well-placed to capitalise on opportunities as markets
developed.
The RMI market was stronger than we anticipated throughout the
second half. Sales exceeded our expectations, particularly in the
branch network, operating efficiencies were good and gross margins
improved as volumes increased. As a result, we were very pleased to
report strong profit growth for H2.
Our focus now includes completing the warehouse transition
successfully, thereby facilitating future growth and the delivery
of anticipated operating efficiencies. Whilst the current levels of
uncertainty mean it is difficult to predict the outcome for the
year, 2021 has started well with sales to the end of February up 8%
on 2020 and it remains our intention to return to paying dividends
this year. We continue to see good potential to outperform our
markets, take share and deliver further progress.
Mark Kelly
Chief Executive Officer
DIVISIONAL REVIEWS
PROFILES
The Profiles division manufactures extruded rigid and foam PVC
profiles. We make rigid and foam products using virgin PVC
compound, the largest component of which is resin. Our rigid
products also include recycled PVC compound, produced at our
market-leading recycling facilities.
Rigid PVC profiles are sold to third-party fabricators, who
produce windows, trims, cavity closer systems, patio doors and
conservatories for installers, retail outlets and house builders.
Foam products are used for roofline, cladding and window fitting
and are supplied to customers through our nationwide branch network
in the Building Plastics division.
All of our manufacturing margin is recorded within the Profiles
division, which therefore also benefits from expansion of the
branch network.
The Profiles division also includes Vista Panels, S&S
Plastics and Eurocell Recycle North (formerly 'Ecoplas').
2020 2019 Change
GBPm GBPm %
----------------------------- ----- ----- ------
Third-party revenue 99.7 115.7 -14%
Inter-segmental revenue 56.4 59.5 -5%
----------------------------- ----- ----- ------
Total revenue 156.1 175.2 -11%
----------------------------- ----- ----- ------
Adjusted operating profit(1) 7.9 17.9 -56%
----------------------------- ----- ----- ------
Operating (loss)/profit (1.0) 17.9 n/a
----------------------------- ----- ----- ------
(1) Before non-underlying items.
Revenue
Profiles third-party revenue for the year was down 14% to
GBP99.7 million (2019: GBP115.7 million). This is equivalent to a
flat like-for-like sales performance as follows:
H1 H2 Full Year
------------------------------------------------ ---- --- ---------
Profiles division like-for-like(2) sales growth -14% 11% Flat
------------------------------------------------ ---- --- ---------
(2) Like-for-like excludes acquisitions (none in either period)
and is calculated by comparing average sales per trading day in
2020 (i.e. 212 days, excluding days closed) with average sales per
trading day in 2019 (249 days).
H1 like-for-like sales down 14% reflects the impact of the first
COVID-19 lockdown. However, sales increased progressively from
re-opening, and like-for-like growth of 11% in H2 includes good
contributions from trade fabricators, who are substantially focused
on the RMI market. New build and commercial markets began the
second half slowly, but run rates started to improve from
September. Sales also include a very strong performance from Vista
Panels, which finished the year 4% ahead of 2019 on a reported
basis, driven by higher sales of composite doors to new build.
Across the Profiles division, new build represents approximately
30% of sales.
Following the introduction of c.60 new accounts over the last
three years, in 2020 we have selectively added a further 14
accounts (most in H2) and our prospect pipeline remains strong.
Operating profit
Adjusted operating profit for 2020 was GBP7.9 million (2019:
GBP17.9 million), comprised of a loss in H1 and good profit growth
in H2. The H1 loss reflects reduced sales volumes and the impact of
operational gearing, and is stated net of support received under
the Coronavirus Job Retention Scheme (c.GBP3.5 million), offset by
an increase to the IFRS 9 impairment charge (bad debts) in respect
of certain fabricator customers (GBP0.7 million). The profit in H2
represents good growth on H2 2019 and is driven by strong sales and
good operating efficiencies.
The overall operating loss of GBP1.0 million (2019: profit of
GBP17.9 million) is stated after non-underlying charges of GBP8.9
million, comprising the impairment of goodwill (GBP5.8 million),
the impairment of right-of-use assets (GBP0.6 million), warehouse
dual running costs (GBP2.3 million) and restructuring costs (GBP0.2
million). Further information on non-underlying charges is included
in the Chief Financial Officer's Review.
BUILDING PLASTICS
Building Plastics distributes a range of Eurocell manufactured
and branded PVC foam roofline products and Vista doors, as well as
third-party manufactured ancillary products. These include windows
made by our fabricator customers using products manufactured by
Profiles, sealants, tools and rainwater products.
Distribution is through our national network of 208 branches to
window and roofline installers, small and independent builders,
house builders and nationwide maintenance companies. The business
also sells roofline products to independent wholesalers.
The Building Plastics division includes Security Hardware, Kent
Building Plastics and Trimseal. Security Hardware is a supplier of
locks and hardware, primarily to the RMI market, and Kent Building
Plastics and Trimseal are both suppliers of building plastic
materials.
2020 2019 Change
GBPm GBPm %
----------------------------- ----- ----- ------
Third-party revenue 158.2 163.4 -3%
Organic 157.5 162.9 -3%
Trimseal(1) 0.7 0.5 40%
----------------------------- ----- ----- ------
Inter-segmental revenue 1.3 1.3 -
----------------------------- ----- ----- ------
Total revenue 159.5 164.7 -3%
----------------------------- ----- ----- ------
Adjusted operating profit(2) 4.0 8.6 -53%
----------------------------- ----- ----- ------
Operating profit 3.4 8.6 -60%
----------------------------- ----- ----- ------
(1) Acquired March 2019.
(2) Before non-underlying items.
Revenue
Building Plastics third-party revenue for the year was down 3%
to GBP158.2 million (2019: GBP163.4 million). This is equivalent to
like-for-like sales growth of 14% as follows:
H1 H2 Full Year
--------------------------------------------------------- --- ---------
Building Plastics division like-for-like(3) sales growth 3% 19% 14%
--------------------------------------------------------- --- ---------
(3) Like-for-like excludes acquisitions and new branches opened
in 2019/20, and is calculated by comparing average sales per
trading day in 2020 (i.e. 212 days, excluding days closed) with
average sales per trading day in 2019 (249 days).
Like-for-like sales in H1 reflect the impact of the first
COVID-19 lockdown. However, like-for-like growth of 19% for H2
includes a strong performance across our full range of
own-manufactured products and traded goods, as well as a good start
for the new outdoor living range.
In terms of new branches, we opened four sites in 2020 (2019:
also four), of which three were the new large format store. Sales
from this format (now five branches in total), continue to be
encouraging. Branches opened in 2019/20 added GBP2.0 million to
sales in 2020.
Two loss-making branches were closed during the year under the
restructuring programme announced with our half year results, with
customers transferred to neighbouring locations. We now have a
total of 208 branches providing national coverage across the
UK.
Operating profit
Adjusted operating profit for 2020 was GBP4.0 million (2019:
GBP8.6 million), comprised of a loss in H1 and strong profit growth
in H2. The H1 loss reflects reduced sales volumes and the impact of
operational gearing, and is stated net of support received,
including the Coronavirus Job Retention Scheme (GBP3.0 million) and
retail grants / business rates relief (GBP1.8 million), offset by
an increase to the IFRS 9 impairment charge (bad debts) to reflect
higher risk in the Building Plastics receivables book (GBP1.5
million). The profit in H2 represents excellent growth on H2 2019
and is driven by strong sales and good cost control.
Overall operating profit of GBP3.4 million (2019: GBP8.6
million) is stated after non-underlying costs of GBP0.6 million,
comprising right-of-use asset impairment charges (GBP0.3 million)
and restructuring costs (GBP0.3 million). Further information on
non-underlying charges is included in the Chief Financial Officer's
Review.
We plan to open up to 12 new sites in 2021, with the final
number to be determined based on the economic environment and
business performance, with up to six of these in the larger format.
New branches are a driver of sales and profit growth in the
medium-term, but they can create downward pressure on profitability
in the short-term due to the investment in our teams at new sites
and in supporting central infrastructure. However, our initiatives
to reduce time to break-even have now driven this point below 24
months. We do not expect the branches to be opened in 2021 to have
a meaningful impact on profit for the year.
CHIEF FINANCIAL OFFICER'S REVIEW
2020 2019
GBPm GBPm
--------------------------------------------------- ------ ------
Revenue 257.9 279.1
Gross profit 127.4 142.9
Gross margin % 49.4% 51.2%
Overheads (93.9) (99.0)
IFRS 9 impairments and bad debt charges (3.7) (1.5)
---------------------------------------------------- ------ ------
Adjusted(1) EBITDA 29.8 42.4
Depreciation and amortisation (19.5) (17.8)
---------------------------------------------------- ------ ------
Adjusted(1) operating profit 10.3 24.6
Finance costs (1.8) (1.9)
---------------------------------------------------- ------ ------
Adjusted(1) profit before tax 8.5 22.7
Tax (1.5) (3.4)
Adjusted(1) profit after tax 7.0 19.3
Adjusted(1) basic EPS (pence per share) 6.5 19.3
---------------------------------------------------- ------ ------
Non-underlying items (10.0) -
Tax on non-underlying items 0.8 -
---------------------------------------------------- ------ ------
Reported operating profit 0.7 24.6
---------------------------------------------------- ------ ------
Reported (loss)/profit before tax (1.5) 22.7
Reported (loss)/profit after tax (2.2) 19.3
Reported basic (losses)/earnings per share (pence) (2.0) 19.3
---------------------------------------------------- ------ ------
(1) See adjusted performance measures.
COVID-19
Our financial performance in 2020 reflects the major impact of
COVID-19 on the business in the first half, followed by a strong
recovery in H2, when the RMI market was better than we had
anticipated. The decisive actions we took at the outset of the
pandemic and subsequently to control costs, preserve cash and
improve liquidity, secured our financial position. This continued
focus, combined with an excellent operational and financial
performance in H2, ensured the business is now ready to capitalise
on opportunities as markets develop.
REVENUE
Revenue for 2020 was down 8% to GBP257.9 million (2019: GBP279.1
million), comprised of H1 sales down 31%, reflecting the temporary
closure from late March to mid-May, and a strong second half, with
sales up 15% compared to H2 2019. This is equivalent to
like-for-like sales growth of 6% for the year as follows:
H1 H2 Full Year
------------------------------------ --- --- ---------
Group like-for-like(2) sales growth -4% 16% 6%
------------------------------------ --- --- ---------
(2) Like-for-like excludes acquisitions and new branches opened
in 2019/20, and is calculated by comparing average sales per
trading day in 2020 (i.e. 212 days, excluding days closed) with
average sales per trading day in 2019 (249 days).
GROSS MARGIN
Overall, our gross margin for the year was down 180 basis points
to 49.4%. The margin was lower in H1 at 46.8%, reflecting reduced
production volumes and therefore a lower recovery of direct costs.
It improved to 50.9% in H2, as volumes and operating efficiencies
increased. Gross margin for the year also includes an increase to
the stock provision, following a range rationalisation to eliminate
some of the least profitable and least popular products.
PVC resin prices began to increase towards the end of 2020 and
this trend has continued into the new year. We are therefore
implementing selling price increases, starting in February 2021, to
recover this and other cost inflation.
DISTRIBUTION COSTS AND ADMINISTRATIVE EXPENSES (OVERHEADS)
Underlying overheads were GBP93.9 million compared to GBP99.0
million in 2019, a decrease of GBP5.1 million. The decrease
includes COVID-related UK Government support of GBP8.3 million,
comprising receipts under the Job Retention Scheme of GBP6.5
million (substantially H1), retail grants of GBP0.7 million (all
H1) and retail rates relief of GBP1.1 million.
IFRS 9 IMPAIRMENTS AND BAD DEBT CHARGES
Our sector closed down abruptly in March, and consequently
receipts from customers fell sharply in Q2. At the half year end,
the sales ledger ageing profile for several accounts had
deteriorated significantly compared to the pre-COVID period, and a
number of customers were finding it difficult to bring their
accounts into terms. We therefore assessed the level of credit risk
to have increased materially as a direct impact of COVID and, as a
result, IFRS 9 impairment charges of c.GBP3.5 million were
reflected in the underlying income statement for H1.
Whilst cash receipts from customers improved in H2, given
current levels of uncertainty, we do not believe credit risk has
changed materially, particularly given the prevailing uncertainty
surrounding the timing and extent of the easing of COVID
restrictions, and therefore the bad debt provision at 31 December
2020 remains at a similar level to the half year end.
DEPRECIATION AND AMORTISATION
Depreciation and amortisation was GBP19.5 million on an
underlying basis, and GBP20.8 million in total (2019: GBP17.8
million).
ADJUSTED PERFORMANCE MEASURES
Alternative performance measures are used alongside statutory
measures to facilitate a better understanding of financial
performance and comparison with prior periods, and in order to
provide audited financial information against which the Group's
bank covenants, which are all measured on a pre-IFRS 16 basis, can
be assessed.
Adjusted EBITDA, adjusted operating profit and adjusted profit
before tax all exclude non-underlying items. Adjusted profit after
tax and adjusted earnings per share exclude non-underlying items
and the related tax effect.
Pre-IFRS 16 EBITDA is stated inclusive of operating lease
rentals under IAS 17 Leases. Pre-IFRS 16 net debt is defined as
total borrowings and lease liabilities less cash and cash
equivalents, excluding the impact of IFRS 16 Leases.
We classify some material items of income and expense as
non-underlying when the nature and infrequency merit separate
presentation. Alongside statutory measures, this facilitates a
better understanding of financial performance and comparison with
prior periods.
NON-UNDERLYING ITEMS
Non-underlying items for 2020 of GBP10.0 million includes a
non-cash goodwill impairment charge of GBP5.8 million, right-of use
asset impairment charges of GBP0.9 million, restructuring costs of
GBP0.6 million and warehouse dual-running costs of GBP2.7 million.
The warehouse dual-running costs include GBP1.3 million
right-of-use asset depreciation charges and GBP0.4 million of lease
finance costs. No non-underlying items were recognised in 2019.
The non-cash goodwill impairment charge of GBP5.8 million
relates to Eurocell Recycle North. This arises because, as a result
of the pandemic, the increase in production volumes (and therefore
profitability) of the site is now expected to occur later than
previously planned and because of reduced demand in the short-term,
as well as lower selling prices for recycled material at the time
of the impairment test. However, the business is now running much
closer to its capacity, and we expect to make further progress in
2021.
We have been investing heavily to increase our recycling
capability, in order to capture financial and sustainability
benefits and to keep pace with sales growth. As a result, we have
become the leading UK-based recycler of PVC windows. Recycling and
sustainability sit right at the heart of our business and we are
totally committed to this critical strategic priority for the
Group.
FINANCE COSTS AND TAXATION
Finance costs for 2020 were GBP1.8m on an underlying basis and
GBP2.2 million in total (2019: GBP1.9 million), with GBP0.4 million
of IFRS 16 lease interest classified as non-underlying as it
relates to warehouse dual-running costs (see Non-underlying
items).
The tax charge for 2020 was GBP1.5 million on an underlying
basis and GBP0.7 million in total (2019: GBP3.4 million). The
effective tax rate on underlying profit before tax for 2020 of
17.6% is lower than the standard corporation tax rate due to the
benefit of Patent Box relief, partially offset by the impact of a
change in the deferred tax rate from 17% to 19% (which follows
cancellation of a reduction in the standard corporation tax rate,
which had been due to come into effect during the year).
The effective tax rate on non-underlying items is 7.0% due to
the GBP5.8 million goodwill impairment charge being non-deductible
for tax purposes.
We were pleased to retain the Fair Tax Mark accreditation in
2020, reflecting our commitment to paying the right amount of tax
at the right time.
(LOSS)/PROFIT BEFORE TAX AND (LOSSES)/EARNINGS PER SHARE
The adjusted profit before tax for the year was GBP8.5 million
(2019: GBP22.7 million), comprised of a loss in H1, reflecting
lower sales volumes and the impact of operational gearing, and a
profit in the second half well up on H2 2019, driven by strong
sales and good operating efficiencies.
The reported loss before tax for the year was GBP1.5 million
(2019: profit of GBP22.7 million).
Adjusted basic earnings per share for the year were 6.5 pence
(2019: 19.3 pence). Reported basic losses per share for the year
were 2.0 pence (2019: earnings per share of 19.3 pence). As a loss
was recorded for the period, share options are not considered to
have a dilutive effect.
DIVIDS
Due to the impact of COVID-19, the dividend declared in March
2020 was subsequently cancelled and no dividends will be paid in
respect of 2020. However, it remains our intention to return to
paying dividends in 2021.
Retained earnings as at 31 December 2020 were GBP65.5 million
(2019: GBP67.1 million). The Company takes steps to ensure
distributable reserves are maintained at an appropriate level
through intra-Group dividend flows.
CAPITAL EXPITURE
Capital expenditure for 2020 was GBP13.7 million (2019: GBP15.2
million). 2020 investment in the new warehouse was GBP8.0 million,
which includes some extra costs incurred to implement COVID-19
protection measures and support social distancing. We expect
further capital expenditure of c.GBP1 million in 2021 to complete
the project. Other capital expenditure in 2020 of GBP5.7 million
includes new / refurbished branches, IT and maintenance capex.
CASH FLOW
Cash flow and working capital management has continued to be a
key priority for the business. The measures taken in 2020 to
improve our cash position have been effective and we now have
significant headroom on our bank facility. Notwithstanding the
current level of uncertainty and credit risk, cash receipts from
customers were good throughout the second half and, as at 31
December 2020, substantially all our suppliers and landlords had
been paid in accordance with terms. We are also up to date with all
VAT, corporation tax and other tax payments.
Net cash generated from operating activities was GBP32.9 million
(2019: GBP26.4 million).
Effective cash flow management resulted in a net inflow from
working capital for 2020 of GBP4.7 million, comprising an increase
in stocks of GBP0.8 million, a decrease in trade and other
receivables of GBP2.4 million and an increase in trade and other
payables of GBP3.1 million. This compares to a net outflow from
working capital of GBP13.0 million in 2019.
Other items include payments for capital investments of GBP14.0
million, including a December 2019 capital creditor of GBP0.3
million (2019: GBP16.3 million) and financing costs paid of GBP0.7
million (2019: GBP0.9 million). Tax paid in the year was GBP1.0
million (2019: GBP2.6 million). No dividends were paid in 2020.
In April we completed a share placing, with the net proceeds of
GBP17.1 million to be used to ensure we retain headroom on our bank
facility, even under an extended shut-down, and to provide
sufficient liquidity to continue investment in the new warehouse. A
further GBP1.6 million of cash proceeds were received during the
year from employees in respect of vested Save As You Earn share
options, which were settled via the issue of new shares.
The principal elements of lease payments of GBP10.7 million
(2019: GBP9.8 million) are presented within cash flows arising from
financing activities. The finance elements of lease payments were
GBP1.3 million (2019: GBP0.9 million).
NET DEBT
Net debt on a pre-IFRS 16 basis at 31 December 2020 was GBP9.9
million (31 December 2019: GBP34.6 million).
Lease liabilities increased by GBP14.3 million, which includes
GBP17.2 million for the new warehouse, offset by payments and other
items of GBP2.9 million. Reported net debt at 31 December 2020 was
GBP58.3 million (31 December 2019: GBP68.7 million).
BANK FACILITY
We have an unsecured revolving credit facility which matures in
2023. The facility was increased by GBP15 million up to GBP75
million in March 2020, in order to provide additional flexibility
and options for the future. There were no changes to pricing or key
terms as a result of the uplift. However, we were very pleased to
convert the facility into a Sustainable RCF, where modest
adjustments to the margin will be applied based on our achievement
against annual recycling targets. 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 2020
Year ended 31 December 2020 Year ended 31 December 2019
(1) Non- (1) Non-
Underlying underlying Total Underlying underlying Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ---- ---------- ----------- ------- ---------- ----------- -------
Revenue 3 257.9 - 257.9 279.1 - 279.1
Cost of sales (130.5) - (130.5) (136.2) - (136.2)
Gross profit 127.4 - 127.4 142.9 - 142.9
Distribution costs (15.8) - (15.8) (18.7) - (18.7)
Administrative expenses (97.6) (3.8) (101.4) (98.1) - (98.1)
Impairment of goodwill (2) - (5.8) (5.8) - - -
IFRS 9 impairments and bad debt
charges(2) (3.7) - (3.7) (1.5) - (1.5)
Operating profit 10.3 (9.6) 0.7 24.6 - 24.6
Finance expense (1.8) (0.4) (2.2) (1.9) - (1.9)
Profit/(loss) before tax 3 8.5 (10.0) (1.5) 22.7 - 22.7
Taxation 4 (1.5) 0.8 (0.7) (3.4) - (3.4)
Profit/(loss) for the year and
total comprehensive (expense)/income 7.0 (9.2) (2.2) 19.3 - 19.3
-------------------------------------- ---- ---------- ----------- ------- ---------- ----------- -------
Basic earnings/(losses) per share 5 6.5p (2.0)p 19.3p 19.3p
Diluted earnings/(losses) per
share 5 6.5p (2.0)p 19.2p 19.2p
-------------------------------------- ---- ---------- ----------- ------- ---------- ----------- -------
(1) Non-underlying items 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 charges in
2020.
Consolidated Statement of Financial Position
As at 31 December 2020
2020 2019
GBPm GBPm
---------------------------------------------------- ------- -------
Assets
Non-current assets
Property, plant and equipment 50.8 44.2
Right-of-use assets 47.0 35.3
Intangible assets 19.9 27.0
Total non-current assets 117.7 106.5
----------------------------------------------------- ------- -------
Current assets
Inventories 38.1 37.3
Trade and other receivables 38.5 40.9
Cash and cash equivalents 7.1 4.9
Total current assets 83.7 83.1
----------------------------------------------------- ------- -------
Total assets 201.4 189.6
----------------------------------------------------- ------- -------
Liabilities
Current liabilities
Trade and other payables (42.8) (39.8)
Lease liabilities (8.9) (8.3)
Bank overdrafts (4.5) -
Provisions (0.8) (0.2)
Corporation tax (0.7) (1.8)
Total current liabilities (57.7) (50.1)
----------------------------------------------------- ------- -------
Non-current liabilities
Borrowings (12.5) (39.5)
Trade and other payables (0.3) (0.5)
Lease liabilities (39.5) (25.8)
Provisions (0.7) (0.6)
Deferred tax (3.5) (2.6)
Total non-current liabilities (56.5) (69.0)
----------------------------------------------------- ------- -------
Total liabilities (114.2) (119.1)
----------------------------------------------------- ------- -------
Net assets 87.2 70.5
----------------------------------------------------- ------- -------
Equity attributable to equity holders of the parent
Share capital 0.1 0.1
Share premium account 21.1 2.4
Share-based payment reserve 0.5 0.9
Retained earnings 65.5 67.1
Total equity 87.2 70.5
----------------------------------------------------- ------- -------
Consolidated Cash Flow Statement
For the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
Note GBPm GBPm
------------------------------------------------------------------ ---- ----------- -----------
Cash generated from operations 8 33.9 29.0
Income taxes paid (1.0) (2.6)
Net cash generated from operating activities 32.9 26.4
Investing activities
Acquisition of subsidiaries and payment of deferred consideration - (1.1)
Purchase of property, plant and equipment (13.8) (15.1)
Purchase of intangible assets (0.2) (0.1)
Net cash used in investing activities (14.0) (16.3)
Financing activities
Proceeds from new share capital issued 19.2 -
Costs relating to the issuance of new shares (0.5) -
Proceeds from bank borrowings - 10.0
Repayment of bank and other borrowings (27.2) (0.1)
Principal elements of lease payments (10.7) (9.8)
Finance elements of lease payments (1.3) (0.9)
Finance expense paid (0.7) (0.9)
Dividends paid to equity Shareholders 6 - (9.4)
Net cash used in financing activities (21.2) (11.1)
Net decrease in cash and cash equivalents (2.3) (1.0)
------------------------------------------------------------------ ---- ----------- -----------
Cash and cash equivalents at beginning of year 4.9 5.9
Cash and cash equivalents at end of year 2.6 4.9
------------------------------------------------------------------ ---- ----------- -----------
Consolidated Statement of Changes in Equity
For the year ended 31 December 2020
Share Share-based
Share premium payment Retained Total
capital account reserve earnings equity
GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------------- ------- ------- ----------- -------- ------
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
------------------------------------------------------------- ------- ------- ----------- -------- ------
Share Share-based
Share premium payment Retained Total
capital account reserve earnings equity
GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------------- ------- ------- ----------- -------- ------
Balance at 1 January 2019 0.1 2.4 0.4 57.2 60.1
Comprehensive income for the year
Profit for the year - - - 19.3 19.3
Total comprehensive income for the year - - - 19.3 19.3
Contributions by and distributions to owners
Exercise of share options - - - - -
Share-based payments - - 0.4 - 0.4
Deferred tax on share-based payments - - 0.1 - 0.1
Dividends paid - - - (9.4) (9.4)
Total transactions with owners recognised directly in equity - - 0.5 (9.4) (8.9)
------------------------------------------------------------- ------- ------- ----------- -------- ------
Balance at 31 December 2019 0.1 2.4 0.9 67.1 70.5
------------------------------------------------------------- ------- ------- ----------- -------- ------
1 BASIS OF PREPARATION
The financial information for the year ended 31 December 2020
was approved by the Board on 11 March 2021. 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. In
addition to complying with international accounting standards in
conformity with the requirements of the Companies Act 2006, the
accounts also comply with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union.
This information has been prepared under the historical cost
method, using all standards and interpretations required for
financial periods beginning 1 January 2020. 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 2019 have been
delivered to the Registrar of Companies. Statutory accounts for the
year ended 31 December 2020 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 GBP75 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 advance of the 30 June 2020 reporting period, given the
significant uncertainty related to the impact of COVID-19, the
Group agreed a revised covenant with its banking partners,
replacing Leverage and Interest Cover with a single undertaking
that net debt should not exceed a maximum of GBP40.0 million at 30
June 2020. This covenant was comfortably met, with reported net
debt at GBP23.5 million.
Had the original covenants been in place at 30 June, the Group
would have complied with the relevant terms, with significant
headroom. For the next measurement period, being 31 December 2020,
and going forward, the Group has reverted to and expects to comply
with the original covenants.
In assessing going concern, the Directors have considered
financial projections for the period to December 2023, 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, either by the impact of further COVID-19 disruption on
consumer confidence, or by widened consumer choices when
restrictions are lifted.
However, the business has remained open and trading as normal
throughout 2021 to date, following guidance issued by the
Department for Business, Energy & Industrial Strategy that the
construction sector and its manufacturing supply chain should
continue to operate, provided that safe working practices are
maintained.
In all scenarios tested, 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.
Significant changes in the year - including the impact of
COVID-19
In line with official guidance from the UK Government on 23
March, the business temporarily closed. Following updated guidance,
the business re-opened progressively from 11 May, with COVID
protection measures operating throughout the Group. The closure had
a significant impact on sales and profitability in the period to 30
June 2020, with only 88 days of trading in H1 2020, compared to 124
in H1 2019. However, although various Government restrictions were
in effect between 1 July and 31 December 2020, there was no further
significant disruption to our activities in H2.
In partial mitigation of the impact of COVID, the Group has
taken advantage of several Government support schemes.
Job Retention Scheme
The Job Retention Scheme ('JRS') is a Government grant scheme
that provides financial support for the wages of individuals who
were furloughed. The Group received cash contributions under the
JRS of GBP6.5 million in relation to the period to 31 December 2020
(mostly in H1). This contribution has been matched to the payroll
cost incurred, and presented net within operating costs.
Business Rates Retail Discount
Business rates relief at 100% is available for certain retail
properties for the 2020/21 tax year. The Group has successfully
applied for this relief in respect of the majority of the branches
within its estate. Where relief has been obtained, no rates have
been charged to the Consolidated Statement of Comprehensive Income.
The saving arising from this relief in 2020 is GBP1.1 million.
Retail, Hospitality and Leisure Grant Fund
Businesses with retail property that were eligible for the Rates
Retail Discount are also eligible for grants of either GBP10,000 or
GBP25,000 (depending on the rateable value of the property), up to
an EU-mandated maximum total benefit of EUR0.8 million (GBP0.7
million) over a three-year period.
The Group has claimed and received grants up to the maximum
amount of GBP0.7 million. This grant income has been recognised in
full within operating expenses (all in H1).
VAT deferral
In April, the Government announced that all VAT payments between
20 March and 30 June 2020 could be deferred, with payment due on or
before 31 March 2021.
The Group initially deferred VAT payments due during this
period, but subsequently settled the outstanding amounts in
December 2020. The Group continued to submit VAT returns as normal
throughout the year.
Changes in accounting policies and disclosures applicable to the
Company and the Group
The Company has applied the following new standards and guidance
for the financial reporting period commencing 1 January 2020, with
no material impact:
-- IFRS 3, Definition of a Business;
-- IAS 1 and IAS 8, Definition of Material;
-- IFRS 9, IAS 39 and IFRS 7, Interest Rate Benchmark Reform (Phase 1);
-- Revised Conceptual Framework; and
-- Amendments to References to the Conceptual Framework in IFRS Standards.
The following standards, which are not expected to have a
material impact on the Group's future Financial Statements, were in
issue but not yet effective (and not yet adopted by the EU):
-- IAS 1 Presentation of Financial Statements (effective from 1 January 2022);
-- IAS 16 Property, Plant and Equipment (effective from 1 January 2022);
-- IAS 37 Provisions, Contingent Liabilities and Contingent
Assets (effective from 1 January 2022);
-- IFRS 3 Business Combinations (effective from 1 January 2022);
-- IFRS 9 Financial Instruments (effective from 1 January 2022); and
-- IFRS 17 Insurance Contracts (effective from 1 January 2022).
The Group does not intend to adopt any standard, revision or
amendment before the required implementation date.
2 NON-UNDERLYING ITEMS
Amounts included in the Consolidated Statement of Comprehensive
Income are as follows:
2020 2019
GBPm GBPm
---------------------------------- ----- ----
Impairment of goodwill 5.8 -
Impairment of right-of-use assets 0.9 -
Warehouse dual-running costs 2.3 -
Restructuring actions 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 -
---------------------------------- ----- ----
Impairment charges
The temporary closure of the business in the first half of 2020,
alongside the on-going and potential medium to long-term impact of
COVID-19 on the Group and its markets, were considered to be
possible indicators of impairment for some of the Group's
assets.
Following a review of projected discounted future cash flows for
the Group's Cash Generating Units ('CGUs'), impairments to the
carrying value of goodwill and right-of-use assets were recognised.
In determining the carrying value of these various assets,
estimates and judgements have been made as to expected future cash
flows.
In the future, actual experience may deviate from these
estimates and judgements, the modification of which might have a
material impact on the Financial Statements. Any modifications will
be made in the period in which the circumstances change, with the
exception of the impairment of goodwill, which cannot be
reversed.
Goodwill
The goodwill in respect of Eurocell Recycle North ('ERN',
formerly Ecoplas) has been impaired in full, leading to a
non-underlying charge of GBP5.8m. This charge arises 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 CGU. The carrying value of all other intangible assets and
property, plant and equipment in the Group remains supported.
Right-of-use assets
Right-of-use assets relating to property leases are subject to
impairment testing, both within their respective CGUs, but also
individually. The Group's branch network operates entirely from
leased properties. The expected future profitability of each of the
branches was considered in the light of the potential impact of
COVID-19 on future sales. The projections identified a small number
of potentially loss-making branches in the medium-term, against
which an impairment charge of GBP0.3 million has been recognised to
reduce the carrying value of the associated right-of-use assets to
their value in use.
Additionally, a number of leased assets are no longer required
following transition to the new warehouse (see below), and will be
de-commissioned. Impairment charges of GBP0.6 million have been
recognised to reduce the value of these right-of-use assets to
nil.
In total, right-of-use asset impairment charges amount to GBP0.9
million.
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, such as IFRS 16 lease
charges (including the related IFRS 16 finance expense), rates and
other property-related costs have been 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
During the year the Group took the opportunity to review
existing operating structures to ensure that they remained
appropriate for the business in its current form. Following this
review, a number of roles were identified as being potentially
redundant, and a period of consultation followed. At the end of the
consultation period 35 roles were made redundant, at a one-off cost
of GBP0.6 million. These costs have been classified as
non-underlying as they relate to roles that no longer exist within
the organisation and therefore will not re-occur 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
2020 2020 2020 2020
GBPm GBPm GBPm GBPm
---------------------------------------------- -------- ----------------- --------- ------
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(1) 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)
---------------------------------------------- -------- ----------------- --------- ------
(1) Included within adjusted EBITDA are IFRS 9 impairment and
bad debt charges of GBP3.7 million (Profiles GBP1.7 million;
Building Plastics GBP2.0 million).
Profiles Building Plastics Corporate Total
2019 2019 2019 2019
GBPm GBPm GBPm GBPm
---------------------------------------------- -------- ----------------- --------- ------
Revenue
Total revenue 175.2 164.7 - 339.9
Inter-segmental revenue (59.5) (1.3) - (60.8)
Total revenue from external customers 115.7 163.4 - 279.1
---------------------------------------------- -------- ----------------- --------- ------
Adjusted EBITDA(2) 24.7 15.2 2.5 42.4
Amortisation of intangible assets (0.1) - (1.7) (1.8)
Depreciation of property, plant and equipment (4.2) (1.0) (0.6) (5.8)
Depreciation of right-of-use assets (2.5) (5.6) (2.1) (10.2)
Operating profit 17.9 8.6 (1.9) 24.6
---------------------------------------------- -------- ----------------- --------- ------
Finance expense (1.9)
Profit before tax 22.7
---------------------------------------------- -------- ----------------- --------- ------
(2) Included within adjusted EBITDA are IFRS 9 impairment and
bad debt charges of GBP1.5 million (Profiles GBP1.0 million;
Building Plastics GBP0.5 million).
Building
Profiles Plastics Corporate Total
2020 2020 2020 2020
GBPm GBPm GBPm GBPm
-------------------------------------------------------------- -------- --------- --------- -------
Additions to plant, property, equipment and intangible assets 12.3 0.9 0.5 13.7
Segment assets 110.9 59.6 30.9 201.4
-------------------------------------------------------------- -------- --------- --------- -------
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
-------------------------------------------------------------- -------- --------- --------- -------
Building
Profiles Plastics Corporate Total
2019 2019 2019 2019
GBPm GBPm GBPm GBPm
-------------------------------------------------------------- -------- --------- --------- -------
Additions to plant, property, equipment and intangible assets 13.0 1.5 1.0 15.5
Segment assets 96.8 69.8 23.0 189.6
-------------------------------------------------------------- -------- --------- --------- -------
Segment liabilities (36.2) (31.3) (7.7) (75.2)
Borrowings (39.5)
Corporation tax payable (1.8)
Deferred tax liability (2.6)
Total liabilities (119.1)
-------------------------------------------------------------- -------- --------- --------- -------
Total net assets 70.5
-------------------------------------------------------------- -------- --------- --------- -------
Geographical information
Revenue Non-current assets Revenue Non-current assets
2020 2020 2019 2019
GBPm GBPm GBPm GBPm
-------------------- ------- ------------------ ------- ------------------
United Kingdom 256.3 117.7 277.7 106.5
Republic of Ireland 1.6 - 1.4 -
Total 257.9 117.7 279.1 106.5
-------------------- ------- ------------------ ------- ------------------
4 TAXATION
2020 2019
GBPm GBPm
-------------------------------------------------- ----- -----
Current tax expense
Current tax on (losses)/profits for the year (0.1) 3.4
Adjustment in respect of prior years - (0.2)
Total current tax (0.1) 3.2
-------------------------------------------------- ----- -----
Deferred tax expense
Origination and reversal of temporary differences 0.5 0.2
Adjustment in respect of change in rates 0.1 -
Adjustment in respect of prior years 0.2 -
Total deferred tax 0.8 0.2
-------------------------------------------------- ----- -----
Total tax expense 0.7 3.4
-------------------------------------------------- ----- -----
The reasons for the difference between the actual 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:
2020 2019
GBPm GBPm
------------------------------------------------------------------------------------- ----- -----
(Loss)/profit before tax (1.5) 22.7
Expected tax charge based on the standard rate of corporation tax in the UK of 19.0% (0.3) 4.3
Taxation effect of:
Expenses not deductible for tax purposes 0.4 -
Impairment of goodwill not deductible for tax purposes 1.1 -
Patent Box claims (0.7) (0.8)
Adjustments to tax charge in respect of prior years 0.2 (0.2)
Tax on share-based payments recognised in equity (0.1) 0.1
Adjustment in respect of change in rates 0.1 -
Total tax expense 0.7 3.4
------------------------------------------------------------------------------------- ----- -----
Changes in tax rates and factors affecting the future tax
charge
A reduction in the mainstream rate of UK corporation tax from
19% to 17% from April 2020 was enacted during 2016. This reduction
was cancelled in January 2020, and consequently deferred taxes at
the period end have been re-measured using the mainstream rate of
19%.
On 3 March 2021 an increase in the mainstream rate of UK
corporation tax from 19% to 25% was announced, effective from April
2023. The Group estimates that the impact of the resulting
remeasurement of deferred taxes in 2021 will be approximately GBP1
million.
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 GBP110,000 (2019: GBP88,000).
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 England
and Wales, and are resident in the UK for tax purposes.
The Group has two branches in the Republic of Ireland, with
combined annual revenues of GBP1.6 million, total assets of less
than GBP50,000 and 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 2020 is EUR1,000, and
tax payments of EUR1,000 were made during the year.
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.
2020 2019
GBPm GBPm
---------------------------------------------------------------------------- ----- ----
(Loss)/profit attributable to ordinary shareholders (2.2) 19.3
Profit attributable to ordinary shareholders excluding non-underlying items 7.0 19.3
---------------------------------------------------------------------------- ----- ----
Number Number
-------------------------------------------- ----------- -----------
Weighted average number of shares - basic 108,218,827 100,316,692
Weighted average number of shares - diluted 108,218,827 100,720,559
-------------------------------------------- ----------- -----------
Pence Pence
------------------------------------ ----- -----
Basic (losses)/earnings per share (2.0) 19.3
Adjusted basic earnings per share 6.5 19.3
Diluted (losses)/earnings per share (2.0) 19.2
Adjusted diluted earnings per share 6.5 19.2
------------------------------------ ----- -----
6 DIVIDS
Due to the impact of COVID-19, the final dividend for 2019
declared in March 2020 of 6.4p per share, was subsequently
cancelled and no dividends will be paid in respect of 2020. It
remains the Group's intention to return to paying dividends in
2021.
2020 2019
GBPm GBPm
-------------------------------------------- ---- ----
Dividends paid during the year
Final dividend for 2018 of 6.2p per share - 6.2
Interim dividend for 2019 of 3.2p per share - 3.2
-------------------------------------------- ---- ----
- 9.4
-------------------------------------------- ---- ----
7 IMPAIRMENT
For the purpose of impairment testing, goodwill is allocated to
Cash Generating Units ('CGUs') as follows:
2020 2019
GBPm GBPm
-------------------------------------------- ---- -----
Eurocell Recycle North (formerly Ecoplas) - 5.8
Eurocell Building Plastics 5.1 5.1
Eurocell Profiles 3.3 3.3
Vista Panels 2.2 2.2
S&S Plastics 0.2 0.2
Security Hardware 0.2 0.2
11.0 16.8
-------------------------------------------- ---- -----
CGUs are determined with reference to the smallest identifiable
groups of assets that generate cash flows independently of other
groups of assets, with reference to the business or product sectors
in which they operate.
The recoverable amounts of the CGUs have been determined from
'value-in-use' calculations which have been predicated on
discounted pre-tax cash flow projections based on a three-year
business plan approved by the Board. These projections are based on
all available information and growth rates do not exceed growth
rates achieved in prior periods.
The key assumptions in preparing these forecasts are in line
with the Group's published strategy, which includes continuing to
open new branches, developing new products and increasing the use
of recycled materials.
All of the Group's CGUs operate principally in the UK Repair,
Maintenance and Improvements market, and all are funded through a
combination of retained earnings and the Group's Revolving Credit
Facility. The strategic decision-making timeframe is also
consistent across all CGUs. Consequently, the key assumptions
detailed below are applied consistently across each CGU:
2020 2019
------------------------------------------------------------------ ---- ----
Period on which management-approved forecasts are based (years) 3 3
Discount rate 11% 10%
Profit growth in perpetuity 2% 2%
------------------------------------------------------------------ ---- ----
The period on which management-approved forecasts are based is
consistent with the Board's strategic planning timeframe. The
discount rate reflects an estimate of the Group's pre-tax Weighted
Average Cost of Capital, based on past experience and
sector-weighted assumptions. The profit growth rate in perpetuity
is consistent with the average annual growth in UK Gross Domestic
Product between 1990 and 2019 (source: Office for National
Statistics).
For CGUs with a higher risk profile due to their size or
historical performance, management forecasts are risk-adjusted by
applying a sales sensitivity of 5%. This adjustment has been made
for all CGUs with the exception of Eurocell Building Plastics and
Eurocell Profiles.
Goodwill is considered to have an indefinite useful life.
As described in Note 2, with the exception of Eurocell Recycle
North ('ERN', formerly Ecoplas), the Group assessed the recoverable
amount in respect of goodwill for each CGU to be greater than the
carrying amount and therefore no impairment arises. No reasonably
possible change in assumptions would result in an impairment for
these CGUs.
Eurocell Recycle North (formerly Ecoplas)
In the case of ERN, the carrying value of goodwill was written
down to nil at the Half Year, with a non-underlying charge of
GBP5.8 million recorded within administrative expenses. The
impairment reflected the temporary closure of the business at that
time, and the resulting uncertainty surrounding short term future
cash flows. The remaining non-current assets associated with the
ERN CGU comprise intangible assets of GBP0.5 million and property,
plant and equipment of GBP4.5 million.
At 31 December 2020 production run-rates were ahead of prior
year, and future cash flows less uncertain. As a result, the latest
financial projections imply headroom over the carrying value of the
remaining assets. However, should revenues be 6% lower than
currently forecast, further impairments may arise in the
future.
A 1% increase/decrease in the perpetuity growth rate would lead
to a GBP0.9 million increase/decrease in value-in-use. A 100 basis
points increase/decrease in discount rate would lead to a
decrease/increase in value-of-use of GBP0.8 million. No further
impairments would arise in either scenario.
Sensitivities
The following sales and discount rate sensitivities would reduce
headroom on each CGU to nil:
Discount
Sales rate
-------------------------------------------- ----- --------
Eurocell Recycle North (formerly Ecoplas) 6% 16%
Eurocell Building Plastics 76% 48%
Eurocell Profiles 70% 52%
Vista Panels 72% 41%
S&S Plastics 74% 45%
Security Hardware 38% 18%
-------------------------------------------- ----- --------
8 RECONCILIATION OF (LOSS)/PROFIT AFTER TAX TO CASH GENERATED
FROM OPERATIONS
2020 2019
GBPm GBPm
--------------------------------------------------- ----- -----
(Loss)/profit after tax (2.2) 19.3
Taxation 0.7 3.4
Finance expense 2.2 1.9
Operating profit 0.7 24.6
Adjustments for:
Depreciation of property, plant and equipment 6.8 5.8
Depreciation of right-of-use assets 12.4 10.2
Amortisation of intangible assets 1.6 1.8
Impairment of goodwill 5.8 -
Impairment of right-of-use assets 0.9 -
Share-based payments 0.3 0.4
Increase in inventories (0.8) (9.0)
Decrease/(increase) in trade and other receivables 2.4 (1.7)
Increase/(decrease) in trade and other payables 3.1 (2.3)
Increase/(decrease) in provisions 0.7 (0.8)
Cash generated from operations 33.9 29.0
--------------------------------------------------- ----- -----
9 NEW SHARE CAPITAL
On 1 April the Group issued 10,031,040 new shares via a placing,
for a gross consideration of GBP17.6 million. The amount raised
above the nominal value of the shares issued, less costs associated
with the placing of GBP0.5 million, has been recorded as share
premium.
The Group also issued 1,030,189 new shares in respect of its
Save As You Earn sharesave scheme, in the process receiving
consideration from employees of GBP1.6 million. The consideration
received above the nominal value of the shares issued has been
recorded as share premium.
During the year no shares were issued in respect of share-based
payment transactions for Directors and 90,127 shares vested and
were issued in respect of share-based payment transactions for
other key management personnel.
10 EVENTS AFTER THE BALANCE SHEET DATE
The Directors are not aware of any material events that have
occurred after 31 December 2020 which would require disclosure
under IAS 10.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR BFLLFFXLFBBK
(END) Dow Jones Newswires
March 12, 2021 02:00 ET (07:00 GMT)
Eurocell (LSE:ECEL)
Historical Stock Chart
From Mar 2024 to Apr 2024
Eurocell (LSE:ECEL)
Historical Stock Chart
From Apr 2023 to Apr 2024
