TIDMELM
RNS Number : 2357U
Elementis PLC
28 July 2020
28 July 2020
ELEMENTIS plc
INTERIM RESULTS FOR THE SIX MONTHSED 30 JUNE 2020
Resilient performance in the face of COVID-19 related Q2 volume
impacts
-- Revenue down 14% (down 11% on an organic basis*) from $450m
to $387m principally due to COVID-19 related impact on Q2 volumes
across industrial end markets.
-- Statutory loss after tax of $51m (June 2019 $40m profit)
after $60m of non-cash goodwill impairments across Energy and Talc
assets primarily as a result of COVID-19 impact. Adjusted operating
profit down 34% (down 33% on an organic basis*) to $42m despite a
resilient Coatings and Personal Care performance with cost savings,
raw material cost benefits and steady price/mix offset by lower
volumes.
-- Net debt down by $55m from $509m (June 2019) to $453m ($454m
at December 2019) representing a leverage(5) of 3.1x EBITDA vs
recently relaxed covenant of 3.75x. The Group continues to have
significant liquidity with over $300m immediately available.
Swift COVID-19 response and resilient global supply chain
-- Prioritising the well-being of our people and continued
supply to our customers; the Group's 22 global production sites
have operated largely uninterrupted.
-- Proactive cash and cost management. $10m of in-year COVID-19
response savings underway. Accelerated progress on $15m medium term
efficiency programme; $5m in 2020 from 2019 organisation
restructuring & $10m supply chain savings now expected one year
earlier in 2021.
A strong business, well positioned for the delivery of
sustainable growth and value creation
-- Business fundamentals remain strong - a higher quality,
advantaged portfolio with material growth and self-help
opportunities.
-- Progress on Innovation, Growth and Efficiency strategy to
deliver medium term Group performance objectives. On track for over
$30m of NBOs and 26 new product launches in 2020
-- New 2030 targets for GHG emissions, energy efficiency, water
usage in operations and waste reflect acceleration of
sustainability agenda.
Modest sequential improvement from May. Expecting significant
reduction in net debt in H2
-- Modest sequential improvement in June and July trading from May volume trough.
-- Focus on tight cost control and cash management continues.
Expect to significantly reduce net debt by year end.
FINANCIAL SUMMARY
-------------------------------- -------------- -------------- --------
Six months Six months % Change
ended 30 June ended 30 June
2020 2019
-------------------------------- -------------- -------------- --------
Revenue $387m $450m -14%
Statutory (loss)/profit for
the period $(51)m $40m -227%
Statutory basic (loss)/earnings
per share(2) (8.8)c 6.9c -228%
Adjusted operating profit(1) $42m $64m -34%
Adjusted profit before tax(1) $28m $49m -42%
Adjusted diluted earnings
per share(2) 3.5c 6.5c -46%
Operating cash flow(3) $28m $62m -55%
Net debt(4) $453m $509m -11%
Ordinary dividend per share - 2.80c -
-------------------------------- -------------- -------------- --------
Business performance overview
-- Personal Care revenue flat on an organic basis* (down 11% on
a reported basis) at $90m. Adjusted operating profit down 11% on
organic basis* (down 13% on a reported basis) to $20m, representing
a 22.4% margin.
o Continued volume momentum in AP Actives (double digit growth
y-o-y) offset by modest COVID-19 related decline in Cosmetics and
gypsum dental plant disposal.
o Margins robust at 22.4%, broadly stable on prior year. Decline
in operating profit driven by mix impact of relatively softer
Cosmetics volumes.
-- Coatings revenue down 7% on a constant currency basis (9% on
a reported basis), from $164m to $148m. Adjusted operating profit
of $23m marginally down on prior year ($24m), with adjusted
operating profit margins up from 14.6% to 15.5%.
o Weak Q2 volumes in industrial coatings across all geographies;
deco more resilient. Price/mix improved and good customer momentum
in growth platforms.
o Margin improvement reflective of transformation programme
benefits and improved product portfolio.
-- Talc revenue down 16% on constant currency basis to $61m (18%
on a reported basis). Adjusted operating profit down 37% on
constant currency basis (40% on a reported basis) to $6m, with
margins down from 14.0% to 10.2%.
o Following a solid Q1, revenue impacted by significant Q2
volume weakness in European automotive and paper markets as a
result of COVID-19 related customer plant shutdowns.
o Margins impacted by volume deterioration and lower fixed cost
absorption.
-- Chromium revenue down 12% to $78m. Adjusted operating profit down 72% to $3m.
o Performance impacted by weak Q2 industrial demand, customer
plant shutdowns and lower year on year pricing in rest of the world
business. North American pricing and margins resilient.
o Margins down from 12.7% to 4.0% due to lower volumes and
weaker pricing.
-- Energy revenue down 50% to $14m. Adjusted operating loss of
$2m (H1 2019: $3m operating profit).
o Profitability impacted by significantly weaker volumes due to
lower oil prices and reduced drilling activity, particularly in
North America.
Commenting on the results, CEO, Paul Waterman said:
"After a good start to the year, we have faced challenging
conditions across all our businesses in the second quarter due to
the impact of COVID-19.
Our focus has been to safeguard the health and wellbeing of our
employees and to continue to provide a reliable service to our
customers. I am proud of the dedication of our people and the
resilience of our global supply chain which has operated largely
uninterrupted. We have also taken immediate actions to optimise
profit performance and cash delivery, while continuing to implement
our strategy so that we emerge from this crisis well positioned for
future value creation.
In recent years we have focused Elementis on high quality, high
margin activities in Personal Care, Coatings and Talc. Despite the
uncertainties of the current market environment, these businesses
have enduring positions of strength in structural growth markets
and we remain well positioned to deliver on our medium term
financial ambitions which will drive significant profitable growth
and deleveraging."
Further information
A virtual presentation for investors and analysts will be held
at 09:30 BST on 28 July 2020. The presentation will be webcast on
www.elementis.com . Conference call dial in details:
UK: 020 3936 2999 Other locations: +44 20 3936 2999
Participant access code: 330818
Enquiries
Elementis
James Curran, Investor Relations 020 7067 2994
Tulchan
Martin Robinson 020 7353 4200
David Allchurch
Notes:
* Adjusted for constant currency and M&A. See Finance
Report.
1 - See note 5
2 - See note 9
3 - See Finance report
4 - See note 12
5 - See unaudited pro forma information
-S -
Business review
CEO's report
The first six months of 2020 has posed unprecedented challenges
for our employees, customers and shareholders. We have responded by
focusing on the safety of our workforce, maintaining reliable
supply to our customers and optimising our financial performance.
While a solid first quarter was followed by a significantly weaker
second quarter due to COVID-19, we have made strategic progress to
position the business for long term success.
COVID-19 response
The COVID-19 pandemic and the global measures being taken to
mitigate its impact have resulted in significant change for our
employees, customers and shareholders. We have had an executive
team in place to manage our response and I am extremely proud of
how the business has reacted.
Our top priority is to do the right thing for our staff, in the
knowledge they will look after our customers. Since mid-March the
majority of our office based staff, representing approximately
25-30% of our workforce at the peak, have been successfully working
from home, enabled by recent technology investments. At our 22
global manufacturing plants, comprehensive social distancing and
safety measures have helped to keep our people safe. Enhanced
employee communications and well-being resources have ensured
continued close collaboration across the organisation.
We have continued to provide a reliable service for our
customers. With the exception of short temporary closures at two
sites in China and one site in Brazil, the company's production
sites have operated well with no raw material shortages. This
resilience is partly reflective of recent operating changes; for
instance reducing our single sourced raw materials from 40% in 2016
to 25% today. It is also a credit to our people who have worked
tirelessly with suppliers, logistics partners and customers to
ensure adequate plans are in place for all contingencies.
Furthermore, we have continued to support our partners' innovation
efforts through the delivery of virtual innovation and technical
support sessions to over 7,000 customer employees around the
world.
We have also taken swift and decisive action to reduce costs,
conserve cash and strengthen our balance sheet. While the Group has
benefited from $5m of head count related cost actions taken in late
2019, and accelerated progress towards our $10m of supply chain
savings, short term mitigation has focused on the cessation of
discretionary expenditure in areas such as marketing and travel.
This is anticipated to save approximately $10m in 2020.
Co-ordination between our supply chain, sales and finance teams has
been strong, and as a result we are well positioned to deliver $7m
of further sustainable working capital savings in 2020. In
addition, as previously announced, given the market and economic
uncertainties, the Group has taken two steps to provide additional
financial headroom and preserve cash:
- First, Elementis has secured a relaxation of its banking
covenants from 3.25x to 3.75x net debt/EBITDA** which will apply
for the two testing periods of 30 June 2020 and 31 December
2020.
- Second, the 2019 final dividend of 4.4487 pence per share (c.
$33m in total) was suspended in March 2020 and the Board has
decided not to declare an interim dividend for 2020.
These actions are to ensure we conserve cash and remain well
positioned for long-term success.
Group performance
Personal Care
In the six months to 30 June 2020, Personal Care revenue was
flat on an organic basis* with growth in AP Actives offset by
weaker Cosmetics performance. Revenue fell 11% on a reported basis
to $90m due to the disposal of a dental gypsum plant at the end of
2019 and foreign exchange headwinds. In Cosmetics, market
conditions for our primary end market of premium colour cosmetics
were challenging as COVID-19 related lockdowns weakened category
sales. In AP Actives, constant currency revenue was slightly ahead
of the prior year with double digit volume growth offset by weaker
price/mix, in line with our strategy to grow market share ahead of
the startup of our new facility in India. While the startup has
been delayed by 6 months to mid-2021, due to COVID-19 related
factors, it will materially improve our competitiveness through the
mitigation of tariffs, reduced production costs and improved access
to growth markets in Asia.
Adjusted operating profit for Personal Care declined 11% on an
organic basis* and 13% on a reported basis to $20m, with adjusted
operating margins robust at 22.4%. The decline in adjusted
operating profit was primarily driven by the mix impact of
relatively softer Cosmetics volumes.
Coatings
In Coatings, revenue fell 7% on a constant currency basis, and
9% on a reported basis to $148m. While performance in the first
quarter was good with solid volume growth, the second quarter was
notably weaker as COVID-19 related lockdowns impacted volumes. All
regional performance commentary is on a constant currency basis
unless otherwise stated.
-- Americas revenue fell 5% on the prior year period. In the US,
decorative coatings had a strong start to the year as households
took the opportunity to undertake renovation projects and our
premium RHEOLATE(R) HX rheology series continued to build customer
momentum. Revenue from industrial coatings was lower with double
digit volume declines in the second quarter due to notable weakness
in the automotive and construction markets. Sales in Latin America
were materially impacted by the challenging macroeconomic
environment particularly in Brazil.
-- In Asia, where over 80% of our sales come from industrial
coatings, revenue declined by 7% with volume weakness in the second
quarter due to customer destocking, primarily in areas intended for
export, offsetting improved pricing and mix. Activity levels were
weak across all countries in Asia, with some markets such as India
particularly impacted by the shutdown of the domestic chemicals
industry.
-- EMEA revenue fell 10% on the prior year period. Industrial
coatings volumes declined 16% in the period, reflective of weak
activity across automotive and industrial machinery end markets.
Decorative coatings were broadly stable with good DIY demand offset
by weaker professional activity.
Despite the decline in revenue, adjusted operating profit fell
only 1% on a constant currency basis (4% decline on a reported
basis) to $23m with weaker volumes offset by transformation
savings, route to market optimisation and improved mix through our
value focused product portfolio. As a result, adjusted operating
profit margins increased from 14.6% to 15.5%. The Coatings
transformation programme has created an integrated and more
customer centric organisation that is well positioned for future
success.
Talc
While pricing in Talc remained stable, revenue fell by 16% on a
constant currency basis (18% decline on a reported basis) to $61m
with lower volumes primarily in the second quarter. Revenue from
industrial talc customers (c.80% of Talc sales) declined 10% on a
constant currency basis, with weakness in plastics and technical
ceramics due to COVID-19 related automotive plant shutdowns. Sales
to coatings customers were broadly stable on the prior year period,
reflective of market share gains. While sales to paper customers
are anticipated to decline in the medium term, they fell at an
accelerated rate in the first half due to weak graphic paper demand
and temporary plant shutdowns.
Adjusted operating profit fell by 40% on a reported basis and
37% on a constant currency basis to $6m. Of the reported $4m year
on year decline in adjusted operating profit, $1m was due to
adverse foreign exchange movements and $3m was primarily a result
of weaker volumes.
Chromium
Revenue in the period was $78m, down 12% on 2019 due to weak
volumes and continued pricing pressure. Owing to COVID-19 related
plant shutdowns, demand declined across a range of industrial end
markets including automotive, aerospace and leather tanning. As a
result, global chromium industry capacity utilisation fell below
70% with deflationary pricing pressure primarily impacting our
sales outside of North America. Within North America, Chromium
continues to enjoy a strong competitive advantage due to our
position as the only producer in the region and our unique delivery
system that generates significant operational and safety benefits
for our customers.
Adjusted operating profit for the first six months of the year
was $3m, down 72% versus the prior year period due to lower volumes
and weak pricing outside of North America. Adjusted operating
profit margin declined from 12.7% to 4.0%.
Energy
In the first six months of the year, Energy revenue declined by
50% to $14m, with stable pricing offset by weak drilling volumes.
In North America, which accounts for approximately 75% of the
Energy segment revenue, rig counts fell approximately 50% on the
prior year period reflective of the decline in oil prices.
Adjusted operating profit declined to a loss of $2m (2019 H1
profit of $3m) due to the fall in volumes and lower fixed cost
absorption.
Balance sheet
At the end of June 2020 net debt fell $55m on the prior year
period (30 June 2019: $509m) to $453m as a result of robust
underlying cash generation, representing a net debt to adjusted
EBITDA ratio** of 3.1x (2.8x at 30 June 2019). Net debt was broadly
stable on December 2019 ($454m), with resilient earnings and
capital expenditure discipline offset by a temporary working
capital outflow. Strong underlying cash generation, supported by
the delivery of $7m of sustainable working capital improvements, is
expected to drive a significant reduction in net debt in the second
half of 2020. Non cash goodwill impairments of $60.7m have been
recognised in the period.
Interim dividend
We recognise the importance of a dividend to our shareholders.
However, given the COVID-19 related macroeconomic uncertainty and
low demand visibility the Board has decided it is prudent to
preserve cash and will not be declaring an interim dividend for
2020. The Board will keep future dividends under review and will
restart payments when it is appropriate to do so.
Strategic progress
Over the last three years significant progress has been made
transforming our portfolio and re-positioning Elementis as a
premium performance additives company with advantaged positions in
growing markets. Personal Care, Coatings and Talc represent over
80% of Elementis' earnings, and in each we see clear opportunities
to grow.
Whilst COVID-19 represents an immediate headwind that has
occupied significant management time and attention, our strategic
pillars of Innovation, Growth and Efficiency remain and execution
against our priorities in these areas will deliver our medium term
performance objectives of:
- An adjusted operating profit margin of 17%
- Cash conversion of 90% plus
- Financial leverage of under 1.5x net debt/EBITDA
1. Innovation
Innovation is at the heart of what we do. We are a global leader
in performance-driven additives that create innovative solutions
for our customers. While COVID-19 has reduced the physical time
spent in laboratories with our customers, we have continued to
deliver innovation excellence via virtual interaction. Starting
with our established customer relationships and leveraging digital
platforms, we have delivered virtual training and technical
workshops to over 7,000 employees at 400 customers in 60 countries
around the world. This innovation support has allowed our customers
to grow and develop their industry and application knowledge even
while working remotely.
We deliver distinctive technologies to our customers. This means
solutions that improve performance and lower operational costs,
while at the same time enhancing our customers' sustainability
credentials. At the end of June 2020, 45% of our product portfolio
delivered against all of these priorities, stable on 2019 and with
room to grow towards our target of 60% by 2025.
The improved penetration of our differentiated technologies has
been particularly encouraging in Coatings, where our growth
platforms rose 3% in the first half 2020. New castor wax based
organic thixatropes (THIXATROL(R) AS80) gained share in the hybrid
adhesives and sealants market through delivery of improved
adhesion, lower temperature activation and sustainability benefits.
Likewise in premium decorative coatings, our new RHEOLATE(R) HX
series of thickeners is delivering enhanced stain resistance and
application benefits, in preservative free and powder formats. For
customers this means better performance, compliance with new
regulations and improved sustainability claims.
While differentiated innovation is crucial, we also want to
deliver more new products. In the first half of 2020, revenue from
new and protected products was 11%, broadly in line with 2019. Our
goal is for 15% of our sales to come from new or protected
products, and our innovation pipeline is well positioned to deliver
this. In the second half of 2020, we plan to launch 21 new products
delivering solutions to customers in natural personal care
ingredients, waterborne industrial coatings and recyclable food
packaging.
2. Growth
Today over 80% of Elementis' earnings are generated by Personal
Care, Coatings and Talc. The value chains across these segments are
similar, transforming advantaged and long life hectorite and talc
resources into high value additives via distinctive processing
formulation expertise, as well as consistent product quality. While
the first six months of 2020 has presented challenges for the
Group, we have continued to execute against our growth objectives
which will set us up for long term success.
In Personal Care, there are major opportunities for our
hectorite clay based ingredients. Despite strong recent growth in
Asia, with over 20% average annual growth in the last four years,
we remain relatively underweight with the region representing
around 20% of our global sales. To drive further progress we have
recently invested in new sales and marketing personnel, and are
continuing to build our dedicated technical support for the region
from Shanghai. Skin care is a new and attractive market for our
natural solutions, and our recently launched BENTONE(R) LUXE and
HYDROCLAY(TM) ingredients continue to receive encouraging customer
feedback and exhibit strong early sales momentum.
In Talc, we are the second largest global player and with a
specific focus on high value industrial applications. While
automotive plant shutdowns have represented a material short term
headwind in the first six months of 2020, there are clear medium
term growth opportunities for Talc supported by structural
mega-trends. Vehicle light weighting, emissions regulations and
reduced single use plastic consumption are expected to drive strong
sustainable demand for our Talc. In the first half of 2020, we
captured new business opportunities in long life plastics across
Asia and rolled out new products such as barrier coatings for
recyclable food packaging; this will drive future value creation.
We have also made progress towards our goal of $20-25m revenue
synergies. Through leveraging Elementis' global marketing,
distribution and innovation capabilities, our sales in China grew
over 20% in the first half and we won new business in South America
with a leading global Coatings company.
Finally, our Coatings transformation programme has created an
integrated, simpler and more customer centric organisation with
operating margins around 16%, despite the COVID-19 related
slowdown. Key global accounts continue to appreciate our
reliability and innovation led approach, and our Coatings
organisation has a strong new business focus, with $10m of
opportunities captured in the first half, and more in the pipeline.
This has been enabled by a differentiated product portfolio focused
on high margin, structural growth opportunities in premium
decorative, waterborne industrial additives and hybrid adhesives
and sealants. Coatings is well positioned for future success.
3. Efficiency
We know where and how we want to grow, and our Efficiency
programme is focused on ensuring we grow at the lowest operating
cost. While we have identified and taken actions to deliver $10m of
temporary short term savings from our COVID-19 response actions in
2020, we have also made good progress to accelerate the delivery of
$15m of medium term efficiency savings.
In first half of 2020 we successfully embedded our
organisational redesign. This process started with our transformed
business portfolio and an analysis to determine whether our
existing global structure was appropriate. The result is an
alignment of job levels on a global basis and b igger reporting
spans with fewer layers, promoting faster decision making and a
more efficient execution. These actions, taken at the end of 2019,
have resulted in a lower headcount of approximately 100 full-time
employees and are delivering $5m of savings in 2020.
A further $10m of efficiency gains are anticipated to come from
our global supply chain, through our new Indian manufacturing
facility, volume reallocation across our asset footprint,
efficiency gains in Chromium and procurement improvements. Although
the startup of the India plant has been delayed by six months to H1
2021 due to the COVID-19 related shutdown of the Indian chemicals
industry, given the scale of the opportunity we see throughout our
supply chain the delivery of $10m savings is now anticipated to
arrive one year early in 2021.
As a result of recent portfolio changes we have reduced our
total capital expenditure and increased the proportion allocated to
productivity and growth, while spending appropriately to ensure
ongoing safety improvements and reliability. To ensure we leverage
every opportunity to reduce our environmental footprint,
sustainability is at the forefront of all investment decisions. In
India, our new site is based on a closed loop production system,
meaning we are as efficient and low environmental impact as
possible. The ultimate goal is for our operations to be carbon
neutral. This is appropriate from an efficiency and an
environmental perspective, and our new 2030 sustainability targets
are a step towards this.
Another key enabler of our efficiency and simplification drive
is our digital implementation programme. Whilst 2019 witnessed
significant improvement in our ability to identify new customers,
we have made progress on how we optimise the customer journey. Our
website and digital tool-set are e-commerce ready and in the second
half of 2020 we will roll out integrated systems to deliver
seamless online lead-to order fulfilments cycles for customers.
This will result in an improved customer experience, more efficient
responses and it will help us capture our best growth
opportunities. Last, it should be noted that our ability to
remotely manage Elementis through COVID-19 has been underpinned by
the digital investments made over the past 5 years.
Outlook
Looking forward we see significant potential for Elementis. We
have a clear, focused strategy and will pursue our key growth and
efficiency initiatives, and continue to innovate for high margins
and distinctiveness.
Moving into the second half of the year, while near term demand
visibility remains limited and business uncertainty elevated (see
page 12), we have seen a modest sequential demand improvement from
the trough in May as countries begin to emerge from lockdown and
industrial production improves. Nonetheless, we are focused on what
we can control, namely tight cost and cash management. In 2020, the
delivery of $15m of cost and $7m of working capital savings, will
optimise earnings and help to significantly reduce our net debt at
the year end.
Notes:
Where we refer to adjusted performance measures (e.g. adjusted
operating profit), see note 5.
Where we refer to constant currency, see Finance report.
* Adjusted for constant currency and M&A. See Finance
report.
** Excluding the impact of IFRS 16
Finance report
Effect
of Increase/
Impact
Revenue exchange of (decrease) Revenue
Revenue for the six months 2019 rates M&A** 2020 2020
ended 30 June $m $m $m $m $m
--------------------------- --- ------- ---------- ------- ------------ -------
Personal Care 100.7 (1.5) (9.7) 0.3 89.8
Coatings 163.5 (3.7) - (11.6) 148.2
Talc 74.5 (1.6) - (12.0) 60.9
Chromium 88.3 - - (10.8) 77.5
Energy 27.9 (0.1) - (13.8) 14.0
Inter-segment (5.2) - - 1.3 (3.9)
-------------------------------- ------- ---------- ------- ------------ -------
Revenue 449.7 (6.9) (9.7) (46.6) 386.5
-------------------------------- ------- ---------- ------- ------------ -------
Adjusted Effect
operating of
Adjusted
Impact operating
profit* exchange of Decrease profit*
Adjusted operating profit 2019 rates M&A** 2020 2020
for the six months ended 30 June $m $m $m $m $m
----------------------------------- ---------- ---------- ------- -------- ----------
Personal Care 23.2 (0.5) (0.2) (2.4) 20.1
Coatings 23.9 (0.7) - (0.2) 23.0
Talc 10.4 (0.6) - (3.6) 6.2
Chromium 11.2 - - (8.1) 3.1
Energy 3.1 - - (5.5) (2.4)
Central costs (7.7) 0.3 - (0.6) (8.0)
----------------------------------- ---------- ---------- ------- -------- ----------
Adjusted operating profit 64.1 (1.5) (0.2) (20.4) 42.0
----------------------------------- ---------- ---------- ------- -------- ----------
* See note 5
** M&A includes the sale of a non core gypsum plant (part of
the Dental business)
Group results
Group revenue for the first six months of 2020 was $386.5m,
compared to $449.7m in the same period last year, a decrease of
$63.2m (14.1%), or 10.8% excluding currency and M&A movements.
The decrease in revenue is principally due to the impact of
COVID-19 on second quarter volumes across industrial end markets
and the sale of a non core gypsum plant (part of the Dental
business).
Group adjusted operating profit was $42.0m, compared to $64.1m
in the same period last year, a decrease of 34.5%, and 32.9%
excluding currency movements with lower revenues principally due to
COVID-19 partially offset by cost savings. Reported operating
profit declined from $63.8m in the prior year period to a loss of
$35.2m as a result of lower underlying earnings and $60.3m of
non-cash goodwill impairments in the Energy and Talc segments. The
goodwill impairments are discussed in more detail in adjusting
items.
Central costs
Central costs are costs that are not identifiable as expenses of
a particular business and comprise the global corporate offices in
the UK and US which include the Board of Directors, executive and
senior management. The increase in central costs for the first half
of 2020 was primarily due to an increase in the holiday accrual as
a result of COVID-19.
Adjusting items
In calculating the profitability measures by which management
assesses the performance of the Group a number of items are
excluded from operating profit as reported in accordance with IFRS.
The Board believes that the adjusted measures assist shareholders
in better understanding the underlying performance of the
business.
2020 2019 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
------------------------------------------------------- ----------- ----------- ------------
Charge/(credit)
------------------------------------------------------- ----------- ----------- ------------
Adjusting items:
Restructuring - - 5.1
Business transformation 2.2 - 2.5
Environmental provisions 4.0 - 4.9
Business disposal activities 1.1 - -
Amortisation of intangibles arising on acquisition 9.6 9.3 18.6
Impairment of goodwill 60.3 - -
Release of contingent consideration - (9.0) (9.0)
------------------------------------------------------- ----------- ----------- ------------
Total charge to operating profit 77.2 0.3 22.1
------------------------------------------------------- ----------- ----------- ------------
Sale of Dental plant - - 9.0
Charges to finance costs:
Mark to market of derivatives 2.6 - 1.4
Currency hedge due to dividend cancellation 1.8 - -
Tax credit in relation to adjusting items (10.5) (2.3) (6.1)
------------------------------------------------------- ----------- ----------- ------------
Total adjusting items 71.1 (2.0) 26.4
------------------------------------------------------- ----------- ----------- ------------
In the first half of 2020, $77.2m of charges to operating profit
were classified as adjusting items. Of these items, $60.3m relates
to the impairment of goodwill held in the Energy and Talc
businesses. As a result of the currently low oil price and the
expected ongoing challenging outlook for the Energy sector, in
particular the North American shale market, all of the remaining
goodwill held in the Energy operating segment has been impaired
($26.9m). In Talc, while the business fundamentals are unchanged
and the medium term growth outlook attractive, a goodwill
impairment of $33.4m has been recognised due to a higher weighted
average cost of capital and the significant impact of COVID-19 on
wider industrial activity and the near term profitability of the
business.
Of the remaining adjusting items charged to operating profit
$9.6m relates to the amortisation of intangibles arising on
acquisitions. Business transformation costs of $2.2m relate to
previously initiated programmes to optimise our supply chain,
manufacturing footprint and organisational structure. Costs
incurred as part of business disposal activities amounted to $1.1m,
whilst charges of $3.1m and $0.9m relate to the impact of a change
in discount rates on the environmental provision and additional
remediation work identified.
The charges to finance costs include $2.6m for movements in
market to market valuation of financial instruments which are not
in hedging relationships and $1.8m due to currency hedge
cancellations following the suspension of the 2019 final ordinary
dividend.
An explanation of other adjusting items relating to the previous
period can be found within the Finance report of the 2019 Annual
report and accounts.
Other expenses
Other expenses are administration costs incurred and paid by the
Group's pension schemes, which relate primarily to former employees
of legacy businesses and were $0.9m in the period compared to $1.0m
in the previous year.
Net finance costs
30 June 30 June
2020 2019
$m $m
------------------------------------- ------- ---------------
Finance income 0.3 0.3
Finance cost of borrowings (11.5) (12.7)
------------------------------------- ------- ---------------
(11.2) (12.4)
Net pension finance expense (0.3) (0.3)
Unwind of discount on provisions (0.6) (0.6)
Fair value movement on derivatives (2.6) -
Dividend currency hedge cancellation (1.8) -
Interest on lease liabilities (0.8) (0.9)
------------------------------------- ------- ---------------
Net finance costs (17.3) (14.2)
------------------------------------- ------- ---------------
Net finance costs for the first six months of the year of $17.3m
were $3.1m higher than the same period last year. Within this
total, net interest costs were $1.2m lower at $11.2m due mainly to
the lower average levels of borrowing across the period. Net
pension finance costs, the unwind of discount on provisions and
interest on lease liabilities in the period remained in line with
the previous year. The fair value movement on derivatives which are
not in hedging relationships is charged to finance costs along with
the charge incurred on reversal of the currency hedge following the
cancellation of the 2019 final ordinary dividend.
Tax
The Group reports an adjusted tax charge for the first half of
2020 of $8.0m (2019: $10.7m); giving rise to an adjusted effective
tax rate of 28.5% (2019: 21.9%). The adjusted effective tax rate is
higher than the prior year due to the one-off impact of withholding
taxes incurred on the repatriation of profits from China, combined
with downward pressure on the Group's earnings as a result of
COVID-19.
Tax on adjusting items for the first half of 2020 amounts to a
credit of $10.5m (2019: $2.3m); resulting in a total statutory tax
credit for the period of $2.5m (2019 charge of $8.4m) and a
reported effective tax rate of 4.6% (2019: 17.3%).
For the full year 2020, we currently forecast an adjusted
effective tax rate of around 26%. Our medium term P&L tax rate
guidance remains around 22%.
Earnings per share
Statutory basic loss per share was 8.8 cents for the period
compared to basic earnings per share of 6.9 cents in the prior
period.
Basic adjusted and diluted adjusted earnings per share for the
first half of 2020, calculated on the adjusted earnings of $20.2m
(2019: $38.2m), were 3.5 cents and 3.5 cents respectively compared
to 6.6 cents and 6.5 cents for the same period last year.
Note 9 provides disclosure of earnings per share calculations
both including and excluding the effects of adjusting items and the
potential dilutive effects of outstanding and exercisable
options.
Adjusted cash flow
Cash flow is summarised below:
30 June 30 June
2020 2019
$m $m
----------------------------------------------------------- ------- -------
Profit before interest, tax, depreciation and amortisation
(Adjusted EBITDA)* 67.2 85.4
Change in working capital (23.5) 1.0
Capital expenditure (15.5) (23.1)
Other (0.3) (1.6)
----------------------------------------------------------- ------- -------
Operating cash flow 27.9 61.7
Pension payments 0.3 (0.3)
Interest and tax (15.6) (11.7)
Adjusting items (7.0) (28.7)
Payment of lease liabilities (3.0) -
----------------------------------------------------------- ------- -------
Free cash flow 2.6 21.0
Dividends - (32.8)
Currency fluctuations (1.6) 1.3
----------------------------------------------------------- ------- -------
Decrease/(increase) in net debt 1.0 (10.5)
Net debt at start of period (454.2) (498.1)
----------------------------------------------------------- ------- -------
Net debt as at end of period (453.2) (508.6)
----------------------------------------------------------- ------- -------
* See unaudited pro forma information
Net debt in the first six months of $453.2m, was broadly stable
on the 2019 year end position of $454.2m, and down $55.4m on 30
June 2019. Operating cash flow in the period fell by $33.8m to
$27.9m with lower earnings and a working capital outflow partially
offset by reduced capital expenditure.
Capital expenditure in the period was $15.5m, $7.6m lower than
the previous year. Capital spending for the year as a whole is
expected to be approximately $45m (2019: $47m), with just over 50%
of the spend allocated to growth and productivity projects
including our plant in India, a new ball mill in Vuonos and the
automation of control systems at our hectorite mine in
Newberry.
There were no pension deficit payments in the period (2019:
nil), a result of the September 2017 triennial review of the UK
pension scheme concluding that no cash top up payments are required
from Elementis until at least 2021. Interest and tax payments in
the period were $3.9m higher than the previous year, mostly due to
one off US tax refunds received in the first half of 2019.
Dividend payments were zero in the first six months of 2020,
compared to $32.8m in the prior year period, following the Board's
decision to suspend the 2019 final dividend in light of the
macroeconomic uncertainties associated with COVID-19 and a desire
to preserve cash.
Overall the Group had a net debt position on its balance sheet
of $453.2m, representing a net debt to EBITDA ratio (pre IFRS 16)
of 3.1x (2.7x at December 2019), and access to significant
liquidity, with over $300m immediately available through cash on
the balance sheet (c.$100m) and undrawn credit facilities
(c.$200m). Following the 12 month covenant relaxation agreed with
our lenders in March 2020, the current provision in our banking
arrangements is for the net debt/EBITDA covenant to step down from
3.75x at present to 3.25x in June 2021. Under all potential future
trading scenarios our assessment shows the Group has sufficient
liquidity in place, assuming continued access to facilities and
ability to operate within its financial covenants. However, under a
possible but not probable, most severe downside scenario, the Group
is not expected to remain within its financial covenants throughout
the going concern period without an extension of the current
covenant relaxation into future periods. Under this downside
scenario, which arises due to risks over levels of future revenue,
the Group will have to secure an extension of the current Net
Debt/EBITDA covenant relaxation for the testing date of 30 June
2021. The directors consider this possibility to constitute a
material uncertainty which may cast significant doubt on the
Group's ability to continue as a going concern. Further details are
in note 3 to the condensed financial statements. The Group remains
highly profitable (excluding non-cash adjusting items) with strong
market positions and continues to engage constructively with its
lending banks.
Working capital
30 June 30 June 31 December
Working capital days 2020 2019 2019
------------------------------------- ------- ------- -----------
Inventory 105 106 97
------------------------------------- ------- ------- -----------
Debtors 50 44 39
------------------------------------- ------- ------- -----------
Creditors 79 63 66
------------------------------------- ------- ------- -----------
Average working capital to sales (%) 23.2 22.2 22.4
------------------------------------- ------- ------- -----------
Total working capital for the Group was $23.5m lower than at the
end of June 2019. The primary driver of this decrease is 14% lower
reported sales in the first half of 2020 compared to the prior year
period, and subsequently lower trade receivables. Inventory days
remained broadly stable at 105 as a result of active stock
management during a period of relatively low sales. Debtor days
increased from 44 to 50 days, reflective of a tougher working
capital environment as many customers sought to further optimise
their own working capital positions. Creditor days increased to 79
days from 63 in June 2019 due to the timing of raw material
purchases and payments.
Balance sheet
30 June 30 June
31 December
2020 2019 2019
$m $m $m
------------------------------ ------- ------- -----------
Property, plant and equipment 502.4 522.2 513.6
Other net assets 784.2 903.9 846.8
Net debt (453.2) (508.6) (454.2)
------------------------------ ------- ------- -----------
Equity 833.4 917.5 906.2
------------------------------ ------- ------- -----------
Property, plant and equipment decreased by $19.8m compared to
the value at 30 June 2019 as a result of depreciation of $70.4m for
the 12 months running ahead of capital expenditure of $39.7m. Other
net assets decreased by $119.7m as a result of the $60.3m
impairment of goodwill held in the Energy and Talc businesses,
$18.9m amortisation of acquired intangibles, a reduction in working
capital of $23.5m, the sale of a non-core gypsum plant ($7.8m) and
small movements in lease liabilities and deferred tax assets.
Equity decreased by $84.1m as a result of a statutory loss in
the intervening period of $44.7m, dividends of $16.5m and $18.9m
due to exchange rates. The remainder of the movement relates
primarily to actuarial movements on pensions and share based
payment provisions.
The main dollar currency exchange rates as at 30 June 2020 and
average rates in the period were:
2020 2020 2019 2019
30 June Average 30 June Average
--------- --------- --------- --------- ---------
Sterling 0.81 0.79 0.79 0.77
--------- --------- --------- --------- ---------
Euro 0.89 0.91 0.88 0.89
--------- --------- --------- --------- ---------
Pensions and post retirement plans
UK US Other Total
$m $m $m $m
---------------------------------------------- ----- ------ ----- ------
Movement in net deficit
Net surplus/(deficit) in schemes at 1 January
2020 7.4 (15.9) (8.6) (17.1)
Current service cost (0.3) (0.5) (0.1) (0.9)
Contributions 0.1 0.3 0.2 0.6
Administration costs (0.6) (0.2) (0.1) (0.9)
Net interest expense - (0.2) (0.1) (0.3)
Actuarial (loss)/gain 13.0 (10.1) - 2.9
Currency translation difference (0.2) - - (0.2)
Net surplus/(deficit) in schemes at 30
June 2020 19.4 (26.6) (8.7) (15.9)
---------------------------------------------- ----- ------ ----- ------
During the period the deficit, under IAS 19, on the Group's
pension and post-retirement medical plans improved by $1.2m to
$15.9m. During the first six months of 2020 the UK scheme had an
annualised return of 14% (2019: 16%), liabilities increased by 3%
(2019: increase by 8%) and the net surplus increased by $12.0m.
This movement was driven by the strong scheme asset performance
more than offsetting an increase in liabilities due a fall in the
discount rate over the period. Within the US schemes the net
deficit increased by $10.7m mainly due to a decrease in the
discount rate. Contributions in the period totalled $0.6m (2019:
$0.8m), remaining low following the funding agreement reached with
the UK Trustees after the September 2017 triennial valuation under
which top up contributions are no longer required for a period of
at least three years.
Government assistance
The Group has taken advantage of limited assistance provided by
governments such as the NOW 2.0 wage subsidy programme in the
Netherlands and the CARES act in the US to defer payroll tax
payments. The support from these schemes has not had a material
impact on the results.
Cautionary statement
The Elementis plc interim results announcement for the half year
ended 30 June 2020, which comprises the CEO's report, Finance
report and the Directors' responsibility statement (which taken
together constitute the Interim management report) and the interim
financial statements and accompanying notes (incorporating a
Condensed consolidated balance sheet at 30 June 2020, Condensed
consolidated income statement, Condensed consolidated statement of
comprehensive income, Condensed consolidated cash flow statement
and Condensed consolidated statement of changes in equity, each for
the six months ended 30 June 2020) (altogether 'Half yearly
financial report'), contains information which viewers or readers
might consider to be forward looking statements relating to or in
respect of the financial condition, results, operations or
businesses of Elementis plc. Any such statements involve risk and
uncertainty because they relate to future events and circumstances.
There are many factors that could cause actual results or
developments to differ materially from those expressed or implied
by any such forward looking statements. Nothing in this Half yearly
financial report should be construed as a profit forecast.
Related party transactions
There were no material related party transactions entered into
during the first half of the year and there have been no material
changes to the related party transactions disclosed in the
Company's 2019 Annual report and accounts on
page 155.
Directors' responsibility statement
A full list of the Directors can be found on the Elementis
corporate website at: www.elementis.com.
The Directors confirm that to the best of their knowledge:
-- The condensed set of financial statements set out in this
Half-yearly financial report has been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted by the EU.
-- The condensed set of consolidated financial statements, which
has been prepared in accordance with the applicable set of
accounting standards, gives a true and fair view of the assets,
liabilities, financial position and profit or loss of the issuer,
or the undertakings included in the consolidation as a whole as
required by DTR 4.2.4R; and
-- The interim management report contained in this Half-yearly
financial report includes a fair review of the information required
by:
- DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of the important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year.
- DTR 4.2.8R of the Transparency Rules, being related party
transactions that have taken place in the first six months of the
current financial year and that have materially affected the
financial position or performance of the entity during that period;
and any changes in related party transactions described in the 2018
Annual report and accounts that could have a material effect on the
financial position or performance of the entity during the first
six months of the current financial year.
Approved by the Board on 28 July 2020 and signed on its behalf
by:
Paul Waterman Ralph Hewins
CEO CFO
28 July 2020 28 July 2020
INDEPENT REVIEW REPORT TO ELEMENTIS PLC
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2020 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated balance sheet,
the condensed consolidated cash flow statement, the condensed
consolidated statement of changes in equity, and related notes 1 to
15. We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Material uncertainty related to going concern
We draw attention to note 3 in the financial statements, which
indicates that access to the group's revolving credit facilities is
dependent on the group operating within its financial covenants.
The Board has considered potential downside scenarios which model
varying impacts of short and long term macroeconomic impacts and
consequences of Covid-19. Under the Board's most severe downside
forecast cash flow scenario, which the Board consider is possible
but not probable, the group would have to secure an extension of
the current Net Debt/EBITDA covenant relaxation for the testing
date of 30 June 2021. As stated in note 3, these events or
conditions, along with the other matters as set forth in note 3 to
the financial statements, indicate that a material uncertainty
exists that may cast significant doubt on the group's ability to
continue as a going concern. Our conclusion is not modified in
respect of this matter.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
28 July 2020
Condensed consolidated income statement
for the six months ended 30 June 2020
2020 2019 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Note $m $m $m
------------------------------ ---- -------------- --------------- ------------
Revenue 4 386.5 449.7 873.6
Cost of sales (254.9) (285.6) (552.2)
------------------------------ ---- -------------- --------------- ------------
Gross profit 131.6 164.1 321.4
Distribution costs (55.3) (64.5) (127.3)
Administrative expenses (111.5) (35.8) (93.2)
Operating (loss)/profit 4 (35.2) 63.8 100.9
Loss on disposal - - (9.0)
Other expenses (0.9) (1.0) (1.5)
Finance income 6 0.3 0.3 0.4
Finance costs 7 (17.6) (14.5) (29.8)
------------------------------ ---- -------------- --------------- ------------
(Loss)/profit before tax 4 (53.4) 48.6 61.0
------------------------------ ---- -------------- --------------- ------------
Tax 8 2.5 (8.4) (14.6)
------------------------------ ---- -------------- --------------- ------------
(Loss)/profit for the period (50.9) 40.2 46.4
------------------------------ ---- -------------- --------------- ------------
Attributable to:
Equity holders of the parent (50.9) 40.2 46.4
------------------------------ ---- -------------- --------------- ------------
(Loss)/earnings per share
Basic (cents) 9 (8.8) 6.9 8.0
------------------------------ ---- -------------- --------------- ------------
Diluted (cents) 9 (8.7) 6.8 7.9
------------------------------ ---- -------------- --------------- ------------
Condensed consolidated statement of comprehensive income for the
six months ended 30 June 2020
2020 2019 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
--------------------------------------------------- ----------- ----------- ---------------------
Profit for the period (50.9) 40.2 46.4
--------------------------------------------------- ----------- ----------- ---------------------
Other comprehensive income:
Items that will not be reclassified subsequently
to profit or loss:
Actuarial gain on pension and other post
retirement schemes 2.9 0.7 (11.1)
Deferred tax associated with pension and
other post retirement schemes (0.3) (0.2) 1.3
--------------------------------------------------- ----------- ----------- ---------------------
2.6 0.5 (9.8)
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on translation of foreign
operations 19.5 5.6 (23.9)
Effective portion of change in fair value
of net investment hedges (39.6) (6.5) 27.5
Recycling of deferred foreign exchange losses
on disposal - - 0.4
Effective portion of changes in fair value
of cash flow hedges (2.7) (2.4) (2.8)
Fair value of cash flow hedges transferred
to income statement 0.1 (0.3) -
Exchange differences on translation of share
options reserves (3.7) - 2.7
--------------------------------------------------- ----------- ----------- ---------------------
(26.4) (3.6) 3.9
--------------------------------------------------- ----------- ----------- ---------------------
Other comprehensive income, net of tax (23.8) (3.1) (5.9)
--------------------------------------------------- ----------- ----------- ---------------------
Total comprehensive income for the period (74.7) 37.1 40.5
--------------------------------------------------- ----------- ----------- ---------------------
Attributable to:
--------------------------------------------------- ----------- ----------- ---------------------
Equity holders of the parent (74.7) 37.1 40.5
--------------------------------------------------- ----------- ----------- ---------------------
Total comprehensive income for the period (74.7) 37.1 40.5
--------------------------------------------------- ----------- ----------- ---------------------
Condensed consolidated balance sheet
at 30 June 2020
2020 2019 2019
30 June 30 June 31 December
$m $m $m
---------------------------------------------------- --------- --------- -------------
Non-current assets
Goodwill and other intangible assets 870.0 966.4 958.1
Property, plant and equipment 502.4 522.2 513.6
ACT recoverable 2.0 4.9 4.8
Deferred tax assets 28.2 24.4 28.2
Retirement benefit surplus 19.4 19.2 7.4
---------------------------------------------------- --------- --------- -------------
Total non-current assets 1,422.0 1,537.1 1,512.1
---------------------------------------------------- --------- --------- -------------
Current assets
Inventories 172.0 178.3 168.7
Trade and other receivables 123.5 151.9 117.9
Derivatives 0.1 - 0.1
Current tax asset 2.5 3.0 2.5
Cash and cash equivalents 102.0 87.3 103.9
---------------------------------------------------- --------- --------- -------------
Total current assets 400.1 420.5 393.1
---------------------------------------------------- --------- --------- -------------
Total assets 1,822.1 1,957.6 1,905.2
---------------------------------------------------- --------- --------- -------------
Current liabilities
Bank overdrafts and loans (2.0) (4.8) (2.2)
Trade and other payables (123.2) (134.4) (134.5)
Financial liabilities (7.2) (0.6) (2.1)
Current tax liabilities (22.5) (23.7) (23.2)
Lease liabilities (6.3) (7.4) (7.1)
Provisions (6.1) (6.2) (6.4)
---------------------------------------------------- --------- --------- -------------
Total current liabilities (167.3) (177.1) (175.5)
---------------------------------------------------- --------- --------- -------------
Non-current liabilities
Loans and borrowings (548.6) (591.1) (550.8)
Employee retirement benefits (35.3) (29.4) (24.5)
Deferred tax liabilities (142.5) (148.3) (150.2)
Lease liabilities (38.0) (42.3) (39.8)
Provisions (44.9) (38.4) (45.2)
Financial liabilities (12.1) (13.5) (13.0)
---------------------------------------------------- --------- --------- -------------
Total non-current liabilities (821.4) (863.0) (823.5)
---------------------------------------------------- --------- --------- -------------
Total liabilities (988.7) (1,040.1) (999.0)
---------------------------------------------------- --------- --------- -------------
Net assets 833.4 917.5 906.2
---------------------------------------------------- --------- --------- -------------
Equity
Share capital 52.1 52.1 52.1
Share premium 237.7 237.6 237.7
Other reserves 66.6 83.8 91.1
Retained earnings 477.0 544.0 525.3
---------------------------------------------------- --------- --------- -------------
Equity attributable to equity holders of the parent 833.4 917.5 906.2
---------------------------------------------------- --------- --------- -------------
Total equity and reserves 833.4 917.5 906.2
---------------------------------------------------- --------- --------- -------------
Condensed consolidated cash flow statement
for the six months ended 30 June 2020
2020 2019 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
Operating activities:
Profit for the period (50.9) 40.2 46.4
Adjustments for:
Other expenses 0.9 1.0 1.5
Finance income (0.3) (0.3) (0.4)
Finance costs 17.6 14.5 29.8
Tax (2.5) 8.4 14.6
Depreciation and amortisation 34.8 34.5 70.1
Decrease in provisions - (31.4) (27.8)
Pension contributions net of current service cost 0.3 (0.3) (1.2)
Share based payments 1.9 1.9 3.0
Impairment of Goodwill 60.3 - -
Loss on disposal of business - - 9.0
Operating cash flows before movements in working
capital 62.1 68.5 145.0
(Increase)/decrease in inventories (5.6) 10.3 18.6
(Increase)/decrease in trade and other receivables (8.0) (12.7) 15.5
(Decrease) in trade and other payables (9.9) (6.1) (8.5)
------------------------------------------------------ ---------------- ----------- ------------
Cash generated by operations 38.6 60.0 170.6
Income taxes (paid)/received (3.9) 0.7 (2.2)
Interest paid (12.0) (13.6) (25.0)
------------------------------------------------------ ---------------- ----------- ------------
Net cash flow from operating activities 22.7 47.1 143.4
------------------------------------------------------ ---------------- ----------- ------------
Investing activities:
Interest received 0.3 0.3 0.4
Disposal of property, plant and equipment 0.1 0.3 0.8
Purchase of property, plant and equipment (15.4) (23.2) (47.7)
Disposal of business - - (2.1)
Acquisition of intangibles (0.2) (0.2) (0.4)
Net cash flow from investing activities (15.2) (22.8) (49.0)
------------------------------------------------------ ---------------- ----------- ------------
Financing activities:
Issue of shares by the Company and the ESOT net
of issue costs 0.1 - 0.1
Dividends paid - (32.8) (49.3)
Outflow of cancelled dividend hedge (1.8) - -
Net movement on existing debt (2.9) 2.9 (30.4)
Payment of lease liabilities (3.1) (2.9) (6.0)
------------------------------------------------------ ---------------- ----------- ------------
Net cash used in financing activities (7.7) (32.8) (85.6)
------------------------------------------------------ ---------------- ----------- ------------
Net (decrease)/increase in cash and cash equivalents (0.2) (8.5) 8.8
Cash and cash equivalents at beginning of period 103.9 96.1 96.1
Foreign exchange on cash and cash equivalents (1.7) (0.3) (1.0)
------------------------------------------------------ ---------------- ----------- ------------
Cash and cash equivalents at end of period 102.0 87.3 103.9
------------------------------------------------------ ---------------- ----------- ------------
Condensed consolidated statement of changes in equity
for the six months ended 30 June 2020
Share Share Translation Hedging Other Retained Total
capital premium reserve reserve reserves earnings equity
$m $m $m $m $m $m $m
--------------------------------- -------- -------- ----------- -------- --------- --------- -------
At 1 January 2020 52.1 237.7 (69.0) (8.4) 168.5 525.3 906.2
--------------------------------- -------- -------- ----------- -------- --------- --------- -------
Profit for the period - - - - - (50.9) (50.9)
Other comprehensive income:
Exchange differences - - (20.1) - (3.7) - (23.8)
Movement in cash flow hedges - - - (2.6) - - (2.6)
Actuarial gain on pension
scheme - - - - - 2.9 2.9
Deferred tax adjustment
on pension scheme deficit - - - - - (0.3) (0.3)
Transactions with owners:
Share based payments - - - - 1.9 - 1.9
At 30 June 2020 52.1 237.7 (89.1) (11.0) 166.7 477.0 833.4
--------------------------------- -------- -------- ----------- -------- --------- --------- -------
Share Share Translation Hedging Other Retained Total
capital premium reserve reserve reserves earnings equity
$m $m $m $m $m $m $m
--------------------------------- -------- -------- ----------- -------- --------- --------- -------
At 1 January 2019 52.1 237.6 (73.0) (5.6) 164.1 540.4 915.6
--------------------------------- -------- -------- ----------- -------- --------- --------- -------
Impact following adoption
of IFRS 16 - - - - - (4.3) (4.3)
Revised 1 January 2019 52.1 237.6 (73.0) (5.6) 164.1 536.1 911.3
Profit for the period - - - - - 40.2 40.2
Other comprehensive income:
Exchange differences - - (0.9) - - - (0.9)
Movement in cash flow hedges - - - (2.7) - - (2.7)
Actuarial gain on pension
scheme - - - - - 0.7 0.7
Deferred tax adjustment
on pension scheme deficit - - - - - (0.2) (0.2)
Transactions with owners:
Share based payments - - - - 1.9 - 1.9
Dividends paid - - - - - (32.8) (32.8)
--------------------------------- -------- -------- ----------- -------- --------- --------- -------
At 30 June 2019 52.1 237.6 (73.9) (8.3) 166.0 544.0 917.5
--------------------------------- -------- -------- ----------- -------- --------- --------- -------
Notes to the interim financial statements for the six months
ended 30 June 2020
1. General Information
Elementis plc (the 'Company') and its subsidiaries (together,
the 'Group') manufactures specialty chemicals. The Group has
operations in the US, UK, Brazil, Germany, Finland, Holland, China,
Taiwan, Malaysia and India. The Company is a limited liability
company incorporated and domiciled in England, UK and is listed on
the London Stock Exchange.
2. Accounting policies
Basis of preparation
This condensed set of financial statements (also referred to as
'interim financial statements' in this announcement) has been
prepared in accordance with IAS 34 Interim Financial Reporting as
adopted by the EU.
As required by the Disclosure and Transparency Rules of the
Financial Conduct Authority, the condensed set of financial
statements has been prepared applying the same accounting policies
and presentation that were applied in the preparation of the
Company's published consolidated financial statements for the year
ended 31 December 2019.
The information for the year ended 31 December 2019 does not
constitute statutory accounts as defined in section 434 of the
Companies Act 2006. A copy of the statutory accounts for that year
has been delivered to the Registrar of Companies. The auditor's
report on those accounts was not qualified, did not include a
reference to any matters to which the auditors drew attention by
way of emphasis without qualifying the report and did not contain
statements under section 498(2) or (3) of the Companies Act
2006.
3. Going concern
Given the significant uncertainties resulting from the impact of
COVID-19 on the economic environment in which the Group operates,
the directors have placed a particular focus on the appropriateness
of adopting the going concern basis in preparing the condensed
consolidated financial statements for the six months ended 30 June
2020.
The Group's going concern assessment covers the period of at
least 12 months from the date of authorisation of these
consolidated half year financial statements (the "going concern
period"), and takes into account its substantial liquidity,
committed expenditure, and likely ongoing levels of costs. In
preparing the assessment, alongside the most likely "base case"
forecast, the Board has considered potential downside scenarios
which model varying impacts of short and long term macroeconomic
consequences of COVID-19.
This assessment shows the Group has sufficient liquidity to
discharge its liabilities as they fall due throughout the going
concern period under all scenarios, assuming continued access to
our revolving credit facilities. Access to these credit facilities
is dependent on the group operating within its financial covenants.
The Group agreed a 12 month covenant relaxation with our lenders in
March 2020, the revised provision in our banking arrangements is
for the net debt/EBITDA covenant to step down from 3.75x at present
to 3.25x in June 2021. Testing up to 30 June 2020 confirmed that
the Group operated within these covenants.
Under all forecast scenarios except the possible but not
probable, most severe downside scenario, the Group is expected to
remain within its financial covenants throughout the going concern
period without an extension of the current covenant relaxation into
future periods.
Under this downside scenario, which arises due to risks over
levels of future revenue, the Group will have to secure an
extension of the current Net Debt/EBITDA covenant relaxation for
the testing date of 30 June 2021. This is a key assumption and is
not certain. In the event that the Group requires a covenant
relaxation but is not granted one, then following a covenant
breach, lenders could elect to trigger a repayment of outstanding
debt. In such circumstances and without further mitigating actions,
the Group may be unable to realise assets and discharge liabilities
in the normal course of business. The directors therefore consider
this possibility to constitute a material uncertainty which may
cast significant doubt on the Group's ability to continue as a
going concern.
The Group maintains a strong focus on revenue generation, cost
control and cash and working capital management as well as
continual dialogue with its lenders to mitigate against such a
situation.
Notwithstanding the above uncertainty, the directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for the going concern period, and
thus the Board has continued to adopt the going concern basis in
preparing the condensed consolidated half year financial
statements.
4. Segment reporting
Personal Care - production of rheological modifiers and
compounded products, including active ingredients for AP
deodorants, for supply to Personal Care manufacturers
Coatings - production of rheological modifiers and additives for
decorative and industrial coatings
Talc - production and supply of talc for use in plastics,
coatings, technical ceramics and paper sectors
Chromium - production of chromium chemicals
Energy - production of rheological modifiers and additives for
oil and gas drilling and stimulation activities
Six months ended Six months ended Year ended 31 December
30 June 2020 30 June 2019 2019
Gross External Gross External Gross Inter-segment External
$m Inter-segment $m $m Inter-segment $m $m $m $m
-------------- ----- ------------- -------- ----- ------------- -------- ----- ------------- ---------
Revenue
Personal Care 89.8 - 89.8 100.7 - 100.7 195.0 - 195.0
Coatings 148.2 - 148.2 163.5 - 163.5 320.1 - 320.1
Talc 60.9 - 60.9 74.5 - 74.5 150.7 - 150.7
Chromium 77.5 (3.9) 73.6 88.3 (5.2) 83.1 171.0 (9.8) 161.2
Energy 14.0 - 14.0 27.9 - 27.9 46.6 - 46.6
Total revenue 390.4 (3.9) 386.5 454.9 (5.2) 449.7 883.4 (9.8) 873.6
-------------- ----- ------------- -------- ----- ------------- -------- ----- ------------- ---------
All r evenues relate to the sale of goods
2020 2019 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
-------------------------- ----------- ----------- ------------
Adjusted operating profit
Personal Care 20.1 23.2 42.7
Coatings 23.0 23.9 48.3
Talc 6.2 10.4 25.7
Chromium 3.1 11.2 18.2
Energy (2.4) 3.1 3.8
Central costs (8.0) (7.7) (15.7)
-------------------------- ----------- ----------- ------------
Adjusted operating profit 42.0 64.1 123.0
-------------------------- ----------- ----------- ------------
Adjusting items (77.2) (0.3) (22.1)
-------------------------- ----------- ----------- ------------
Operating profit (35.2) 63.8 100.9
-------------------------- ----------- ----------- ------------
Loss on disposal - - (9.0)
Other expenses (0.9) (1.0) (1.5)
Finance income 0.3 0.3 0.4
Finance costs (17.6) (14.5) (29.8)
-------------------------- ----------- ----------- ------------
Profit before tax (53.4) 48.6 61.0
-------------------------- ----------- ----------- ------------
5. Adjusting items and alternative performance measures
In calculating the profitability measures by which management
assesses the performance of the Group a number of items are
excluded from operating profit as reported in accordance with IFRS.
The Board believes that the adjusted measures assist shareholders
in better understanding the underlying performance of the
business.
2020 2019 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
----------------------------------------- ----------- ----------- ------------
Operating profit (35.2) 63.8 100.9
----------------------------------------- ----------- ----------- ------------
Adjusting items:
Restructuring - - 5.1
Business transformation 2.2 - 2.5
Environmental provisions 4.0 - 4.9
Business disposal activities 1.1 - -
Impairment of goodwill 60.3 - -
Amortisation of acquired intangibles 9.6 9.3 18.6
Release of contingent consideration - (9.0) (9.0)
----------------------------------------- ----------- ----------- ------------
Net adjusting items 77.2 0.3 22.1
----------------------------------------- ----------- ----------- ------------
Adjusted operating profit 42.0 64.1 123.0
----------------------------------------- ----------- ----------- ------------
2020 2019 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
--------------------------- ----------- ----------- ------------
Adjusted operating profit
Personal Care 20.1 23.2 42.7
Coatings 23.0 23.9 48.3
Talc 6.2 10.4 25.7
Chromium 3.1 11.2 18.2
Energy (2.4) 3.1 3.8
Central costs (8.0) (7.7) (15.7)
--------------------------- ----------- ----------- ------------
Adjusted operating profit 42.0 64.1 123.0
Other expenses (0.9) (1.0) (1.5)
Finance income 0.3 0.3 0.4
Finance costs(1) (13.2) (14.5) (28.4)
--------------------------- ----------- ----------- ------------
Adjusted profit before tax 28.2 48.9 93.5
--------------------------- ----------- ----------- ------------
1 Adjusted finance costs of $13.2m excludes the mark to market
on derivatives of $2.6m and currency hedge of $1.8m.
Adjusting items in the period fall into the following
categories:
Business transformation
Business transformation costs of $2.2m relate to previously
initiated programmes to optimise our supply chain and manufacturing
footprint.
Environmental provision
Of the charge of $4.0m, $3.1m relates to the impact of changes
in discount rates and $0.9m relates to additional remediation work
identified.
Business disposal activities
Costs incurred as part of business disposal activities.
Impairment of goodwill
As a result of the currently low oil price and the expected
ongoing challenging outlook for the Energy sector, in particular
the North American shale market, a $26.9m impairment has been
recognised in Energy. In Talc, while the business fundamentals are
unchanged and the medium term growth outlook attractive, the
significant impact of COVID-19 on wider industrial activity and the
near term profitability of the business combined with an increase
in the pre-tax discount rate has resulted in a $33.4m goodwill
impairment charge.
Amortisation of intangibles arising on acquisition
These costs total $9.6m in the 6 months to 30 June 2020 and, as
in prior periods, are excluded from operating profit to provide
readers of the report with additional useful analysis of the
performance of the business.
An explanation of other adjusting items relating to the full
year 2019 can be found within the 2019 Annual Report and
Accounts.
6. Finance income
2020 2019 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
-------------------------- ----------- ----------- ------------
Interest on bank deposits 0.3 0.3 0.4
-------------------------- ----------- ----------- ------------
7. Finance costs
2020 2019 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
---------------------------------------------- ----------- ----------- ------------
Interest on bank loans 11.5 12.7 23.7
Unwind of discount on provisions 0.6 0.6 0.5
Pension and other post-retirement liabilities 0.3 0.3 2.4
Fair value movement on derivatives 2.6 - 1.4
Dividend currency hedge cancellation 1.8 - -
Interest on lease liabilities 0.8 0.9 1.8
---------------------------------------------- ----------- ----------- ------------
17.6 14.5 29.8
---------------------------------------------- ----------- ----------- ------------
8. Tax
The credit for tax on profits of $2.5m or 4.6% ( 2019: $8.4m, or
17.3%) is based on the probable tax charge in those jurisdictions
where profits arise. Within this figure is a tax credit of $10.5m
(2019: $2.3m) in respect of adjusting items .
9. Earnings per share
2020 2019 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
---------------------------------------------- ----------- ----------- ------------
(Loss)/earnings for the purposes of basic
earnings per share (50.9) 40.2 46.4
Adjusting items net of tax 71.1 (2.0) 26.4
---------------------------------------------- ----------- ----------- ------------
Adjusted earnings 20.2 38.2 72.8
---------------------------------------------- ----------- ----------- ------------
Number(m) Number(m) Number(m)
---------------------------------------------- ----------- ----------- ------------
Weighted average number of shares for the
purposes of basic
earnings per share 579.9 579.6 579.6
Effect of dilutive share options 4.3 7.3 8.9
---------------------------------------------- ----------- ----------- ------------
Weighted average number of shares for the
purposes of diluted
earnings per share 584.2 586.9 588.5
---------------------------------------------- ----------- ----------- ------------
2020 2019 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
cents cents cents
----------------------------- ----------- ----------- ------------
(Loss)/earnings per share:
Basic (8.8) 6.9 8.0
----------------------------- ----------- ----------- ------------
Diluted (8.7) 6.8 7.9
----------------------------- ----------- ----------- ------------
Adjusted earnings per share:
----------------------------- ----------- ----------- ------------
Basic 3.5 6.6 12.6
----------------------------- ----------- ----------- ------------
Diluted 3.5 6.5 12.4
----------------------------- ----------- ----------- ------------
10. Dividends
The following dividends were declared and paid by the Group:
2020 2019 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
---------------------------------- ----------- ----------- ------------
Dividends paid on ordinary shares - 32.8 49.3
---------------------------------- ----------- ----------- ------------
11. Pension
Valuations for IAS 19 purposes were conducted as of 30 June
2020. The Group is reporting a deficit on its combined retirement
benefit obligations of $15.9m at the end of June 2020, compared to
deficits of $10.2m at the same time last year and $17.1m at the end
of December 2019. Additional commentary is included in the Finance
Report.
12. Movement in net cash/(borrowings)
2020 2019 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
------------------------------------------------- ---------------- -------------- ------------
Change in net cash/(borrowings) resulting from
cash flows
(Decrease)/increase in cash and cash equivalents (0.2) (8.8) 8.8
Decrease/(increase) in borrowings 2.9 (2.9) 0.6
------------------------------------------------- ---------------- -------------- ------------
2.7 (11.7) 29.7
Currency translation differences (1.7) 1.2 4.8
Increase/(decrease) in net debt 1.0 (10.5) 43.9
Net debt at beginning of period (454.2) (498.1) (498.1)
------------------------------------------------- ---------------- -------------- ------------
Net debt at end of period (453.2) (508.6) (454.2)
------------------------------------------------- ---------------- -------------- ------------
13. Financial risk management
The Group has exposure to the following financial risks:
-- credit risk;
-- liquidity risk; and
-- market risk.
The Board of Directors has overall responsibility for the
establishment and oversight of the Group's risk management
framework. The Group's risk management policies are established to
identify and analyse the risks faced by the Group, to set
appropriate risk limits and controls, and to monitor risks and
adherence to limits. Risk management policies and systems are
reviewed regularly to reflect changes in market conditions and the
Group's activities. The Group's Audit Committee, assisted by
Internal Audit, oversees how management monitors compliance with
the Group's risk management policies and procedures and reviews the
adequacy of the risk management framework in relation to the risks
faced by the Group. These interim financial statements do not
include all the financial risk management information and
disclosures that are required in the Annual report and accounts and
should be read in conjunction with the financial statements for the
year ended 31 December 2019. The Group's risk management policies
have not changed since the year end.
The Group measures fair values in respect of financial
instruments in accordance with IFRS 13, using the following fair
value hierarchy that reflects the significance of the inputs used
in making the measurements:
Level 1: Quoted market price (unadjusted) in an active market
for an identical instrument.
Level 2: Valuation techniques based on observable inputs, either
directly or indirectly.
Level 3: Valuation techniques using significant unobservable
inputs.
The Group carried its trade and other receivables and payables,
excluding derivatives, at amortised cost and consider fair value
approximates carrying value. Derivatives are categorised within
level 2. All other financial instruments, including cash and loans
are categorised within level 1.
14. Contingent liabilities
As is the case with other chemical companies, the Group
occasionally receives notices of litigation relating to regulatory
and legal matters. A provision is recognised when the Group
believes it has a present legal or constructive obligation as a
result of a past event, and it is probable that an outflow of
economic benefits will be required to settle the obligation. Where
it is deemed that an obligation is merely possible and that the
probability of a material outflow is not remote, the Group would
disclose a contingent liability.
In 2013 the UK Government (through HMRC) introduced the UK
Finance Company Exemption ('FCE') regime. Elementis entered into
the FCE regime during 2014. In October 2017 the European Commission
opened a State Aid investigation into the regime. In April 2019 the
European Commission concluded that the FCE regime constituted State
Aid in circumstances where Groups had accessed the regime using a
financing company with UK significant people functions; the
European Commission therefore instructed the UK Government to
collect any relevant State Aid amounts. The UK Government indicated
that it disagreed with the European Commission's conclusion and
appealed the decision in July 2019. In spring 2020 HMRC requested
that affected Groups submit their UK significant people function
analysis. The deadline for submission of these analyses was delayed
due to the impact of COVID-19 and therefore Elementis will submit
its analysis to HMRC by the end of July 2020. Following
consultation with external professional advisers Elementis believes
that there is a technical position for asserting that our relevant
financing company should have minimal UK significant people
functions. The range of possible outcomes is between $nil and
$19.8m and our current assessment is that no provision is required
in respect of this case at this stage. We will continue to consider
the impact of the Commission's decision on the Group and the
potential requirement to record a provision.
15. Goodwill and other intangible assets
2020 2019
Six months Year
ended ended
30 June 31 December
$m $m
1 January 725.7 717.3
Exchange differences (17.6) 8.4
Impairment (60.3) -
-------------------------------------------------------- ----------- ------------
30 June / 31 December 647.8 725.7
-------------------------------------------------------- ----------- ------------
Other intangible assets 222.2 232.4
-------------------------------------------------------- ----------- ------------
Total goodwill and intangibles at 30 June / 31 December 870.0 958.1
-------------------------------------------------------- ----------- ------------
Impairment test
Impairment of goodwill is tested annually, or more frequently
where there is an indication of impairment. The Group's annual test
is performed at 31 October. It has been determined that the adverse
impact of COVID-19 on global economic activity and the challenging
trading results give rise to an indicator of impairment at 30 June
2020, for the Talc and Energy cash generating units. An impairment
test has been performed as at that date for these CGUs.
The recoverable amounts of the CGUs are determined from value in
use calculations which uses cash flow projections based on
financial budgets approved by the directors covering a three to
five year period. The key assumptions for the value in use
calculations are expected changes to sales volumes, selling prices
and direct costs during the forecast period, growth rates used to
extrapolate beyond the forecast period and the discount rates
applied to the resulting cash flows. Changes in sales volumes,
selling prices and direct costs are based on past practices and
expectations of future changes in the market. Cash flows for
periods beyond the forecast period are extrapolated based on
estimated growth rates of between 0% and 3%. The rates do not
exceed the average long term growth rate for the relevant markets.
Management estimates discount rates using pre-tax rates that
reflect current market assessments of the time value of money and
the risks specific to the CGUs.
Results
The effect of COVID-19 on the Energy market has seen a
significant decline in oil prices, rig counts and thus demand for
drilling products. As a result, our business segment recorded an
operating loss in the 6 months to June 2020. Given the challenging
market outlook, in particular for North American shale, we have
assumed continued subdued demand in the near to mid-term and have
therefore impaired the full value of the goodwill associated with
the Energy CGU of $26.9m. A pre-tax discount rate of 10.6% was
applied.
In assessing potential downside risks to our base case (for
example a further macroeconomic downturn) we have determined it
appropriate to recognise an impairment charge of $33.8m to the
goodwill of the Talc CGU based on a recoverable amount of $477.3m.
Due to the currency of the entity where this is held, this
impairment is reflected as a P&L charge of $33.4m and $0.4m
movement in exchange differences on translation of foreign
operations in other comprehensive income. In reaching the
impairment charge the forecast period of four and a half years
includes revenue growth and therefore operating profit growth of
between 1% and 14%. A pre-tax discount rate of 10.6% was applied.
The outcome of the impairment review is most sensitive to changes
to forecast operating profit and discount rate. A 0.5% increase in
the pre-tax discount rate would increase the impairment charge by
$29.0m and a 5% decrease in forecast operating profit or revenue in
each year of the five year forecast period would increase the
impairment charge by $21.7m.
No impairment indicator was identified for the Personal Care,
Coatings and Chromium CGUs.
Principal risks and uncertainties
The Group has policies, processes and systems in place to help
identify, evaluate and manage risks throughout the organisation
that may have a material effect on its business operations and
delivery of strategic objectives including its business model,
future performance, solvency, liquidity and/or reputation. The
Board continues to take a proactive approach to recognising and
mitigating risk with the aim of protecting its employees and
safeguarding the interests of the Group, its shareholders,
employees, customers, suppliers and all other stakeholders.
The principal risks and uncertainties facing the Group have not
substantively changed, from those set out in the Annual Report and
Accounts for the 12 months ended 31 December 2019 (pages 50 to 52),
however, the following principal risks and uncertainties are
trending upwards taking into account the impact of COVID-19;
'Uncertain global economic conditions and competitive pressures in
the market place (including currency movement)', 'Business
interruption as a result of a major event or natural catastrophe',
'Business interruption as a result of supply chain failure of key
raw materials and/or 3(rd) party service provision', 'Talent
management and succession planning' and 'IT, Cyber and GDPR'.
With respect to the impact of the COVID-19 pandemic d uring the
period, the scale of the virus developed from an outbreak in China
in January into a global pandemic by late February. Pandemic risk
on this scale whilst unprecedented, presented a range of direct and
indirect risks to the Group's business and operations. The
Company's response to the pandemic has been systematic and the
Group remains prepared to implement appropriate mitigation
strategies to minimise any potential business disruption and will
continue to carry out a regular and robust assessment and
management of the Group's risks.
COVID-19 pandemic risk strategy and actions
Employees
A COVID-19 response team was established to co-ordinate and
focus action on the health and safety of our employees using local,
national and federal governmental guidance and public health
guidance. Led by Executive Leadership Team members, this team
directed the activities in respect of identifying, co-ordinating
and mitigating potential impacts in respect of COVID-19 with a
primary focus on the health and safety of employees - both at
manufacturing sites and those working in the home environment. To
date, whilst a small number of employees and contractors contracted
the virus, there have been no employee fatalities or incidents
where our sites were not able to operate as a result of employee
absence. Our response team acted swiftly to provide employees with
policies, procedures and checklists, both at site level and for
home working. An early warning tracking system was established to
understand how many employees were self-isolating and/or had tested
positive for the virus. A dedicated micro-site was deployed where
employees could access relevant health & safety guidance and
other information. Our TogetherSafe initiative was launched during
the period with a focus on demonstrating our commitment to safety
and our team ethos into a culture of shared responsibility by
building a global network of Safety Champions. A series of all
employee and leadership townhalls have also been held during the
period offering a feedback loop and shared understanding of how the
Group was navigating the pandemic. Our compliance framework and
attention to cyber risk has been re-emphasised in recognition of
increasing risk trends in these areas, particularly in a time of
global crisis.
Supply Chain
Our supply chain has been operating in a state of heightened
business continuity awareness. Our plant managers and their teams
continue to play a key role in local information gathering which
has proved highly valuable and brought our employees closer
together in the process. Our supply chain team have worked
tirelessly to ensure continuity of supply and operational
reliability. Throughout the period, only four sites were
temporarily closed as a result of the pandemic, two sites in China,
one in Brazil and the site under construction in India. PPE, social
distancing and hygiene guidance is in place and being managed at
all sites. Raw materials were assessed and alternative suppliers
were engaged where necessary. Management of pricing, demand
planning and inventory has been managed well during the period. We
have increased the frequency of our supply and demand planning
process to ensure a reliable, cost effective supply of products.
Production supply plans have been adjusted to meet changes in
demand whilst optimizing overall cost to serve our customers.
Customers, distributors and suppliers
In connection with the anticipated slowdown in Q2 affecting the
majority of our businesses, our senior business leaders, customer
accounts, R&D and supply chain teams sought to understand the
direct and indirect impacts of the evolving nature of COVID-19 from
our customers, distributors and suppliers which was then utilised
in our response planning. The mix of country specific demand issues
presented some opportunities where competitors were not able to
offer reliability of supply. We continue to monitor credit risk and
viability of customer and distributor relationships and seek to
ensure fair trading terms for both parties. Notwithstanding the
COVID-19 impact on demand, new business opportunities continue to
come on stream and we continue to monitor consumer behaviour and
sentiment.
Profitability and liquidity
As a result of the significant uncertainty still surrounding the
ultimate impact of COVID-19 over the global economy, we withdrew
formal revenue guidance for the current financial year, as it is
not possible to provide reliable forward guidance in the current
environment. The Board have been kept informed on government and
tax authority measures in response to COVID-19. The Board took
action to suspend the 2019 final dividend and 2020 interim dividend
and secured a relaxation of its key Net Debt/EBITDA banking
covenant from 3.25 to 3.75 for two testing periods in response to
ongoing uncertainties associated with the duration and impact of
COVID-19. Management continue to actively scenario plan based on
latest forecasts and oversee weekly response plan updates with a
particular focus on controlling working capital and capital
expenditure.
Operational effectiveness
The impact of employees working from home has validated the
resiliency of our business continuity plans. The investment in
tools and technology has enabled a smooth transition however, we
continue to closely monitor the security infrastructure and 3(rd)
party systems to ensure ongoing business continuity of systems and
processes. Awareness campaigns relating to malware and phishing
attacks have been circulated to mitigate the risk of these type of
attacks and security measures have been put in place.
In summary, t he Group remains prepared to implement appropriate
mitigation strategies to minimise any potential business disruption
and will continue to carry out a regular and robust assessment and
management of the Group's risks.
Alternative performance measures
A reconciliation from reported profit for the year to earnings
before interest, tax, depreciation and amortisation (EBITDA) is
provided to support understanding of the summarised cash flow
included within the finance report on pages 9 to 13.
2020 2019 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
---------------------------------------------- ----------- ----------- ------------
Profit for the year (50.9) 40.2 46.4
Adjustments for:
Finance Income (0.3) (0.3) (0.4)
Finance costs and other expenses after
adjusting items 18.5 15.5 31.3
Tax charge (2.5) 8.4 14.6
Depreciation and amortisation 34.8 34.5 70.1
Excluding intangibles arising on acquisition (9.6) (9.3) (18.6)
Disposal of business - - 9.0
Adjusting items impacting operating profit 77.2 0.3 22.1
---------------------------------------------- ----------- ----------- ------------
Adjusted EBITDA 67.2 89.3 174.5
---------------------------------------------- ----------- ----------- ------------
Operating cash flow
Operating cash flow is defined as the net cash flow from
operating activities less net capital expenditure but excluding
income tax paid, interest paid or received, pension contributions
net of current service cost and adjusting items.
2020 2019 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
---------------------------------------------- ----------- ------------------ ------------
Net Cash flow from operating activities 22.7 47.1 143.4
---------------------------------------------- ----------- ------------------ ------------
Less:
Capital expenditure (15.5) (23.1) (47.3)
Impact of IFRS 16 - (4.2)* -
Add:
Income tax paid or received 3.9 (0.7) 2.2
Interest paid or received 12.0 13.6 25.0
Pension contributions net of current service
cost (0.3) 0.3 1.2
Adjusting items excluding dividend hedge 5.1 28.7 30.3
---------------------------------------------- ----------- ------------------ ------------
Operating cash flow 27.9 61.7 154.8
---------------------------------------------- ----------- ------------------ ------------
* 30 June 2019 adjusted cash flow was pre IFRS 16
Operating cash conversion
Operating cash conversion is defined as operating cash flow (as
defined above) excluding payments for provisions and share based
pay, divided by operating profit from total operations after
adjusting items
2020 2019 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
$m $m $m
--------------------------------------- ----------- ----------- ------------
Operating profit from total operations
after adjusting items 42.0 64.1 123.0
--------------------------------------- ----------- ----------- ------------
Operating cash flow 27.9 61.7 154.8
Add:
Provisions and share based pay 0.3 1.6 5.4
--------------------------------------- ----------- ----------- ------------
28.2 63.3 160.2
--------------------------------------- ----------- ----------- ------------
Operating cash flow conversion 67% 99% 130%
--------------------------------------- ----------- ----------- ------------
Unaudited pro forma information
The Net Debt / EBITDA ratio is calculated using pro forma
adjusted EBITDA. A reconciliation of adjusted EBITDA to pro forma
adjusted EBITDA is shown below:
$m
-------------------------------------------------- -----
EBITDA for the last twelve months to 30 June 2020 152.4
IFRS 16 adjustment (7.2)
-------------------------------------------------- -----
Pro forma adjusted EBITDA 145.2
-------------------------------------------------- -----
Net Debt 453.2
Net Debt / EBITDA 3.1x
-------------------------------------------------- -----
- ENDS -
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
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END
IR EAFXPAFLEEEA
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