3 September 2021

EUROCELL PLC (Symbol: ECEL)

HALF YEAR REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2021

Strong first half, a further increase in full year expectations and reinstating dividend payments

Eurocell plc is a market leading, vertically integrated UK manufacturer, distributor and recycler of innovative window, door and roofline PVC building products

 

	H1 2021	H1 2020	Change	H1 2019	Change
Key financial performance measures
Revenue (£ million)	168.1	93.6	80%	136.3	23%
Gross margin %	50.2%	46.8%	340bps	51.1%	(90)bps
Profit/(loss) before tax (£ million)	14.2	(16.5)	n/a	10.4	37%
Basic earnings/(losses) per share (pence)	9.9	(11.1)	n/a	8.7	14%
Adjusted profit/(loss) before tax (£ million) (1)	14.2	(8.6)	n/a	10.4	37%
Adjusted basic earnings/(losses) per share (pence) (1)	9.9	(5.0)	n/a	8.7	14%
Capital investment (£ million)	7.3	4.6	2.7	8.8	(1.5)
Net debt (£ million) (2)	52.3	75.6	23.3	69.3	17.0
Net (cash)/debt, pre-IFRS 16 (£ million) (2)	(1.3)	23.5	24.8	36.7	38.0
Interim dividend per share (pence)	3.2	-	n/a	3.2	level

 

For the purposes of this report, where appropriate we have compared financial and operating performance to 2020 and 2019, with the latter a more meaningful comparator given the disruption in 2020 due to the COVID-19 pandemic.

Financial headlines

·    Continued successful deployment of commercial strategies, with sales up 23% vs H1 2019, including:

-     Profiles up 19%: good contribution from trade fabricators (substantially focused on the RMI⁽³⁾ market) and new build fabricators, as well as a very strong performance from Vista doors

-     Building Plastics up 27%: excellent performance across full range of own-manufactured products and traded goods

-     c.5% from selling price increases and a surcharge implemented to mitigate raw material price inflation

·    Surcharge successfully recovering higher raw material costs, but dilutive to gross margin percentage

·    Profit before tax up 37% vs H1 2019, driven by higher sales volumes and the impact of operational gearing

·    Capex of £7.3 million includes c.£2 million to expand extrusion capacity

·    Strong balance sheet and liquidity, with pre-IFRS 16 net cash of £1.3 million (H1 2020: net debt of £23.5 million)

·    Interim dividend reinstated at 3.2 pence per share (£3.6 million), payable on 8 October 2021

Operational headlines

·    Strong on sustainability as the leading UK-based recycler of PVC windows

-     Further improvement in proportion of recycled material used to 28% (full year 2020: 25%)

-     Commitment to substantial further progress on sustainability, with KPIs published covering the circular economy (including recycling), emissions and energy management, and social targets

·    Fit-out of new state-of-the-art warehouse now complete - key to increasing capacity and delivering anticipated improvements in operating efficiencies

·    4 new branches opened in H1, with a further 8 planned for H2 (of which 4 are new larger format).

 

Mark Kelly, Chief Executive of Eurocell plc said:

"We entered 2021 well placed to take advantage of the continued recovery in our markets and we have delivered strong financial results for H1.

"A very good sales performance has been underpinned by the success of our commercial strategies and high levels of demand in the RMI⁽³⁾ market. We believe we are also continuing to take market share.

"Although high demand has put sector supply chains under pressure, to date we have secured most of the raw materials we require, and we are mitigating cost inflation with selling price increases, a surcharge and through our market-leading recycling plants. As a result, we are very pleased to report strong profit growth for the first half and to confirm a return to dividend payments.

"Trading performance in July and August has continued to be robust. With the industry close to capacity and lead times growing, we are becoming more confident that these market conditions will continue for the foreseeable future. Reflecting these factors, and notwithstanding very tight supply chains, labour and transport availability, the Board is now again raising its expectations for the full year."

 

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

 

Notes

(1)   Adjusted measures are stated before non-underlying items⁽⁴⁾ and the related tax effect.

(2)   Net debt is cash and cash equivalents less bank overdrafts, borrowings and lease liabilities. Pre-IFRS 16 net debt excludes lease liabilities.

(3)   RMI is repair, maintenance and improvement.

(4)   Non-underlying items for H1 2020 of £7.9 million includes a goodwill impairment charge of £5.8 million, trade receivable impairment charges of £0.8 million, right-of use asset impairment charges of £0.5 million and warehouse dual-running costs of £0.8 million. There were no non-underlying items in 2021 and 2019.

 

 

Analyst presentation

There will be an audiocast presentation for analysts and investors at 9am today.

To register for the audiocast, please contact Teneo on [email protected].

Following the presentation, a recording of the audiocast will be made available on the Group's website: https://investors.eurocell.co.uk/investors/

 

 

CHIEF EXECUTIVE'S REVIEW

INTRODUCTION

Our results in 2020 reflected the major impact of COVID-19 on the first half, which led to the closure of the business between the end of March and middle of May, followed by a good recovery in H2, when the Repair, Maintenance and Improvement ('RMI') market was better than we had first anticipated and our operating performance was good. We therefore entered 2021 well placed to take advantage of the continued strength in our markets.

So far in 2021, the RMI market has remained very robust. House building activity has also been increasing, supported by high levels of mortgage approvals. Our products have continued to resonate well with customers seeking, possibly as a result of the pandemic, to improve their homes and create more usable space, both inside and outside of their properties. Conservatories, warm roofs, fencing and decking have all been particularly strong, alongside new products such as garden rooms. Current demand appears undiminished, and with the industry close to capacity and lead times growing, we are becoming more confident that these market conditions will continue for the foreseeable future.

We have experienced significant raw material cost increases this year, due to a combination of strong demand and supply chain pressures in our sector. However, we have been able to mitigate successfully most of this cost inflation through a combination of selling price increases, a surcharge and through our market-leading recycling plants.

As a result, we are very pleased to report strong financial performance and profit growth for the first half.  

Fit-out of our new state-of-the-art warehouse is now complete. We expect customer service levels to improve further as the new plant, systems and processes are embedded. As well as being central to increasing capacity, this facility is key to delivering anticipated improvements in operating efficiencies.

 

FINANCIAL RESULTS

For the purposes of this half year report, where appropriate we have compared financial and operating performance to 2020 and 2019, with the latter a more meaningful comparator given the disruption in 2020 due to COVID-19.

Sales for H1 were £168.1 million, 80% higher than H1 2020 and 23% up on H1 2019. Profit before tax for H1 was £14.2 million, compared to £10.4 million in H1 2019, up 37% driven by higher sales volumes and the impact of operational gearing.

Financial performance in 2020 was affected significantly by the first UK COVID-19 lockdown. As a result, in H1 2020 the adjusted loss before tax was £8.6 million and the reported loss before tax was £16.5 million.

Further information on our financial performance is included in the Divisional and Chief Financial Officer's Reviews.

 

STRATEGY

Strategic priorities

Our overall strategic objective remains to deliver sustainable growth in shareholder value by increasing sales and profits above our market growth rates. We have seven strategic priorities to help us achieve this objective:

·    Grow market share in Profiles

·    Expand the branch network

·    Increase the use of recycled materials

·    Deliver sustained operational excellence

·    Develop innovative new products

·    Explore potential bolt-on acquisition opportunities

·    Develop a sector-leading digital proposition

We have made good progress with our strategic priorities in H1, with the key aspects described throughout this report.

 

Sustainability strategy and KPIs

Earlier this year we announced the intention to develop our sustainability strategy for the whole business.

Our objective is to continue to improve the sustainability of the Group. We have defined a suite of environmental and social targets and KPIs against which to measure our progress, which are set out in the following table.

Central to our environmental targets, which cover both the circular economy as well as emissions and energy management, is reducing the carbon footprint of the business and our products. Our social objectives are broad and cover areas such as health & safety, diversity and education. In addition to the matters covered by these KPIs, we are progressing similar work on related topics such as transport emissions, employee well-being and community engagement. Our objectives align well with several relevant UN Sustainable Development Goals, as well the UK's transition towards a net zero carbon economy. We intend to report our progress against these KPIs on an annual basis.

 

	KPI	2020 Base	Target
Environmental - circular economy
Recycled material used in production	% used	25%	1% increase per year
CO2 saved by recycling operation	Tonnes saved	36kt	Year-on-year increase
Waste recycled	% recycled	79%	Year-on-year increase
Environmental - emissions and energy management
Greenhouse gas (GHG) emissions	GHG intensity ratio	70t CO2 / £m sales	5% reduction by 2025
Energy consumption	Energy use intensity ratio	267 MWh / £m sales	5% reduction by 2025
Renewable energy	Renewable energy used	19% total energy	50% increase by 2025
Social
Health & safety	Lost Time Injury Rate	0.7 per 100,000 hours	50% reduction by 2025
Employee engagement & recruitment	Labour turnover	21%	Year-on-year reduction
Employee satisfaction	Annual survey response rate and overall satisfaction level	60% and 78%	Year-on-year increase
Diversity	Female employees	13%	Year-on-year increase
Remuneration	National Living Wage (NLW)	All employees at or above NLW	All employees above NLW by 2023
Education	Apprenticeships / Kickstarters	32	20% increase by 2025

 

Recycling

Our KPIs recognise the breadth of the sustainability, or Environmental, Social and Governance ('ESG') agenda. Increasing our use of recycled PVC compound in the manufacture of co-extruded rigid profiles has and will always be at the heart of sustainability for Eurocell.

Expanding recycling improves product and business sustainability, with less plastic going to landfill. Closed-loop recycling (where windows being replaced are recycled into the new product) is attractive to decision makers such as local authorities and architects, which helps us develop tight specifications for our products. Recycling also increases our profits, because the cost of recycled compound is typically lower through the cycle than the price of virgin material, and it reduces our exposure to volatile commodity prices. This is particularly important at the moment, with the price of virgin resin reaching historic high levels in 2021.

We have been investing to increase our recycling capability through the expansion of our two market-leading recycling plants and by investment in new co-extrusion tooling, which allows a greater proportion of recycled material to be used in our products.

We have become the leading UK-based recycler of PVC windows. As well as keeping pace with increased demand, we have continued to improve the proportion of recycled material consumed in our primary extrusion operations. Usage increased from 9% of materials consumed (or 4.1k tonnes) in 2015 to 25% of consumption (or 12.4k tonnes) in 2020. In doing so, in 2020 we saved the equivalent of c.3 million window frames from landfill and estimate that overall our recycling operation saved approximately 36k tonnes of carbon in the year compared to the use of virgin PVC (equivalent to the annual CO₂ output of over 6,000 UK homes).

We have made further progress in H1 2021, with usage increasing to 28% of materials consumed (or 8.5k tonnes), compared to 26% (or 4.7k tonnes) in H1 2020 and 22% (or 6.4k tonnes) in H1 2019. In addition, substantially all scrap generated in extrusion is recycled back into our production processes, further reducing waste sent to landfill.

 

OPERATIONAL PERFORMANCE

Health & safety

The safety and well-being of our employees and contractors is our first operational priority and we continue to maintain a good safety performance, with safe working practices for COVID-19 operating well across the business.

Our Lost Time Injury Rate ('LTIR') was 0.7 in H1 2021, compared to 0.7 and 0.9 for the whole of 2020 and 2019 respectively. There were no major injuries and 8 minor injuries reported under the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013 (RIDDOR) in the period (full year 2020 and 2019: 19 and 17 minor injuries respectively).

 

Production

In the first half of 2021 we manufactured approximately 28.5k tonnes of rigid and foam PVC profiles, 72% higher than H1 2020 and 7% above H1 2019. This reflects the sales for each period, as well as, in 2019, higher production to increase stock holding at our branches and to mitigate the possibility of raw material supply interruption due to Brexit. Overall Equipment Effectiveness ('OEE', a measure which takes into account machine availability, performance and yield) was 73% in H1 2021, (full year 2020 and 2019: 75% and 73% respectively), with the latter part of H1 2021 impacted by labour availability (see below).

 

Raw material supply chain, labour and transport

Strong demand in our markets has put sector supply chains under pressure, and this shows no sign of abating. We are experiencing tighter supply and an inflationary environment, with prices of certain raw materials, particularly PVC resin, rising significantly in 2021.

To date we have secured most of the raw materials we require, and we are mitigating cost inflation with selling price increases and a surcharge adjusted monthly in response to price changes. Higher resin costs are also partially offset by our market-leading recycling plants. As described above, these plants supplied a record 28% of our raw material consumption in the first half, which drives a substantial cost saving of c.£4 million compared to the cost of virgin material.

Availability of the incremental operational labour we need to service strong demand is very tight. We have also experienced an elevated level of absence since June, due to employees being required to self-isolate. In addition, in the light of a well-publicised shortage of HGV drivers in the UK, our outsourced transport provider has faced challenges providing the required number of vehicles to service higher than expected sales.

 

PROFILES DIVISION REVIEW

Profiles strategy

In 2018 we became the leading supplier of rigid PVC profile to the UK market, with a share of c.15%. We continue to consolidate our position and believe we now have a share of around 18%. Our strategic objective is to increase this to >20% over the next few years.

There is a compelling case for larger trade fabricators to switch to Eurocell. This includes a strong product range and continued product development e.g. better aesthetics (such as flush windows), a more contemporary look to roofing and door products and improved environmental characteristics. In addition, the benefits of pull-through profile and hardware specifications and increasing opportunities to supply our branches, all delivered via improving service, remain attractive to prospective fabricator accounts.

In the Profiles division, new build represents approximately one-third of sales. Expanding our share of the new build market has been a key driver of recent growth, driven by sales of cavity closures where we are the clear market leader, and we believe favourable market dynamics are set to continue. We have strong relationships with large and medium-sized housebuilders, maintained by our specification and technical teams. Building regulations for windows are becoming increasingly complicated and our technical teams are working with our larger customers to enable them to conform to the regulations, including development of new product applications to meet changing requirements. In addition, with a focus on sustainability, we believe our use of recycled material is becoming increasingly attractive to housebuilders.

In the commercial sector, energy efficiency and lower cost underpin a strong case for the benefits of using PVC profile over aluminium, particularly in sub-sectors such as private rentals, build-to-rent, purpose-built student accommodation, education and local authority refurbishment - all habitual users of aluminium.

 

Profiles summary income statement

	H1 2021 £m	H1 2020 £m	Change %	H1 2019 £m	Change %
Third-party revenue	68.5	36.4	88	57.6	19
Inter-segmental revenue	35.9	19.0	89	28.2	27
Total revenue	104.4	55.4	88	85.8	22
Operating profit/(loss)	11.6	(10.1)	n/a	10.2	14
Adjusted operating profit/(loss)(1)	11.6	(2.3)	n/a	10.2	14

(1)   Before non-underlying items (see alternative performance measures).

Third-party revenue for H1 was £68.5 million, 88% higher than H1 2020 and 19% up on H1 2019. We have seen good contributions from trade fabricators, who are substantially focused on the RMI market, and a very strong performance from Vista doors. New build has also enjoyed good sales, with increasing housing market activity supported by continued high levels of mortgage approvals and demand.

During the last four years we have added c.75 new accounts, and our prospect pipeline remains good.

Adjusted operating profit for H1 was £11.6 million, up £1.4 million on H1 2019 as a result of increased sales volumes and the impact of operational gearing. The adjusted operating loss in H1 2020 of £2.3 million reflects the impact of the first UK COVID-19 lockdown and is stated net of support received under the Coronavirus Job Retention Scheme (£3.4 million), partly offset by an increase to the IFRS 9 impairment charge (bad debts) in respect of certain fabricator customers (£1.6 million).

 

BUILDING PLASTICS DIVISION REVIEW

Building Plastics strategy

Our strategic objective for Building Plastics is to achieve world class operations from 270-300 sites. The growth will come mostly from independent operators, who currently have more than 80% market share.

Our goal is to be recognised as first for service for the tradesperson, seamlessly connecting the customer shopping journey from online through to the branches, with clear data-driven customer engagement plans (including targeting lapsed customers) and through the development of a sector-leading digital platform.

In terms of products, we intend to create the market leading proposition, including a redesigned best in class conservatory offering, and to exploit a significant market opportunity to extend our outdoor living product range, including decking, fencing and garden rooms.

In the existing estate, we are now testing an improved format for standard size branches, which better showcases the breadth of our range. We will also continue to identify opportunities for large format stores, with an expanded trade counter and showroom-style displays designed to engage customers and drive big-ticket purchases, such as windows and doors. This follows successful trials of this format in 2019/20.

We also continue to test an opportunity to develop and implement a sector-leading consumer online windows and doors proposition, using the branch network to provide infrastructure where needed (e.g. delivery point for installers). We began a trial in the North West in H2 2020 and will provide an update on our progress at the end of this year. This proposition aligns well with our commercial strategy of continuing to create pull-through demand for our products.

 

Building Plastics summary income statement

	H1 2021 £m	H1 2020 £m	Change %	H1 2019 £m	Change %
Third-party revenue	99.6	57.2	74	78.7	27
Inter-segmental revenue	0.7	0.5	40	0.7	-
Total revenue	100.3	57.7	74	79.4	26
Operating profit/(loss)	6.1	(4.0)	n/a	3.4	79

Third-party revenue for H1 was £99.6 million, 74% higher than H1 2020 and 27% up on H1 2019, equivalent to like-for-like sales growth of 23% on 2019, representing a strong performance across our full range of own-manufactured products and traded goods. Like-for-like excludes acquisitions and new branches opened in 2019/20/21.

We opened 4 new standard format branches in the first half, and we plan to open a further 8 new sites in H2, 4 of which are the new larger format. We are also making good progress reducing the time taken to reach break-even in new stores. At 30 June 2021, we had a total of 212 branches providing national coverage across the UK, which offers a significant competitive advantage. Branches opened in 2019/20/21 added £2.4 million to sales in H1 2021.

Operating profit for H1 was £6.1 million, compared to £3.4 million in H1 2019, driven by strong sales and good cost control. The operating loss in H1 2020 of £4.0 million reflects the impact of the first UK COVID-19 lockdown and is stated net of support received under the Coronavirus Job Retention Scheme (£2.9 million) and retail grants / business rates relief (£1.0 million), offset by an increase to the IFRS 9 impairment charge (bad debts) to reflect higher risk in the Building Plastics receivables book (£1.3 million).

 

OUTLOOK

We entered 2021 well placed to take advantage of the continued recovery in our markets and we have delivered strong financial results for H1.

A very good sales performance has been underpinned by the success of our commercial strategies and high levels of demand in the RMI market. We believe we are also continuing to take market share.

Although high demand has put sector supply chains under pressure, to date we have secured most of the raw materials we require, and we are mitigating cost inflation with selling price increases, a surcharge and through our market-leading recycling plants. As a result, we are very pleased to report strong profit growth for the first half and to confirm a return to dividend payments.

Trading performance in July and August has continued to be robust. With the industry close to capacity and lead times growing, we are becoming more confident that these market conditions will continue for the foreseeable future. Reflecting these factors, and notwithstanding very tight supply chains, labour and transport availability, the Board is now again raising its expectations for the full year.

 

 

Mark Kelly

Chief Executive Officer

 

CHIEF FINANCIAL OFFICER'S REVIEW

	H1 2021	H1 2020	H1 2019
	£m	£m	£m
Revenue	168.1	93.6	136.3
Gross profit	84.4	43.8	69.7
Gross margin %	50.2%	46.8%	51.1%
Overheads	(58.3)	(38.4)	(49.8)
IFRS 9 impairments	0.5	(2.9)	-
Adjusted(1) EBITDA	26.6	2.5	19.9
Depreciation and amortisation	(11.3)	(9.9)	(8.6)
Adjusted(1) operating profit/(loss)	15.3	(7.4)	11.3
Finance costs	(1.1)	(1.2)	(0.9)
Adjusted(1) profit/(loss) before tax	14.2	(8.6)	10.4
Tax	(3.2)	3.3	(1.7)
Adjusted(1) profit/(loss) after tax	11.0	(5.3)	8.7
Adjusted(1) basic earnings/(losses) per share (pence)	9.9	(5.0)	8.7
Non-underlying items	-	(7.9)	-
Tax on non-underlying items	-	1.5	-
Reported profit/(loss) before tax	14.2	(16.5)	10.4
Reported profit/(loss) after tax	11.0	(11.7)	8.7
Total basic earnings/(losses) per share (pence)	9.9	(11.1)	8.7

(1)   See alternative performance measures.

 

INTRODUCTION

Our financial performance in 2020 reflected the major impact of COVID-19 on the first half, when the business reported a loss for the period. However, the decisive actions taken at the outset of the pandemic secured our financial position, underpinning a good recovery and financial performance in H2 2020. Subsequently, our continued focus on mitigating inflation, controlling costs, preserving cash and improving liquidity, have allowed the business to capitalise on the continued recovery in the RMI market and report strong financial results for H1 2021.

 

REVENUE

Revenue for H1 was £168.1 million, 80% higher than H1 2020 (£93.6 million) and 23% up on H1 2019 (£136.3 million). This is equivalent to like-for-like sales growth of 21% compared to 2019, representing a strong performance right across the business. Like-for-like excludes acquisitions and new branches opened in 2019/20/21.

Sales growth compared to 2019 includes approximately 5% from selling price increases implemented during February and a surcharge levied progressively from April, to mitigate raw material price inflation (see below).

 

GROSS MARGIN

Our gross margin was 50.2% in H1, up from 46.8% in H1 2020, reflecting increased production volumes and therefore a better recovery of direct costs.

Gross margin reduced from 51.1% in H1 2019 due to the impact of raw material cost increases. We are experiencing an inflationary environment, with prices for certain raw materials, particularly PVC resin increasing significantly in 2021. We are mitigating higher costs with selling price increases, a surcharge adjusted monthly in response to price changes and through our market-leading recycling plants. The surcharge has successfully recovered most of the higher material costs, and is therefore broadly neutral to profit, but it is dilutive to the margin percentage.

 

DISTRIBUTION AND ADMINISTRATIVE EXPENSES (OVERHEADS)

Underlying overheads for H1 were £58.3 million, 52% higher than H1 2020 (£38.4 million) and 17% up on H1 2019 (£49.8 million), reflecting higher production and sales volumes.

Overheads in H1 2020 include COVID-related UK Government support of £7.3 million, comprising receipts under the Job Retention Scheme of £6.3 million, retail grants of £0.7 million and retail rates relief of £0.3 million. Overheads in H1 2021 include retail rates relief of £1.0 million.

 

IFRS 9 IMPAIRMENTS

The first COVID-19 lockdown had a significant impact on our customers, with several finding it difficult to bring their accounts into terms. We assessed the level of credit risk to have increased materially as a direct impact of COVID. As a result, IFRS 9 impairment charges of £2.9 million were reflected in the underlying income statement in H1 2020.

Subsequently, cash receipts have been good and the ageing profile in our ledgers has improved, and consequently an IFRS 9 credit of £0.5 million has been recorded in H1 2021.

 

DEPRECIATION AND AMORTISATION (D&A)

D&A for H1 was £11.3 million, compared to an underlying charge of £9.9 million in H1 2020 (reported: £10.4 million) and £8.6 million in H1 2019.

 

ALTERNATIVE PERFORMANCE MEASURES

Alternative performance measures are used alongside statutory measures to facilitate a better understanding of financial performance and comparison with prior periods, and in order to provide audited financial information against which the Group's bank covenants, which are all measured on a pre-IFRS 16 basis, can be assessed.

Adjusted EBITDA, adjusted operating profit and adjusted profit before tax all exclude non-underlying items. Adjusted profit after tax and adjusted earnings per share exclude non-underlying items and the related tax effect.

Pre-IFRS 16 EBITDA is stated inclusive of operating lease rentals under IAS 17 Leases.  Pre-IFRS 16 net debt is defined as total borrowings and lease liabilities less cash and cash equivalents, excluding the impact of IFRS 16 Leases.

We classify some material items of income and expense as non-underlying when the nature and infrequency merit separate presentation. Alongside statutory measures, this facilitates a better understanding of financial performance and comparison with prior periods.

 

NON-UNDERLYING ITEMS

No non-underlying items were recognised in H1 2021 and H1 2019.

Non-underlying items for H1 2020 of £7.9 million includes a non-cash goodwill impairment charge of £5.8 million, a trade receivable impairment charge of £0.8 million, a right-of use asset impairment charge of £0.5 million and warehouse dual-running costs of £0.8 million.

 

FINANCE COSTS AND TAXATION

Finance costs for H1 were £1.1 million (H1 2020: £1.2 million).

A tax charge of £3.2 million was recognised for H1 (H1 2020: tax credit of £4.8 million). The effective tax rate on the profit before tax for H1 2021 of 22% is higher than the standard corporation tax rate of 19% for the period due to the impact of the change in the standard rate that will take effect in 2023 on the measurement of deferred taxes, offset by the benefit of Patent Box relief. The effective tax credit rate on the loss before tax of H1 2020 of 29% was greater than the standard rate of 19%, due to the benefit of Patent Box relief.

 

PROFIT/(LOSS) BEFORE TAX AND EARNINGS/(LOSSES) PER SHARE

Adjusted and reported profit before tax for H1 was £14.2 million, compared to an adjusted loss before tax of £8.6 million in H1 2020 and an adjusted and reported profit before tax of £10.4 million in H1 2019. Improved profits compared to 2019 reflect higher volumes and the impact of operational gearing. The reported loss before tax for H1 2020 was £16.5 million.

Adjusted and reported basic earnings per share for H1 were 9.9 pence (H1 2020: adjusted losses per share of 5.0 pence; reported basic losses per share 11.1 pence and H1 2019: adjusted and reported basic earnings per share 8.7 pence). Diluted earnings per share for H1 2021 were 9.8 pence. For H1 2020 losses per share, share options are not considered to have a dilutive effect.

 

DIVIDENDS

On 2 September 2021, the Board approved an interim dividend for the six months ended 30 June 2021 of 3.2 pence per share (£3.6 million). No dividends were paid in respect of 2020. The interim dividend for 2019 was 3.2 pence per share (£3.2 million).

The interim dividend will be paid on 8 October 2021 to shareholders on the register at the close of business at 17 September 2021 and shares will be marked ex-dividend on 16 September 2021. We will now revert to a dividend cover target of 2x through the cycle, with approximately one-third of the total paid as an interim.

 

CAPITAL EXPENDITURE

Capital expenditure for H1 2021 was £7.3 million (H1 2020: £4.6 million). 2021 includes c.£1 million for the new warehouse and c.£2 million to expand extrusion capacity across a number of key product lines. Other capital expenditure in the period of c.£4 million includes recycling, new / refurbished branches, IT and maintenance capex.

 

CASH FLOW

Net cash generated from operating activities was £24.2 million for the period, compared to £4.8 million in H1 2020.

This includes a net outflow from working capital for H1 2021 of £0.9 million, comprised of an increase in stocks (£3.1 million), an increase in trade and other receivables (£9.6 million) and an increase in trade and other payables (£11.8 million). This compares to a net inflow from working capital of £4.8 million in H1 2020. It also includes net tax paid of £1.9 million (H1 2020: £1.9 million). Higher stocks, receivables and payables reflect our strong trading performance and seasonality.

Other items include payments for capital investments of £7.3 million (H1 2020: £4.9 million) and financing costs of £0.3 million (H1 2020: £0.5 million).

No dividends were paid in either period.

The principal elements of lease payments of £5.0 million (H1 2020: £5.3 million) are presented within cash flows arising from financing activities. The finance elements of lease payments were £0.6 million (H1 2020: £0.7 million).

 

NET DEBT

Net cash on a pre-IFRS 16 basis at 30 June 2021 was £1.3 million (30 June 2020: net debt £23.5 million, 31 December 2020: net debt £9.9 million). Reported net debt on a post-IFRS 16 basis at 30 June 2021 was £52.3 million (30 June 2020: £75.6 million, 31 December 2020: £58.3 million).

 

BANK FACILITIES

We have an unsecured Revolving Credit Facility ('RCF') of £75 million which matures in 2023. In 2020 we converted the facility into a Sustainable RCF, where modest adjustments to the margin will be applied based on our achievement against annual recycling targets. We were pleased to meet our target for 2020, and plan to invest the interest saved in sustainability-related initiatives.

We operate comfortably within the terms of the facility and in compliance with our financial covenants, which are measured on a pre-IFRS 16 basis.

 

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties faced by the Group are set out in the 2020 Annual Report (pages 58-62). These risks remain unchanged and are as follows:

·      Macroeconomic conditions

·      Cyber security

·      Regulatory risks, including health & safety

·      Raw material supply

·      Raw material and traded goods prices

·      Customer credit risk

·      Sustainability

·      Manufacturing capacity constraints

·      Warehousing and distribution capacity constraints

·      Unplanned plant downtime

·      Ability to attract and retain key personnel and highly skilled individuals

·      Shortages or increased costs of appropriately skilled labour

·      Failure to develop new products

·      Competitor activity

·      Failure to identify, complete and integrate acquisitions

·      Digital and IT systems development

 

 

Michael Scott 

Chief Financial Officer

 

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE HALF YEAR REPORT

We confirm that to the best of the Directors' knowledge:

·      The condensed set of financial statements has been prepared in accordance with UK-adopted International Accounting Standard 34 and;

·      The interim management report includes a fair review of the information required by:

(a)  DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of 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; and

(b)  DTR 4.2.8R of the Disclosure and 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 the related party transactions described in the last Annual Report that could do so.

 

 

By Order of the Board

 

 

Mark Kelly                                                                                          Michael Scott

Chief Executive Officer                                                                       Chief Financial Officer

2 September 2021                                                                               2 September 2021