TIDMGEN
RNS Number : 8144S
Genuit Group PLC
14 March 2023
14 March 2023
Genuit Group plc
Audited results for the year ended 31 December 2022
Delivering a strong foundation for future growth
Genuit Group plc ("Genuit", the "Company" or the "Group"), the
UK's largest value-added manufacturer of sustainable water, climate
and ventilation products for the built environment , today
announces its audited results for the year ended 31 December
2022.
Joe Vorih, Chief Executive Officer, said:
" As I reflect on my first full year as Chief Executive Officer
of Genuit, I would like to thank our talented and purpose-driven
team for delivering a record level of revenue and profit despite
considerable inflation, housing market uncertainty and supply chain
disruption. As committed, we have improved our pricing processes,
begun the simplification of the business to unlock synergies and
lower structural costs, and strengthened our sustainability
leadership with the adoption of our Science-Based Targets (SBTs)
and a reduction in carbon intensity through the year.
Further, our new Sustainable Solutions for Growth strategy has
been well-received by investors and employees alike. We have put in
place a new business structure and are focusing on climate-driven
long-term investment to deliver above-market organic growth and
profitability with clear mid-term targets. While short-term market
instability will likely remain through much of 2023, our self-help
measures, the Genuit Business System, and investment for
sustainability-driven growth should position us well to deliver
against our financial and strategic commitments ."
Financial Results
2022 2021 Change
Statutory measures
Revenue GBP622.2m GBP594.3m 4.7%
Operating profit GBP53.4m GBP67.1m (20.4)%
Profit before tax GBP45.4m GBP62.9m (27.8)%
Basic earnings per share 14.7p 16.7p (12.0)%
Dividend per share 12.3p 12.2p 0.8%
Alternative performance measures
Underlying operating profit(1) GBP98.2m GBP95.3m 3.0%
Underlying operating margin(1) 15.8% 16.0% (20)bps
Underlying profit before tax(1) GBP90.6m GBP91.1m (0.5)%
Underlying basic earnings per share(1) 30.8p 30.6p 0.7%
Underlying cash generated from operations(2) GBP62.6m GBP57.2m 9.4%
Leverage(3) (times pro forma EBITDA(4) ) 1.2 1.2 -
Financial highlights
-- Revenue increase of 4.7% on a strong comparative year
-- Operating performance marginally ahead of expectations
-- Underlying basic earnings per share of 30.8 pence, an
increase of 0.7% despite increased borrowing costs
-- Strong operational cash management and balance sheet, net debt 1.2x pro forma EBITDA
-- Continued strategic investment in business, capital expenditure of GBP41.1m
-- Increased investment in new product development, increasing
recyclate use and organisational capability augmented by
simplification of the business
-- Proposed final dividend of 8.2 pence (2021: 8.2 pence),
taking the full year 2022 dividend to 12.3 pence (2021: 12.2 pence)
per share
Environmental, Social and Governance
We submitted our SBTs for verification in August 2022, which are
initially based upon improvements by 2027, at which point we will
re-calibrate and set targets for the following five years. This
first phase of SBTs build upon the 2025 targets which we previously
published and put us on a trajectory for being Net Zero by
2050.
We made progress against our 2025 targets in a challenging 2022
environment with reduced Scopes 1 and 2 carbon intensity (5)
despite inefficiencies caused by lower production volume levels.
Since we began to measure ourselves in this way, we have reduced
our carbon intensity by 50.2%.
Our use of recycled polymers remains broadly unchanged at 48.7%
of our total tonnage, (2021: 49.4%) and capacity to use more
recyclate has recently become available. A lower mix of underground
products (there were fewer housing starts), that have a greater
recyclate content, muted further progress.
The proportion of our employees that are in structured training
programmes (e.g. apprenticeships, formal graduate programmes or
sponsored students) reached 3.5% (2021: 3.2%).
Outlook
This year has started well and has traded in line with
expectations, although we expect challenging and uncertain market
conditions to continue into 2023 amongst macro-economic
uncertainty, with continued lower volumes as seen in the second
half of 2022. Our expectations for the year have been based upon
the CPA Winter Forecast. If there are any deviations from this
forecast, the business has proven resilience and agility to adapt
in those conditions. However, the actions taken on pricing and the
other self-help measures started last year, including further
simplification of the business, will maintain the Group's
resilience and enhance our capability to respond to improvements in
the market.
Through reinvesting these synergies in our people and growth
initiatives and keeping a continual focus on margins and cash flow,
we are confident that we will start to make measurable progress
towards our mid-term commitments. Further, our focus on
climate-driven growth, leadership in sustainable materials and
enhancing the power of our people through the Genuit Business
System, will position us well for the long term. Most importantly,
we are building a strong team, with a single sustainable purpose,
and look forward to the next chapter in our Sustainable Solutions
for Growth strategy.
(1) Underlying profit and earnings measures exclude certain
non-underlying items and, where relevant, the tax effect of these
items. The Directors consider that these measures provide a better
and more consistent indication of the Group's underlying financial
performance and more meaningful comparison with prior and future
periods to assess trends in our financial performance.
(2) Underlying cash generated from operations is defined as cash
generated from operations, adjusted for non-underlying cash items,
after movement in net working capital and capital expenditure net
of proceeds from disposals of property, plant, and equipment.
(3) Leverage is defined as net debt divided by pro forma EBITDA.
Net debt within the leverage calculation is defined as loans and
borrowings net of unamortised issue costs less cash and cash
equivalents, excluding the effects of IFRS 16.
(4) Pro forma EBITDA is defined as underlying operating profit
before depreciation and amortisation for the 12 months preceding
the balance sheet date, adjusted, where relevant, to include a full
year of EBITDA from acquisitions made during those 12 months.
(5) Carbon intensity defined as tonnes of carbon per tonne of
output using the market-based method.
Enquiries:
Genuit
Joe Vorih, Chief Executive
Officer
Paul James, Chief Financial
Officer +44 (0) 1138 315380
Brunswick
Nina Coad
Tom Pigott +44 (0) 20 7404 5959
A copy of this report will be available on our website
www.genuitgroup.com today from 0700hrs (GMT).
There will be a presentation for analysts and investors at
0830hrs (GMT) on Tuesday 14 March 2023 at Brunswick Group's
offices, 16 Lincoln's Inn Fields, London, WC2A 3ED. Please contact
Genuit@brunswickgroup.com to confirm your attendance.
The presentation will also be available to listen into via
webcast. Please register for access to the webcast via the
following link:
https://www.investis-live.com/genuit-group/63f734d03e92bb0c00f12eac/evlot
We recommend you register by 0815hrs (GMT).
The webcast will be recorded and a replay will be available
shortly after the webcast ends via the same link above.
The presentation will also be available on the Reports, results
and presentation page on Genuit's website at
http://investors.genuit.com/
Notes to Editors:
Genuit Group plc ("Genuit", the "Company" or the "Group"), a
leading provider of sustainable water, climate and ventilation
products for the built environment, is the largest manufacturer in
the UK, and among the ten largest manufacturers in Europe, of
piping systems for the residential, commercial, civils and
infrastructure sectors by revenue. It is also a leading designer
and manufacturer of energy efficient solutions in water-based
heating systems in the UK.
The Group operates from thirty facilities in total and
manufactures the UK's widest range of solutions for heating,
plumbing, drainage and ventilation. The Group primarily targets the
UK and European building and construction markets with a presence
in Italy and the Netherlands and sells to specific niches in the
rest of the world.
Genuit Group plc changed its name from Polypipe Group plc on 6
April 2021. The Group was established in 1980 and has been listed
on the premium segment of the London Stock Exchange since 2014.
Group Results
The year was characterised by many themes carried over from 2021
with continued constraints in the supply of key raw materials and
cost inflation dominant. However, more recently, there are signs
that cost inflation associated with raw materials such as prime PVC
is starting to ameliorate.
Group revenue for the year ended 31 December 2022 was 4.7%
higher than the prior year at GBP622.2m (2021: GBP594.3m). On a
like-for-like basis, excluding the impact of acquisitions, revenue
was 3.1% higher than the prior year. The Group continued with price
leadership in the market and began a concerted program of
restructurings to drive further cost efficiencies - both measures
offsetting to a certain extent the effects of raw material cost
inflation. The Group was also impacted in Q2 by a cyber incident
that affected our production facility in south Wales. Much work was
undertaken to mitigate the effect of the cyber incident and most
lost sales were recovered in the second half of the year. The Group
has invested heavily since in further cyber defences.
The Group continued to focus on its medium-term drivers - a
structural UK housing shortage, the regulatory and environmental
drivers around water and climate management and the need for
improved indoor air quality. The three acquisitions made in
February 2021 completed their first full year within the Group.
Adey has been impacted by the effects of an upstream constraint in
the supply of printed circuit boards ("PCBs") to boiler
manufacturers, but we expect this situation to improve during 2023.
Partly because of this (and the significant increase in discount
rates), the Group took the decision to write down GBP14.8m of
goodwill and other intangibles through non-underlying results as
non-cash items.
Underlying operating profit of GBP98.2m was 3.0% higher than the
prior year (2021: GBP95.3m) and represents a record year of
underlying operating profit - with an underlying operating margin
of 15.8% (2021: 16.0%).
Underlying finance costs of GBP7.6m (2021: GBP4.2m) were
significantly up on the prior year, driven by higher interest rates
that grew throughout the year but had a particular impact in the
second half. Interest cover was 16.0x for the year (2021:
31.3x).
Net debt, pre IFRS 16, was largely unchanged at GBP143.1m (2021:
GBP145.1m). Including the impact of IFRS 16, net debt was GBP166.2m
(2021: GBP165.7m). Cash conversion for the year was 63.7% (2021:
60.0%), leaving net debt to pro forma EBITDA at 1.2x (2021:
1.2x).
Profit before tax was GBP45.4m (2021: GBP62.9m), impacted by
heightened levels of non-underlying items. These increased to
GBP40.0m (2021: GBP34 .1 m) and were driven by non-cash
amortisation and impairment charges of GBP30.0m (2021: GBP14.2m) in
respect of intangible assets arising from acquisitions since 2015,
GBP3.3m (2021: GBP6.6m) of costs related to acquisitions and other
M&A costs, a product liability claim of GBP1.0m (2021:
GBP2.6m), one off costs of GBP1.2m relating to an isolated cyber
incident at Nuaire and restructuring costs of GBP9.3m (2021:
GBP1.1m).
The total tax charge for the year of GBP8.9m (2021: GBP21.9m)
represents an effective tax rate of 19.6% (2021: 34.8%). The
underlying effective tax rate of 15.6% (2021: 17.6%) was lower than
the standard UK rate of tax of 19.0% (2021: 19.0%) primarily due to
the benefit of patent box relief and super-deduction capital
allowances.
Underlying net profit for the year was in line with the prior
year at GBP76.5m (2021: GBP75.1m), with underlying basic earnings
per share at 30.8 pence (2021: 30.6 pence).
Chief Executive Officer Review
Our Results: Progress in the face of challenge
I am pleased to report that Group has delivered the highest
annual underlying profit performance yet, against a prior year of
strong comparatives with revenue from continuing operations 4.7%
higher than prior year at GBP622.2m (2021: GBP594.3m), underlying
operating profit 3.0% higher than prior year at GBP98.2m (2021:
GBP95.3m) and underlying basic earnings per share 0.7% higher than
prior year at 30.8 pence (2021: 30.6 pence), despite the impact of
increased financing costs.
This was a year of considerable macro-economic and political
uncertainty with continued levels of high inflation in materials,
energy and labour costs, constraints in the supply of key
components (affecting us both directly, and indirectly through the
supply chains of our customers) and with an isolated cyber incident
in Q2. I am proud of how our teams responded to all these
challenges to deliver these results and I would like to thank them
for their dedication and hard work.
As we committed last year, we have improved our commercial
excellence and pricing responsiveness in the face of significant
inflation. Several robust market-leading price increases throughout
the year with shortened implementation periods, combined with
trimming the cost base and boosting operational efficiency to help
offset inflation and somewhat weaker demand in the second half. We
have also prioritised higher margin business, exiting some less
profitable product lines during the year. The tougher trading
conditions in the latter part of the year precluded any normal
Autumn seasonal uplift - especially in RMI activity - and subdued
trading continued until the end of the year.
Our underlying operating margin of 15.8% (2021:16.0%) was the
result of improved pricing realisation from the second quarter
largely offsetting the increase in material costs, costs of the
cyber incident and constrained boiler supply. We have focused on a
more streamlined organisation that will realise synergies, better
positioning us for 2023 as profit margins improved to 16.8% for the
second half.
We remain a highly cash-generative business, and even after
significant capital investment to upgrade our manufacturing and
invest in growth, we generated GBP62.6m cash (2021: GBP57.2m).
Accordingly, the Board has approved a final dividend of 8.2 pence
(2021: 8.2 pence).
Our Customers: Long-Term Climate Tailwinds, Short-Term Market
Turbulence
Although we are in a period of short-term turbulence, the Group
continues to focus on segments that benefit from secular trends and
growth drivers. The transition to low carbon and more efficient
heating and cooling, the need to provide the built environment with
resilience to the impacts of climate change, and the increasing
demands from our customers to help them reduce the carbon content
of their supply chains, all provide tailwinds that will drive above
market growth in the medium term. Even now, some of these tailwinds
are helping us to grow despite subdued markets. Our Nu-Heat
underfloor heating and heat pump-based solutions, for example, have
grown 21.0% compared to prior year as customers are attracted to
the combination of more sustainable products and lower energy
bills. The policy landscape also continues to provide tailwinds,
with Parts L&F of the Building Regulations, as well as the roll
out of the Flood and Water Management Act, all helping to increase
adoption of our products through the changes in specification and
design. Reducing the carbon equivalent content of our products is
fundamental to how we make our business more sustainable, and
increasingly it is a source of competitive advantage as our
customers recognise that their purchasing decisions are a key
driver of their own Scope 3 impacts.
Housing supply remains a key issue facing the UK. Although
developers have reacted to the short-term issues around interest
rates, affordability, and the resultant dip in reservation rates by
slowing their site opening and starts, we still see a structural
housing shortage as being a medium-term growth driver. Despite the
Government's declared target of 300,000 units per annum, 2022 was
only the second year since 2007 that saw over 200,000 units
completed (Source: CPA), and despite the forecast of a dip in 2023,
the sector is expected to return to growth in the latter part of
the year.
Extreme weather events continue to occur with increasing
frequency, and designers and engineers now need to cater for this
in terms of greater rainfall and its associated impact on drainage
and surface water management. Similarly, our summers are getting
hotter, and the need for sustainable cooling solutions has never
been greater. We continue to develop innovative solutions across
all our businesses to address climate adaptation challenges and
improve built environment resilience.
Our Strategy: Sustainable Solutions for Growth
At our Capital Markets Day in November, we introduced the
strategic evolution of Genuit with our Sustainable Solutions for
Growth strategy following a thorough review and refocusing of our
strategic plans. The key elements of this new strategy - which has
been well-received by both markets and, importantly, our own
employees - are as follows:
First, we will focus on higher growth sustainability driven
markets. While the broader construction market is expected to grow
at low single digits through the cycle, climate-driven investment
should drive outperformance in our strategic segments including
energy-efficient heating, green urbanisation, and stormwater
management.
Second, we will strengthen our current position by becoming the
lowest carbon choice supplier for our customers. As our customers
implement their Net Zero commitments, access to the lowest
embedded-carbon solutions - an area we already lead - will become
increasingly important.
Third, we will simplify the business - making it more focused,
agile and profitable. By retaining a decentralised operating model
while realising more internal synergy and efficiency with our
Business Units, we can invest more in our future growth and improve
our profitability.
Fourth, we have committed to creating increasing value for all
our stakeholders as we develop and embed the Genuit Business System
in all that we do. A relentless focus on improving customer
service, simplifying our operations and engendering creative
problem-solving with all our people will unlock the full potential
of our businesses.
Fifth, we will use this stronger platform to make disciplined
and strategic M&A - when the time is right. Our Group will
continue to add solution-enhancing, accretive acquisitions while
maintaining appropriate levels of leverage and cash generation.
To put this strategy into action and make progress clear, we
have reorganised the business into three Business Units - Climate
Management Solutions ("CMS"), Water Management Solutions ("WMS")
and Sustainable Building Solutions ("SBS") - each of good scale and
with clear long-term green revenue drivers.
CMS is focused on solving the challenges of low-carbon heating,
energy efficiency and clean, healthy air - and includes Nuaire,
Nu-Heat, Surestop and Adey.
WMS has the most upward margin potential. It includes some of
our compelling blue-green roof and storm water attenuation
businesses with the potential to offer more complete solutions and
move upstream in the design and specification cycle. Polypipe
Civils and Green Urbanisation, Permavoid, Plura and Alderburgh
(with our latest Keytec services acquisition) form part of this
business.
Of course, SBS is Genuit's strong core - including Polypipe
Building Products, Manthorpe and the Polypipe Building Services
businesses. With this strong market position, these businesses have
the potential to continue to drive share as the lowest carbon
choice for the construction industry.
We believe that this structure will leverage our larger scale
and lower our cost base, while providing greater strategic
alignment and clear focus on growth. Further, we will make this our
reporting structure from 2023 onward - transparency that should
help our own people and investors alike track the results of our
strategy.
As we take Genuit through this transition, we have set ambitious
but achievable mid-term targets. We will work to outperform the UK
construction market by 2 to 4% through the cycle - organically. We
intend to drive operating margin expansion to 20% and beyond - from
self-help, continuous improvement, and operating leverage. We will
return to, and then maintain, at least 90% operating cash
conversion, and will drive our return on capital to 15% or greater.
Of course, we will keep to our Net Zero and Science-Based Targets
commitments and invest in our people - with a measurable goal of
achieving The 5% Club "gold status".
Our Path to Net Zero: Leading the Way
We submitted our SBTs for verification in August 2022. This
followed work with a leading consultancy to conduct a thorough
carbon inventory so that we are now fully informed on the key
components of our carbon impact. Our SBTs are initially based upon
improvements by 2027, at which point we will re-calibrate and set
targets for the following five years. This first phase of SBTs
build upon the 2025 targets which we previously published and put
us on a trajectory for being Net Zero by 2050.
Our Science-Based Targets as submitted are:
-- Reduction of the Group's absolute Scopes 1 and 2 GHG
emissions by 30% by 2027 from a 2021 base year.
-- Commitment that 84% of the Group-wide supplier base, covering
purchased goods and services, will have submitted SBTs by 2027.
-- Reduction of absolute Scope 3 GHG emissions by 13% for our
purchased goods and services by 2027 from a 2021 base year.
Our sustainability targets are already a key component of
executive and senior management remuneration, and we are now also
adding an annual measure of carbon reduction into the annual bonus
arrangements for a wider cohort of our managers to ensure reward is
fully aligned with our strategic priorities.
In 2022, we reduced our Scopes 1 and 2 carbon intensity by 3.6%
versus prior year. Given the reduction in production volumes in
2022, it is pleasing to report that we still managed to achieve
this despite the inherent pressure on efficiencies, and the
increased relevance of our base load energy consumption. Since we
began to measure ourselves in this way, we have reduced our carbon
intensity by 50.2%.
Our use of recycled polymers was broadly similar to the prior
year at 48.7% of our total tonnage (2021: 49.4%). Progress was
hampered by product mix issues, particularly as housing starts
slowed in the second half, and in general we are more able to
utilise recyclate in below ground applications rather than, for
example, above ground plumbing and heating pipes. We were also
slightly delayed in implementing some of the product change
projects which form the pathway to our 62% target but expect this
to be rectified during 2023.
The proportion of our employees that are in structured training
programs (e.g. apprenticeships, formal graduate programs or
sponsored students) reached 3.5% (2021: 3.2%). The share of our net
revenue sales derived from products developed in the last five
years (Vitality Index) rose to 24.7% (2021: 20.2%).
Our People and Culture: Purpose-driven Performance
Genuit's success is founded on our great people. We are
investing in the three key areas of talent, engagement and culture
to unlock the full potential of the business and secure Genuit's
position as a premium employee brand - crucial to attracting and
retaining the best talent.
During 2022, we have strengthened our executive team with the
promotion of Matthew Webber as Managing Director of CMS, and by
welcoming Steve Currier as Managing Director of SBS. We have
launched the Genuit Leadership Team - the seventy or so top leaders
across the Group and have made key additions to this team including
talent development, lean leadership and financial management.
We have rolled out a new talent development process and created
a Group-wide talent pipeline. This includes expanding our
commitment to graduate schemes and apprenticeships and
strengthening our accredited learning programmes - which have
always been important at Genuit. We are investing in technology to
benefit our people - we are implementing Workday as our human
resources platform, Peakon as our engagement platform and have
already deployed Workplace by Meta to communicate and connect with
our people.
Building a high-performance culture takes time, but I am
encouraged by our progress following my first ever Group-wide
leadership conference. We are focusing on the things that matter
most - transparency and respect, encouraging a growth-mindset and
continuous improvement, and elevating diversity and inclusion as
key to our future; something I am very passionate about.
Outlook
This year has started well and has traded in line with
expectations, although we expect challenging and uncertain market
conditions to continue into 2023 amongst macro-economic
uncertainty, with continued lower volumes as seen in the second
half of 2022. Our expectations for the year have been based upon
the CPA Winter Forecast. If there are any deviations from this
forecast, the business has proven resilience and agility to adapt
in those conditions. However, the actions taken on pricing and the
other self-help measures started last year, including further
simplification of the business, will maintain the Group's
resilience and enhance our capability to respond to improvements in
the market.
Through reinvesting these synergies in our people and growth
initiatives and keeping a continual focus on margins and cash flow,
we are confident that we will start to make measurable progress
towards our mid-term commitments. Further, our focus on
climate-driven growth, leadership in sustainable materials and
enhancing the power of our people through the Genuit Business
System, will position us well for the long term. Most importantly,
we are building a strong team, with a single sustainable purpose,
and look forward to the next chapter in our Sustainable Solutions
for Growth strategy.
Joe Vorih
Chief Executive Officer
Financial Review
REVENUE AND OPERATING MARGIN
2022 2021
Revenue and operating profit and margin GBPm GBPm Change
---------------------------------------- ------ ----- -------
Revenue 622.2 594.3 4.7%
Underlying operating profit 98.2 95.3 3.0%
Underlying operating margin 15.8% 16.0% (20)bps
---------------------------------------- ------ ----- -------
2022 2021
Revenue by geographic destination GBPm GBPm Change
---------------------------------------- ------ ----- -------
UK 560.8 534.1 5.0%
Rest of Europe 32.4 38.3 (15.4)%
Rest of World 29.0 21.9 32.4%
---------------------------------------- ------ ----- -------
Group 622.2 594.3 4.7%
---------------------------------------- ------ ----- -------
Group revenue for the year ended 31 December 2022 was GBP622.2m
(2021: GBP594.3m), an increase of 4.7% on a strong comparative
year. UK revenue increased by 5.0% during a period of economic
uncertainty that worsened in the second half of the year. This
outperformed UK construction more broadly, which grew 1.6% (Source:
CPA) versus prior year, or 1.0% when the impact of infrastructure
expenditure is excluded. New housing is expected to have grown by
2.4%, after a strong first half, where starts were some 5.0% ahead
of prior year (Source: UK Government DLUHC). Housing RMI declined
from its 2021 historic peak by 3.1% as economic uncertainty and
disposable incomes worsened during the year, as well as the
macro-effect of the decline in residential property transactions of
14.8% versus prior year (Source: HMRC). The performance in the Rest
of Europe was impacted by the Group's decision to exit the Russian
market.
Underlying operating profit was GBP98.2m (2021: GBP95.3m), an
increase of 3.0% despite considerable inflation, housing market
uncertainty and supply chain disruption. The Group improved pricing
processes, began the simplification of the business to unlock
synergies and lower structural costs to enhance resilience for
2023. The Group underlying operating margin decreased marginally by
20 basis points to 15.8% (2021: 16.0%).
This has been expedited in 2022 through a transformation
project, which has involved reviews of direct and indirect
purchasing costs and also transition to the new operating structure
for 2023 announced at the November 2022 Capital Markets Day.
Profit before tax was GBP45.4m (2021: GBP62.9m), a decrease of
27.8%, driven by several factors including a write down of
intangibles and increased borrowing costs.
The Group continued to invest in product development and
innovation throughout the year. In 2022, underlying operating
profit benefited from GBP1.2m of HMRC approved Research and
Development expenditure credit, relating to the year ended 31
December 2022.
BUSINESS REVIEW
LFL
2022 2021 Change Change
Revenue GBPm GBPm % %
-------------------------------------- ------ ----- ------ --------------
Residential Systems 394.3 372.9 5.7 5.0
Commercial and Infrastructure Systems 227.9 221.4 2.9 0.5
-------------------------------------- ------ ----- ------ --------------
622.2 594.3 4.7 3.1
-------------------------------------- ------ ----- ------ --------------
2022 ROS 2021 ROS Change
Underlying operating profit GBPm % GBPm % %
-------------------------------------- ------ ----- ------ ---- ------
Residential Systems 79.1 20.1 73.1 19.6 8.2
Commercial and Infrastructure Systems 19.1 8.4 22.2 10.0 (14.0)
-------------------------------------- ------ ----- ------ ---- ------
98.2 15.8 95.3 16.0 3.0
-------------------------------------- ------ ----- ------ ---- ------
Residential Systems
Revenue in our Residential Systems segment was 5.7% higher than
the prior year at GBP394.3m (2021: GBP372.9m), partially driven by
the full year effect of the acquisitions of Adey and Nu-Heat in
February 2021 with like-for-like revenue excluding acquisitions
5.0% higher than 2021.
The process of integrating Adey and Nu-Heat is now complete.
Both these businesses have fitted well into the Group in a
commercial, operational and a cultural sense - so much so that
Adey's CEO at the time of acquisition has just been promoted to be
Managing Director for one of the three new Business Units. We are
driving both revenue and cost synergies aggressively. Adey has been
adversely affected by the constraint in upstream boiler
manufacturing caused by the shortage in the global supply of
printed circuit boards ("PCBs"). This shortage is ongoing. Nu-Heat
is performing well, benefitting from the positive mix effect of
remaining market RMI spend moving into funding more efficient forms
of heating homes.
During 2022 at our Broomhouse Lane and Neale Road sites in
Doncaster, we took delivery of and installed 25 moulding machines
for the manufacture of our mainstream products. This underpins our
commitment to sustainability as the new machines will give
significant energy savings over those that they replaced. The new
machines will also allow us to become more flexible in our approach
to using recycled content in our moulding facility than previously,
which again supports our commitment to sustainability.
New product innovation remains strong. In Residential Systems,
we launched several new ranges in the first half of the year,
including Nuaire's DX Cooling modules designed to work in
conjunction with existing Mechanical Ventilation with Heat Recovery
(MVHR) ventilation units to tackle the challenges of overheating in
apartments. Adey launched a number of new products to expand their
range of performance enhancing heating system additives, including
the new MCXS leak sealant additive.
Robust price leadership and cost saving initiatives helped
Residential Systems deliver strong underlying operating profit
growth of 8.2% to GBP79.1m (2021: GBP73.1m) representing a 20.1%
margin (2021: 19.6%).
Commercial and Infrastructure Systems
The UK Commercial and Infrastructure markets proved to be a
tougher operating environment and the segment's revenue was 2.9%
higher at GBP227.9m (2021: GBP221.4m). On a like-for-like basis,
excluding the effects of the Plura acquisition in February 2021 and
the Keytec acquisition in March 2022, year-on-year revenue was
broadly flat.
Divisional performance was impacted in Q2 by an isolated cyber
incident that impacted Group profitability by over c.GBP4m at the
time. It was ultimately an unsuccessful attempt but resulted in
temporary disruption to manufacturing and sales in April and May.
We implemented new, stronger protection across the Group in the
first half and I am pleased to report that most of this business
was recovered in the second half of the year as systems came back
on stream. However, our Nuaire commercial business was further
impacted in the second half of the year by a shortage in supply of
key components such as blowers. Thanks to the arduous work and
ingenuity of our local teams, alternative sources of supply have
now been secured for 2023 and beyond, although difficulties
remain.
In Commercial and Infrastructure Systems, our Civils and Green
Urbanisation business launched SciClone X, a new stormwater
treatment device for removing pollutants from surface water
runoff.
We expanded our site at Horncastle via a land purchase that
allows optimisation of site layout and flexibility for any possible
future manufacturing footprint reviews. This site also commissioned
a new Polysewer line in 2022 with product due to be supplied from
early 2023 that will reduce carbon emissions by reducing
long-distance transportation. Material handling capabilities have
also been modernised using high efficiency vacuum pumps whilst
reducing the risk of material spillages. At our Aylesford site in
Kent, we made a major investment in multi-layer extrusion
technology, allowing us to significantly increase recyclate use,
propelling us on our journey towards the medium-term ESG target
that 62% of our input materials must come from recycled
sources.
Commercial and Infrastructure Systems delivered an underlying
operating profit of GBP19.1m (2021: GBP22.2m) and represents an
8.4% margin (2021: 10.0%). The key driver of reduced margin in the
year in this segment relates to operational leverage on reduced UK
volumes, particularly driven by constraints in supply of key
components.
ACQUISITIONS
On 31 March 2022, the Group acquired Keytec Geomembranes Holding
Company Limited (Keytec), a supplier and installer of stormwater
attenuation products, geomembranes, and gas protection products for
an initial cash consideration of GBP2.5m on a cash free and debt
free basis plus a deferred consideration of GBP0.6m due no later
than 12 months from completion. The total initial cash
consideration of GBP2.9m included a payment for net cash and
working capital commitments on completion of GBP0.4m.
NON-UNDERLYING ITEMS
Profit before tax was GBP45.4m (2021: GBP62.9m), impacted by an
increase in non-underlying items. These increased to GBP40.0m
(2021: GBP34.1m) after tax. These were driven by non-cash
amortisation of GBP15.2m (2021: GBP14.2m) and impairment charges of
GBP12.0m (2021: nil) respectively. The impaired goodwill originally
arose from the 2021 acquisitions and the GBP2.8m impairment of
intangible assets arose from a customer relationship agreement
ending early. Of the other items, GBP3.3m (2021: GBP6.6m) of costs
related to acquisitions and other M&A costs, a product
liability claim of GBP1.0m (2021: GBP2.6m), one off costs of
GBP1.2m relating to an isolated cyber incident at Nuaire and
restructuring costs of GBP9.3m (2021: GBP1.1m).
Non-underlying items comprised:
2022 2021
GBPm GBPm
---------------------------------------------- ----- -----
Amortisation of intangible assets 15.2 14.2
Impairment of goodwill 12.0 -
Impairment of intangible assets 2.8 -
Restructuring costs 9.3 1.1
Contingent consideration on Plura acquisition 3.1 1.9
Product liability claims 1.0 2.6
Isolated cyber incident 1.2 -
Unamortised deal costs 0.4 -
Acquisition costs 0.2 4.7
Fair value adjustments on acquisitions - 3.7
Non-underlying items before taxation 45.2 28.2
Tax effect on non-underlying items (5.2) (3.4)
Impact of change in statutory tax rate - 9.3
---------------------------------------------- ----- -----
Non-underlying items after taxation 40.0 34.1
---------------------------------------------- ----- -----
EXCHANGE RATES
The Group trades predominantly in Sterling but has some revenue
and costs in other currencies, mainly the US Dollar and the Euro,
and takes appropriate forward cover on these cash flows using
forward currency derivative contracts in accordance with its
hedging policy.
FINANCE COSTS
Underlying finance costs increased to GBP7.6m (2021: GBP4.2m)
due to significantly higher Standard Overnight Index Average
(SONIA) interest rates partially offset by lower level of RCF
borrowings . Interest cover was 16.0x for the year (2021:
31.3x).
Interest was payable on the RCF at SONIA (2021: LIBOR) plus an
interest rate margin ranging from 0.90% to 2.75%. The interest rate
margin at 31 December 2022 was 1.60% (2021: 1.40%). With effect
from 4 January 2022, LIBOR was replaced by SONIA.
Taxation
Underlying taxation:
The underlying tax charge in 2022 was GBP14.1m (2021: GBP16.0m)
representing an effective tax rate of 15.6% (2021: 17.6%). This was
below the UK standard tax rate of 19.0% (2021: 19.0%). Patent box
relief contributes to a lowering of the underlying effective tax
rate by some 1.8 percentage points.
Taxation on non-underlying items:
The non-underlying taxation credit of GBP5.2m (2021: GBP5.9m net
charge) represents an effective rate of 11.5% (2021: 20.9%).
EARNINGS PER SHARE
2022 2021
-------------------- ------ -----
Pence per share:
Basic 14.7 16.7
Underlying basic 30.8 30.6
Diluted 14.6 16.5
Underlying diluted 30.5 30.2
-------------------- ------ -----
The Directors consider that the underlying basic earnings per
share (EPS) measure provides a better and more consistent
indication of the Group's underlying financial performance and more
meaningful comparison with prior and future periods to assess
trends in our financial performance.
Underlying basic EPS increased by 0.7% in 2022.
Dividend
The final dividend of 8.2 pence (2021: 8.2 pence) per share is
being recommended for payment on 24 May 2023 to shareholders on the
register at the close of business on 21 April 2023. The ex-dividend
date will be 20 April 2023.
Our dividend policy is normally to pay a minimum of 40% of the
Group's annual underlying profit after tax. The Directors intend
that the Group will pay the total annual dividend in two tranches,
an interim dividend and a final dividend, to be announced at the
time of announcement of the interim and preliminary results,
respectively, with the interim dividend being approximately one
half of the prior year's final dividend.
Balance Sheet
The Group's balance sheet is summarised below:
2022 2021
GBPm GBPm
----------------------------------------------------------------------------------------- ------- -------
Property, plant and equipment 169.9 151.7
Right-of-use assets 22.3 20.6
Goodwill 455.4 467.7
Other intangible assets 159.7 175.1
Net working capital 33.8 22.0
Taxation (47.9) (47.4)
Other current and non-current assets and liabilities 0.1 (6.3)
Net debt (loans and borrowings, and lease liabilities, net of cash and cash equivalents) (166.2) (165.7)
Net assets 627.1 617.7
----------------------------------------------------------------------------------------- ------- -------
The net value of property, plant and equipment has increased by
GBP18.2m following the acquisition of additional land at one of our
sites and the Group's continued strategic investment in its
businesses. The value of right-of-use assets has increased by
GBP1.7m.
Pensions
The Group does not have any defined benefit pension schemes and
only has defined contribution pension arrangements in place.
Pension costs for the year amounted to GBP6.5m (2021: GBP5.4m)
reflecting the inclusion of the acquisitions made in the previous
year and an overall increase in the number of scheme
participants.
Cash Flow and Net Debt
The Group's cash flow statement is summarised below:
2022 2021
GBPm GBPm
------------------------------------------------------------------------ ------ -------
Operating cash flows before movement in net working capital 113.6 111.4
Add back non-underlying cash items 9.6 6.9
------------------------------------------------------------------------ ------ -------
Underlying operating cash flows before movement in net working capital 123.2 118.3
Movement in net working capital (19.7) (27.0)
Capital expenditure net of proceeds from sale (40.9) (34.1)
Underlying cash generated from operations after net capital expenditure 62.6 57.2
Income tax paid (7.0) (9.5)
Interest paid (3.7) (2.9)
Non-underlying cash items (9.6) (6.9)
Settlement of deferred and contingent consideration (0.5) -
Acquisition of businesses (2.6) (236.4)
Net proceeds from issue of share capital - 93.5
Debt issue costs (3.1) -
Dividends paid (30.5) (21.7)
Proceeds from exercise of share options net of purchase of own shares 0.4 2.1
Other (4.0) (5.7)
------------------------------------------------------------------------ ------ -------
Movement in net debt - excluding IFRS 16 2.0 (130.3)
Movement in IFRS 16 (2.5) (7.7)
------------------------------------------------------------------------ ------ -------
Movement in net debt - including IFRS 16 (0.5) (138.0)
------------------------------------------------------------------------ ------ -------
Delivery of good cash generation remains core to the Group's
strategy. Underlying cash generated from operations after net
capital expenditure at GBP62.6m (2021: GBP57.2m) represents a
conversion rate of 63.7% (2021: 60.0%). The Group remains committed
to achieving a conversion rate of 90.0% over the medium term.
Working capital movement in the year was driven by a rebuilding
of inventory to improve customer service performance following the
recovery in demand after the pandemic, as well as the effects of
cost inflation.
Net capital expenditure investment increased to GBP40.9m (2021:
GBP34.1m) as the Group continued to focus on investing in key,
strategic and innovative projects. In 2023, we anticipate that
capital expenditure will be approximately GBP40.0m.
Net debt of GBP166.2m comprised:
2022 2021 Change
GBPm GBPm GBPm
-------------------------------------------------- ------- ------- ------
Bank loans (195.9) (198.0) 2.1
Cash and cash equivalents 50.0 52.3 (2.3)
-------------------------------------------------- ------- ------- ------
Net debt (excluding unamortised debt issue costs) (145.9) (145.7) (0.2)
Unamortised debt issue costs 2.8 0.6 2.2
IFRS 16 (23.1) (20.6) (2.5)
-------------------------------------------------- ------- ------- ------
Net debt (166.2) (165.7) (0.5)
-------------------------------------------------- ------- ------- ------
FINANCING
The Group has a Sustainability Linked Loan ("SLL") committed
through to August 2027 with two further uncommitted annual renewals
through to August 2029 following a refinancing with the existing
bank syndicate during the year. The facility limit is GBP350.0m
with an uncommitted 'accordion' facility of up to GBP50.0m on top.
At 31 December 2022, GBP170.9m of the RCF was drawn down.
Additionally, the Group entered a fixed rate GBP25m seven-year
private placement loan note until August 2029 with an uncommitted
shelf facility of an additional GBP125m.
The Group is subject to two financial covenants. At 31 December
2022, there was significant headroom and facility interest cover
and net debt to EBITDA covenants were comfortably achieved:
Position at
Covenant Covenant requirement 31 December 2022
--------------- --------------------- -----------------
Interest cover >4.0:1 16.0:1
Leverage <3.0:1 1.2:1
--------------- ---------------------- -----------------
GOING CONCERN
The Group continues to meet its day-to-day working capital and
other funding requirements through a combination of long-term
funding and cash deposits. The Group's bank financing facilities
consist of a GBP350.0m Sustainability Linked Loan with an
uncommitted 'accordion' facility of GBP50.0m and a seven-year
private placement loan note of GBP25.0m with an uncommitted
GBP125.0m shelf facility. At 31 December 2022, liquidity headroom
(cash and undrawn committed banking facilities) was GBP229.1m
(2021: GBP154.3m). Our focus will continue to be on deleveraging,
and our net debt to EBITDA ratio stood at 1.2x pro forma EBITDA at
31 December 2022 (2021: 1.2x), increasing to 1.4x (2021: 1.4x) pro
forma EBITDA including the effects of IFRS 16. This headroom means
the Group is well-positioned with a strong balance sheet.
As a result, the Directors have satisfied themselves that the
Group has adequate financial resources to continue in operational
existence for a period of at least the next 21 months. Accordingly,
they continue to adopt the going concern basis in preparing the
consolidated financial statements.
Principal Risks and Uncertainties
The Board continually assesses and monitors the key risks of the
Business and the Group has developed a risk management framework to
identify, report, and manage its principal risks and uncertainties
. The principal risks and uncertainties that could have a material
impact on the Group's performance and prospects, and the mitigating
activities which are aimed at reducing the impact or likelihood of
a major risk materialising are those detailed in the Group's Annual
Report and Accounts. They have not changed significantly during the
year.
Forward-Looking Statements
This report contains various forward-looking statements that
reflect management's current views with respect to future events
and financial and operational performance. These forward-looking
statements involve known and unknown risks, uncertainties,
assumptions, estimates and other factors, which may be beyond the
Group's control, and which may cause actual results or performance
to differ materially from those expressed or implied from such
forward-looking statements. All statements (including
forward-looking statements) contained herein are made and reflect
knowledge and information available as of the date of preparation
of this report and the Group disclaims any obligation to update any
forward-looking statements, whether as a result of new information,
future events or results or otherwise. There can be no assurance
that forward-looking statements will prove to be accurate, as
actual results and future events could differ materially from those
anticipated in such statements. Accordingly, readers should not
place undue reliance on forward-looking statements due to the
inherent uncertainty therein. Nothing in this report should be
construed as a profit forecast.
Directors' Responsibilities
Each of the Directors confirms that, to the best of their
knowledge, the consolidated financial statements, prepared in
accordance UK-Adopted International Accounting Standards, give a
true and fair view of the assets, liabilities, financial position
and profit or loss of the Group and undertakings included in the
consolidation taken as a whole; and the Group Results, Chief
Executive Officer Review and Financial Review includes a fair
review of the development and performance of the business and the
position of the Group and undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
Annual General Meeting
The Annual General Meeting is scheduled to be held on 18 May
2023.
By order of the Board.
Joe Vorih Paul James
Chief Executive Officer Chief Financial Officer
Group income statement
FOR THE YEARED 31 DECEMBER 2022
2022 2021
-------------------------------- --------------------------------
Non- Non-
Underlying underlying Total Underlying underlying Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Revenue 2 622.2 - 622.2 594.3 - 594.3
Cost of sales 3 (372.1) (2.5) (374.6) (348.8) (6.5) (355.3)
--------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Gross profit 250.1 (2.5) 247.6 245.5 (6.5) 239.0
Selling and distribution
costs (81.5) - (81.5) (81.8) - (81.8)
Administration expenses 4 (70.2) (12.3) (82.5) (68.3) (7.5) (75.8)
--------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Trading profit 98.4 (14.8) 83.6 95.4 (14.0) 81.4
Amortisation of intangible
assets 4 (0.2) (15.2) (15.4) (0.1) (14.2) (14.3)
Impairment of intangible
assets 4 - (2.8) (2.8) - - -
Impairment of goodwill 4 - (12.0) (12.0) - - -
--------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Operating profit 2, 3 98.2 (44.8) 53.4 95.3 (28.2) 67.1
Finance costs 4, 5 (7.6) (0.4) (8.0) (4.2) - (4.2)
--------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Profit before tax 2 90.6 (45.2) 45.4 91.1 (28.2) 62.9
Income tax 6 (14.1) 5.2 (8.9) (16.0) (5.9) (21.9)
--------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Profit for the year attributable
to the owners of the parent
company 76.5 (40.0) 36.5 75.1 (34.1) 41.0
--------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Basic earnings per share
(pence) 7 14.7 16.7
--------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Diluted earnings per share
(pence) 7 14.6 16.5
--------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Dividend per share (pence)
- interim 8 4.1 4.0
Dividend per share (pence)
- final 8 8.2 8.2
--------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
8 12.3 12.2
--------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Group statement of comprehensive income
for the year ended 31 december 2022
2022 2021
GBPm GBPm
----------------------------------------------------------------------------------------- ----- -----
Profit for the year attributable to the owners of the parent company 36.5 41.0
----------------------------------------------------------------------------------------- ----- -----
Other comprehensive income:
Items which may be reclassified subsequently to the income statement:
Exchange differences on translation of foreign operations - (0.4)
Effective portion of changes in fair value of forward foreign currency derivatives 0.1 (0.1)
Tax relating to items which may be reclassified subsequently to the income statement - -
----------------------------------------------------------------------------------------- ----- -----
Other comprehensive income for the year net of tax 0.1 (0.5)
----------------------------------------------------------------------------------------- ----- -----
Total comprehensive income for the year attributable to the owners of the parent company 36.6 40.5
----------------------------------------------------------------------------------------- ----- -----
Group balance sheet
at 31 december 2022
31 December 2022 31 December 2021
Notes GBPm GBPm
-------------------------------------- ----- ---------------- ----------------
Non-current assets
Property, plant and equipment 9 169.9 151.7
Right-of-use assets 10 22.3 20.6
Intangible assets 11 615.1 642.8
-------------------------------------- ----- ---------------- ----------------
Total non-current assets 807.3 815.1
-------------------------------------- ----- ---------------- ----------------
Current assets
Inventories 89.9 80.8
Trade and other receivables 68.1 76.7
Income tax receivable 2.2 1.1
Cash and cash equivalents 50.0 52.3
Assets held for sale 10.7 -
-------------------------------------- ----- ---------------- ----------------
Total current assets 220.9 210.9
-------------------------------------- ----- ---------------- ----------------
Total assets 1,028.2 1,026.0
-------------------------------------- ----- ---------------- ----------------
Current liabilities
Trade and other payables 13 (124.2) (135.5)
Lease liabilities 13 (5.8) (4.5)
Deferred and contingent consideration 13 - (0.5)
Liabilities held for sale 13 (2.6) (0.1)
Total current liabilities (132.6) (140.6)
-------------------------------------- ----- ---------------- ----------------
Non-current liabilities
Loans and borrowings 13 (193.1) (197.4)
Lease liabilities 13 (17.3) (16.1)
Deferred and contingent consideration 13 (8.0) (4.3)
Other liabilities 13 - (1.4)
Deferred income tax liabilities (50.1) (48.5)
-------------------------------------- ----- ---------------- ----------------
Total non-current liabilities (268.5) (267.7)
-------------------------------------- ----- ---------------- ----------------
Total liabilities (401.1) (408.3)
-------------------------------------- ----- ---------------- ----------------
Net assets 627.1 617.7
-------------------------------------- ----- ---------------- ----------------
Capital and reserves
Equity share capital 0.2 0.2
Share premium 93.6 93.6
Capital redemption reserve 1.1 1.1
Hedging reserve - (0.1)
Other reserves 116.5 116.5
Retained earnings 415.7 406.4
-------------------------------------- ---------------- ----------------
Total equity 627.1 617.7
-------------------------------------- ----- ---------------- ----------------
Group statement of changes in equity
for the year ended 31 december 2022
Foreign
Equity Capital currency
share Share redemption Hedging retranslation Other Retained Total
capital premium reserve reserve reserve reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- -------- --------- ----------- -------- -------------- ---------- --------- -------
At 31 December
2020 0.2 - 1.1 - 0.4 116.5 382.7 500.9
--------------------- -------- --------- ----------- -------- -------------- --------- -------
Profit for the
year - - - - - - 41.0 41.0
Other comprehensive
income - - - (0.1) (0.4) - - (0.5)
--------------------- -------- --------- ----------- -------- -------------- ---------- --------- -------
Total comprehensive
income for the
year - - - (0.1) (0.4) - 41.0 40.5
--------------------- -------- --------- ----------- -------- -------------- ---------- --------- -------
Dividends paid - - - - - - (21.7) (21.7)
Issue of share
capital - 96.3 - - - - - 96.3
Transaction costs
on issue of share
capital - (2.7) - - - - - (2.7)
Share-based payments
charge - - - - - - 2.2 2.2
Share-based payments
settled - - - - - - 2.1 2.1
Share-based payments
excess tax benefit - - - - - - 0.1 0.1
--------------------- -------- --------- ----------- -------- -------------- ---------- --------- -------
At 31 December
2021 0.2 93.6 1.1 (0.1) - 116.5 406.4 617.7
--------------------- -------- --------- ----------- -------- -------------- ---------- --------- -------
Profit for the
year - - - - - - 36.5 36.5
Other comprehensive
income - - - 0.1 - - - 0.1
--------------------- -------- --------- ----------- -------- -------------- ---------- --------- -------
Total comprehensive
income for the
year - - - 0.1 - - 36.5 36.6
-------- --------- ----------- -------- -------------- ---------- --------- -------
Dividends paid - - - - - - (30.5) (30.5)
Share-based payments
charge - - - - - - 2.9 2.9
Share-based payments
settled - - - - - - 0.4 0.4
Share-based payments
excess tax benefit - - - - - - - -
--------------------- -------- --------- ----------- -------- -------------- ---------- --------- -------
At 31 December
2022 0.2 93.6 1.1 - - 116.5 415.7 627.1
--------------------- -------- --------- ----------- -------- -------------- ---------- --------- -------
Group cash flow statement
for the year ended 31 december 2022
2022 2021
Notes GBPm GBPm
--------------------------------------------------------------------- ----- ------- -------
Operating activities
Profit before tax 45.4 62.9
Finance costs 5 8.0 4.2
--------------------------------------------------------------------- ----- ------- -------
Operating profit 53.4 67.1
Non-cash items:
Profit on disposal of property, plant and equipment (0.7) (0.2)
Transaction costs on issue of share capital - 0.1
Research and development expenditure credit (1.2) (2.0)
Warranty provision release (1.0) -
Non-underlying items:
- amortisation of intangible assets arising on business combinations 4 15.2 14.2
- impairment of intangible assets arising on business combinations 4 2.8 -
- impairment of goodwill arising on business combinations 4 12.0 -
- provision for acquisition costs 4 3.3 6.6
- unwind of inventory fair value adjustment 4 - 3.7
- provision for restructuring costs 4 9.3 1.1
- provision for product liability claim 4 1.0 2.6
- Isolated cyber incident 4 1.2 -
Depreciation of property, plant and equipment 9 19.4 18.4
Depreciation of right-of-use assets 10 5.4 4.4
Amortisation of internally generated intangible assets 0.2 0.1
Share-based payments 2.9 2.2
Cash items:
- settlement of acquisition costs (0.2) (6.9)
- settlement of restructuring costs (8.2) -
- settlement of isolated cyber incident (1.2) -
--------------------------------------------------------------------- ----- ------- -------
Operating cash flows before movement in working capital 113.6 111.4
Movement in working capital:
Receivables 7.8 (0.9)
Payables (10.4) (6.2)
Inventories (17.1) (19.9)
--------------------------------------------------------------------- ----- ------- -------
Cash generated from operations 93.9 84.4
Income tax paid (7.0) (9.5)
--------------------------------------------------------------------- ----- ------- -------
Net cash flows from operating activities 86.9 74.9
--------------------------------------------------------------------- ----- ------- -------
Investing activities
Settlement of deferred and contingent consideration (0.5) -
Acquisition of businesses net of cash at acquisition (2.6) (236.4)
Proceeds from disposal of property, plant and equipment 2.9 0.5
Purchase of property, plant and equipment (41.1) (33.1)
Patent and development costs expenditure (2.7) (1.5)
-------
Net cash flows from investing activities (44.0) (270.5)
--------------------------------------------------------------------- ----- -------
Financing activities
Issue of share capital - 96.3
Transaction costs on issue of share capital - (2.8)
Debt issue costs (3.1) -
Drawdown of bank loan 266.2 148.0
Repayment of bank loan (268.3) (10.0)
Interest paid (3.7) (2.9)
Dividends paid 8 (30.5) (21.7)
Proceeds from exercise of share options 0.4 2.1
Settlement of lease liabilities 10 (6.2) (5.1)
--------------------------------------------------------------------- ----- ------- -------
Net cash flows from financing activities (45.2) 203.9
--------------------------------------------------------------------- ----- ------- -------
Net change in cash and cash equivalents (2.3) 8.3
--------------------------------------------------------------------- ----- ------- -------
Cash and cash equivalents at 1 January 52.3 44.1
Net foreign exchange difference - (0.1)
--------------------------------------------------------------------- ----- ------- -------
Cash and cash equivalents at 31 December 50.0 52.3
--------------------------------------------------------------------- ----- ------- -------
1. Basis of preparation
The preliminary results for the year ended 31 December 2022 have
been prepared in accordance with UK-Adopted International
Accounting Standards (UK-Adopted IAS). Whilst the financial
information included in this preliminary announcement has been
computed in accordance with the recognition and measurement
requirements of IFRS, this announcement does not itself contain
sufficient information to comply with IFRS. The accounting policies
adopted have been consistently applied in all material aspects to
all the periods presented.
The financial information set out in this announcement does not
constitute the statutory accounts for the Group within the meaning
of Section 435 of the Companies Act 2006. The statutory accounts
for the year ended 31 December 2021 have been filed with the
Registrar of Companies. The statutory accounts for the year ended
31 December 2022 will be filed in due course. The auditor's report
on these accounts was not qualified or modified and did not contain
any statement under Sections 498(2) or (3) of the Companies Act
2006 or any preceding legislation.
There were no accounting standards or interpretations that have
become effective in the current reporting period which had an
impact on disclosures, financial position or performance.
The Directors have made enquiries into the adequacy of the
Group's financial resources, through a review of the Group's budget
and medium-term financial plan, including cash flow forecasts. The
Group has modelled a range of scenarios, with the base forecast
being one in which, over the 24 months ending 31 December 2024,
sales volumes grow in line with or moderately above external
construction industry forecasts.
In addition, the Directors have considered several downside
scenarios, including adjustments to the base forecast, a period of
significantly lower like-for-like sales, profitability and cash
flows. Consistent with our Principal Risks and Uncertainties these
downside scenarios included, but were not limited to, loss of
production, loss of a major customer, product failure, recession,
increases in interest rates and increases in raw material prices.
Downside scenarios also included a combination of these risks, and
reverse stress testing. The Directors have considered the impact of
climate-related matters on the going concern assessment and it is
not expected to have a significant impact on the Group's going
concern.
At 31 December 2022, the Group had available GBP179.1m of
undrawn committed borrowing facilities in respect of which all
conditions precedent had been met. The Group's borrowing
facilities, which were originally due to expire in November 2023,
were renewed on 10 August 2022 and included an increase in the RCF
facility of GBP50.0m to GBP350.0m available until at least August
2027, subject to covenant headroom, and a seven-year private
placement loan note of GBP25.0m repayable August 2029. The
Directors are satisfied that the Group has sufficient liquidity and
covenant headroom to withstand reasonable variances to the base
forecast, as well as the downside scenarios. In addition, the
Directors have noted the range of possible additional liquidity
options available to the Group, should they be required.
As a result, the Directors have satisfied themselves that the
Group has adequate financial resources to continue in operational
existence for a period of at least the next 21 months. Accordingly,
they continue to adopt the going concern basis in preparing the
consolidated financial statements.
There have been no related party transactions in the period to
31 December 2022.
Four non-statutory measures have been used in preparing the
condensed set of consolidated financial statements:
-- Underlying profit and earnings measures exclude certain
non-underlying items and , where relevant, the tax effect of these
items. The Directors consider that these measures provide a better
and more consistent indication of the Group's underlying financial
performance and more meaningful comparison with prior and future
periods to assess trends in our financial performance.
-- Underlying cash generated from operations is defined as cash
generated from operations, adjusted for non-underlying cash items,
after movement in net working capital and capital expenditure net
of proceeds from disposals of property, plant and equipment.
-- Pro forma EBITDA is defined as underlying operating profit
before depreciation and amortisation for the 12 months preceding
the balance sheet date, adjusted, where relevant, to include a full
year of EBITDA from acquisitions made during those 12 months .
-- Leverage is defined as net debt divided by pro forma EBITDA.
Net debt within the leverage calculation is defined as loans and
borrowings net of unamortised issue costs less cash and cash
equivalents, excluding the effects of IFRS 16 .
2. Segment information
IFRS 8, Operating Segments, requires operating segments to be
identified based on the internal financial information reported to
the Chief Operating Decision Maker (CODM). The Group's CODM is
deemed to be the Board of Directors, who are primarily responsible
for the allocation of resources to segments and the assessment of
performance of the segments.
The Group has two reporting segments - Residential Systems and
Commercial and Infrastructure Systems. The reporting segments sell
products which are unique to that segment, and products which are
common to both segments. They are however organised and
distinguished as separate reporting segments based on the nature of
the end markets served. Inter-segment sales are on an arm's length
basis in a manner similar to transactions with third parties.
During the period one acquired business was added to the Commercial
and Infrastructure Systems segment (see Note 12).
2022 2021
Commercial & Commercial &
Residential Infrastructure Infrastructure
Systems Systems Total Residential Systems Systems Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ------------------ ------------------ -------- ------------------- ------------------ ------
Segmental revenue 400.4 238.6 639.0 378.0 231.8 609.8
Inter-segment
revenue (6.1) (10.7) (16.8) (5.1) (10.4) (15.5)
------------------- ------------------ ------------------ -------- ------------------- ------------------ ------
Revenue 394.3 227.9 622.2 372.9 221.4 594.3
------------------- ------------------ ------------------ -------- ------------------- ------------------ ------
Underlying
operating profit * 79.1 19.1 98.2 73.1 22.2 95.3
Non-underlying
items - segmental (31.2) (9.3) (40.5) (18.5) (8.8) (27.3)
------------------- ------------------ ------------------ -------- ------------------- ------------------ ------
Segmental operating
profit 47.9 9.8 57.7 54.6 13.4 68.0
Non-underlying
items - Group (4.3) (0.9)
------------------- ------------------ ------------------ -------- ------------------- ------------------ ------
Operating profit 53.4 67.1
Non-underlying
items - finance (0.4) -
costs
Finance costs (7.6) (4.2)
------------------- ------------------ ------------------ -------- ------------------- ------------------ ------
Profit before tax 45.4 62.9
------------------- ------------------ ------------------ -------- ------------------- ------------------ ------
* Underlying operating profit is stated before non-underlying
items as defined in the Group Accounting Policies in the Annual
Report and Accounts and is the measure of segment profit used by
the Group's CODM. Details of the non-underlying items of GBP45.2m
(2021: GBP28.2m) are set out below at non-underlying items before
tax.
Geographical analysis
2022 2021
Revenue by destination GBPm GBPm
----------------------- ----- -----
UK 560.8 534.1
Rest of Europe 32.4 38.3
Rest of World 29.0 21.9
----------------------- ----- -----
Total - Group 622.2 594.3
----------------------- ----- -----
3. Operating profit
2022 2021
GBPm GBPm
------------------------------------------------------ ----- -----
Income statement charges
Depreciation of property, plant and equipment (owned) 19.4 18.4
Depreciation of right-of-use assets 5.4 4.4
Cost of inventories recognised as an expense 318.3 290.4
Research and development costs expensed 8.8 8.8
------------------------------------------------------ ----- -----
Income statement credits
Research and development expenditure credit 1.2 2.0
Profit on disposal of property, plant and equipment 0.7 0.2
------------------------------------------------------ ----- -----
4. Non-underlying items
Non-underlying items comprised:
2022 2021
Gross Tax Net Gross Tax Net
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------------------------------------- ----- ----- ----- ----- ----- -----
Cost of sales: Unwind of inventory fair value adjustment - - - 3.7 - 3.7
Cost of sales:
Restructuring costs - - - 0.2 - 0.2
Cost of sales: Restructuring costs - stock write down 1.5 (0.3) 1.2 - - -
Cost of sales:
Product liability claim 1.0 - 1.0 2.6 (0.5) 2.1
Administration expenses: Isolated cyber incident 1.2 (0.2) 1.0 - - -
Administration expenses: Acquisition costs - acquisition and other M&A
activity 3.3 - 3.3 6.6 - 6.6
Administration expenses: Restructuring costs 7.8 (1.5) 6.3 0.9 (0.2) 0.7
Amortisation of intangible assets 15.2 (2.6) 12.6 14.2 6.6 20.8
Impairment of intangible assets 2.8 (0.5) 2.3 - - -
Impairment of Goodwill 12.0 - 12.0 - - -
Finance costs: Unamortised deal fees 0.4 (0.1) 0.3 - - -
----- ----- -----
Total non-underlying items 45.2 (5.2) 40.0 28.2 5.9 34.1
---------------------------------------------------------------------------- ----- ----- ----- ----- ----- -----
Restructuring costs incurred in relation to the reorganisation
of the group. This included an inventory write down for items
immediately taken off the market, that do not sit within the new
Genuit product strategy and on this basis the inventory holding was
deemed obsolete, a closure of a business and the reorganisation of
the segmental units and consultancy fees for advisory support and
organisation design.
The product liability claim is associated with a historic
acquisition, including the prior year charge recognised in
non-underlying costs, this takes the total amount recognised as a
liability on the balance sheet at 31 December 2022 to GBP3.3m.
During 2022 there was an isolated cyber incident at one of the
Group's businesses, which resulted in temporary disruption to
manufacturing and sales in April and May 2022.
Acquisition costs in 2022 relate predominantly to a GBP3.1m
charge arising in connection with contingent consideration treated
as remuneration in respect of the acquisition of Plura as detailed
in see note 12. Acquisition costs in 2021 related to the
acquisitions of Nu-Heat, Plura and Adey as detailed in note 12.
Impairment of intangible assets (GBP2.8m) is in respect to a
customer relationship agreement ending early and impairment of
goodwill relates to a 2021 acquisition (see note 12).
Amortisation charge relates to intangible assets arising on
business combinations. In 2021 the non-underlying tax charge
relating to amortisation included a GBP9.3m charge in respect of
restating the deferred income tax liability on the intangible
assets as a result of the change in the main UK corporation tax
rate (see note 6).
5. Finance costs
2022 2021
GBPm GBPm
---------------------------------------- ----- -----
Interest on bank loan 6.2 2.5
Debt issue cost amortisation 0.5 0.5
Unwind of discount on lease liabilities 0.8 0.7
Other finance costs 0.1 0.5
---------------------------------------- -----
7.6 4.2
---------------------------------------- ----- -----
6. Income tax
(a) Tax expense reported in the income statement
2022 2021
GBPm GBPm
--------------------------------------------------- ----- -----
Current income tax:
UK income tax 7.7 9.5
Overseas income tax 0.1 0.5
--------------------------------------------------- ----- -----
Current income tax 7.8 10.0
Adjustment in respect of prior years (0.5) 0.4
--------------------------------------------------- ----- -----
Total current income tax 7.3 10.4
--------------------------------------------------- ----- -----
Deferred income tax:
Origination and reversal of temporary differences 0.4 (1.3)
Effects of changes in income tax rates 1.3 11.7
--------------------------------------------------- ----- -----
Deferred income tax 1.7 10.4
Adjustment in respect of prior years (0.1) 1.1
--------------------------------------------------- ----- -----
Total deferred income tax 1.6 11.5
--------------------------------------------------- ----- -----
Total tax expense reported in the income statement 8.9 21.9
--------------------------------------------------- ----- -----
Details of the non-underlying tax credit of GBP5.2m (2021:
GBP5.9m net charge) are set out in Note 4.
(b) Reconciliation of the total tax expense
A reconciliation between the tax expense and the product of
accounting profit multiplied by the UK standard rate of income tax
for the years ended 31 December 2022 and 2021 is as follows:
2022 2021
GBPm GBPm
-------------------------------------------------------------------------------------------- ----- -----
Accounting profit before tax 45.4 62.9
-------------------------------------------------------------------------------------------- ----- -----
Accounting profit multiplied by the UK standard rate of income tax of 19.0% ( 2021 : 19.0%) 8.6 12.0
Expenses not deductible for income tax 3.4 1.8
Non-taxable income (0.4) (1.0)
Adjustment in respect of prior years (0.6) 1.5
Effects of patent box (1.6) (1.6)
Effects of changes in income tax rates - 11.4
Effects of tax losses 1.3 (1.1)
Effects of super deduction (1.8) (0.6)
Effects of other tax rates/credits - (0.5)
-------------------------------------------------------------------------------------------- ----- -----
Total tax expense reported in the income statement 8.9 21.9
-------------------------------------------------------------------------------------------- ----- -----
The effective rate for the full year was 19.6% (2021: 34.8%). If
the impact of non-underlying items is excluded, the underlying
income tax rate would be 15.6% (2021: 17.6%).
(c) Deferred income tax
The deferred income tax included in the Group balance sheet is
as follows :
31 December 2022 31 December 2021
GBPm GBPm
--------------------------------------------- ---------------- ----------------
Deferred income tax liabilities/(assets)
Short-term timing differences 37.8 41.3
Capital allowances in excess of depreciation 16.9 11.1
Share-based payments (2.1) (2.3)
Tax losses (2.5) (1.6)
--------------------------------------------- ---------------- ----------------
50.1 48.5
--------------------------------------------- ---------------- ----------------
The Group offsets tax assets and liabilities if, and only if, it
has a legally enforceable right to offset current income tax assets
and current income tax liabilities and the deferred income tax
assets and deferred income tax liabilities relate to income taxes
levied by the same tax authority.
A reconciliation of deferred income taxes for the years ended 31
December 2022 and 2021 is as follows:
2022 2021
GBPm GBPm
----------------------------------------------------------- ----- -----
Deferred income tax reported in the income statement 1.7 11.5
Deferred income tax reported in other comprehensive income - -
Share-based payments excess tax benefit (0.1) (0.1)
Deferred income tax acquired - 26.3
1.6 37.7
----------------------------------------------------------- ----- -----
(d) Change in corporation tax rate
The Finance (No.2) Act 2015 reduced the main UK corporation tax
rate to 19%, effective from 1 April 2017. A further reduction in
the main UK corporation tax rate to 17% was expected to come into
effect from 1 April 2020 (as enacted by the Finance Act 2016 on 15
September 2016). However, legislation introduced in the Finance Act
2020 (enacted on 22 July 2020) repealed the reduction of the rate,
thereby maintaining the current rate of 19%.
On 24 May 2021, legislation was passed which substantively
enacted an increase in UK corporation tax rate from 19% to 25% from
April 2023. Deferred income tax on the balance sheet at 31 December
2022 was therefore measured at 19% or 25% depending on when the
deferred income tax asset or liability is expected to reverse.
(e) Unrecognised tax losses
No deferred income tax has been recognised on non-trading losses
and other timing differences of GBP1.3m (2021: GBP1.4m) as the
Directors do not consider that they will be utilised in the
foreseeable future.
7. Earnings per share
Basic earnings per share amounts are calculated by dividing
profit for the year attributable to the owners of the parent
company by the weighted average number of ordinary shares
outstanding during the year. The diluted earnings per share amounts
are calculated by dividing profit for the year attributable to the
owners of the parent company by the weighted average number of
ordinary shares outstanding during the year plus the weighted
average number of potential ordinary shares that would be issued on
the conversion of all the dilutive share options into ordinary
shares.
The calculation of basic and diluted earnings per share is based
on the following:
2022 2021
----------------------------------------------------------------------------------------- ------------- -----------
Weighted average number of ordinary shares for the purpose of basic earnings per share 248,001,063 245,097,578
Effect of dilutive potential ordinary shares 2,414,364 3,168,838
----------------------------------------------------------------------------------------- ------------- -----------
Weighted average number of ordinary shares for the purpose of diluted earnings per share 250,415,426 248,266,416
----------------------------------------------------------------------------------------- ------------- -----------
Underlying earnings per share is based on the result for the
year after tax excluding the impact of non-underlying items of
GBP40.0m (2021: GBP34.1m). The Directors consider that this measure
provides a better and more consistent indication of the Group's
underlying financial performance and more meaningful comparison
with prior and future periods to assess trends in our financial
performance. The underlying earnings per share is calculated as
follows:
2022 2021
--------------------------------------------------------------------------------------- ------ ----
Underlying profit for the year attributable to the owners of the parent company (GBPm) 76.5 75.1
--------------------------------------------------------------------------------------- ------ ----
Underlying basic earnings per share (pence) 30.8 30.6
--------------------------------------------------------------------------------------- ------ ----
Underlying diluted earnings per share (pence) 30.5 30.2
--------------------------------------------------------------------------------------- ------ ----
8. Dividend per share
2022 2021
GBPm GBPm
------------------------------------------------------------------------------------------- ----- -----
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2021 of 8.2p per share (2020: 4.8p) 20.3 11.8
Interim dividend for the year ended 31 December 2022 of 4.1p per share (2021: 4.0p) 10.2 9.9
------------------------------------------------------------------------------------------- ----- -----
30.5 21.7
------------------------------------------------------------------------------------------- ----- -----
Proposed final dividend for the year ended 31 December 2022 of 8.2p per share (2021: 8.2p) 20.3 20.3
------------------------------------------------------------------------------------------- ----- -----
The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting and has not been
included as a liability in these consolidated financial
statements.
9. Property, plant and equipment
Freehold Plant
land and and other
buildings equipment Total
GBPm GBPm GBPm
--------------------------------- ---------- ---------- ------
Cost
At 1 January 2021 54.3 160.4 214.7
Additions 3.9 28.9 32.8
Disposals (1.0) (7.7) (8.7)
Transfer to intangible assets - (0.8) (0.8)
Acquisition of businesses 1.2 3.0 4.2
Exchange adjustment - (0.3) (0.3)
--------------------------------- ---------- ---------- ------
At 31 December 2021 58.4 183.5 241.9
Additions 4.9 36.1 41.0
Disposals (0.1) (10.6) (10.7)
Acquisition of businesses - 0.4 0.4
Exchange adjustment - 0.4 0.4
Transfer to assets held for sale - (6.4) (6.4)
--------------------------------- ---------- ---------- ------
At 31 December 2022 63.2 203.4 266.6
--------------------------------- ---------- ---------- ------
At 1 January 2021 8.5 72.0 80.5
Provided during the year 1.6 16.8 18.4
Disposals (1.0) (7.4) (8.4)
Transfer to intangible assets - (0.1) (0.1)
Exchange adjustment - (0.2) (0.2)
At 31 December 2021 9.1 81.1 90.2
--------------------------------- ---------- ---------- ------
Provided during the year 1.7 17.7 19.4
Disposals - (8.7) (8.7)
Exchange adjustment - (0.2) (0.2)
Transfer to assets held for sale - (4.0) (4.0)
--------------------------------- ---------- ---------- ------
At 31 December 2022 10.8 85.9 96.7
--------------------------------- ---------- ---------- ------
Net book value
At 31 December 2022 52.4 117.5 169.9
--------------------------------- ---------- ---------- ------
At 31 December 2021 49.3 102.4 151.7
--------------------------------- ---------- ---------- ------
Included in freehold land and buildings is non-depreciable land
of GBP18.2m (2021: GBP17.7m).
Capital commitments
At 31 December 2022, the Group had commitments of GBP2.8m (2021:
GBP5.4m) relating to plant and equipment purchases.
10. Right-of-use assets and lease liabilities
Freehold land and Plant and other
buildings equipment Motor vehicles Total Lease liabilities
GBPm GBPm GBPm GBPm GBPm
----------------------- ---------------------- ---------------------- --------------- ------ ------------------
At 1 January 2021 5.9 6.9 0.1 12.9 (12.9)
Additions 2.9 2.5 - 5.4 (5.4)
Acquisition of
businesses 6.0 0.8 - 6.8 (6.8)
Depreciation (2.1) (2.3) - (4.4) -
Unwind of discount - - - - (0.7)
Settlements - - - - 5.1
Exchange adjustment - (0.1) - (0.1) 0.1
----------------------- ---------------------- ---------------------- --------------- ------ ------------------
At 31 December 2021 12.7 7.8 0.1 20.6 (20.6)
Additions 3.2 3.8 1.1 8.1 (8.2)
Disposals (0.5) (0.6) - (1.1) -
Depreciation of
right-of-use assets (2.2) (2.7) (0.5) (5.4) -
Depreciation on
disposal of right -
of - use asset 0.1 0.4 - 0.5 -
Transfer to assets
held for sale (0.4) - - (0.4) 0.3
Unwind of discount on
lease liabilities - - - - (0.8)
Settlement of lease
liabilities - - - - 6.2
At 31 December 2022 12.9 8.7 0.7 22.3 (23.1)
----------------------- ---------------------- ---------------------- --------------- ------ ------------------
11. Intangible assets
Brand Customer Customer Development
Goodwill Patents names relationships Licences order book costs Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ -------- ------- ------ -------------- -------- ----------- ----------- -------
Cost
At 1 January 2021 345.4 34.4 30.3 17.4 0.8 - - 428.3
Additions - 0.3 - - - - 1.2 1.5
Transfer from tangible assets - - - - - - 0.8 0.8
Acquisition of businesses 122.3 4.8 36.2 96.9 - 0.9 - 261.1
------------------------------ -------- ------- ------ -------------- -------- ----------- ----------- -------
At 31 December 2021 467.7 39.5 66.5 114.3 0.8 0.9 2.0 691.7
Additions - 0.5 - - - - 2.3 2.8
Acquisition of businesses 2.9 - - - - - - 2.9
Transfer to Assets held for
sale (3.2) - - - - - - (3.2)
At 31 December 2022 467.4 40.0 66.5 114.3 0.8 0.9 4.3 694.2
------------------------------ -------- ------- ------ -------------- -------- ----------- ----------- -------
Amortisation and impairment
losses
At 1 January 2021 - 12.1 14.3 7.9 0.2 - - 34.5
Charge for the year - 3.3 4.9 5.5 0.1 0.4 0.1 14.3
Transfer from tangible assets - - - - - - 0.1 0.1
------------------------------ -------- ------- ------ -------------- -------- ----------- ----------- -------
At 31 December 2021 - 15.4 19.2 13.4 0.3 0.4 0.2 48.9
Charge for the year - 3.4 5.1 6.1 0.1 0.5 0.2 15.4
Impairment losses 12.0 - - 2.8 - - - 14.8
------------------------------ -------- ------- ------ -------------- -------- ----------- ----------- -------
At 31 December 2022 12.0 18.8 24.3 22.3 0.4 0.9 0.4 79.1
------------------------------ -------- ------- ------ -------------- -------- ----------- ----------- -------
Net book value
At 31 December 2022 455.4 21.2 42.2 92.0 0.4 - 3.9 615.1
------------------------------ -------- ------- ------ -------------- -------- ----------- ----------- -------
At 31 December 2021 467.7 24.1 47.3 100.9 0.5 0.5 1.8 642.8
------------------------------ -------- ------- ------ -------------- -------- ----------- ----------- -------
11. Intangible assets (continued)
Goodwill arising on the acquisition of Keytec Geomembranes
Limited was increased by GBP2.9m as detailed in Note 12.
Impairment testing of goodwill
Goodwill is not amortised but is subject to annual impairment
testing. Goodwill has been allocated for impairment testing
purposes to a number of cash-generating units (CGUs) which
represent the lowest level in the Group at which goodwill is
monitored for internal management purposes. The carrying amount of
goodwill allocated to each of the CGUs is as follows:
31 December 2022 31 December 2021
CGU GBPm GBPm
---------------------------------------- ---------------- ----------------
Building Services & International 30.4 33.6
Infrastructure & Landscape 43.6 40.7
Residential Systems 169.6 169.6
Ventilation & Climate 93.7 93.7
Adey 92.8 104.8
Nu-Heat 17.3 17.3
Others (comprising Surestop and Ulster) 8.0 8.0
---------------------------------------- ---------------- ----------------
455.4 467.7
---------------------------------------- ---------------- ----------------
At 31 December 2022 GBP3.2m of goodwill has been allocated to
assets held for sale from the Building Services & International
CGU, in relation to Polypipe Italia SRL.
Impairment tests on the carrying amounts of goodwill are
performed by analysing the carrying amount allocated to each CGU
against its value-in-use. Value-in-use is calculated for each CGU
as the net present value of that CGU's discounted future pre-tax
cash flows covering a 5-year period. These pre-tax cash flows are
based on budgeted cash flows information for a period of one year,
construction industry forecasts of growth for the following year
and managements forecast of growth between 2.0% to 5.0% for years 3
to 5 (2021: 2.74% to 2.80%). Terminal growth rates of 2% (2021: 2%)
have been applied beyond this, based on historical macroeconomic
performance and projections of the sector served by the CGUs.
When assessing for impairment of goodwill, management have
considered the impact of climate change, particularly in the
context of the risks and opportunities, and have not identified any
material short-term impacts from climate change that would impact
the carrying value of goodwill. Over the longer term, the risks and
opportunities are more uncertain, and management will continue to
assess the quantitative impact of risks at each reporting
period.
A pre-tax discount rate of 12.9% (2021: 10.4%) has been applied
in determining the recoverable amounts of CGUs. The pre-tax
discount rate is estimated based on the Group's risk adjusted cost
of capital.
The Group has applied sensitivities to assess whether any
reasonably possible changes in assumptions could cause an
impairment that would be material to these consolidated financial
statements. Due to a removal of longer term overseas strategic
growth opportunities and increasing cashflow risks, ongoing
headwinds from the upstream boiler manufacturing shortages driven
by a global lack of printed circuit boards and the significantly
increased pre-tax discount rate there has been a reduction in the
value in use of the Adey CGU. This has resulted in an impairment
charge of GBP12.0m in the year to reflect that the discounted
present value of future cash flows did not support the full
carrying value of the asset. As an impairment loss has been
recognised in Adey in the current year, the recoverable amount is
equal to its carrying value at the year end and therefore any
negative changes in key assumptions would result in the recognition
of an additional impairment loss.
12. Acquisitions
Acquisition-related deferred and contingent consideration
comprised:
31 December 31 December
2022 2021
GBPm GBPm
----------------------------------------------------------- ----------- -----------
Deferred consideration on Keytec acquisition 0.6 -
Deferred and contingent consideration on Plura acquisition 7.4 4.3
Contingent consideration on Permavoid acquisition - 0.5
----------------------------------------------------------- ----------- -----------
8.0 4.8
----------------------------------------------------------- ----------- -----------
Acquisition-related cash flows comprised:
2022 2021
GBPm GBPm
------------------------------------------------------- ----- -----
Operating cash flows - settlement of acquisition costs
Nu-Heat - 0.6
Plura 0.1 0.7
Adey - 3.1
Permavoid - 2.5
Keytec 0.1 -
------------------------------------------------------- ----- -----
0.2 6.9
------------------------------------------------------- ----- -----
2022 2021
GBPm GBPm
------------------------------------ ------------------- -------------------
Investing cash flows - settlement of deferred and contingent consideration
Permavoid 0.5 -
------------------------------------ ------------------- -------------------
0.5 -
------------------------------------ ------------------- -------------------
2022 2021
GBPm GBPm
---------------------------------------------------- ------------ ------------
Investing cash flows - acquisition of businesses net of cash at acquisition
Keytec 2.6 -
Nu-Heat - 25.8
Plura - 1.8
Adey - 208.6
Tree Ground Solutions - 0.2
---------------------------------------------------- ------------ ------------
2.6 236.4
---------------------------------------------------- ------------ ------------
Keytec:
On 31 March 2022, the Group acquired 100% of the voting rights
and shares of Keytec Geomembranes Holding Company Limited (Keytec),
for an initial cash consideration of GBP2.5m on a cash free and
debt free basis plus a deferred consideration of GBP0.6m due no
later than 12 months from completion. The total cash consideration
of GBP2.9m included a payment for net cash and working capital
commitments on completion of GBP0.4m. Keytec is a supplier and
installer of stormwater attenuation products, geomembranes, and gas
protection products.
Details of the acquisition, including fair value adjustments,
were as follows:
Fair
value
GBPm
------------------------------ ------
Property, plant and equipment 0.1
Inventories 0.1
Trade and other receivables 0.7
Cash and cash equivalents 0.3
Trade and other payables (0.5)
Income tax payable (0.1)
Net identifiable assets 0.6
Goodwill on acquisition 2.9
-------------------------------- ------
Total cash consideration 3.5
Less: deferred consideration (0.6)
-------------------------------- ------
Initial cash consideration 2.9
-------------------------------- ------
No material intangible assets have been identified. The goodwill
arising on the acquisition primarily represented the assembles
workforce, technical expertise and market share. The goodwill is
allocated entirely to the Commercial System segment.
12. Acquisitions (continued)
The fair value of trade and other receivables was GBP0.7m. The
gross amount of trade and other receivables was GBP0.7m and it is
expected that the full contractual amounts will be collected.
Post-acquisition Keytec contributed GBP5.3m revenue and GBP0.6m
underlying operating profit which were included in the Group income
statement. If Keytec had been acquired on 1 January 2022, the
Group's results for the twelve months ended 31 December 2022 would
have shown revenue of GBP616.9m and underlying operating profit of
GBP97.6m.
Nu-Heat
On 2 February 2021, the Group acquired 100% of the voting rights
and shares of Nu-Heat (Holdings) Limited (Nu-Heat), the leading
supplier of sustainable underfloor heating solutions, air and
ground source heat pumps, and other renewable heating systems, for
a consideration of GBP27.0m on a cash-free, debt-free basis. The
total cash consideration of GBP24.8m included a payment of GBP5.7m
for net cash on completion and was net of loans and borrowings at
acquisition of GBP6.7m. Additional debt and debt like items
amounted to GBP1.2m.
The 'Nu-Heat' brand, order book and customer relationships have
been recognised as specific intangible assets as a result of this
acquisition. Fair value adjustments principally related to the
recognition of intangible assets and deferred income tax arising on
these adjustments. The goodwill arising on the acquisition
primarily represented the assembled workforce, technical expertise
and market share. The goodwill is allocated entirely to the
Residential Systems segment.
Plura
On 5 February 2021, the Group acquired 51% of the voting rights
and shares of Plura Composites Ltd (Plura) for an initial cash
consideration of GBP1.25m, and further payment in respect of the
remaining 49% of between GBP6.0m and GBP16.4m depending on the
EBITDA performance of Plura in the 12-month period ending no
earlier than 5 February 2024 and no later than 31 July 2024 as well
as the continued employment of key personnel.
Customer relationships is the only material intangible asset
that has been recognised as a result of this acquisition. Fair
value adjustments principally related to the recognition of
intangible assets and deferred income tax arising on these
adjustments. The goodwill arising on the acquisition is
immaterial.
An amount of GBP3.1m has been recognised as a non-underlying
expense in the income statement in the year ended 31 December 2022
in respect of the Plura contingent consideration arrangement. This
takes the total amount recognised as a liability on the balance
sheet at 31 December 2022 to GBP7.4m. Accordingly, the aggregate
final consideration is expected to be approximately GBP11.9m.
Contingent consideration was determined using the Directors'
assessment of the likelihood that financial targets will be
achieved. There is no material difference between the estimated
cash consideration and the fair value. The estimated cash
consideration is derived from the budgets and forecasts for
Plura.
Adey
On 10 February 2021, the Group acquired 100% of the voting
rights and shares of London Topco Limited (Adey) for a
consideration of GBP210.0m on a cash-free, debt-free basis. Adey is
the UK's leading provider of magnetic filters, chemicals and
related products, which protect against magnetite and other
performance constraints in water-based heating systems and improve
energy efficiency, operating in predominantly residential end
markets. The cash consideration of GBP86.6m included a payment of
GBP7.3m for net cash on completion and was net of loans and
borrowings at acquisition of GBP129.3m. Additional debt and debt
like items amounted to GBP1.4m.
Customer relationships, the 'Adey' brand and patents have been
recognised as specific intangible assets as a result of this
acquisition. Fair value adjustments principally related to the
recognition of intangible assets and deferred income tax arising on
these adjustments. The goodwill arising on the acquisition
primarily represented the assembled workforce, technical expertise
and market share. The goodwill is allocated entirely to the
Residential Systems segment.
13. Financial liabilities
31 December 31 December
2022 2021
GBPm GBPm
------------------------------------------ ----------- -----------
Non-current loans and borrowings:
Bank loan - principal 170.9 198.0
- unamortised debt issue costs (2.8) (0.6)
Loan notes 25.0 -
Total non-current loans and borrowings 193.1 197.4
Cash at bank and in hand (50.0) (52.3)
------------------------------------------ ----------- -----------
Net debt excluding lease liabilities 143.1 145.1
------------------------------------------ ----------- -----------
31 December 31 December
2022 2021
GBPm GBPm
-------------------------------------- ----------- -----------
Other financial liabilities:
Trade and other payables 124.2 135.5
Lease liabilities 23.1 20.6
Other liabilities - 1.4
Deferred and contingent consideration 8.0 4.8
Derivative financial instruments - 0.1
-------------------------------------- ----------- -----------
155.3 162.4
-------------------------------------- ----------- -----------
Bank loan
On 19 November 2018, the Group entered into an Amendment and
Restatement Agreement with various lenders in respect of the
Group's previous revolving credit facility agreement dated 4 August
2015. The bank loan, which comprised a GBP300.0m revolving credit
facility and GBP50.0m uncommitted accordion facility, was secured
and would have matured in November 2023 (with two further
uncommitted annual renewals through to November 2025 possible). The
Group incurred GBP1.7m of debt issue costs in respect of entering
into the Amendment and Restatement Agreement dated 19 November 2018
which were capitalised and are being amortised to the income
statement over the term of the facility, upon renewal, an amount
was subsequently written off to non-underlying items in August
2022.
On 10 August 2022 the Group renewed its banking facilities and
entered a Sustainability Linked Loan revolving credit facility
agreement for GBP350.0m with a GBP50.0m uncommitted accordion
facility expiring in August 2027 and a separate agreement for
private placement loan notes of GBP25.0m with an uncommitted
GBP125.0m shelf facility repayable August 2029. The group incurred
debt issue costs of GBP3.1m, in respect of entering into both
agreements, have been capitalised and are amortised to the income
statement over the whole term of each facility, respectively.
Interest is payable on the bank loan at SONIA plus an interest
margin ranging from 0.90% to 2.75% which is dependent on the
Group's leverage (net debt excluding lease liabilities as a
multiple of pro forma EBITDA) and reduces as the Group's leverage
reduces. The interest margin at 31 December 2022 was 1.60% (2021:
1.40%). Pro forma EBITDA for the year was GBP120.3m (2021:
GBP117.9m) and is defined as pre-IFRS 16 underlying operating
profit before depreciation, amortisation and share-based payment
charges, for the 12 months preceding the balance sheet date
adjusted where relevant to include a full year of EBITDA from
acquisitions made during those 12 months. Interest is payable
semi-annually on the loan notes and is fixed at 4.44% per annum for
the period of the loan term.
2022 2021
GBPm GBPm
--------------------------------------------------------- ----- -----
Pro forma EBITDA (12 months preceding the balance sheet)
Underlying operating profit 98.2 95.3
Depreciation of property, plant and equipment 19.4 18.4
Amortisation of internally generated intangible assets 0.2 0.1
Unwind of discount on lease liabilities (0.8) (0.7)
Share-based payments charge 3.1 2.5
--------------------------------------------------------- ----- -----
120.1 115.6
EBITDA from acquisitions 0.2 2.3
--------------------------------------------------------- ----- -----
120.3 117.9
--------------------------------------------------------- ----- -----
13. Financial liabilities (continued)
At 31 December 2022, the Group had available, subject to
covenant headroom, GBP179.1m (2021: GBP102.0m) of undrawn committed
borrowing facilities in respect of which all conditions precedent
had been met.
The Group is subject to a number of covenants in relation to its
bank loan which, if breached, would result in the bank loan
becoming immediately repayable. These covenants specify certain
maximum limits in terms of net debt, excluding lease liabilities,
as a multiple of pro forma EBITDA and interest cover. At 31
December 2022, the Group was not in breach of any bank covenants.
The covenant position was as follows:
Position at
Covenant 31 December
Covenant requirement 2021
----------------------------------------------------------------------------------------- ------------- ------------
Interest cover (Underlying operating profit: Finance costs excluding debt issue cost
amortisation) >4.0:1 16.0:1
Leverage (Net debt excluding lease liabilities: pro forma EBITDA) <3.0:1 1.2:1
----------------------------------------------------------------------------------------- ------------- ------------
The interest cover and leverage covenants remain at 4.0:1 and
3.0:1, respectively, throughout the remaining term of the
sustainability linked loan to August 2027, though there exists the
option to apply to extend the leverage covenant to 3.5:1 for a
limited period of time if the Group makes an acquisition.
The interest rate on the Group's GBP350m sustainability linked
loan is variable, being payable at SONIA (2021: LIBOR) plus a
margin.
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