INDUSTRIAL_CHEMICALS_LIMI - Accounts
INDUSTRIAL_CHEMICALS_LIMI - Accounts
The directors present the strategic report for the year ended 31 December 2020.
This section serves as our section 172 statement and should be read in conjunction with rest of the Strategic report. Section 172 of the Companies Act 2006 requires the Directors to have regard of the interests of the Company’s employees and other stakeholders, including the impact of its activities on the community, the environment and the Company’s reputation when making decisions.
Acting in good faith and fairly between members, the Directors consider what is most likely to promote the success of the Company for its members in the long term. Whilst the importance of giving due consideration to our stakeholders is not new, we are explaining in more detail this year how the Board engages with our stakeholders, thus seeking to comply with the requirement to include a statement setting out how our Directors have discharged this duty.
The Directors are fully aware of their responsibilities to promote the success of the Company in accordance with section 172 of the Companies Act 2006. To ensure the Company was operating in line with good corporate practice, all Directors received training on the scope and application of section 172 from the Company’s senior finance team, in July 2019. This focused activity allowed the Board to reflect on how the Company engages with its stakeholders and opportunities for enhancement in the future.
The Board regularly reviews our principal stakeholders and how we engage with them. The stakeholder voice is brought into the boardroom throughout the annual cycle through information provided by management and also by direct engagement with stakeholders themselves. The relevance of each stakeholder group may increase or decrease depending on the matter or issue in question, so the Board seeks to consider the needs and priorities of each stakeholder group during its discussions and as part of its decision making.
The Board have had regard to the factors set out above and acknowledge that for the business to grow over the long term, a full understanding of the Company’s stakeholders is required to ensure that the Board can make informed decisions which factor in stakeholder interest.
The Board considers its significant stakeholder groups to be Employees, Customers and Suppliers.
Employees
Our employees with their expertise and dedication play a key role in the long term success of the business. Human resources planning forms a fundamental part of our strategy, with a dedicated focus on employee retention and development at every level. We encourage open dialogue, allowing employees to play a part in shaping the Company and foster a change and performance culture. The internal team meetings and department meetings promote the flow of information, communication and cooperation between all employees.
We promote and maintain consistently high standards of safety and compliance training. Our staff are actively involved in decisions surrounding strategy, operational performance, capital investments and financial structure and their input is factored into all such decisions
Customers and Suppliers
We support our business partners in developing and growing their business through our close working relationships, formed over the fifty years of trading. We enable them to expand their business, as we grow together through continuous innovation and development. We are able to address the different requirements of our suppliers and customers and with the focus on providing the right solution because we have experts and specialists for all customer industries in which we operate.
Our experts share their knowledge of local conditions and the specific applications of our products, thereby creating real added value for our partners. We are well placed to meet its business partners’ diverse requirements. Our business partners are vital to ensuring our long term success, this principle remains unchanged and as a business we constantly review our business model with the view to leveraging further potential.
The community and environment
During the year, we continued to provide funding to a number of local schools and clubs, which was more vital than ever to the success of these charities during the current pandemic. We also invested in a number of good causes that are recommended by our employees through the year. We also continued to allow our employees to take time off work so they can support a charitable organisation in the local community.
Developments during the year
The Board’s principal decision during the year was to approve sale of our Packaged Chemicals division (ICL Packed Ltd) to Brenntag UK Ltd and related investment in new UK manufacturing/storage capabilities. The Board considered the long-term consequences of this decision and if it was in the best interest of its stakeholders as a whole.
It was concluded that the transaction represented an important strategic development and was in the best interest of the business and all of our stakeholders. It would provide the investment required for the development of manufacturing operations and capabilities to meet our growing customer needs for a number of key products across the UK. Whilst we would be working closely with Brenntag to ensure that, we have the production capacity to serve key elements of their distribution portfolio.
Industrial Chemicals Limited was incorporated in November 1999 as a manufacturer and trader of industrial chemicals. Currently employing 482 people and headquartered in Grays, Essex, with additional production facilities across the UK in West Thurrock, Newcastle, Runcorn, Port Clarence, Scunthorpe, Selby and Widnes. The group also has a production facility in Louisiana in the USA.
Industrial Chemicals has both bulk manufacturing and packaged products capabilities, servicing a diverse customer base with many household names from various sectors, including agriculture, water utilities, steel production, energy utilities, pharmaceuticals and homecare products.
Industrial Chemicals can support the most demanding of requirements, providing specific tailored chemical solutions including grinding, milling, filtration, spray drying and operates one of largest private specialist distribution fleets in the UK Chemicals sector.
Overview
As demonstrated in the company’s profit and loss account on page 19, we established a new record for turnover in the year at £128.5m, representing a £1.7m or 13% increase on 2019, with EBITDA before exceptionals of £4.2m, our best results to date. Exceeding our original Budgeted EBITDA for the year, despite the combined headwinds of the United Kingdom’s exit from the European Union (Brexit) and the ongoing global coronavirus pandemic. The pandemic created demand for chemicals used in cleaning products and we entered the market for hand sanitiser during the year. The commitment of our managers and staff to COVID risk reduction measures and safe working practices resulted in no lost days of production and efficient logistics operations despite the challenging conditions.
Over the past several years, we have implemented a range of strategic initiatives to lower our operating costs, increase our profitability and further enhance our market offering. This included fixed asset investments within the group to expand our capacity, improvements to increase productivity at our existing facilities, and reductions to our fixed cost structure, the company has continued this focus in 2020.
Water Treatment Chemical Growth
Demand from our water utility customers remained strong, with increases in tonnage and turnover across almost all main water treatment products, SDHO drove the largest favourable variance, with sales of £4.4m for the year (£3.4m for 2019). The addition of SDHO at the water treatment works creates a lead-phosphate coating on the inside of lead pipes – this acts as a protective coating and prevents lead from leaching into the water supply.
Ferric Sulphate demand drove the largest single adverse variance in water utility products for the year with sales of £20.9m (£22.06m for 2019). Ferric Sulphate sales were adversely impacted by a combination of the loss of the 12-month contract of supply in May 2020 and the enforced national coronavirus closures of heavy industry across the United Kingdom, reducing the requirement for water treatment dosing.
Ferric Sulphate is used by both water utilities and heavy industry for pH adjustment, coagulation and dissolved heavy metal precipitation. We expect significant growth in demand over the next five years, as all regulated water utilities have been mandated to increase dirty water dosing to improve phosphate removal from rivers and estuaries, as part of the official guidance from the Water Services Regulation Authority (OFWAT) under the recent round of budget setting for the industry known as AMP7.
Ferric Sulphate is an important product within our portfolio, produced in three main production facilities throughout the United Kingdom in Newcastle, Widnes and West Thurrock.
We are currently investing in further expansion and product enhancements of the three existing Ferric Sulphate plants, whilst planning development of a new plant in Port Clarence for 2023. Combined with our robust raw material supply chain we are confident we will meet the requirements of our customers for the years to come.
Chlor Alkali Production West Thurrock
We saw record Sodium Hypochlorite sales for the year of £11.55m (£10.34m 2019) with strong demand across all water utility and industrial customers. To facilitate this increased production requirement the Chlor Alkali plant was required to periodically switch full production on both lines of the plant to Sodium Hypochlorite only, reducing the production of both Hydrochloric Acid (HCl) and Caustic.
Overall, the Chlor Alkali products of Caustic Soda, Sodium Hypochlorite and HCl all recorded encouraging sales totalling £40.8m combined (£42.4m for 2019), despite an operational incident at the Chlor Alkali storage facility in West Thurrock in January. Pipework failure within the Hydrochloric Acid (HCl) tank farm resulted in the loss of containment, but I am pleased to report that no injuries resulted from the incident and the site returned to operation within 26 hours of the incident.
Investigations into the exact root cause of the incident remain ongoing and we are working closely with the Health & Safety Executive and Environment Agency to ascertain the reason for the failure. The affected tank farm and any similarly designed facilities around the company were immediately isolated, removed or redesigned to prevent any potential reoccurrence of what is currently suspected to be the cause of the failure.
Investigations have been hampered by the national coronavirus crisis and social distancing restrictions delaying planned site visits, but with the lifting of the lockdown restrictions in June, we were able to commence the rebuild of the storage area, which is scheduled to be completed in Q4 2021. We received full settlement under an insurance claim for the property damage and loss of product for this incident in May 2021.
Due to the loss of this tank farm, the Chlor Alkali plant performance was restricted, production from both lines on the plant was scaled back, or production rates would rapidly outstrip our available tank storage capacity. To support this reduction in performance we have supplemented in house production of Caustic and HCl with supplies from third party producers, which adversely affected material costs, transport costs, reducing profitability and cashflow for the year.
Procter and Gamble Supply
Industrial Chemicals has been working with Procter and Gamble (P&G) since 1988, a 33-year collaboration, with strong relationships throughout all levels of the company, resulting in a partnership-based supply arrangement, which is highly valued. The bulk of product supply is into the P&G London plant, less than one mile from the Industrial Chemical’s West Thurrock site.
We were successful in retaining a major supply agreement with P&G in early January 2021.
P&G account for approx. 20% of our turnover, demand for Amines, Silicates and Perfumes was very strong in the year. P&G supplied chemicals are used in the production of household cleaning products, which have seen significant growth throughout the global coronavirus pandemic.
P&G also retained higher safety stocks of key chemicals at their London plant towards the end of 2020, to ensure production capability was unaffected, in the event of a disorderly exit by the United Kingdom from the European Union.
Sulphuric Acid Growth
Traded Sulphuric performance was very strong for the year at £5.55m (£4.63m for 2019), predominantly resulting from water utility demand, but also strong demand from industrial customers. Sadly, margins on this product were adversely impacted by the loss of a storage vessel in West Thurrock.
A small leak developed in an ancillary pipe in August 2020. Although there were no injuries and no loss of containment or risk to the environment, management decided to close the nearby storage facility at West Thurrock.
Ongoing supplier agreements and local production requirements for the product were sourced from appropriate alternative storage across the UK. This resulted in higher transport costs with the adverse impact on margins and cashflow.
Balance Sheet
Raw material and finished goods stocks were £4.4m at year-end.This remains higher than anticipated, as we continue to operate with higher Ferric Sulphate alternative raw materials to support ongoing Ferric Sulphate production.
Trade Debtors reduced through the year to £12.8m, largely driven by improvements in payment terms from a number of major customers, with debtors days 36.5 days.
Trade Creditors reduced by £2.4m to £12.6m, reflecting the Company’s focus on reduction in overheads and costs throughout the business.
The group's bank borrowings reduced during the year, again reflecting the group’s focus on reduction in overheads and capital investment across the year.
Days sales outstanding (DSO) reduced on average by 7 days across the year to 36.5 days, whilst Creditor days (CDO) decreased by 10 days to 62.2 days on average for the year. A key focus for the business is maintaining an acceptable ratio for both our customers and suppliers in this regard and will continue to be monitored closely in 2021.
Capital Expenditure
The group focused on the core production facilities across the UK.
Capital expenditure primarily incurred by the group was for the further investment in our Chlor Alkali facility in West Thurrock, the enhanced Ferric Sulphate facilities in Widnes and West Thurrock and on a number of smaller capital projects through the group.
The CHP plant at West Thurrock remained suspended due to the uncertainty around UK Government environmental guidance for new gas plants, and changes to EU support due to the Brexit exit arrangements.
Cashflow Review
Cashflow has continued to improve through 2020, due to strong turnover and focused overhead cost reduction. This enabled the repayment of over £3.9m of the parent company's Bank facilities within 2020 and significantly strengthened the Company’s and the group's overall cash position; this is evident in the £2.4m year on year reduction in Trade Creditors.
The group has made further bank repayments to July 2021 of £2.5m. Providing a strong liquidity position for the Company and the group in the current Coronavirus crisis.
Lloyds banking facilities for the group within the year were as follows:
£20m term loan facility (£11.88m balance December 2020)
£10m revolving credit facility (£8.6m balance December 2020)
£14.5m Confidential invoice discounting facility (£9.3m balance December 2020)
Packaged Products Divisional Sale
Post December 2020 year-end Industrial Chemicals completed the sale of its Packaged Chemicals division (ICL Packed Ltd) to Brenntag UK Ltd (turnover circa £12m per annum). The packed division was based at our Selby and West Thurrock locations and all staff were transferred as part of the undertaking. This will not impact on our bulk operations. We will continue to manufacture and distribute Bulk chemicals i.e. road tanker based supplies to all of our existing customers.
In addition, we will continue to distribute packed ULB Sodium Hypochlorite, HFSA (Hexafluorosilicic Acid), SDHO (Sodium Dihydrogen Orthophosphate) and other niche products for water treatment with Brenntag providing the distribution fulfilment on our behalf.
As part of the agreement, we have provided Brenntag with a five-year supply agreement for the supply of several of our bulk manufactured chemicals and dedicated storage/loading capabilities at our West Thurrock site.
This transaction is an important strategic announcement for both companies. It will provide funding for the additional UK chemical manufacturing capability expansion, ensuring that we have the appropriate production capacity and distribution networks to meet customer demand, whilst providing a long-term supply partnership between Brenntag and Industrial Chemicals for bulk chemicals.
The 2021 Outlook
The Bank of England has forecasts that UK GDP will rise by 7.2% in 2021, the fastest growth since 1941, after a 9.8% contraction in 2020 – the worst in almost 300 years. That would outpace any other advanced economy, including the US. However, the UK economy is expected to face deeper economic scarring and longer-term economic damage than other G7 industrialised nations, with the impact of leaving the EU adding to the disruption caused by the pandemic.
The Organisation for Economic Co-operation and Development (OECD) expects major Eurozone members to experience a 0.3% annual decline in potential economic output, while the UK’s growth rate could be 0.5% a year lower than previously expected. “The United Kingdom could suffer the biggest reduction among G7 countries reflecting the additional adverse supply-side effects from 2021 following Brexit”.
In 2019, UK exports to the EU were £294 billion (43% of all UK exports). UK imports from the EU were £373 billion (52% of all UK imports). Trade with the EU has been disrupted by the additional bureaucracy of border administration and checks between the UK and continental Europe. This will ultimately affect decisions on raw material supply, capital investment and overall business confidence.
Reductions are expected in the pool of available skilled labour as restrictions on EU nationals under freedom of movement rules are in introduced. We have already seen evidence of this within the pool of qualified tanker drivers across the UK, which has exacerbated a historic shortage of UK qualified drivers, with estimates of a shortfall of a 100,000 drivers across the UK.
This driver shortage is particularly acute in the South East of England, where we have seen a number of large hauliers and retailers implement substantial increases in pay and benefits for drivers. This could have significant impact on the UK economic recovery from the pandemic if not addressed by the UK government.
In 2020, we benefitted from a low wholesale energy prices, as a result of the pandemic, which helped to suppress utility costs by circa £2.3m for the year. However, for 2021 we have already seen significant increases in utility costs (Year to date to July 2021 £6.44m, £2.66m higher than 2020).
Available power plant capacity on the UK national electricity grid is reducing steadily, due to the closure of coal-fired plants, with no new nuclear plants expected for several years, whilst demand has continued to increase and is expected to reach 55GW (currently 45GW). This has resulted in a heavier reliance on combined cycle gas plants and intermittent wind energy. Whilst gas storage across the UK has also reduced by over 65%. We have seen energy prices treble as a result and predictions are for further increases as we approach the winter.
In the face of these exceptional operating costs we will be forced to implement customer price increases across all chemical products (where contracts allow), with increases planned in Q4 of 2021.
We have received confirmation that the European energy scheme will be extended, which was introduced to compensate energy intensive industries for high-energy costs, removing or reducing the commitment to pay for the renewable obligations (RO and FIT elements) of energy bills. This has provided a significant reduction to our energy costs in 2020 and the UK government has now confirmed replacement of the existing European scheme beyond 2022.
We recognise that we will continue to face exceptional challenges through 2021, as the pandemic remains with us and its economic affects far reaching across the economy and UK manufacturing. Nevertheless, we are confident that we have a robust business, ready to meet any challenges head on.
Indeed the Company has seen a very strong start to 2021, with year to date Turnover to July of £66.12m (£67.8m Budget) and EBITDA of £5.75m (£6.34m Budget) Overall, we have seen strong demand across all products and market segments in the first half of 2021.
Overhead cost reductions in initiatives in place during 2020 remain a focus in 2021, improving operational performance and cashflow. This continues to be demonstrated in 2021, with the further reductions in bank debt and a stronger balance sheet.
The Board remain committed to further investment in its UK manufacturing capability and staff, despite the current economic uncertainty. The Company will continue to drive efficiencies throughout UK operations, with a focus on productivity and value for money, driving down operational costs across a number of key product lines. The fundamentals of the business are very strong.
On behalf of the Board of Directors, I would like to take this opportunity to thank our employees for their considerable commitment and our customers, suppliers and business partners for the trust they place in us and our strong working relationship.
PRINCIPAL RISK & UNCERTAINTIES
In addition to the factors described elsewhere in this Annual Report, the following are the most significant known factors, risk and uncertainties that could cause actual results to differ materially from those expected in the Boards of Directors outlook for 2021.
Economic, Political & Trade Uncertainty
The deterioration of the global economy and financial markets due to the current Global pandemic could affect the Company’s results, financial condition and cash flows. In addition, the Company’s ability to access the credit and capital markets under attractive rates and terms would be affected, which would negatively impact on the Company’s liquidity and our ability to pursue certain growth initiatives.
The Company prepares strategic plans to review demand in existing markets and potential new opportunities on a regular basis, responding rapidly to changing market conditions, taking necessary mitigating actions where required and using appropriate bank and alternative hedging facilities where applicable to ensure we adapt to any economic conditions.
Financial Impact of the UK exit from Europe
The UK’s conclusion to the European Union (Brexit) negotiations have resulted in challenges. In order to ensure that our business remains sustainable, we have put into effect a number of strategies with the aim of making the transition away from EU membership as seamless as possible for both the Company and our valued business partners.
There is still considerable uncertainty as the new agreements and legislations are implemented and therefore our plans are intended to allow for a large degree of flexibility. We have considered the potential impact of changes to Customs borders, tariffs, costs and administrative workload, as well as the likelihood of exchange rate volatility.
We have researched the implications of potential tariff and duty changes, as well as possible increased lead times. We have undertaken a review of our supply chain to mitigate the impact of any major changes following Brexit and accept that policies and processes may require amendment in due course.
As a supplier to and purchaser from many Non-EU countries around the world, the Company is well versed with the demands of international trade. We have every confidence in the skill and expertise of our administrative staff and their understanding of export procedures to be able to cope with and adapt swiftly to any further changes necessitated by Brexit. Additionally, we widely employ the services of forwarders and agents who have “Approved Economic Operator” status.
Loss/Financial Weakness of Large Customers
Although the Company has an extensive customer base, loss of or material financial weakness of, certain of our largest customers could adversely affect the Company’s financial condition and results until such business is replaced. No assurance can be made that the Company would be able to regain or replace any lost customers.
The company supplies predominantly well-established diverse customer markets on long term contracts, coupled with long term suppliers and a wide portfolio of products, which aids to mitigate this risk. The Company strategy remains to expand our customer portfolio further and secure long term contracts where possible.
Technological Failure of Change
Failure to keep pace with changes within the highly competitive markets, in which the Company operates could result in a lack of competitive products or processes and could result in erosion of margin and loss of market share.
The Company continues the innovation of its existing product portfolio, supporting the current customer base, to ensure the product range remains compliant with legislation and cost effective for all stakeholders. Coupled with further investment into research and development in all areas of the business, from new products, processes and services to maximise the return for all stakeholders.
The Company is also investing heavily into its business systems staff and infrastructure, to ensure that we remain at the forefront of this vital business resource.
Information Technology Systems Failure
The Company uses a wide variety of complex IT systems in operational and supporting activities. Failure of more than one of the major systems over an extended period could impact on the ability to manufacture or to report operational performance, ultimately impacting on the Companies profitability.
The Company continuously reviews IT infrastructure and the network environment, to ensure that it has an appropriate robust IT disaster recovery and general business continuity plan. These plans are regularly reviewed and tested, ensuring the continuation of the business systems in the most extreme of circumstances.
Failure of Significant Sites
Whilst the company operates from a variety of locations, certain sites are critical due to their scale of specific nature of production activities. Failure of a critical site could significantly impact overall performance.
Business continuity plans include consideration and testing of circumstances in which alternative back up locations may be required. Where possible the Company has replicated significant manufacturing processes across it operations to continue market supply. The group has also invested in inventory of critical plant and machinery replacements units to further mitigate risk.
Coronavirus (COVID-19) Assessment
The impact on the Company arising from the uncertainty of the recent COVID-19 outbreak has been considered by the Directors.
Management have considered updated financial forecasts. Based upon the information available, the Directors consider that the Company has ample liquidity to continue business for at least the next 12 months as a going concern. The Company has the continued support of its banking partners in Lloyds Bank and additional facilities are available if required.
The Directors have reviewed the assets of the business and do not believe there to be any impairments arising as a result of the pandemic.
As a key supplier to the industries at the forefront of fighting the virus and following consultation with our Trade Association, the Directors are of the opinion that the Company is a critical business, falling within the criteria issued by the Regulators.
All of the Company’s sites and operations have been risk assessed and appropriate safety systems and measures have been put in place to ensure the continued safety of our staff during this time. The Directors will review this situation periodically and adjust the Company’s response as appropriate to continue to maintain the safe operation of the company.
To date, there has been no material impact on the Company arising from the COVID-19 outbreak and the Directors continue to monitor the situation very closely.
Sales and Gross Profit growth per annum
| 2018 | 2019 | 2020 |
Turnover £
|
121,183,451 (100%) |
126,867,753 (104.7%)
|
128,529,215 (106.1%) |
Gross Profit £
|
46,754,480 (100%) |
51,300,764 (109.7%) |
54,369,098 (116.3%) |
Turnover by geographical region
| 2018 | 2019 | 2020 |
United Kingdom £
|
106,407,323 (100%) |
113,487,360 (106.7%) |
111,836,466 (105.1%) |
European Union £
|
4,191,179 (100%) |
3,553,508 (84.8%) |
4,927,789 (117.6%) |
Rest of World £
|
10,584,949 (100%)
|
9,826,885 (92.8%) |
11,764,960 (111.1%) |
Total £
|
121,183,451 (100%) |
126,867,753 (104.7%) |
128,529,215 (106.1%) |
Stocks and debtors profile
| 2018 | 2019 | 2020 |
Raw materials £
|
3,145,898 (100%) |
3,595,679 (114.3%) |
1,243,896 (60.5%) |
Finished goods £
|
4,669,557 (100%) |
3,593,322 (77.0%) |
3,114,879 (66.7%) |
Trade debtors £
|
16,262,073 (100%) |
15,133,477 (93.1%) |
12,859,914 (79.1%) |
Debtor Days (DSO)
|
48.98 |
43.54 |
36.52 |
The directors present their annual report and financial statements for the year ended 31 December 2020.
The results for the year are set out on page 19.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The company maintains insurance policies on behalf of all the directors against liability arising from negligence, breach of duty and breach of trust in relation to the company.
The company is engaged in a several programmes of research and development in support of the products and services that it provides to its existing customer base and also in development of new products and services to continue its growth.
Details of this spending can be found within the company’s financial statements.
Environment and legislation
The Directors are pleased to report that company’s operations are conducted such that it complies with all legal requirements and especially those relating to the environment. The management have been focused on best practice heath and safety processes, with significant resources being applied in this area.
UK legislation and compliance with industry benchmark systems, including UK REACH, will continue to impact upon the company. The Directors are fully committed to meet these requirements.
Details of our relationship with our customers and suppliers are set out in the strategic report.
In accordance with the company's articles, a resolution proposing that Rickard Luckin Limited be reappointed as auditor of the company will be put at a General Meeting.
The company is a subsidiary and is included in the consolidated financial statements of Industrial Chemicals Group Limited and therefore it is not required to report on its emissions, energy consumption or energy efficiency activities as these are included in the group accounts.
select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
After the year end, the company sold its wholly owned subsidiary, ICL Packed Limited for £11m.
give a true and fair view of the state of the company's affairs as at 31 December 2020 and of its profit for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors' remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our: general commercial and sector experience; through verbal and written communications with those charged with governance and other management and via inspection of the company’s regulatory and legal correspondence.
We discussed with those charged with governance and other management the policies and procedures regarding compliance with laws and regulations.
We communicated identified laws and regulations to our team and remained alert to any indicators of non-compliance throughout the audit, we also specifically considered where and how fraud may occur within the company.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the company is subject to laws and regulations that directly affect the financial statements, including: the company’s constitution, relevant financial reporting standards; company law; tax legislation and distributable profits legislation and we assess the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Secondly the company is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on the amounts or disclosures in the financial statements, for instance through the imposition of fines and penalties, or through losses arising from litigations. We identified the following areas as those most likely to have such an affect: operating licences regarding the handling of chemicals and waste; employment legislation; health and safety and environmental legislation; trade legislation; data protection legislation; anti-bribery and anti-corruption legislation.
ISAs (UK) limit the required procedures to identify non-compliance with these laws and regulations to the procedures, and no procedures over and above those already noted are required.
In relation to fraud, we performed the following specific procedures in addition to those already noted:
Challenging assumptions made by management in its significant accounting estimates in particular: valuation of stock and stock provisions;
Identifying and testing journal entries, in particular any entries posted with unusual nominal ledger account combinations, journal entries crediting revenue account and large or unusual entries;
Performing analytical procedures to identify unexpected movements in account balances which may be indicative of fraud;
Ensuring that testing undertaken on both the performance statement, and the Balance Sheet includes a number of items selected on a random basis; and
Discussions with management.
These procedures did not identify any actual or suspected fraudulent irregularity that could have a material impact on the financial statements.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with ISAs (UK). For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the procedures that we are required to undertake would identify it. In addition, as with any audit, there remains a high risk of non-detection of irregularities, as these might involve collusion, forgery, intentional omissions, misrepresentation, or the override of internal controls. We are not responsible for preventing non-compliance with laws and regulations or fraud, and cannot be expected to detect non-compliance with all laws and regulations or every incidence of fraud.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
This report is made solely to the company's member in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's member those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's member for our audit work, for this report, or for the opinions we have formed.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
Industrial Chemicals Limited is a private company limited by shares incorporated in England and Wales. The registered office is Titan Works, Hogg Lane, Grays, Essex, RM17 5DU.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
In accordance with section 1 of FRS 102, the company has taken advantage of the following exemptions:
- The requirement not to produce a Statement of Cash Flows and related notes.
- The requirement not to disclose key management personnel compensation.
Industrial Chemicals Limited is a wholly owned subsidiary of Industrial Chemicals Group Limited and the results of Industrial Chemicals Limited are included in the consolidated financial statements of Industrial Chemicals Group Limited which are available from Titan Works, Hogg Lane, Grays, Essex, RM17 5DU.
The company has taken advantage of the exemption under section 400 of the Companies Act 2006 not to prepare consolidated accounts. The financial statements present information about the company as an individual entity and not about its group.
Industrial Chemicals Limited is a wholly owned subsidiary of Industrial Chemicals Group Limited and the results of Industrial Chemicals Limited are included in the consolidated financial statements of Industrial Chemicals Group Limited which are available from Titan Works, Hogg Lane, Grays, Essex, RM17 5DU.
The company's wholly owned subsidiary is held exclusively for sale.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including trade and other creditors, bank loans and loans from fellow group companies that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future receipts discounted at a market rate of interest.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade creditors are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
Management charges
Appropriate overheads are apportioned between the trading companies.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
In accordance with FRS 102, a proportion of direct overheads relating to the production of stock is included in the cost of stock. This involves a certain amount of estimation in calculating the level of overheads to be included in the cost.
An analysis of the company's turnover is as follows:
The profit on sale of a division relates to a hive down of the trade and assets to a new wholly owned subsidiary at the year end, ICL Packed Limited, in exchange for £12.2m ordinary shares in that company. After the year end, this subsidiary was sold to a third party for £11m.
The exceptional impairment provision of £1.2m relates to the write down of the investment in ICL Packed Limited to its recoverable value.
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
Stock included raw materials and finished goods that are subject to reservation of title until they have been fully paid for.
During the year there was a charge of £1,326,665 to cost of sales for the impairment of stock which will no longer be used in production, to write this stock down to its net realisable value.
During the year the trade and assets of the company's packed division was hived down to a newly incorporated subsidiary, ICL Packed Limited. Current asset investments consists of the investment in ordinary shares of ICL Packed Limited held at cost less an impairment provision of £1.2m to write the asset down to its recoverable amount. After the year end this subsidiary was sold for £11m.
Details of the company's subsidiaries at 31 December 2020 are as follows:
The bank overdraft relates to a confidential invoice discounting scheme which is secured against the corresponding sales invoices. It is also secured by personal guarantees from the Estate of JW Carver (Deceased), CD Carver and AR Carver, the directors of the company, in the event of certain conditions being present and there is a loss to the providers of the scheme.
The bank have a fixed and floating charge over the assets of the company.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
Deferred tax assets and liabilities are offset where the company has a legally enforceable right to do so.
The deferred tax liability set out above is not expected to reverse within the next 12 months.
The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.
Contributions totalling £129,565 (2019: £96,389) were payable to the fund at the year end and are included in creditors.
The ordinary shares carry full voting rights and full rights to dividends and distributions.
The profit and loss reserves are wholly distributable.
The company has entered into an Omnibus Guarantee and Set-Off Agreement, dated 21 November 2013, in respect of the current and future facilities provided to its fellow group companies by Lloyds Bank Plc. At the year end this contingent liability amounted to £20,475,000 (2019: £24,375,000) in respect of Industrial Chemicals Group Limited.
The company has entered into an agreement in respect of amounts loaned by the common directors and the trusts, between Industrial Chemicals Limited and the parent company, Industrial Chemicals Group Limited. At the year end this amounted to £1,804,050 (2019: £1,121,200) in respect of Industrial Chemicals Group Limited.
As a result of an operational incident in January 2020, investigations are ongoing by the Health & Safety executive and the Environmental Agency that may lead to the company and the group being fined. At the year end, any potential fine that may be charged to the company is unknown.
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
After the year end, the company sold its wholly owned subsidiary, as set out in note 12, for £11m.
At the year end, a balance of £50,000 (2019: £65,000) was owed by the company to a director.
Total remuneration paid to directors' family members during the year amounted to £260,224 (2019: £73,992).