REG - Essentra plc - Final Results <Origin Href="QuoteRef">ESNT.L</Origin> - Part 2
17/02/2017 07:18
- Part 2: For the preceding part double click ID:nRSQ1628Xa
tax (credit)/expense (7.6) 21.7
Net finance expense 4 12.5 10.3
Intangible amortisation 33.4 31.7
Exceptional operating items 3 133.7 39.1
Depreciation 34.3 31.9
Share option expense 2.0 5.7
Hedging activities and other movements 13.3 (0.5)
Decrease/(increase) in inventories 10.9 (14.6)
Decrease/(increase) in trade and other receivables 36.9 (51.2)
(Decrease)/increase in trade and other payables (46.1) 13.0
Cash outflow in respect of exceptional operating items (10.6) (22.1)
Adjustment for pension contributions 0.8 (5.1)
Movements in provisions (3.5) (2.3)
Cash inflow from operating activities 170.4 126.3
Income tax paid (17.4) (15.7)
Net cash inflow from operating activities 153.0 110.6
Investing activities
Interest received 0.7 0.6
Acquisition of property, plant and equipment (42.8) (58.6)
Proceeds from sale of property, plant and equipment 8.4 3.8
Payments for intangible assets (3.9) -
Acquisition of businesses net of cash acquired 11 (0.1) (304.5)
Net cash outflow from investing activities (37.7) (358.7)
Financing activities
Interest paid (12.0) (10.0)
Dividends paid to equity holders (54.0) (49.0)
Dividends paid to non-controlling interests (0.2) (0.2)
Repayments of short-term loans - (4.9)
Repayments of long-term loans (298.6) -
Proceeds from long-term loans 274.0 292.8
Purchase of employee trust shares - (1.0)
Proceeds from sale of employee trust shares 2.3 5.4
Net cash (outflow)/inflow from financing activities (88.5) 233.1
Net increase/(decrease) in cash and cash equivalents 10 26.8 (15.0)
Net cash and cash equivalents at the beginning of the year 30.2 46.0
Net increase/(decrease) in cash and cash equivalents 26.8 (15.0)
Net effect of currency translation on cash and cash equivalents 3.7 (0.8)
Net cash and cash equivalents at the end of the year 10 60.7 30.2
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1. Basis of preparation
The consolidated financial statements have been prepared and approved by the Directors in accordance with International
Financial Reporting Standards as adopted by the European Union ("EU") in accordance with EU law (IAS Regulation EC
1606/2002) ("adopted IFRS") and International Financial Reporting Standards as issued by the International Accounting
Standards Board, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements are prepared under the historical cost convention except for derivatives which are stated at fair
value and retirement benefit obligations which are valued in accordance with IAS 19 Employee Benefits.
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31
December 2016 or 2015 but is derived from those accounts. Statutory accounts for 2015 have been delivered to the registrar
of companies, and those for 2016 will be delivered in due course. The auditor has reported on those accounts; their reports
were (i) unqualified (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis
without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act
2006.
For the purposes of these financial statements "Essentra" or "the Group" means Essentra plc ("the Company") and its
subsidiaries.
On 25 August 2016, Essentra entered into a sale and purchase agreement with Filtration Group to dispose of the Group's
entire operations in Porous Technologies. The transaction is expected to complete in the first half of 2017. The results
of Porous Technologies are presented as results from a discontinued operation in the consolidated income statement, and the
comparative information has been re-presented accordingly. The assets and liabilities of Porous Technologies have also
been presented as held for sale on the balance sheet as at 31 December 2016.
Changes in accounting policies
In the current financial year, Essentra adopted the following pronouncements:
· amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation: these
amendments clarify that the ratio of revenue generated to total revenue expected to be generated cannot be used to
depreciate PPE and can only be used to amortise intangibles in very limited circumstances.
· amendments to IAS 1 Disclosure Initiative: these amendments clarify that an entity should use professional judgement
in determining what information should be disclosed in the financial statements, and the location and order of presentation
in financial disclosures.
· amendments to IAS 27 Separate Financial Statements Equity Method in Separate Financial Statements
· amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture
· amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception
· amendments to IFRS 11 Accounting for Interests in Joint Operations
The adoption of these amendments did not have an impact on the Group in relation to measurement, recognition and
presentation. Other than these, the accounting policies and presentation in this set of financial statements are
consistent with those applied in the prior years.
21
2. Segment analysis
In accordance with IFRS 8, Essentra has determined its operating segments based upon the information reported to the Group
Management Committee. With effect from 1 January 2016, Essentra has implemented a new organisation structure, comprising
three strategic business units. The Components, Pipe Protection Technologies, Extrusion and Security businesses form a
strategic business unit named Component Solutions. The Speciality Tapes business is now included within the current Health
& Personal Care Packaging strategic business unit. The Filter Products and Porous Technologies businesses form a new
strategic business unit named Filtration Products. The scope of Central Services remains the same. The prior year
segmental information has been re-presented accordingly to reflect the new organisation structure.
The operating segments are as follows:
Component Solutions consists of a Component Distribution business, the Extrusion business, the Pipe Protection Technologies
business and a Security business. Component Distribution is a global market leading manufacturer and distributor of
plastic injection moulded, vinyl dip moulded, and metal items. The Extrusion business is a leading custom profile extruder
located in The Netherlands which offers a complete design and production service. The Pipe Protection Technologies business
specialises in the manufacture of high performance innovative products from commodity resins to engineering-grade
thermoplastics and polymer alloys for use in a range of end-markets. The Security business has been at the forefront of ID
technology for over 30 years, and has access to the widest portfolio of products and services, including printers, software
and consumables from leading manufacturers.
Health & Personal Care Packaging consists of the Health & Personal Care Packaging business and the Speciality Tapes
business. Health & Personal Care Packaging is a leading global provider of packaging and authentication solutions to a
diversified blue-chip customer base in the health and personal care, consumer and specialist packaging sectors, and to the
paper and board industries. The Speciality Tapes business has expertise in coating multiple adhesive systems in numerous
technologies.
Filtration Products is a leading global provider of specialised filtration solutions to an international customer base in a
diverse range of end-markets, including tobacco, health and personal care and consumer goods.
The adjusted operating profit/loss presented for each operating segment includes the effect of allocation of certain
functional costs such as finance, human resources, legal and IT, as well as costs relating to management of the strategic
business units and regions based on an internal management methodology. Therefore for continuing operations, the adjusted
operating profit presented below of £110.4m (2015: £154.1m) differs from the amount presented as operating profit before
intangible amortisation and exceptional operating items of £108.7m (2015: £152.5m) as a result of costs allocated to Porous
Technologies of £1.7m (2015: £1.6m) under the internal management methodology.
22
2. Segment analysis continued
2016
Component Solutions Health & Personal Care Packaging Filtration Products Eliminations Central Services1 Total continuing operations Discontinued operations Total
£m £m £m £m £m £m £m £m
External revenue 301.8 427.6 269.1 - - 998.5 105.2 1,103.7
Intersegment revenue 0.8 2.6 0.1 (3.5) - - - -
Total revenue 302.6 430.2 269.2 (3.5) - 998.5 105.2 1,103.7
Operating profit/(loss) before intangible amortisation and exceptional operating items 54.4 34.5 37.5 - (16.0) 110.4 21.5 131.9
Amortisation of acquired intangible assets (8.8) (21.4) - - - (30.2) (2.7) (32.9)
Exceptional operating items (0.8) (126.7) (1.0) - - (128.5) (5.2) (133.7)
Operating profit/(loss) 44.8 (113.6) 36.5 - (16.0) (48.3) 13.6 (34.7)
Segment assets 188.4 253.7 170.4 - 10.4 622.9 72.9 695.8
Intangible assets 190.2 391.4 0.1 - - 581.7 51.1 632.8
Unallocated items 2 - - - - 76.9 76.9 6.7 83.6
Total assets 378.6 645.1 170.5 - 87.3 1,281.5 130.7 1,412.2
Segment liabilities 41.9 96.9 54.0 - 17.6 210.4 14.4 224.8
Unallocated items 2 - - - - 566.6 566.6 18.1 584.7
Total liabilities 41.9 96.9 54.0 - 584.2 777.0 32.5 809.5
Other segment items
Capital expenditure (cash spend) 8.0 25.4 6.8 - 4.5 44.7 2.0 46.7
Depreciation 10.1 10.8 8.2 - 1.5 30.6 3.7 34.3
Average number of employees 2,230 3,893 1,606 - 179 7,908 521 8,429
2015
Component Solutions Health & Personal Care Packaging Filtration Products Eliminations Central Services1 Total continuing operations Discontinued operations Total
£m £m £m £m £m £m £m £m
External revenue 285.2 419.3 302.0 - - 1,006.5 91.6 1,098.1
Intersegment revenue 0.7 3.3 0.6 (4.6) - - - -
Total revenue 285.9 422.6 302.6 (4.6) - 1,006.5 91.6 1,098.1
Operating profit/(loss) before intangible amortisation and exceptional operating items 58.1 57.5 54.7 - (16.2) 154.1 17.4 171.5
Amortisation of acquired intangible assets (8.1) (21.2) - - - (29.3) (2.4) (31.7)
Exceptional operating items 1.8 (31.3) (11.5) - 1.9 (39.1) - (39.1)
Operating profit/(loss) 51.8 5.0 43.2 - (14.3) 85.7 15.0 100.7
Segment assets 178.2 237.7 169.3 - 9.7 594.9 66.6 661.5
Intangible assets 160.3 485.6 - - - 645.9 45.7 691.6
Unallocated items 2 - - - - 63.8 63.8 - 63.8
Total assets 338.5 723.3 169.3 - 73.5 1,304.6 112.3 1,416.9
Segment liabilities 44.8 115.7 61.6 - 18.0 240.1 12.6 252.7
Unallocated items 2 - - - - 549.0 549.0 - 549.0
Total liabilities 44.8 115.7 61.6 - 567.0 789.1 12.6 801.7
Other segment items
Capital expenditure (cash spend) 12.6 27.3 10.1 - 4.7 54.7 3.9 58.6
Depreciation 9.2 10.4 8.8 - 0.1 28.5 3.4 31.9
Average number of employees 2,402 3,754 1,723 - 176 8,055 535 8,590
1 Central Services includes executive and non-executive management, group finance, tax, treasury, legal, group assurance,
human resources, information technology, corporate development, corporate affairs and other services provided centrally to
support the operating segments
2 The unallocated assets relate to income and deferred tax assets, retirement benefit assets, derivatives and cash and cash
equivalents. The unallocated liabilities relate to interest bearing loans and borrowings, retirement benefit obligations,
derivatives, deferred tax liabilities and income tax payable. Intersegment transactions are carried out on an arm's length
basis
23
3. Exceptional operating items
2016 2015
£m £m
Transaction costs relating to acquisitions and disposals of businesses1 5.0 0.2
Acquisition integration and restructuring costs2 4.5 34.1
Other3 124.2 4.8
Exceptional operating items (including discontinued operations) 133.7 39.1
Exceptional tax items4 - (1.7)
1 Transaction costs relating to acquisitions and disposals of businesses are made up of £0.3m in respect of the acquisition
of Kamsri Printing & Packaging PVT. Ltd based in India, and £4.7m costs in relation to the disposal of Porous Technologies
(including costs incurred on corporate reorganisation carried out as part of the closing conditions to complete the
transaction, and cost of a claim settlement associated with the exit from Porous Technologies). Transaction costs of £0.2m
related to the acquisition of Specialty Plastics based in Australia.
2 Acquisition integration and restructuring costs are incurred during the period in respect of:
· additional integration costs (primarily employee costs directly associated with the restructuring activities, costs
of site closures and directly attributable costs of sites which businesses are transferred into under the integration plan)
in relation to the ongoing integration of the Clondalkin SPD business (£4.5m) offset with the gain on disposal of certain
properties which were acquired with that business (£1.7m); and
· the costs associated with the closure of the Components site at Xiamen, China, and integration of those operations
into other sites in Asia as part of the Components Asia restructuring programme following the Abric acquisition (£1.7m)
The items in 2015 related to Clondalkin SPD, Abric and Speciality Plastics, including the effect of unwinding the fair
value adjustment on inventory in relation to the acquisition of Clondalkin SPD, amounting to £1.9m.
3 Other exceptional items in 2016 relate to:
· £123.9m impairment loss in relation to the Health & Personal Care strategic business unit. Further details are
provided in note 7;
· further costs of £2.7m associated with the closure of the Filters site in Jarrow and integration of previous Jarrow
operations into the Hungary site offset with the net release of property provisions of £1.3m on the disposal of certain
properties in Filtration Products (including a £0.5m loss of property disposal in Porous Technologies); and
· the release of a provision of £1.1m for contingent deferred consideration in relation to a prior period
acquisition.
Other exceptional items in 2015 related to costs associated with the closure of the Filters site in Jarrow of £11.5m,
offset by a release of £1.9m in respect of warranty obligations for the 2007 disposal of Globalpack and a £4.8m credit
adjustment for contingent deferred consideration in relation to prior period acquisitions.
4 Exceptional tax items in 2015 related to the release of tax indemnity provisions of £1.7 million in respect of the 2007
Globalpack disposal.
The tax effect of the exceptional items is a credit of £24.9m (2015: £6.1m).
4. Net finance expense
2016 2015
£m £m
Finance income
Bank deposits 0.7 0.6
Other finance income 0.4 -
Net interest on net pension scheme assets (note 8) 1.0 0.9
2.1 1.5
Finance expense
Interest on loans and overdrafts (12.5) (9.5)
Amortisation of bank facility fees (0.7) (0.7)
Other finance expense (0.2) (0.5)
Net interest on pension scheme liabilities (note 8) (1.2) (1.1)
(14.6) (11.8)
Net finance expense (12.5) (10.3)
24
5. Earnings per share
2016 2015
£m £m
Earnings: Continuing operations
(Loss)/earnings attributable to equity holders of Essentra plc (51.7) 55.5
Adjustments
Amortisation of acquired intangible assets 30.2 29.3
Exceptional operating items 128.5 39.1
158.7 68.4
Tax relief on adjustments (30.8) (12.8)
Exceptional tax item - (1.7)
Adjusted earnings 76.2 109.4
Earnings: Discontinued operations
Earnings attributable to equity holders of Essentra plc 11.4 12.4
Adjustments
Amortisation of acquired intangible assets 2.7 2.4
Exceptional operating items 5.2 -
7.9 2.4
Tax relief on adjustments (0.7) (0.6)
Exceptional tax item - -
Adjusted earnings 18.6 14.2
Weighted average number of shares
Basic weighted average ordinary shares in issue (million) 261.1 259.5
Dilutive effect of employee share option plans (million) - 3.7
Diluted weighted average ordinary shares (million) 261.1 263.2
Earnings per share: Continuing operations (pence)
Basic (loss)/earnings per share (19.8)p 21.4p
Adjustment 49.0p 20.7p
Basic adjusted earnings per share 29.2p 42.1p
Diluted (loss)/earnings per share (19.8)p 21.1p
Diluted adjusted earnings per share 29.2p 41.6p
Earnings per share: Discontinued operations (pence)
Basic earnings per share 4.4p 4.8p
Adjustment 2.7p 0.7p
Basic adjusted earnings per share 7.1p 5.5p
Diluted earnings per share 4.4p 4.7p
Diluted adjusted earnings per share 7.1p 5.4p
Earnings per share: Total Group (pence)
Basic (loss)/earnings per share (15.4)p 26.2p
Adjustment 51.7p 21.4p
Basic adjusted earnings per share 36.3p 47.6p
Diluted (loss)/earnings per share (15.4)p 25.8p
Diluted adjusted earnings per share 36.3p 47.0p
Adjusted earnings per share is provided to reflect the underlying earnings performance of Essentra.
For the current year, the employee share options are not considered as dilutive, as they would increase loss per share from
continuing operations.
The basic weighted average number of ordinary shares in issue excludes shares held in treasury and shares held by an
employee benefit trust.
25
6. Property, plant and equipment
2016
Land and buildings Plant and machinery Fixtures, fittings and equipment Total
£m £m £m £m
Cost
Beginning of year 111.6 383.3 60.4 555.3
Acquisitions (note 11) - 0.5 - 0.5
Additions 2.3 36.0 2.0 40.3
Disposals (14.8) (13.0) (3.6) (31.4)
Transfer to intangible assets - - (2.6) (2.6)
Transfer to assets in disposal group held for sale (27.5) (42.5) (6.5) (76.5)
Currency translation 15.7 61.8 6.0 83.5
End of year 87.3 426.1 55.7 569.1
Depreciation and impairment
Beginning of year 24.4 208.5 33.6 266.5
Depreciation charge for the year 2.4 25.1 5.5 33.0
Impairment 0.3 3.4 - 3.7
Disposals (9.1) (11.8) (3.3) (24.2)
Transfer to intangible assets - - (0.5) (0.5)
Transfer to assets in disposal group held for sale (6.9) (29.4) (5.7) (42.0)
Currency translation 5.3 36.9 4.5 46.7
End of year 16.4 232.7 34.1 283.2
Net book value at end of year 70.9 193.4 21.6 285.9
2015
Land and buildings Plant and machinery Fixtures, fittings and equipment Total
£m £m £m £m
Cost
Beginning of year 91.8 337.6 57.8 487.2
Acquisitions 16.5 17.6 1.5 35.6
Additions 4.9 48.6 7.0 60.5
Disposals (1.7) (20.2) (5.9) (27.8)
Currency translation 0.1 (0.3) - (0.2)
End of year 111.6 383.3 60.4 555.3
Depreciation and impairment
Beginning of year 21.6 201.9 33.2 256.7
Depreciation charge for the year 3.2 23.8 4.9 31.9
Impairment 0.7 1.1 1.1 2.9
Disposals (0.6) (17.4) (5.5) (23.5)
Currency translation (0.5) (0.9) (0.1) (1.5)
End of year 24.4 208.5 33.6 266.5
Net book value at end of year 87.2 174.8 26.8 288.8
Contractual commitments to purchase property, plant and equipment (including Porous Technologies) amounted to £3.8m at 31
December 2016 (2015: £3.3m). The net book value of assets under finance leases amounted to £3.3m as at 31 December 2016
(2015: £3.6m).
Impairment charge in 2016 of £3.7m related primarily to the write-down of certain plant and machinery in the Health &
Personal Care Packaging strategic business unit as a result of detailed impairment assessment of assets held by the
individual cash generating units in that strategic business unit. Further details are included in note 7. Impairment
charge in 2015 of £2.9m related to assets written down as part of the restructuring of certain of the Group's operations.
26
7. Intangible assets
2016
Goodwill Customer relationships Other intangible assets Total
£m £m £m £m
Cost
Beginning of year 367.2 397.2 15.7 780.1
Acquisitions (note 11) 0.5 2.1 0.1 2.7
Additions - - 3.9 3.9
Transfer from property, plant and equipment - - 2.6 2.6
Transfer to assets in disposal group held for sale (29.6) (25.4) (9.0) (64.0)
Currency translation 42.4 53.3 0.8 96.5
End of year 380.5 427.2 14.1 821.8
Amortisation and impairment
Beginning of year - 80.0 8.5 88.5
Charge for the year - 30.6 1.8 32.4
Impairment 32.5 88.0 - 120.5
Transfer from property, plant and equipment - - 0.5 0.5
Transfer to assets in disposal group held for sale - (8.3) (6.6) (14.9)
Currency translation - 13.1 - 13.1
End of year 32.5 203.4 4.2 240.1
Net book value at end of year 348.0 223.8 9.9 581.7
2015
Goodwill Customer relationships Other intangible assets Total
£m £m £m £m
Cost
Beginning of year 211.8 235.6 15.0 462.4
Acquisitions 158.7 164.5 - 323.2
Currency translation (3.3) (2.9) 0.7 (5.5)
End of year 367.2 397.2 15.7 780.1
Amortisation
Beginning of year - 49.3 6.7 56.0
Charge for the year - 30.2 1.5 31.7
Currency translation - 0.5 0.3 0.8
End of year - 80.0 8.5 88.5
Net book value at end of year 367.2 317.2 7.2 691.6
Other intangible assets principally comprise trade names acquired with Reid Supply, developed technology acquired with
Richco, order backlog and e-Commerce development costs. Amortisation of intangible assets arising from business
combinations ('acquired intangible assets') is presented separately on the face of the income statement. The e-Commerce
development costs were not acquired through a business combination, and their amortisation is included within operating
profits before intangible amortisation and exceptional operating items as presented on the face of the income statement.
The weighted average useful economic lives of customer relationships and other intangible assets (including Porous
Technologies) at the end of the year were 14.1 years and 8.9 years (2015: 14.2 years and 10.6 years) respectively.
Essentra tests intangible assets annually for impairment, or more frequently if there are indication of impairment. A
discounted cash flow analysis is computed to compare the discounted estimated future operating cash flows to the net
carrying value of the goodwill and other intangible assets for each cash generating unit or group of cash generating units
as appropriate.
27
7. Intangible assets continued
Goodwill is allocated to groups of cash generating units, being the operating segments, as follows:
Goodwill
2016 2015
Operating segment £m £m
Component Solutions 93.3 74.0
Health & Personal Care Packaging 254.7 266.6
Filtration Products1 31.4 26.6
379.4 367.2
1 These are included in assets in disposal group held for sale as at 31 December 2016
Intangible assets, apart from goodwill, are allocated to the businesses to which they relate as shown below:
Customer relationships and other intangible assets
2016 2015
Business Operating segment £m £m
Components - Businesses of former Moss and Skiffy Component Solutions 17.5 12.6
Components - Businesses of former Richco Component Solutions 35.2 32.8
Components - Business of former Reid Supply Component Solutions 7.6 7.6
Components - Business of Mesan Component Solutions 11.8 13.1
Components - Abric Component Solutions 11.6 10.9
Healthcare - Europe Health & Personal Care Packaging 79.7 208.4
Healthcare - Americas Health & Personal Care Packaging 46.6 -
Healthcare - Asia Health & Personal Care Packaging 2.1 -
Porous St. Charles1 Filtration Products 3.3 4.0
Porous Chicopee1 Filtration Products 14.5 13.4
Porous Asia1 Filtration Products 1.9 1.8
Packaging Health & Personal Care Packaging 2.2 3.7
Speciality Tapes Health & Personal Care Packaging 8.2 12.7
Multiple businesses Multiple segments 11.2 3.4
253.4 324.4
1 These are included in assets in disposal group held for sale as at 31 December 2016
28
7. Intangible assets continued
The Health & Personal Care Packaging strategic business unit faced significant operational and commercial challenges during
2016. Integration of the acquired Clondalkin operations and the associated site rationalisation programme has met with
significant issues and resulted in losses of customers, particularly in the UK, the US and The Netherlands. Furthermore,
there has been significant scaling back of high margin security feature business in the tear tape operations. Issues were
also experienced in the integration of the European speciality tapes business into the European tear tapes business.
In the light of these events, management has performed a detailed impairment assessment of the assets in the Health &
Personal Care Packaging strategic business unit. As a result of this impairment assessment, impairment losses were
recognised for £32.5m of goodwill, £88.0m of customer relationship intangible asset and £3.4m of property, plant and
equipment (primarily plant and machinery).
The impairment assessment for intangible assets (excluding goodwill) and property, plant and equipment is performed on the
cash generating units within the Health & Personal Care Packaging strategic business unit. The cash generating units are
primarily the manufacturing sites. Goodwill is tested at the strategic business unit level, which is the level that
management monitor goodwill at. The recoverable amount is estimated on the basis of value in use, i.e. discounted cash flow
projection expected to be generated by the cash generating units. For assets in the cash generating units assessed to be
impaired, their fair value less costs to sell is also considered in determining the impairment loss to be recognised, if
any. In these cases the fair value less costs to sell is based on estimated market prices of reflecting the age and
condition of the asset.
The impairment tests for goodwill and intangible assets are based on the following assumptions:
· Cash flows for the next year are based upon the Group's Annual Plan (the 'Plan'). The key assumptions in the cash
flow projections for the Plan are the revenue growth and operating margin for each strategic business unit. Operating
margin is primarily based on the levels achieved in 2016, which are disclosed in note 2, adjusted by targets set for
revenue expansion and cost control and reduction for each individual division within the Plan period.
· In relation to the test for the Health & Personal Care Packaging strategic business unit, management carried out
more detailed assessment of the growth and profit margin assumptions for each of the next four years after the Plan period,
and applied a terminal growth rate of 1.0%-1.5% subsequently. The growth and profit margin assumptions are based on
management's assessment of market condition and scope for cost and profitability improvement, taking into account
realisable synergies following the recent integration activities. In relation to the test for the Component Solutions
strategic business unit, cash flows beyond the Plan period are based on Plan cash flows with growth rates specific to each
business of up to 2% (2015: up to 2%).
· The estimated cash flows are discounted using a pre-tax discount rate based upon Essentra's estimated post-tax
weighted average cost of capital of 8.2% (2015: 9.3%). The specific pre-tax discount rates applied for each group of cash
generating units to which significant goodwill is allocated are as follows: 10.6% for Health & Personal Care Packaging,
10.6% for Component Solutions and 10.6% for Filtration Products (2015: 16.2% for Distribution, 11.4% for Health & Personal
Care Packaging and 12.7% for Specialist Technologies).
· For the Filtration Products strategic business unit, goodwill and intangible assets are held by Porous Technologies
and none is held by Filter Products. The impairment test for the intangible assets of Porous Technologies is carried out
on the basis of fair value less costs to sell, to reflect the impending disposal. The Group expects to realise a
significant gain on the disposal of Porous Technologies based on the consideration agreed with the buyer, and therefore no
impairment loss is required. This transaction is expected to complete in the first half of 2017.
Following the recognition of impairment losses in the Health & Personal Care Packaging strategic business unit, a
reasonably possible change in a key assumption will cause the carrying amount after impairment to exceed the recoverable
amount, as follows:
· An increase in discount rate of 10 basis points would increase the impairment loss by £7.5m.
· A reduction in terminal annual growth rate of 10 basis points would increase the impairment loss by £5.4m.
· A reduction in each year's growth rate by 10 basis points for the five-year projection period would increase the
impairment loss by £5.4m.
· A reduction of 100bps in the operating profit margin in the fifth year of the five-year projection period for the
key locations impacted by impairment would increase the by impairment loss by £13.7m.
29
8. Employee benefits
Post-employment benefits
Pension costs of the defined benefit schemes are assessed in accordance with the advice of independent professionally
qualified actuaries. Full triennial actuarial valuations were carried out on the principal European defined benefit schemes
as at 5 April 2015 and annual actuarial valuations are performed on the principal US defined benefit schemes. The assets
and liabilities of the defined benefit schemes have been updated to the balance sheet date from the most recently completed
actuarial valuations taking account of the investment returns achieved by the schemes and the level of contributions.
The amounts included in the consolidated financial statements are as follows:
2016 2015
£m £m
Amounts expensed against operating profit
Defined contribution schemes 6.2 6.7
Defined benefit schemes - service cost 1.5 2.4
Defined benefit schemes - curtailment gain - (3.0)
Other post-employment obligations 0.2 0.1
Total operating expense (including discontinued operations) 7.9 6.2
Amounts included as finance (income)/expense
Net interest on defined benefit scheme assets (note 4) (1.0) (0.9)
Net interest on defined benefit scheme liabilities (note 4) 1.2 1.1
Net finance expense (including discontinued operations) 0.2 0.2
Amounts recognised in the consolidated statement of comprehensive income
Return on defined benefit scheme assets excluding amounts in net finance income (24.0) 8.5
Impact of changes in assumptions and experience to the present value of defined benefit scheme liabilities 40.8 (10.4)
Remeasurement of defined benefit schemes (including discontinued operations) 16.8 (1.9)
During 2015, the principal defined benefit pension schemes in the UK and the US were closed to future accrual, and
curtailment gains were recognised in profit or loss accordingly. Following the closure of the Group's principal defined
benefit pension schemes to future accruals, the schemes are funded by the Group's subsidiaries and employees are not
required to make any further contribution. The funding of these schemes is based on separate actuarial valuations for
funding purposes for which the assumptions may differ from those used in the valuation for IAS 19 purposes.
The principal assumptions used by the independent qualified actuaries for the purposes of IAS 19 are as follows:
2016 2015
Europe US Europe US
Increase in salaries (pre-2010) 1 n/a n/a n/a 3.00%
Increase in salaries (post-2010) 1 n/a n/a n/a 3.00%
Increase in pensions 1
at RPI capped at 5% 3.30% n/a 3.10% n/a
at CPI capped at 5% 2.40% n/a 2.20% n/a
at CPI minimum 3%, capped at 5% 3.20% n/a 3.30% n/a
at CPI capped at 2.5% 2.00% n/a 1.80% n/a
Discount rate 2.70% 4.15% 3.80% 4.37%
Inflation rate 2.90% n/a 2.70% n/a
1 For service prior to April 2010, pension at retirement is linked to salary at retirement. For service after April 2010,
pension is linked to salary at April 2010 with annual increases capped at 3%
Due to the timescale covered, the assumptions applied may not be borne out in practice.
30
8. Employee benefits continued
The life expectancy assumptions used to estimate defined benefit obligations at the year end are as follows:
2016 2015
Europe US Europe US
Male retiring today at age 65 22.7 20.8 22.4 21.2
Female retiring today at age 65 24.5 22.8 24.8 23.2
Male retiring in 20 years at age 65 24.4 22.5 24.3 22.9
Female retiring in 20 years at age 65 26.4 24.4 26.7 24.9
Movement in fair value of post-employment obligations (including disposal group held for sale) during the year
2016 2015
Defined benefit pension scheme assets Defined benefit pension scheme liabilities Other Total Defined benefit pension scheme assets Defined benefit pension scheme
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