REG - Essentra plc - Final Results <Origin Href="QuoteRef">ESNT.L</Origin> - Part 3
17/02/2017 07:18
- Part 3: For the preceding part double click ID:nRSQ1628Xb
liabilities Other Total
£m £m £m £m £m £m £m £m
Beginning of year 246.7 (245.8) (1.7) (0.8) 245.6 (245.1) (2.2) (1.7)
Service cost and administrative expense (1.1) (0.4) (0.2) (1.7) (1.3) (1.1) (0.1) (2.5)
Employer contributions 0.8 - 0.2 1.0 3.9 - 0.1 4.0
Employee contributions 0.1 (0.1) - -
Return on plan assets excluding amounts in net finance income 24.0 - - 24.0 (8.5) - - (8.5)
Actuarial (losses)/gains arising from change in financial assumptions - (45.2) (0.3) (45.5) - 6.2 - 6.2
Actuarial gains arising from change in demographic assumptions - 3.4 - 3.4 - - - -
Actuarial gains arising from experience adjustment - 1.3 - 1.3 - 4.2 - 4.2
Finance income/(expense) 9.6 (9.8) - (0.2) 9.3 (9.5) - (0.2)
Benefits paid (11.2) 11.2 - - (10.7) 10.7 0.5 0.5
Curtailments - - - - - 3.0 - 3.0
Currency translation 9.0 (13.6) (0.3) (4.9) 2.9 (3.8) - (0.9)
Business combination - - - - 5.4 (10.3) - (4.9)
End of year 277.8 (298.9) (2.3) (23.4) 246.7 (245.8) (1.7) (0.8)
Sensitivity
For the significant assumptions used in determining defined benefit costs and liabilities, the following sensitivity
analysis gives the estimate of the impact on the measurement of the scheme liabilities as at 31 December 2016.
Scheme liabilities
Europe US Total
£m £m £m
0.5% decrease in the discount rate (22.8) (5.6) (28.4)
1.0% increase in the rate of inflation (21.7) n/a (21.7)
1.0% increase in rate of salary/pension increases n/a n/a n/a
1 year increase in life expectancy (6.6) (2.4) (9.0)
0.5% increase in the discount rate 19.8 5.0 24.8
1.0% decrease in rate of salary/pension increases n/a n/a n/a
1.0% decrease in the rate of inflation 17.5 n/a 17.5
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9. Issued share capital
2016 2015
£m £m
Issued and fully paid ordinary shares of 25p (2015: 25p) each 66.0 66.0
Number of ordinary shares in issue
Beginning of year 264,129,170 264,129,170
Issue of shares during the year - -
End of year 264,129,170 264,129,170
At 31 December 2016 the Company held 1,286,952 (2015: 1,750,571) of its own shares in treasury.
10. Analysis of net debt
1 Jan 2016 Cash flow Exchange movements Non-cash movements 31 Dec 2016
£m £m £m £m £m
Cash at bank and in hand 23.8 7.1 3.1 - 34.0
Short-term bank deposits and investments 6.4 19.7 0.6 - 26.7
Cash and cash equivalents in the statement of cash flows 30.2 26.8 3.7 - 60.7
Debt due within one year (0.6) - - (64.5) (65.1)
Debt due after one year (403.5) 24.6 (59.8) 63.8 (374.9)
Net debt (373.9) 51.4 (56.1) (0.7) (379.3)
The non-cash movements represent the amortisation of prepaid facility fees and reclassification of part of the US Private
Placement Loan Notes as current.
1 Jan 2015 Cash flow Exchange movements Non-cash movements 31 Dec 2015
£m £m £m £m £m
Cash at bank and in hand 26.5 (2.0) (0.7) - 23.8
Short-term bank deposits and investments 19.5 (13.0) (0.1) - 6.4
Cash and cash equivalents in the statement of cash flows 46.0 (15.0) (0.8) - 30.2
Debt due within one year (5.8) 4.9 0.3 - (0.6)
Debt due after one year (102.3) (292.8) (7.7) (0.7) (403.5)
Net debt (62.1) (302.9) (8.2) (0.7) (373.9)
The non-cash movements represent the amortisation of prepaid facility.
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11. Acquisitions and disposals
2016 acquisition: Kamsri
The Group acquired the pharmaceutical assets of Kamsri Printing & Packaging PVT. Ltd ("Kamsri") based in India in January
2016. This acquisition was not material.
Disposal of Porous Technologies
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. No finance income or expense related to
discontinued operations, and the income tax expense related to discontinued operations amounted to £3.9m (2015: £4.2m).
The results of continuing and discontinued operations are as follows:
Year ended 31 December 2016
Continuing operations Discontinued operations Total Group
£m £m £m
External revenue 998.5 105.2 1,103.7
External expenses (889.8) (82.0) (971.8)
Operating profit before intangible amortisation and exceptional operating items 108.7 23.2 131.9
Amortisation of acquired intangible assets (30.2) (2.7) (32.9)
Exceptional operating items (128.5) (5.2) (133.7)
Operating (loss)/profit (50.0) 15.3 (34.7)
Finance income 2.1 - 2.1
Finance expense (14.6) - (14.6)
(Loss)/profit before tax (62.5) 15.3 (47.2)
Income tax credit/(expense) 11.5 (3.9) 7.6
(Loss)/profit after tax (51.0) 11.4 (39.6)
Basic (loss)/earnings per share (19.8)p 4.4p (15.4)p
Basic adjusted earnings per share 29.2p 7.1p 36.3p
Diluted (loss)/earnings per share (19.8)p 4.4p (15.4)p
Diluted adjusted earnings per share 29.2p 7.1p 36.3p
Year ended 31 December 2015
Continuing operations Discontinued operations Total Group
£m £m £m
External revenue 1,006.5 91.6 1,098.1
External expenses (854.0) (72.6) (926.6)
Operating profit before intangible amortisation and exceptional operating items 152.5 19.0 171.5
Amortisation of acquired intangible assets (29.3) (2.4) (31.7)
Exceptional operating items (39.1) - (39.1)
Operating profit 84.1 16.6 100.7
Finance income 1.5 - 1.5
Finance expense (11.8) - (11.8)
Profit before tax 73.8 16.6 90.4
Income tax expense (17.5) (4.2) (21.7)
Profit after tax 56.3 12.4 68.7
Basic earnings per share 21.4p 4.8p 26.2p
Basic adjusted earnings per share 42.1p 5.5p 47.6p
Diluted earnings per share 21.1p 4.7p 25.8p
Diluted adjusted earnings per share 41.6p 5.4p 47.0p
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11. Acquisitions and disposals continued
The profit from discontinued operations is attributable entirely to the equity holders of Essentra plc.
Cash flows of discontinued operations are as follows:
2016 2015
£m £m
Net cash inflow from operating activities 23.0 15.1
Net cash used in investing activities (1.0) (4.1)
Net cash flows for the year 22.0 11.0
The assets and liabilities of Porous Technologies at 31 December 2016 which are presented as assets and liabilities in
disposal group held for sale, and the assets and liabilities of the rest of the Group are as follows:
As at 31 December 2016
Porous Technologies Rest of Group Total Group
£m £m £m
Property, plant and equipment 35.2 285.9 321.1
Intangible assets 51.1 581.7 632.8
Long-term receivables - 3.5 3.5
Deferred tax assets - 2.6 2.6
Retirement benefit assets - 11.6 11.6
Inventories 9.2 115.1 124.3
Income tax receivable - 7.5 7.5
Trade and other receivables 28.5 218.4 246.9
Derivative assets - 1.2 1.2
Cash and cash equivalents 6.7 54.0 60.7
Total assets 130.7 1,281.5 1,412.2
Trade and other payables 14.2 204.3 218.5
Interest bearing loans and borrowings - 440.0 440.0
Provisions 0.2 6.1 6.3
Retirement benefit obligations 0.3 34.7 35.0
Derivative liabilities - 1.7 1.7
Deferred tax liabilities 10.5 65.8 76.3
Income tax payable 7.3 24.4 31.7
Total liabilities 32.5 777.0 809.5
The cumulative income or expenses included in other comprehensive income relating to Porous Technologies amounted to a net
gain of £18.1m (2015: £5.0m).
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12. Dividends
Per share Total
2016 2015- 2016 2015
p p £m £m
2015 interim: paid 30 October 2015 6.3 16.4
2015 final: paid 3 May 2016 14.4 37.5
2016 interim: paid 30 October 2016 6.3 16.5
2016 proposed final: payable 2 May 2017 14.4 37.6
20.7 20.7 54.1 53.9
13. Transactions with related parties
Other than the compensation of key management, Essentra has not entered into any material transactions with related parties
during 2015 and 2016.
14. Adjusted measures
Management reviews the adjusted operating profit and operating cash flow as measures of the performance of the business.
Adjusted operating profit is stated before amortisation of acquired intangible assets and exceptional operating items which
are considered not relevant to measuring the performance of the business. Operating cash flow is adjusted operating profit
before depreciation, share option expense and other non-cash items, less working capital movements and net capital
expenditure as shown below:
2016 2015
£m £m
Operating (loss)/profit (including discontinued operations) (34.7) 100.7
Amortisation of acquired intangible assets 32.9 31.7
Exceptional operating items 133.7 39.1
Adjusted operating profit (including discontinued operations) 131.9 171.5
Depreciation 34.3 31.9
Amortisation of non-acquired intangible assets 0.5 -
Share option expense 2.0 5.7
Other non-cash items (5.4) (2.9)
Working capital movements 1.7 (52.8)
Net capital expenditure (38.3) (54.8)
Operating cash inflow - adjusted (including discontinued operations) 126.7 98.6
The calculation of the earnings before interests, tax, depreciation and amortisation ("EBITDA") is as follows:
2016 2015
£m £m
Operating profit before intangible amortisation and exceptional operating items 131.9 171.5
Plus depreciation and other amounts written off property, plant and equipment, and amortisation of non-acquired intangible assets 34.8 31.9
Plus share option expense 2.0 5.7
EBITDA 168.7 209.1
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15. Financial instruments
The table below sets out Essentra's accounting categories and fair value for each class of financial asset and liability
(including amounts relating to disposal group held for sale).
2016 2015
Fair value Loans and receivables Amortised cost Total carrying value Fair value Loans and receivables Amortised cost Total carrying value
£m £m £m £m £m £m £m £m
Trade and other receivables - 242.0 - 242.0 - 243.8 - 243.8
Cash and cash equivalents - 60.7 - 60.7 - 30.2 - 30.2
Interest bearing loans and borrowings - - (440.0) (440.0) - - (404.1) (404.1)
Trade and other payables - - (158.7) (158.7) - - (174.8) (174.8)
Level 2 of fair value hierarchyDerivative assets 1.2 - - 1.2 0.4 - - 0.4
Derivative liabilities (1.7) - - (1.7) (0.4) - - (0.4)
Level 3 of fair value hierarchy
Other current payables (1.3) - - (1.3) (1.5) - - (1.5)
(1.8) 302.7 (598.7) (297.8) (1.5) 274.0 (578.9) (306.4)
Total trade and other receivables (including amounts relating to disposal group held for sale) carried at £250.4m (2015:
£254.0m) include prepayments of £8.4m (2015: £8.5m) and consideration paid in advance in respect of business acquisition of
£nil (2015: £1.7m) which are not financial assets and are therefore excluded from the above analysis. Fair values of
forward foreign exchange contracts and cross currency swaps have been calculated at year end forward exchange rates
compared to contracted rates. These are determined to be level 2 in the fair value hierarchy.
The only financial instrument with fair value determined by reference to significant unobservable inputs, which is
classified as level 3 in the fair value hierarchy, is the deferred contingent consideration of £1.3m relating to the
acquisition of Specialty Plastics and Kasmri (2015: £1.5m relating to the acquisition of Mesan Kilit A.S. and Specialty
Plastics). The fair value of the deferred contingent consideration is estimated based on an assessment of the likely
outcome of the acquired business' financial performance. There have been no transfers between levels of the fair value
hierarchy. There are no non-recurring fair value measurements. During the year, a fair value gain of £1.1m (2015: fair
value gain of £4.8m) in respect of financial instruments at level 3 fair value hierarchy was recognised within exceptional
items (see note 3), and £nil (2015: £nil) was settled in cash. No other fair value gains or losses were recorded in profit
or loss and other comprehensive income.
Included within interest bearing loans and borrowings are $160m US Private Placement Loan Notes. The Loan Notes are held at
amortised cost with a carrying value of £128.7m (2015: £108.3m). The Group estimates that the total fair value of the Loan
Notes at 31 December 2016 is £136.5m (2015: £117.4m).
All other financial assets, classified as 'loans and receivables', and trade and other payables, classified as 'amortised
cost', are held at amortised cost and have short terms to maturity. For this reason, their carrying amounts at the
reporting date approximate the fair values. Unsecured bank loans, included within interest bearing loans and borrowings,
incur interest at floating rates and as a result their carrying amounts also approximate their fair values at the reporting
date.
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16. Cautionary forward-looking statements
This Report contains forward-looking statements based on current expectations and assumptions. Various known and unknown
risks, uncertainties and other factors may cause actual results to differ from any future results or developments expressed
or implied from the forward-looking statements. Each forward-looking statement speaks only as of the date of this document.
The Company accepts no obligation to publicly revise or update these forward-looking statements or adjust them to future
events or developments, whether as a result of new information, future events or otherwise, except to the extent legally
required.
17. Directors' responsibility statement
We confirm that to the best of our knowledge
· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and
fair view of the assets, liabilities and financial position and profit or loss of the Company and the undertakings included
in the consolidation taken as a whole; and
· this announcement includes a fair review of the development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal
risks and uncertainties that they face.
On behalf of the Board
Paul Forman Stefan Schellinger
Chief Executive Group Finance Director
17 February 2017
37
MANAGEment of principal Risks
Risk management approach
The sound management of risk within the parameters of a clearly defined risk attitude statement underpins the successful
delivery of the Company's strategy. Unfortunately, during 2016 Essentra failed to successfully mitigate the risks
identified with the integration of the Health and Personal Care Packaging businesses at certain key sites and the impact of
those failings led to a significant decline in the Company financial performance during the year. The Company recognises
that its risk management objectives are designed to ensure risks are continuously monitored, associated action plans are
reviewed and challenged, appropriate contingencies are provisioned and information is reported accurately through
established management control procedures did not successfully address the risks which were identified during the course of
the year.
However, given that the risk governance processes could not prevent the continued deterioration of the Health and Personal
Care Packaging business during the second half of 2016, the Company has initiated a review of that structure and the
processes necessary to deliver improvements in the Company's identification, assessment and management of risk.
The Company is subject to the general risks and uncertainties which impact other international organisations, including
political and social instability in the countries in which the Company operates and sources raw materials, the impact of
natural disasters and changes in general economic conditions, including currency and interest rate fluctuations, tax
regimes and raw materials costs. In addition, the Board believes that the principal risks and uncertainties detailed below
are specific to Essentra. The details provided are not exhaustive and do not purport to be a complete explanation of all
potentially relevant issues. There may be other risks and uncertainties which are unknown to the Board, or which may not be
deemed by the Board to be material at present but which could prove to be so in the future.
The Board will be undertaking a further comprehensive assessment of the key risk and uncertainties potentially impacting
the Company as part of the strategic review being undertaken during H1 2017 and any changes to the existing assessment and
mitigating actions will be reported as part of the HY 2017 results.
1. Failure to address the decline in Health and Personal Care Packaging
The deterioration in the performance of the Health and Personal Care Packaging business during 2016 has significantly
impacted the overall financial performance of the Company. The failure to successfully mitigate the risks associated with
the integration of the business has seen the loss of certain customers and the reduction of volumes from certain other
customers. In addition, margin erosion impacted the profitability of remaining business. Failure of the Company to
successfully address the continuing decline in the Health and Personal Care Packaging business could lead to further
significant decline in the overall financial performance of the Company.
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Impact Mitigation
Failure to address the performance of theHealth and Personal Care Packaging businesscould lead to:· Loss of customers· Loss of revenue· Margin erosion· Quality and service failings· Potential further impairment· Loss of reputation In seeking to redress the decline in the performance of the Health and Personal Care Packaging business, Essentra will seek to· Deliver operational improvements and efficiencies· Secures quality and service improvements· Restore customer
confidence and trust· Successfully manage customer relationships· Secure new business
2. People and experience
The success of Essentra will be dependent on and will reflect its ability to retain, attract and motivate employees. This
ability is necessary in order to sustain, develop and grow its businesses and deliver Essentra's strategic objectives.
There can be no assurance that these employees will remain with the Company. 2016 saw a number of employees leave Essentra
in response to challenges within the Company and further departures could potentially impact the Company's capability to
fulfil its objectives for 2017. It is important that the Company successfully engages with current employees to ensure
their continued commitment to the further strategic development of Essentra and attracts further talent to drive future
growth opportunities.
Impact Mitigation
If Essentra fails to retain, attract or motivate the required calibre of employees, its operational performance and financial condition may be materially impacted by a lack of: · Experience · Expertise · Commercial relationships · Market insight · Product innovation In order to manage the risk of personnel change, Essentra: · Regularly reviews personal development and succession planning · Implements management development schemes and other training programmes · Sets effective remuneration programmes ·
Provides long-term share-based incentive plans · Uses a talent management system · Continues to recruit graduates on its development programme· Conducts regular reviews of employee engagement
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3 Customer profile and retention
In some of Essentra's businesses the customer base is relatively concentrated. Should Essentra's customers decide to
satisfy their requirements internally or from other suppliers, and if Essentra were unable to secure new revenue streams,
this could result in a significant loss of business. Essentra must serve an increasingly complex profile of customers, who
will be heavily reliant on the Company in some cases. There is now an increased expectation from these customers, and
Essentra risks losing business should it fail to adequately measure customer satisfaction and manage relationships.
Essentra recognises that the failure to successfully mitigate the risks identified with the integration of the Health and
Personal Care Packing business to ensure the delivery of the level of quality and service expected by customers, has led to
the loss of customers and reduced volumes from certain remaining customers.
Impact Mitigation
The loss of certain of Essentra's key customers may expose the Company to: · Reduced revenue · Restructuring costs · Profit decline · Deterioration in financial condition · Reputational damage To counteract the Company's exposure to its customer profile, Essentra: · Invests in innovative, high-quality, value-added products and services · Develops long-term relationships and loyalty with customers at all levels through Key Account
Management techniques · Seeks new markets and growth opportunities to expand its customer base
4. Disruption to infrastructure
A catastrophic loss of the use of all or a portion of any of Essentra's manufacturing or distribution facilities due to
accident, labour issues, fire, terrorist attack, natural disaster, information technology failure, political unrest or
otherwise which, whether short- or long-term, could adversely affect the Company's ability to meet the demands of its
customers. Some of the assets maintained by the Company, such as tooling and IT systems, are critical to the manufacture
and delivery of particular products. An independent assessment of the nature and extent of the Company's existing business
continuity plans conducted in the second half of 2016 recommended a number of improvements to better facilitate Essentra's
ability to respond to this area of risk and the Company will be implementing various new protocols during 2017 and beyond.
40
Impact Mitigation
A material disruption to operational facilities or the loss of critical assets may negatively affect the Company's: · Production capability and asset base· Supply chain management· Customer relationships· Reputation· Revenue· Profit· Financial condition Essentra seeks to manage the risk of potential disruption of the supply of its customers by: · Operating within a flexible global infrastructure · Installing fire and other risk prevention systems · Documenting, implementing and testing
disaster recovery and business continuity plans· Assessing operational risks · Maintaining a comprehensive insurance programme· Aligning Group information technology resources
5. Tobacco industry market dynamics
A substantial part of Essentra's business relates to the supply of filter products and packaging solutions to manufacturers
in the tobacco industry. Future performance may be affected by market dynamics within the industry, including commercial
pressures from customers, global consumption shift from western to eastern markets, overall declining market growth,
customer self-manufacture, new-generation development (such as e-cigarettes) and evolving legislation. Essentra cannot be
competitive unless it manages and adapts its operational capacity in line with these trends. Tobacco-related litigation
could also adversely affect Essentra, although there is no history of the Company being involved in such claims.
Impact Mitigation
Tobacco industry market dynamics may lead to: · Reduced revenue · Restructuring costs · Profit decline · Reputational damage · Deterioration in financial condition· Litigation risk In seeking to minimise the potential impact of the exposure to the tobacco industry, Essentra: · Invests in the research and development of innovative and new value-added products and services · Targets growth opportunities outside the manufacture
of filter products· Focuses on low-cost filter production · Takes internal and external legal advice to manage litigation risk· Seeks to add value with a range of low-cost and innovative packaging solutions
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6 Emerging technologies and new competition pressures
Essentra faces pressure from direct competitors, as well as new competition from alternative technologies. Some of the
Company's competitors may derive advantage from greater financial resources, economies of scale or additional purchasing
power or a lower cost base, and Essentra may face aggressive pricing practices.
Impact Mitigation
Demand for competitors' products and the development of competing technologies may result in: · Loss of market positions · Erosion of margins · Intellectual property challenges · Decline in revenue · Decline in profitability · Deterioration in financial condition Essentra seeks to mitigate the risk of competitive pressure by: · Exploiting innovation and manufacturing capabilities in new technologies, products and services · Developing long-term relationships with customers at a senior level ·
Protecting its intellectual property rights · Expanding its international distribution, sales and marketing expertise · Investing in both organic and acquisition growth opportunities
7 Key raw materials supply
Some of Essentra's businesses are dependent on the availability of specialist raw materials or components which are
incorporated into the Company's products. Key raw materials may be subject to price fluctuations from supply shortages. If
rapid increases occur in the price of such raw materials, including energy costs, the Company's revenue and profitability
may be materially and adversely affected.
Impact Mitigation
If Essentra is exposed to raw materials price increases or supply shortages, the Company may suffer: · Disruption to supply · Increased costs · Profit decline · Reduced revenue To counteract the Company's exposure to increases in raw materials costs or supply shortages, Essentra seeks to: · Adopt appropriate procurement practices · Secure longer-term supply agreements· Implement cost recovery programmes · Investigate the availability of alternative supply options· Use
consignment stock
42
8. Information Technology Systems and Cyber security
The current diversity and functionality limitations of existing Information Technology Systems within Essentra could
inhibit the Company's ability to perform and meet its strategic objectives. A number of Essentra business processes are
reliant on information technology systems and failure to address current limitations could significantly impact on the
operation and reporting of business activities. In addition, Essentra holds sensitive information relating to its
customers, suppliers and employees as well as intellectual property and financial data that needs to be held securely.
Should security be breached, Essentra risks loss of customers and suppliers, information breach fines, disruption of normal
operations and reputational damage.
Impact Mitigation
Failure to have adequate measures in place may lead to: · Reduced revenue and profit· Disruption of normal operations· Litigation · Reputational damage To counteract the limitations in the Company's existing Information Technology system and reduce the Company's exposure to cyber security breaches, Essentra: · Invests in industry best practice security software· Maintains a Security Operations
Centre and acts upon external expert advice· Undertakes internal cyber security development initiatives· Reviews options to secure alignment on information technology resources across the Company· Makes targeted investment to drive information
technology systems improvements
9 Compliance risk
Risk related to regulatory and legislative changes involves the possible failure of the Company to comply with current,
changing or new legislation or regulation. Many of Essentra's current business activities are subject to increasing
regulation and enforcement activity by relevant authorities. As the Company moves into new markets and territories in
pursuit of its strategic priorities Essentra is exposed to new and additional compliance risk. The Company recognises the
fundamental importance of ensuring the appropriate ethical culture in the management of this risk and 2017 will also see a
review of the Company's governance and compliance activities to further drive the right behaviours.
43
Impact Mitigation
Failure by the Company or its employees or others acting on its behalf to abide by the laws and regulations could result in: · Administrative, civil or criminal liability · Significant fines and penalties · Suspense or debarment of the Company from trading · Reputational damage · Loss of commercial relationships In order to manage compliance risk Essentra: · Seeks to establishes a clear compliance culture from the top down· Conducts risk assessments and ongoing compliance reviews· Implements relevant policies and procedures · Provides behavioural
guidance and training to all employees · Monitors compliance through internal audit review and other verification procedures· Engages local advisers as appropriate
10 Innovation
Essentra's development and growth has benefited from the success of start-up operations and the continued growth of already
established businesses. The rate of success of any development may in part be dependent on the Group's innovation pipeline
and the ability of the Company to be innovative with its operations in order to create efficiencies. There can be no
assurance that the Company will anticipate market demand, develop, complete and commercialise current and suitable new
products, or be successfully innovative in its operations.
Impact Mitigation
If Essentra fails to meet the challenges of innovation, the Company may experience: · Lower growth rates · Delay in the achievement of strategic objectives· Reduced profitability Essentra seeks to address the challenge of international business development with: · Experienced and skilled management · Detailed due diligence and planning· Continuous improvement programmes· Innovation programmes with targeted investment support
11 Mergers and acquisitions
Essentra's future development and growth may be derived from value-adding acquisitions. The rate of any future acquisition
integration may in part be dependent on the success of identifying the correct acquisitions and having sufficient resources
available to successfully deliver cost savings, synergies or to otherwise add value. There can be no assurance that the
Company will be successful in completing and integrating suitable acquisitions. The failure to manage and integrate
projects successfully may lead to customer loss, revenue decline and margin erosion.
44
Essentra recognises that the failure to successfully mitigate the risks identified in the integration of the Health and
Personal Care Packaging business led to a subsequent deterioration in the performance of the business
Impact Mitigation
If Essentra fails to meet the challenges of business development arising from acquisitions, the Company may experience: · Lower growth rates · Delay in the achievement of strategic objectives · Increased costs · Reduced profitability· Customer loss In future, Essentra will seek to address the challenges of mergers and acquisitions and any subsequent integration activities with: · Experienced and skilled management · Detailed due diligence and planning · Project risk reviews ·
External expert advice· Targeted investment to manage change within acquired businesses
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