REG - Essentra plc - Results for the Full Year Ended 31 December 2022
29/03/2023 07:00
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RNS Number : 5526U Essentra plc 29 March 2023
ESSENTRA PLC
("Essentra" or the "Company")
RESULTS FOR THE FULL YEAR ENDED 31 DECEMBER 2022
A year of business transformation. Well-set for growth
Overview
· A strategically transformational year for Essentra
· Disposals of the Filters and Packaging businesses completed in Q4
2022, resulting in a market leading pure-play Components business and
commitment to return c.£150m to shareholders
· The Group announced the acquisition of Wixroyd in December 2022, in
line with the stated strategy of acquiring bolt-on acquisitions
· FY 2022 performance of the continuing business in line with the
Board's expectations
· FY 2023 Board expectations are unchanged
Components financial highlights(2)
· Revenue growth of 12.0%, to £337.9m, 9.5% on a constant currency
basis
· Adjusted(1) operating profit growth of 12.0% to £63.7m, before
central costs
· Adjusted(1) operating margin increases on a constant currency basis
to 18.9% before central costs, driven by strong pricing delivery offsetting
inflation, and management of our cost base
· Pro-forma(3) adjusted operating profit of £43.0m (2021: £40.3m),
after allocating on-going central service costs of £20.7m
· Adjusted(1) operating cash flows of £20.2m (2021: £17.8m) and
cash conversion of 80% (2021: 67%)
· Strong balance sheet to support investment in organic and inorganic
growth
Group Reported financial highlights(2)
· Operating loss of £11.3m (2021: £7.7m profit) after recognising
central costs previously allocated to the discontinued operations, and
including adjusting items and amortisation of acquired intangibles
· Discontinued post-tax loss of £152.7m (2021: £33.2m profit),
including the impairment of goodwill and other intangibles for the Packaging
business of £182.7m
· Group net cash inflow from operating activities of £64.0m (2021:
£63.2m)
Ordinary dividend and shareholder return
· Year-end net funding surplus of £113.8m (incl. IFRS lease
liabilities) after the acquisition of Wixroyd
· £150m capital return announced, consisting of £90.0m special
dividend (29.8p per share) and £60.0m share buyback
· Recommended final ordinary dividend of 1.0p per share, FY 2022 3.3p
per share
Outlook
· The Board's expectations for 2023 remain unchanged
· The business has the ability to manage volume impacts through
implementation of pricing actions, and careful cost management, validated by
historical through-cycle margin resilience
· Distributors have continued to show signs of destocking impacting
the US in particular, whilst there are improvements in China, and Europe
continues to be robust. To date, new order intake is c.8% ahead of 2022 on a
like-for-like basis
· Our strong balance sheet will drive investment in value enhancing
bolt-on M&A opportunities; we have a strong pipeline that we are actively
managing
· A robust and differentiated business model, with the expectation of
making further progress against the medium-term targets shared at the Capital
Markets Event in November 2022
(1 Refer to Note 16 of the Consolidated Financial Statements for definition of
Adjusted performance measures)
(2 Prior year has been re-presented to remove the disposed Packaging and
Filters businesses. See Note 1 to the Consolidated Financial Statements)
(3 Pro-forma operating profit is an additional Alternative Performance
Measure, which has been used to present the continuing Components business on
a standalone basis, using historical cost allocation methodologies. The
Components adjusted operating profit has been adjusted for the central service
costs that are allocated to continuing operations)
( )
( )
Commenting on the Full Year results, Scott Fawcett, Chief Executive, said:
"2022 saw the conclusion of a transformational chapter and I am excited to be
leading Essentra on the next stage of our strategy, as a leading global
manufacturer and distributor of industrial components.
While 2022 brought a number of changes for the organisation as a whole, it has
laid the foundations to capture future growth opportunities. We have continued
to invest organically and inorganically, supporting the business to make
progress commercially, whilst maintaining strong operating margins.
We have remained focussed on serving our customers, and enhancing our
hassle-free proposition. Our NPS has improved by 11 points to 34, and we
continue to invest in digitalisation and cross-selling tools. I am proud of
our people who are working hard to deliver for customers, and delighted that
we received an industry leading employee engagement score of 83%, in our most
recent survey.
We are focussed on strong profit margins and managing our cost base and we are
pleased to see new order intake to date c.8% ahead of 2022 on a LFL basis. We
will continue to invest in organic growth initiatives as well as value
accretive bolt-on M&A, for which our pipeline is active. Our expectations
for 2023 are unchanged."
Results at a glance:
FY 2022 FY 2021(4) % change Actual FX % change Constant FX
Continuing operations
Revenue £338m £302m +12 +10
Components adjusted(1) operating profit £64m £57m +12 +12
Central service costs allocated to continuing operations £(21)m £(17)m +25 +23
Pro-forma adjusted(1) operating profit(7) £43m £40m +7 +7
Central service costs allocated to discontinued operations £(18)m £(14)m +29 +22
Adjusted(1) operating profit £25m £26m -5 -1
Adjusted(1) pre-tax profit £7m £12m -37 -36
Adjusted(1) net income(2) £6m £11m -49 -48
Adjusted(1) basic earnings per share 1.9p 3.7p -49 -48
Continuing operations
Reported operating (loss) / profit £(11)m £8m n/a n/a
Reported pre-tax (loss) / profit £(29)m £(7)m n/a n/a
Reported net (loss) / profit(2) £(31)m £(5)m n/a n/a
Reported (loss) / profit per share (10.3)p (1.6)p n/a n/a
Reported net cash inflow / (outflow) from operating activities £4m £(3)m n/a n/a
Free cash flow(3) £6m £(1)m n/a n/a
Total Group
Dividend per share 3.3p 6.0p -45 n/a
Net funding surplus / (debt)(6) £114m £(235)m n/a n/a
Net funding surplus / (debt) to adjusted EBITDA(5,6) 2.3x (1.7)x n/a n/a
( )
(1 Refer to Note 16 of the Consolidated Financial Statements for definition of
Adjusted performance measures)
(2 Net income is defined as profit / (loss) after tax
3 A reconciliation of free cash flow on continuing operations is set out in
the Financial Review section)
(4 Prior year has been re-presented to remove the disposed Packaging and
Filters businesses. See Note 1 to the Consolidated Financial Statements)
(5 EBITDA is defined as operating profit before depreciation (and other
amounts written off property, plant and equipment), share option expense,
intangible amortisation and adjusting items. For 2022 EBITDA is calculated on
a continuing basis and for 2021 on a total Group basis)
(6 Presented including lease liabilities. Net fund surplus excluding lease
liabilities £137m; 3.3x net fund surplus to EBITDA (2021: £(177)m net debt,
(1.5)x net debt to EBITDA). For 2022 EBITDA is calculated on a continuing
basis and for 2021 on a total Group basis)
(7 Pro-forma operating profit is an additional Alternative Performance
Measure, which has been used to present the business on a continuing
Components standalone basis, using historical cost allocation methodologies.
The Components adjusted operating profit has been adjusted for the central
service costs that are allocated to continuing operations)
( )
Enquiries
Essentra plc Teneo
Claire Goodman, Investor Relations Manager Olivia Peters
Jack Clarke, Chief Financial Officer Lisa Jarrett-Kerr
Lucy Yank, Group Communications Director
Tel: +44 (0)1908 359100 Tel: +44 (0)20 7353 4200
Presentation
A copy of these results is available on www.essentraplc.com
(http://www.essentraplc.com/)
There will be a presentation to analysts and investors starting at 09:00
(UK time, registration from 08:30) on Wednesday 29 March 2023 at Peel Hunt
LLP, 7th Floor, 100 Liverpool St, London EC2M 2AT.
There are two options for participating in the event:
1. To attend in person, please e-mail your details
to investorrelations@essentra.com (mailto:investorrelations@essentra.com)
2. To join the live webcast of the presentation, please pre-register
at: http://www.essentraplc.com/en/investors/company-information/webcasts-and-presentations
(http://www.essentraplc.com/en/investors/company-information/webcasts-and-presentations)
A recording of the webcast will be made available on the Company's website
later in the day.
Notes to Editors
About Essentra plc
Essentra plc is a FTSE 250 company and a leading global provider of essential
components and solutions, focusing on the manufacture and distribution of
plastic injection moulded, vinyl dip moulded and metal items.
Headquartered in the United Kingdom, Essentra's global network extends to 28
countries worldwide and includes over 3,000 employees, 13 manufacturing
facilities, 24 distribution centres and 33 sales & service centres serving
c.74,000 customers with a rapid supply of low cost but essential products for
a variety of applications in industries such as equipment manufacturing,
automotive, fabrication, electronics, medical and renewable energy.
For further information, please visit www.essentraplc.com
(http://www.essentraplc.com)
Cautionary forward-looking statement
These results contain 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 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 revise or update these forward-looking statements publicly or
adjust them to future events of developments, whether as a result of new
information, future events or otherwise, except to the extent legally
required.
CEO Review
Operating Review
Components
2022 % growth % growth
£m Actual FX Constant FX
Revenue 337.9 +12.0 +9.5
Adjusted(1) operating profit 63.7 +12.0 +12.0
Adjusted(1) operating margin 18.9% 0 bps +50bps
(1 Refer to Note 16 of the Consolidated Financial Statements for definition of
Adjusted performance measures)
( )
With approximately 94% of adjusted operating profit generated outside the UK,
revenue was positively impacted by c.2.5% currency translation over the
period.
Revenue for the year increased by 12.0% to £337.9m, 9.5% growth at constant
currency, and 6.5% LFL excluding the acquisitions of Hengzhu and Wixroyd. H1
2022 saw strong demand from most industry sectors and as the Americas and
Europe emerged in a post-covid recovery phase, the business also saw
inflationary pressures. In the latter part of the year, the business saw local
lockdown restrictions persisting in China, and distributor destocking
impacting volumes in the US. The devastating impacts of the war in Ukraine,
whilst not impacting significantly (c.1% of sales), were felt by the wider
market.
Adjusted operating profit increased by 12.0% to £63.7m, equating to an
adjusted operating margin of 18.9% (2021: 18.9%). The operating margin
reflects disciplined pricing actions, which offset cost inflation for the
year. The related profit impact of the reduction in volume through H2 was
further offset by mitigating actions, including managing the cost base
proactively.
The business continues to respond to risks in the supply chain by adjusting
capacity and maintaining a more agile approach, demonstrating the resilience
of the business model. Having a global manufacturing and distribution
footprint has provided the flexibility to de-risk areas of the supply chain
and the ability to increasingly support customers in a volatile environment.
In response to increased inflationary pressures (materials, labour, energy and
freight), and to protect margins, the business implemented a series of price
increases through 2022, the impact of which offset inflationary costs. In 2023
it is expected that freight and material inflation will ease, with labour cost
inflation remaining heightened. Whilst energy inflation continues to rise, the
Group's exposure is small. The Group will monitor inflation in 2023, and take
pricing actions where it is appropriate to protect profit margins.
Consistent with the commitment to providing customers with a "hassle-free"
experience, Components has continued progress on its digital journey. The
global roll out of the new digital platform in both Turkey and Thailand has
been completed, and the next generation websites are now live in 26 sites and
17 languages. A large majority of the customers' journey starts online, and a
strong digital front end has generated more organic traffic and improved
customer conversion rates.
As indicated at the HY 2022 results, the roll out of the new ERP system has
recommenced. Using learnings from a review of the programme in the latter part
of 2021 and early 2022, with new resources, in-house talent and a revised
Components focussed approach, there has been a successful deployment in France
providing increased confidence in 2023 to accelerate the roll out, starting in
Eastern Europe. A phased deployment approach will be adopted, targeting
completion of the ERP implementation across all sites before the end of 2024,
leading to enhanced pricing and operational efficiencies that will support
margin expansion. In 2022, in line with previous guidance, the business
incurred implementation costs of c.£12m (reported within adjusting items as a
software as a service ("SaaS") development expense). It is anticipated that
the business will incur costs of c.£12m in 2023 and £8m-£10m in 2024 to
complete the implementation process.
The Group is extremely pleased that the focus on customer service improvements
has been reflected in the On Time In Full (OTIF) metric of 78.2% (consistently
above 85% in Q4) and the 2022 Net Promoter Score (NPS) improved by 11pts to 34
in the recent annual survey vs 2021. Closely linked to customer satisfaction,
employee engagement increased to 83%, above the industry average. In a year of
change for the business, having high engagement with the workforce helps to
build a strong foundation for future growth.
The Component's service driven distribution model has been enhanced, with the
opening of a new Eastern Europe hub in Łódź, Poland in September 2022. As a
result, capacity can be built to enable growth in Eastern markets, strengthen
service reliability and be more cost effective. The opening of an Eastern
Europe hub also reduces dependency on the existing German hub, and provides
access to key freight links. In 2023, and as part of the Group's capex
guidance, there are plans to expand the manufacturing presence with a new
facility in Mexico. This will enable the acceleration of near-shoring
opportunities, bringing production closer to customer demand, and increase
capacity to support wider growth plans. It is anticipated that the new
facility will be operational in H1 2023.
In line with our stated strategy of acquiring bolt-on acquisitions, the Group
announced the acquisition of Wixroyd Group (Wixroyd) in December 2022. This
was the first acquisition to be announced since outlining the new pure-play
Components strategy, and continues a successful track record of acquisitions
in the Components business over the last ten years. Wixroyd is a leading UK
supplier of industrial parts for the automation sector and will expand
Essentra's capabilities in hardware components, creating additional
cross-selling opportunities across a range of Essentra's end markets.
Discontinued Operations. The results of the Packaging business and the Filters
business have been classified as discontinued operations at 31 December 2022
and comparative information has been re-presented. Financial information
relating to these discontinued operations for the period to their respective
dates of disposal, is set out in note 13 to the Consolidated Financial
Statements.
Discontinued operations recognised £152.7m post-tax loss (2021: £33.2m
profit) for the year, as reported in the Consolidated Income Statement, which
includes an impairment of the Packaging business of £182.7m, as disclosed in
the HY22 results. Refer to Note 11 to the Consolidated Financial Statements
for further information.
ESG progress and refreshed framework. In 2022 Essentra reassessed its ESG
framework, and how it could better shape the existing strategy to ensure it
was fit for a standalone Components business. The framework is centred on
reducing the Company's environmental impact, working with customers and
suppliers to innovate sustainable products as well as maintaining the ability
to attract and retain talent, maximising colleague engagement and wellbeing.
In summary, Essentra have created five pillars to fulfil its sustainability
ambitions, linked closely to the UN Sustainable Development Goals, and is
committing to additional sustainability targets in 2023, covering each of the
Group's ESG pillars, being Planet, Culture, Communities, Components and
Customers.
The use of post-consumer recycled content materials has increased, 10.8% of
packaging and raw materials are obtained from more sustainable sources
compared to c.8.5% in 2021 (target of 20% in 2025). The business saw a Q4 exit
rate of c19.0% which provides confidence in achieving a reduction of 20% by
2025 as the Group anticipates reaching this target two years early, in 2023.
Throughout the year, a number of products within the Low Density Polyethylene
range were manufactured almost entirely from recycled materials. Essentra
continues to innovate and build relationships with its customers to recognise
further opportunities, and in 2023 will launch a Centre of Excellence to
accelerate the testing of recycled and bio based materials, with the
additional target of ensuring 100% of packaging is reusable, recyclable or
compostable by 2030.
Six new sites were certified as "zero waste to landfill" increasing the total
number to 12 sites in 2022 (33%), with the ambition of certifying all sites by
2030. 76% of all waste is now diverted from landfill.
Essentra saw a further reduction of normalised Greenhouse Gas emissions. In
2022, the Group revised its baseline to include the Hengzhu acquisition in
2021, and compared to 2019 baseline, we have reduced our Components absolute
Scope 1 and Scope 2 CO2 emissions by 27% and our emissions intensity by 35%,
ahead of the 25% reduction target by 2025.
As part of the revised ESG framework, Essentra will develop a new near-term
absolute emissions target for 2030, alongside a Scope 3 emissions target, to
reduce our emissions in the value chain. Essentra is also targeting the
development of an increased data set, leading to the opportunity to provide
customers with accurate information to understand their Scope 3 emissions.
Further details regarding our ESG strategy and commitments will be published
within our 2022 Annual Report.
Ordinary dividends and Shareholder return. The Board of Directors recommend a
final ordinary dividend of 1.0p per share, resulting in a total dividend for
FY 2022 of 3.3p (2021: final 4.0p, total 6.0p). In 2022, the dividend has been
rebased to account for the earnings of the continuing operations of the
business. The Board is committed to a progressive dividend policy going
forwards, maintaining dividend cover in the order of three times. The final
dividend will be paid on 30 June 2023 to shareholders on the share register of
the Company on 19 May 2023. The ex-dividend date will be 18 May 2023. Essentra
operates a Dividend Re-Investment Programme ("DRIP"), details of which are
available from the Company's Registrars, Computershare Investor Services PLC.
The final date for DRIP elections will be 9 June 2023.
As previously disclosed on 2 February 2023, the Company confirms its intention
to return approximately £150m of residual net transaction proceeds from the
disposals of the Packaging and Filters business including a special dividend
of £90m, representing approximately 29.8 pence per ordinary share (the
"Special Dividend"). The Company intends to pay the Special Dividend on 27
April 2023 to shareholders on the register of the Company as at 18:00 (UK
time) on 21 March 2023. The ordinary shares were marked ex-dividend as of 20
March 2023. The final date for DRIP elections in respect of the Special
Dividend will be 4 April 2023.
On 2 February 2023, the Board also confirmed its intention to initiate a share
buyback programme of up to £60m. A separate announcement has been released
today, 29 March 2023, containing further details, and confirming the launch of
the share buyback programme.
Board changes. As planned and previously communicated, Nicki Demby retired
from her role as Remuneration Committee Chair and Non-Executive Director
following the Company's 2022 AGM on 19 May 2022. Ralf Wunderlich has been
appointed as Remuneration Committee Chair, adding to his existing role as
Sustainability Committee Chair. Following the AGM on 19 May 2022, Dupsy Abiola
became a Non-Executive Director and Jack Clarke joined the Board as Chief
Financial Officer succeeding Lily Liu.
Following the successful completion of the Group's strategic reviews of the
Filters and Packaging divisions, Paul Forman decided to step down from his
role as Chief Executive of the Company on 31 December 2022. Paul has been
succeeded by Scott Fawcett, previously the Managing Director of Essentra's
Components division, and joined the Board on 1 January 2023.
The Board further confirmed on 3 January 2023 that Kath Durrant joined the
Board as a Non-Executive Director of Essentra plc.
Outlook.
The Board's expectations for 2023 remain unchanged. The business is able to
manage volume impacts through implementation of pricing actions and careful
cost management, validated by historical through-cycle margin resilience.
Although we continue to see distributor destocking, trading in Europe
continues to be robust and China's reopening will increasingly benefit our
business in Asia. To date, new order intake is c.8% ahead of 2022 levels on a
LFL basis.
Management is confident Essentra's robust and differentiated business model
will enable it to deliver against the medium-term targets shared at the
capital markets event in November 2022. Our global manufacturing and
distribution footprint, market-leading positions and focus on delivering
excellent customer service will support ongoing organic growth and
profitability, whilst our strong balance sheet will drive investment in our
strong pipeline of value enhancing bolt-on M&A opportunities.
Financial Review
Constant foreign exchange rates. Movements in exchange rates relative to
sterling affect actual results as reported. The constant exchange rate basis
("constant FX") adjusts the comparative to exclude such movements, to show the
underlying performance of the Company. The principal exchange rates for
Essentra were:
-------- Average -------- -------- Closing --------
FY 2022 FY 2021 FY 2022 FY 2021
US$:£ 1.24 1.38 1.20 1.35
€:£ 1.17 1.16 1.13 1.19
Re-translating at FY 2022 average exchange rates increases the prior year
revenue by £7.0m and decreases the adjusted operating profit by £1.0m.
Like-for-like ("LFL"). The term "like-for-like" describes the performance of
the continuing business on a comparable basis, adjusting for the impact of
acquisitions, disposals and foreign exchange. The FY 2022 LFL results are
adjusted for the acquisition of Wixroyd Group ("Wixroyd") on 1 December 2022,
and for the acquisition of Jiangxi Hengzhu Electrical Cabinet Lock Co., Ltd
("Hengzhu") on 2 August 2021. The FY 2022 and FY 2021 results have also been
adjusted for the completion of the Packaging business disposal previously
announced on 3 October 2022 and the completion of the Filters business
disposal previously announced on 5 December 2022.
Adjusted basis. The term "adjusted" excludes the impact of amortisation of
acquired intangible assets and adjusting items, less any associated tax
impact. In FY 2022, amortisation of acquired intangible assets was £10.4m
(2021: £8.6m), and there was a pre-tax charge for adjusting items of £26.0m
(2021: £10.1m). In the current year, the adjusting items include £12.4m
major software as a service ("SaaS") development expenditure (the majority of
which is relating to the ERP implementation); £10.4m from strategic review
and restructuring activities to right-size Components following the disposal
of Filters and Packaging, and £2.0m relating to legacy pension scheme costs.
Further details on adjusting items are shown in Note 3 to the Consolidated
Financial Statements.
Adjusted operating cash flow. Adjusted operating cash flow is net cash flow
from operating activities, excluding income tax paid, pensions adjustments,
and cash flows relating to adjusting items, less net capital expenditure. It
is a measure of the underlying cash generation of the business. Net capital
expenditure is included in this measure as management regard investment in
operational assets (tangible and intangible) as integral to the underlying
cash generation capability of the Company.
Constant FX, LFL and adjusted measures are provided to reflect the underlying
financial performance of Essentra. For further details on the performance
metrics used by Essentra, please refer to pages 20 to 23 of the 2021 Annual
Report.
Statutory to Adjusted Reconciliation for continuing operations:
31 December 2022 Reported Acquisitions Amortisation of acquired intangible assets Adjusting items Tax on adjustments FX LFL(3) / Adjusted(1)
Revenue £338m £(17)m - - - - £321m
Operating (loss)/ profit £(11)m - £10m £26m - - £25m
Pre-tax (loss)/ profit £(29)m - £10m £26m - - £7m
Net (loss) / income £(31)m - £10m £26m £1m - £6m
(Values are presented on a rounded basis)
( )
( )
31 December 2021(2) Reported Acquisitions Amortisation of acquired intangible assets Adjusting items Tax on adjustments FX LFL(3) / Adjusted(1)
Revenue £302m £(8)m - - - £7m £301m
Operating (loss) / profit £8m - £9m £10m - - £26m
Pre-tax (loss) / profit £(7)m - £9m £10m - - £12m
Net (loss) / income £(5)m - £9m £10m £(3)m - £11m
(Values are presented on a rounded basis)
( )
(1 Refer to Note 16 of the Consolidated Financial Statements for definition of
Adjusted performance measures)
(2 Prior year has been re-presented to remove the disposed Packaging and
Filters businesses. See Note 1 to the Consolidated Financial Statements)
(3 Like-for-like has been adjusted for the acquisitions of Hengzhu and
Wixroyd)
IAS 29: Turkey Hyperinflation. International Accounting Standards ("IAS") 29,
Financial Reporting in Hyperinflationary Economies, has been applied to the
Components business in Turkey. There has been more than a 100% increase in the
Consumer Price Index in Turkey between 2019 and 2022. As a result of IAS 29,
an increase in net assets of c.£18m and a c.£3m increase in profit before
tax has been recognised within the Full Year results. The Components business
in Turkey contributes c.6% revenue to the continuing Group.
Net finance expense. Net finance expense of £17.8m was £3.0m higher than the
prior year period, and is broken down as follows:
2022 2021(1)
£m £m
Net interest charged on net debt 14.5 10.9
Amortisation and write-off of bank fees 4.7 1.1
Net IAS 19 pension finance charge - 0.4
Interest on leases 1.5 1.4
Net other finance income 0.3 1.0
Monetary gain on hyper-inflation (3.2) -
Total net finance expense 17.8 14.8
(1 Prior year has been re-presented to remove the disposed Packaging and
Filters businesses. See Note 1 to the Consolidated Financial Statements)
The interest expense is expected to reduce in 2023 as a result of the Group
reducing US private placement ("USPP") debt in January 2023, using a portion
of the disposal proceeds to repay $247m of the $350m USPP notes initially
held.
Tax. The effective tax rate on underlying profit before tax (before adjusting
items and amortisation of acquired intangible assets) was 21.5% (2021
re-presented: 3.2%). The underlying effective tax rate for 2022 is within the
continuing operations of the 2022 forecast tax rate range of 21% to 22%.
Consistent with the disclosure of tax rates at HY 2022, this increased tax
rate compared to the prior year is primarily driven by the one-off non-cash
benefit on the remeasurement of deferred tax assets in 2021 (as a result of
the enacted change in UK Corporation Tax rates) and significant reductions in
central tax provisions in 2021.
Net working capital. Net working capital is defined as Inventories plus
Trade & Other Receivables less Trade & Other Payables, adjusted to
exclude Deferred Consideration Receivable / Payable, Interest Accruals and
Capital Payables ("Adjustments").
Continuing 2022 2021(1)
£m £m
Inventories 65.0 54.2
Trade & other receivables 66.4 54.6
Trade & other payables (91.5) (75.5)
Adjustments 4.3 5.6
Net working capital 44.2 38.9
(1 Prior year has been re-presented to remove the disposed Packaging and
Filters businesses. See Note 1 to the Consolidated Financial Statements)
The increase in net working capital was predominately due to higher inventory
and receivables levels, which were driven by enhanced trading volumes combined
with a build of inventory in H1, driven by an increased focus on serving
customers and rebuilding stock levels after the pandemic.
Adjusted operating cash flow from continuing operations. Adjusted operating
cash flow from continuing operations was 13% higher than the previous year at
£20.2m (2021: £17.8m), which equated to an operating cash conversion of 80%
in the year (2021: 67%). Free cash flow was £5.7m compared to £0.9m outflow
in 2021.
Continuing operations 2022 2021
£m £m
Adjusted operating profit 25.1 26.4
Depreciation and amortisation of non-acquired intangible assets 16.6 14.9
Right-of-use asset depreciation 5.6 5.4
Share option expense / other movements (0.1) (1.2)
Change in working capital (14.2) (15.0)
Net capital expenditure (excluding disposal proceeds relating to adjusting (12.8) (12.7)
items)
Adjusted operating cash flow 20.2 17.8
Tax(1) 1.7 (4.7)
Cash outflow in respect of adjusting items(1,2) (30.4) (23.9)
Pension contribution(2) - (4.8)
Add back: net capital expenditure (excluding disposal proceeds relating to 12.8 12.7
adjusting items)
Net cash inflow / (outflow) from operating activities 4.3 (2.9)
Adjusted operating cash flow 20.2 17.8
Tax(1) 1.7 (4.7)
Net interest paid (16.2) (9.2)
Pension contribution(2) - (4.8)
Free cash flow 5.7 (0.9)
(1 Tax paid excludes the tax paid/received in relation to adjusting items.
This is included within the cash outflow in respect of adjusting items)
(2 Pension contribution of £0.7m for legacy pension schemes has been included
within cash outflow in respect of adjusting items)
Net funding surplus / debt. Net funding surplus at the end of the period was
£113.8m compared to net debt of £234.7m in 2021 (including lease
liabilities). The overall increase was driven by proceeds received for the
disposal of the Filters and Packaging businesses and free cash flow generated,
less cash paid for the acquisition of Wixroyd.
The Group's financial ratios remain healthy. The ratio of net funding surplus
to EBITDA (on a continuing basis) excluding lease liabilities was 3.3x (2021:
net debt 1.5x on total group basis). Net funding surplus to EBITDA (on a
continuing basis) including lease liabilities was 2.3x (2021: net debt 1.7x on
a total group basis).
2022 £m
Net debt as at 1 January 2022 (234.7)
Free cash flow 5.7
Cash flow from discontinued businesses 31.3
Cash outflow in respect of adjusting items (30.4)
Foreign exchange (30.5)
Disposal - net proceeds received after costs to sell 385.4
Lease liabilities disposed through business disposals 37.6
Acquisitions - net of cash acquired (27.9)
Dividends to non-controlling interests (1.9)
Dividends to equity holders (19.0)
Lease liability movements (10.1)
Movement in loan hedging derivatives 14.8
Revaluation of loans (1.7)
Arrangement fee written off (3.2)
Amortisation of pre-paid facilities (1.6)
Net funding surplus as at 31 December 2022 113.8
Financing activities. One of the main sources of funding for the Company is a
Revolving Credit Facility ("RCF") provided by a group of six highly-rated
banks. In October 2021 Essentra completed the total refinancing of its RCF and
a new five-year term, expiring in November 2025 for a commitment of £275m. In
October 2022, following bank consent and as part of the strategic review, the
decision was taken to reduce the RCF facility to £200m, maintaining the same
terms. As of 29 March 2023, the RCF is undrawn.
In addition to the above and prior to the strategic reviews, the Company held
$350m of medium and long-dated USPP debt with an average coupon rate of
4.2%. Following receipt of the proceeds from the disposal of Filters the
medium-term dated notes were repaid in January 2023, totalling $100m.
Following receipt of the proceeds from the disposal of Packaging, in January
2023, the longer term dates notes were partly repaid at par plus accrued
interest, resizing the total USPP debt to $103m.
Pensions. As at 31 December 2022, the Company's IAS 19 net pension net
liability was £10.6m (2022: net surplus of £9.0m). During the year, and as
recognised at the HY 2022 results, the senior section of the pension scheme
purchased a buy-in policy, significantly de-risking a proportion of the UK
pension scheme against future funding deficits. An actuarial loss of £7.1m
was recognised through reserves.
Central Service Costs
2022 2021
£m £m
Central service costs attributable to the continuing operations (20.7) (16.6)
Central service costs allocated to discontinued operations(1) (13.7) (13.9)
Central service costs unallocated following disposal(2) (4.2) -
Total (38.6) (30.5)
(1 13.7m central service costs incurred in 2022 (2021: £13.9m) were allocated
to the Packaging and Filters businesses. After disposal, these costs have been
recognised within the continuing operations of the Group. Further details on
segmental reporting is in Note 2 to the Consolidated Financial Statements.)
(2. £4.2m relates to unallocated central service costs following disposal of
the Packaging and Filters businesses. After disposal, these costs have been
recognised within the continuing operations of the Group. Further details on
segmental reporting is in Note 2 to the Consolidated Financial Statements.)
( )
( )
In 2022, the Group recognised £20.7m of central overheads that were
attributable to the continuing operations. Whilst this is an increase on
£16.6m reported in 2021, the prior year central costs included a number of
one-off items in nature totalling c.£4.0m.
As part of the strategic review and transition to a pure-play Components
business, actions have been taken to right-size the central service costs
moving forward, with the intention of reaching a normalised central service
cost position towards the end of 2023.
Central service costs allocated to Packaging and Filters businesses, have
remained within the continuing operations of the group and reported within the
FY 2022 continuing operations financial statements. Costs that would have
previously been allocated to discontinued operations total £17.9m (2021:
£13.9m).
Treasury policy and controls. Essentra has a centralised treasury function to
manage funding, liquidity and exposure to interest rate and foreign exchange
risk. Treasury policies are approved by the Board and cover the nature of the
exposure to be hedged, the types of derivatives that may be employed and the
criteria for investing and borrowing cash. The Company intends on using
derivatives to manage foreign currency and interest rate risk arising from
underlying business activities. Whilst some transactions may be of a more
speculative nature, they are in place with the view to manage exchange rate
risk only. Underlying policy assumptions and activities are reviewed by the
Treasury Committee. Controls over exposure changes and transaction
authenticity are in place, and dealings are restricted to those banks with the
relevant combination of geographical presence, expertise and suitable credit
rating.
Foreign exchange risk. The majority of Essentra's net assets are in currencies
other than sterling. The Company's normal policy is to reduce the translation
exposure and the resulting impact on shareholders' funds through measures such
as borrowing in those currencies in which the Group has significant net
assets.
The majority of Essentra's transactions are carried out in the functional
currencies of its operations, and therefore transaction exposure is limited.
However, where such exposure does occur, Essentra uses forward foreign
currency contracts to hedge its exposure to movements in exchange rates on its
highly probable forecast foreign currency sales and purchases over a period of
up to 18 months.
Management of principal risks. The Board considers risk assessment,
identification of mitigating actions and internal controls to be fundamental
to achieving Essentra's strategic objectives. The Group's principal risks are
detailed later in this announcement.
Risk Management Report
RESPONDING TO CHANGE IN 2022
During the last two years, the Company has had to navigate and manage the
disruption caused by the pandemic, the war in Ukraine as well as disruption
across our supply chain and workforce. These challenges largely affected the
industry as a whole, although our response was very specific to the needs of
Essentra. In 2022, the Company's risk agenda was focused as much internally -
as we delivered the strategic reviews of the Packaging and Filters divisions -
as it was at the broader disruptive economic and geopolitical environment.
The risk management lessons we learnt during 2020 and 2021 resulted in us
being well placed to evolve our process to meet the emerging needs of the
business. The strategic reviews of the Packaging and Filters businesses, as
well as broader disruption to the business, resulted in further evolution of
our risk management framework. This framework is now aligned to the needs of
Essentra as a pure-play global Components business. The framework supports the
evolution of our approach and considers risk at both a strategic and an
operational level with a view to improving business resilience over the short
to long term.
Following on from the announcements in late 2021 in relation to the strategic
reviews, we have undertaken a series of in-depth risk workshops and reviews
with former and current leadership and with the support of external advisers.
These efforts have, following consultation with the ARC and Board, resulted in
new portfolio of Principal and Emerging Risks which are aligned to our new
strategic direction as a pure-play Components business. The following pages
reflect the output of these discussions with four Principal Risks having been
retired (in relation to: Achieving Acceptable Returns in the Packaging
Business, Tobacco Industry Dynamics, Internal Process and Control and the
delivery of the Strategic Reviews) and two new risks added (to reflect the
need to deliver on M&A and on the Execution of the Strategic Plan). Other
risks have been reviewed and have evolved, to a greater of lesser extent, to
reflect the current nature of the risk and our approach to mitigation.
Looking ahead to 2023, we anticipate that macroeconomic uncertainty will
remain, at least for the short to medium term; however, the work put in to our
risk management processes and practices over the past two years means we are
well placed to continue to deal with this in a manner that protects
profitability efficiently and effectively. Additionally, we continue to
analyse and assess the Emerging Risk landscape, with particular focus on
potential sources of disruption and our use of plastic as a raw material, to
ensure the Company's risk management practices continue not only to protect
stakeholder value but to support its creation in line with our strategic
growth objectives. Despite this focus on mitigating the impacts of an
increasing range of disruptive risks, we continue to pay close attention to
the increasing momentum associated with the risk agendas for ESG and climate
change along with the potential impacts of technology-related innovations
disrupting our core markets.
We continue to see economic disruption across our business, but our
geographical breadth, coupled with our ability to flex operating models with a
high degree of agility means we are well placed to maintain customer service
levels whilst managing the threats to our operations and the wellbeing of our
people.
RISK MANAGEMENT APPROACH
Our risk management activities aim to drive performance aligned to our
purpose, encourage growth through innovation and support the achievement of
our strategic objectives. In doing this, we take a balanced approach that puts
risk management at the core of the senior management agenda and more broadly
across our operations. We are committed to managing risks in a proactive,
efficient and effective manner to protect and enhance value, and provide
assurance to the Board and our stakeholders.
We made significant progress during 2022 in evolving our risk management
processes as our strategic reviews progressed; we continue to ensure they are
aligned with FTSE 250 upper quartile practice. Particular focus was placed on
reviewing our portfolio of Principal and Emerging Risks in the light of our
new strategic focus and an increasingly dynamic operating environment.
RISK MANAGEMENT FRAMEWORK
A refreshed risk management framework was introduced in 2021. As the strategic
reviews progressed in 2022, this framework has evolved to meeting the changing
needs of the business. The framework was developed to support the Company in
identifying and managing risk within defined appetite levels, at both a
strategic and an operational level. The current framework was designed to
provide the GEC and the Board with a clear line of sight over risk, to enable
informed decision-making and to deliver improved resilience.
Our risk management framework continues to evolve in line with best practice
to ensure that it supports the Company's growth and strategic objectives. A
robust, but flexible, approach to the management of risk is fundamental to the
continued success of the Company. In 2022, the challenges the Company faced
included ongoing remote working, temporary inaccessibility of some business
locations, raw material shortages, supply chain disruption, volatile supply
and demand, and distribution challenges. A clear focus was placed on ensuring
the continued operation of our risk management framework in this dynamic and
disruptive environment. Through regular discussions and virtual workshops with
all divisional and enabling function leadership teams, we ensured clear
accountability for the identification, assessment, and mitigation of risks
throughout the Company.
Risk can present itself in many forms and has the potential to impact health
and safety, the environment, our communities, our reputation, regulatory
compliance, market and financial performance and therefore the achievement of
our strategic objectives.
By understanding and managing risk, we provide greater certainty and
confidence to our shareholders, employees, customers, suppliers, and the
communities in which we operate.
The Board considers the nature and extent of the Principal Risks it is
prepared to take in achieving its strategic objectives - its risk appetite -
biannually by mapping these risks against a sliding scale from "risk-averse"
to "risk-neutral" to "risk-tolerant". This informs the development and focus
of mitigating actions for each of the Principal Risks. At a strategic level,
our risk management objectives are to:
· identify the Company's significant risks and appropriate mitigating
actions
· formulate the risk appetite and ensure that our business profile
and plans are consistent with it
· ensure that growth plans are properly supported by an effective
risk infrastructure
· help management teams to improve the control and co-ordination of
risk-taking across the Company.
STRENGTHENING OUR FRAMEWORK
To achieve the objective of implementing FTSE 250 upper quartile risk
management practice, we have made good progress in implementing our risk
management improvement plan in line with best practice and ISO 31000
guidelines.
In the year ahead, the Risk Assurance team will support regional and
functional leadership teams in the management of their risk processes,
specifically in relation to the delivery of strategic projects. In 2022 we
paid attention to both the Principal Risks we face as a pure-play Components
business and to potential Emerging Risks and also to ensuring clarity across
roles and responsibilities for those risks that cut across divisions and
enabling functions.
Principal Risks were subject to a series of deep-dive workshops with former
and current leadership and the Board.
RISK GOVERNANCE STRUCTURE AND OVERSIGHT
The Board has established a risk and internal control structure designed to
manage the achievement of strategic business objectives. The Risk Assurance
team, separate from line management, enables and facilitates the risk
management process across the Company and acts as the custodian of the
Company's risk architecture and supports risk management activities.
The GRC met four times in 2022, each meeting with a full attendance. The GRC
was chaired by the Chief Executive and its membership comprised the GMC
members, Head of Risk, Head of Governance and the Group Communications
Director. Non-member standing attendees were the Group Health, Safety and
Environment Director, the Chief information Security Officer and the Group
Financial Controller. Other members of senior management were also invited to
present reports on specific risk activities. The Chair of the ARC has a
standing invitation to attend all GRC meetings and received copies of the
minutes of every meeting. The Chair of the ARC also meets with the Head of
Risk on a monthly basis. The work of the GRC has now been subsumed into the
GEC; risk is a standing agenda item at every meeting and risk deep dives will
held on a quarterly basis and will ensure that all Principal and Emerging
Risks are covered at least once per calendar year.
The GEC's (formerly GRC's) responsibility is to focus and co-ordinate risk
management activities throughout the Company and to facilitate the appropriate
identification, evaluation, mitigation and management of all key business
risks. In addition, the GEC reviews the risk appetite and ongoing risk
management approach and makes recommendations on risk appetite to the Board
and actions required to ensure adequate controls and mitigating actions are in
place against identified risks.
As an important part of fulfilling its responsibilities the Board receives
regular reporting from the Chief Executive in relation to risk to enable the
Board to challenge and review the GEC's views on key risks.
The ARC engages directly with the regions and functions, including deep dive
reviews, as part of fulfilling its oversight responsibilities in relation to
risk management processes. The ARC, with assistance from Risk Assurance,
oversees compliance with risk management processes and the adequacy of risk
management activities related to the Company's operations.
The regional and functional leadership teams undertake regular reviews during
the course of the year and engage in facilitated discussions with Risk
Assurance to consider the risk environment for their particular functional or
geographic area of responsibility and how these could impact on the
achievement of the Company's strategic objectives.
PRINCIPAL RISKS
The GEC now has responsibility for enabling the identification and management
of Essentra's Principal Risks. An in-depth assessment has been undertaken to
assess the appropriateness and adequacy of our Principal Risks. The assessment
was performed against the four risk categories. As part of the process,
divisional and enabling function leadership teams have also undertaken reviews
of this risk portfolio supported, where necessary, by the Risk Assurance team.
As part of our top-down process, a detailed review of Principal Risks was
performed as the strategic reviews progressed. This considered risk from both
a top-down and bottom-up perceptive as well as through the lens of the
geopolitical and economic disruption we see today. All Principal Risks have
been assigned a GEC owner, assessed to consider the extent to which they might
impact the company's strategic objectives and, as a result, the approach to
mitigation defined and documented.
The output from these considerations were presented to the Board along with a
proposal for risk appetite, a recommendation of Principal Risks to be included
in long-term viability modelling and overall approval.
The Board believes the Principal Risks are specific to Essentra and reflect
the risk profile of the Company at the current time. All Principal Risks are
managed within their individual risk appetite.
The Board and GEC evaluate the potential effects of Principal Risks
materialising over a three-year period to understand how they could impact the
Company's long-term viability. The evaluation is based on plausible worst-case
scenarios.
To make this evaluation, the estimated financial impact of each Principal Risk
crystallising was considered. The Board and GEC assessed the potential impact
on the Company's viability, based on selected severe plausible risk scenarios.
These were developed in conjunction with senior management. The Principal
Risks that were considered to have a potentially significant impact on the
Company's viability are included in our Long-Term Viability Statement.
In addition to the Principal Risks, Emerging Risks and wider key risks have
been identified and are being monitored by the Company. Mitigation actions in
response to such risks are an important part of the divisional and enabling
functions risk reporting to the GEC and Board.
KEY CHANGES DURING THE YEAR
During 2022 we undertook a fundamental review of our Principal and Emerging
Risks as we executed the strategic reviews.
At the Half Year we disclosed the following key changes to our risks:
· an increase in relation to our 'Exposure to the Cyclical Industrial
Market' risk as the Company moved towards being a pure-play Components
business
· an increase in relation to our 'Talent and Workforce Management'
risk resulting from the Company's change agenda in relation to the strategic
reviews
No new Emerging Risks were noted at the Half Year.
Since our Half-Year disclosure, we continued our review of our Principal and
Emerging Risk profiles in the context of our strategic direction. The
following key changes have been made since then:
Retired Principal Risks:
· removal of our 'Failure to Achieve Acceptable Returns from the
Packaging Division' risk following the sale of that business
· removal of our 'Tobacco Industry Dynamics' risk following the sale
of that business
· removal of our 'Internal Processes and Control' risk following the
completion of our implementation of our Minimum Control Standards. This
remains a Key Risk to the business and robust mitigation continues to be in
place however we no longer consider it a Principal Risk
· removal of our 'Strategic Reviews' risk following their completion.
Whilst this has been retired as a Principal Risk, we continue to manage the
ongoing commitments under the sale agreements including the delivery of
transitional services and finalisation of completion accounts
New Principal Risks:
· a new 'M&A Execution and Integration' risk has been added as a
result of the need to reflect the importance of inorganic growth and the need
to efficiently and effectively execute transactions and integrations in a
difficult macroeconomic environment
· a new 'Execution of Strategic plan' risk has been added as a result
of the need to implement a portfolio of strategic initiatives to meet our
growth commitments
Evolving Principal Risks:
· our former 'Delivery of Strategic Projects' risk, which was largely
focused on the delivery of the Business Process Redesign (BPR) project in the
Components business has been developed into a 'Digital Transformation' risk
which now covers both the BPR project and the underlying digital ecosystem
required for our business to succeed
· our former 'Exposure to the Cyclical Industrial Market -
Components' risk has been redefined as a new 'Macroeconomic Environment' risk
that considers the impact of the macroeconomic situation on the business more
holistically
· our former 'Talent and Workforce Management' risk has been
redefined as 'Leadership Talent & Capability' to reflect the new strategic
direction and new leadership team
All other risks have been reviewed and updated to reflect the current nature
of the risk and mitigating activities.
EMERGING RISKS
We define an Emerging Risk as a changing risk or a novel combination of risks
for which there is no track record or previous experience by which the impact,
likelihood or costs can be understood. Its potential impact is viewed as being
two years or more in the future.
We strongly believe that the identification and appropriate management or
mitigation of Emerging Risks is critical to our long-term success.
Emerging Risks have the potential to increase in significance and affect the
performance of the Company and as such are continually monitored through our
existing risk management processes.
Our risk management process ensures Emerging Risks are identified and aids the
GEC and the Board's assessment of whether the Company is adequately prepared
for the potential opportunities and threats they present.
The process enables new and changing risks to be identified at an early stage
so we can analyse them thoroughly and assess any potential exposure.
We undertake a top-down and a bottom-up assessment to identify Emerging Risks.
A series of risk workshops with former Group and divisional leadership have
been held as the strategic reviews progressed and were facilitated by the Risk
Assurance team, the most recent of which considered the potential sources of
disruptive risk.
These workshops formed part of the ongoing cadence of Emerging Risk
identification and were followed by further discussion at GRC meetings.
Additionally, further assessments of potential Emerging Risks were performed
using externally sourced Emerging Risk data. The Company's potential exposure
is assessed against the Board's approved risk measurement criteria. The
process enables new and changing Emerging Risks to be identified at an early
stage so we can analyse them thoroughly and assess potential exposure.
The preliminary views of Emerging Risks were consolidated and discussed
initially by the GRC and then by the GEC to reach a consensus regarding
Emerging Risks that can seriously affect the performance, future prospects or
reputation of Essentra. The outputs from these assessments were presented to
the Board for approval along with the recommendation to develop appropriate
response strategies.
The GEC and the Board have undertaken a rigorous assessment of Emerging Risks
during 2022 and have established procedures to closely monitor Emerging Risks
on an ongoing basis including:
· the GEC's terms of reference require it to review the Company's
ability to identify Emerging Risks
· Emerging Risks is a standing agenda item at each GEC meeting and
each Emerging Risk will be subject to a deep-dive
· external specialist input will be sought where required
· identified Emerging Risks have been assigned an owner who is a GEC
member. The Emerging Risk owner is responsible for providing an update on the
development of Emerging Risks and activities in response at each meeting.
The Board can confirm that it has completed a robust assessment of the
Company's Principal and Emerging Risks. The Company continues to focus on
ensuring the adequate mitigation of risks faced by the Company to ensure
alignment with the Board-approved risk appetite.
Essentra has no significant operations or infrastructure in Russia or Ukraine
and the business does not have local currency exposure. We have processes in
place to ensure the Group is compliant with all relevant international
regulations and sanctions, continue to closely monitor the situation and
remain vigilant to changes in our risk profile resulting from it. We continue
to monitor the situation in Ukraine, the ongoing response of international
governments and any potential impact on the Company.
Emerging Risks and wider key risks have been identified and are being
monitored by the Company. Mitigation actions in response to such risks are an
important part of the Company's risk reporting to the GEC and the Board.
STRATEGIC RISKS
Environmental
Change in risk level: Unchanged
Ownership: Chief Operations Officer
Relevance: Industry general
Description
Formerly a component part of our Environmental, Social, & Governance
Principal Risk, this focuses on concerns around the impact of business on the
environment which are increasingly fundamental for all companies and
stakeholders. Essentra has specific exposure to:
· Single Use Plastics: including potential changes in relation to
laws and regulations and the need to increase recycled content and product
circularity. The business is actively working to incorporate more sustainable
materials and believes it has the innovation capability to enable future
growth opportunities with the use of such materials.
· Climate Change: given the business's operational footprint and, as
part of our TCFD activity, we have worked closely with third-party consultants
to understand the financial impact of climate-change-related physical risk
exposure at key sites across seven risk areas, under three scenarios. We have
identified ten material risks and opportunities relating to physical events,
the transition of our business resulting from changing customer demands and
the changing input costs relating to raw materials and power. We continue to
develop mitigation activity and management approaches to help address these
issues into our business continuity management and planning frameworks,
closely linked to existing work with our insurers.
Failure to meet stakeholder expectations on increasing environmental
governance obligations could lead to reputational or commercial risk for the
Company. This includes risks arising from changing investor attitudes,
developing customer expectations, changing supply chain dynamics, social
attitudes towards the environmental impact of our products (which may impact
on our ability to market them), along with ability to attract and retain
talent, given increasing employee focus on ESG more generally.
Elements of this risk that previously related to the EU packaging directive
and to the tobacco industry have been eliminated with the divestment of the
Packaging and Filters divisions.
Mitigation
Environmental activities are managed through the work of the Company's ESG
Committee (formerly Board Sustainability Committee). This is chaired by a
Non-Executive Director, and comprises members from Board, GEC and other senior
management. The role of this Committee is to:
· review and assess the Company's exposure to sustainability-related
issues
· assess the Company's responses to these issues
· understand whether these responses are consistent with the risk
appetite of the Company
· identify potential gaps in approach and high-level approaches to
closing those gaps
The ESG Committee's recommendations, in respect of reducing risk exposure,
inform the work of the GEC, global functions and the wider business.
Additionally, the Nomination and Remuneration Committees cover aspects of
environmental performance.
During the year, as part of refocusing the business to a pure-play Components
business, a new Sustainability Strategy team has been created to manage the
delivery of the Company's environmental objectives.
Finally, the GEC also continues to evolve our approach to managing climate
change risk, and we continue to work to fulfil our reporting obligations under
TCFD requirements.
Social
Change in risk level: Unchanged
Ownership: Chief People & Culture Officer
Relevance: Industry general
Description
Formerly a component part of our Environmental, Social, & Governance
Principal Risk, this focuses on concerns around the impact of business on our
stakeholders and the societies in which we operate. Essentra's risk is focused
in two areas:
· Ethical Supply Chain: the breadth of our operational supply chain
results in risks in relation to modern slavery, child labour and safe,
hygienic working environments.
· Diversity and Inclusion: the risk that we are unsuccessful in
leveraging the opportunities that a diverse team offers the business. Strong
engagement on ethnic and gender diversity and inclusion can also lead to
improved cognitive diversity and the avoidance of group-think. Essentra has a
global footprint and our diversity helps us serve the geographical markets in
which we operate. We believe diversity brings a range of outlooks to
decision-making and problem-solving as well as better representing our
employee base and the communities in which we operate.
More generally, we remain vigilant in respect of evolving expectations around
Essentra's engagement with its internal and external stakeholders more
broadly.
Failure to meet our obligations to our internal and external stakeholders and
the societies in which we operate more generally could lead to reputational or
commercial risk for the Company.
Mitigation
This Principal Risk is addressed in a number of ways. We have a robust "Know
Your Supplier" process which continuously screens significant suppliers for
restricted parties and adverse media. Additionally, significant suppliers are
required to confirm their compliance with Essentra's code of conduct. We are
currently reviewing a number of options for enhancing the breadth of our due
diligence to better understand and mitigate the risk of modern slavery and
child-labour (along with a number of more general ethical and operational
considerations) across our entire supply chain rather than just our direct
relationships.
We actively engage with our workforce on diversity and inclusion and monitor
key metrics at management levels. We continue the work of our Diversity and
Inclusion network which includes launching local and global campaigns to
promote awareness.
Digital Transformation
Change in risk level: Increased
Ownership: Chief Strategy Officer
Relevance: Company specific
Description
Our success is dependent, in part, on our ability to deliver key digital
projects on time and within budget to realise their full potential. We
continue to invest in, and deliver, our Business Process Redesign programme,
our digital eCommerce platforms and in the fidelity of our data to further
improve our service offering.
Failure to deliver these key initiatives could adversely affect our ability to
maintain a competitive advantage, to deliver our digital strategy and to
leverage our data as an asset.
The roll out of the Microsoft Dynamics 365 system as part for the Business
Process Redesign continues with significant strides made in Q4 2022. A
detailed plan is now in place to accelerate implementation throughout 2023.
The completion of this programme will provide a robust platform from which we
can further develop our digital capabilities.
Mitigation
In early 2022, we reviewed and strengthened governance arrangements and
resources to accelerate delivery of the Business Process Redesign programme. A
robust management framework is now in place to support the delivery of our
digital transformation, which includes the Business Process Redesign
programme, and during the year we opened a new Digital and Data hub in
Istanbul. These initiatives are supported by a project management
infrastructure.
We continue to maintain a strong focus on the skills and capabilities of our
employees in relation to the delivery of our digital projects. This is
achieved by providing training and support, as necessary and by mobilising
teams which possess the right skills to deliver. In particular, we support
project managers' development through a variety of training programmes and
professional qualifications.
Leadership Talent and Capability
Change in risk level: Increased
Ownership: Chief People and Culture Officer
Relevance: Company Specific
Description
Failure to acquire, retain, develop and motivate the required management and
leadership necessary to evolve our business, develop our culture and meet
future customer needs. Having recently concluded our strategic review, we are
now a pure-play Components business. During the review process, the Company
has been through a significant level of change and now has a completely new
leadership team. The level of change seen coupled with labour market dynamics,
requires us to continue our focus on retention of key talent, avoiding
burn-out and presenteeism. Additionally, we must continue to grow the agile
skills required to support and build our pure-play Components strategic
direction.
The experience of the past two years has clearly indicated the effect major
health events, be they global, regional or country specific, can have on the
availability of resources. We continue to see health related disruption in
China and there remains a risk that future major health events could result in
further labour disruption.
Mitigation
As part of our strategic review activity, the leadership and talent needs of
the pure-play Components have been assessed and a new organisation design
implemented to support them.
Additionally, a people strategy is in place and is designed to enhance the
employee experience, drive changes needed and have skilled leaders for the
future. This strategy considers:
· ensuring the variable pay schemes are adequate to retain key talent
and reward high performance
· building management capability across the wider team to ensure we
manage through the change journey in an engaged and considered way
· talent mapping and succession planning that considers current and
future business requirements
· developing the health and wellbeing strategy with a specific
consideration of the actions needed to aid retention of our wider workforce
· communication with employees is a critical step to ensure
engagement, drive a sense of purpose and belonging across the workforce
· assessing what training and support we can provide to future
leaders and managers on resilience and developing their personal career path
in a considered way.
Throughout the strategic reviews, we focused on the retention of existing
talent and also, where it did not exist internally, on attracting the external
talent necessary to deliver our strategy in this new pure-play environment. We
continue to review the organisation for points of failure at which additional
cross-training might be necessary to alleviate disruption.
M&A Execution and Integration
Change in risk level: New
Ownership: Chief Financial Officer
Relevance: Company specific
Description
As outlined in the October 2022 Capital Markets Day, M&A is a key part of
the Company's growth strategy. There is an inherent risk that there are
insufficient available targets to deliver the M&A plan. Additionally,
there is a risk that the Company is unable to successfully implement its
post-acquisition integration strategy as a result of some of the capability
and capacity constraints noted in Leadership Talent and Capability Principal
Risk. The nature of this risk differs between bolt-on and transformation
acquisitions.
Mitigation
The level of resource available to M&A execution is being reviewed and, if
appropriate, increased. The Company maintains and active M&A pipeline and
proactively seeks out potential targets. Work is ongoing to refine M&A
criteria, strategic priorities, with particular focus on the differing
requirements of bolt-on and transformational M&A, and the approach to
integration.
Macroeconomic Environment
Change in risk level: Decreased
Ownership: Chief Financial Officer
Relevance: Industry general
Description
In previous years, this risk has been called 'Exposure to the Cyclical
Industrial Market (Components Division)'. Now the Company has completed its
strategic reviews and is now a pure-play Components business, we have
re-framed the risk to consider the effect of changes in the macroeconomic
environment more generally. The Company serves a broad range of industrial
customers and, as such, is exposed to overall industrial production trends.
Global industrial production has tended to be cyclical in nature with major
economic downturns leading to a downturn in industrial production. From the
global financial crisis in 2008-2009 to the COVID-19 pandemic, economic cycles
have affected demand in these broad industrial markets.
The Company sells to a broad base of global and regional end markets including
automotive, capital goods and electronics. This market and geographical
breadth provides a degree of risk diversification; however, as we see from the
current economic climate, downturns in industrial production are almost
certain to happen, albeit with an uncertain time frame.
The Company seeks to operate a flexible model whereby changes to its cost base
can be quickly made to maintain operating margins against fluctuations in
demand. Whilst the Company has been historically successful in managing
profitability through the economic cycle, there remains a risk that the
necessary changes cannot be executed, or they are not robust enough to
minimise the impact on operating margins.
Mitigation
Key mitigating actions being undertaken to protect the Company from future
industrial declines include the following:
· the ongoing optimisation of fixed cost base to minimise the impact
of demand fluctuations. Specifically, the Company undertakes continuous
reviews of its operating footprint to optimise manufacturing and distribution
cost to serve. A new distribution model for EMEA has been implemented which
provides the opportunity for us to reduce our distribution footprint while
delivering enhanced service levels to our customers, the models for the
Americas and Asia are currently being reviewed
· our increased investment in the automation of production and
distribution activities, enabled by robotics, will further help to reduce
fixed costs. We also undertake ongoing reviews of our labour management
practices with a view to striking the right balance between permanent and
temporary employees, so that we are able to effectively manage our cost base
· diversification across the market sectors we sell to; both within
the industrial sector and also beyond it. We continue to develop our product
category management approach to better focus on faster growing and resilient
market segments. We continue to explore M&A and entry opportunities in new
markets to further mitigate this risk.
We continue to invest in our innovation capabilities to secure new
opportunities, develop our use of alternative materials and diversify our
product range.
EXTERNAL RISKS
Governance
Change in risk level: Decreased
Ownership: Company Secretary
Relevance Industry general
Description
The Company operates across many international jurisdictions and engages with
a wide range of stakeholders, including a diverse employee, customer and
supplier base. Some of our locations are considered higher risk from a
regulatory perspective, although this has reduced following the conclusion of
the Strategic Reviews. We are required to comply with multiple areas of
legislation and regulation across an increasingly broad range of areas
including: Anti-Trust, Anti- Bribery, Sanctions, Privacy and Environmental,
Social & Governance (ESG). Our operations are subject to an external
environment which is seeing an increasing breadth of emerging regulation and
greater levels of scrutiny and oversight from regulators, enforcement agencies
and other stakeholders.
Failure to manage effectively the scrutiny and oversight and/or comply with
laws and regulations could result in significant fines, costs or reputational
damage to the Company and might adversely affect our ability to operate in
certain jurisdictions.
Whilst the external environment is generating additional compliance demands,
the Company continues to drive continuous improvements in its approach to
managing regulatory and legislative requirements and overall the level of risk
to the Company has remained the same.
Mitigation
The Company deploys a range of mitigating activities to support the management
of regulatory risk including:
· a clear "tone from the top" from the Board and GEC on the
importance of ethics and compliance
· a compliance programme (including employee training) with which we
aim to conform with all applicable laws and regulations and encourage a
culture of openness, honesty and integrity
· a mechanism that seeks to ensure all employees complete mandatory
training on a timely basis
· improved compliance communication with "Be smart, be sure" campaign
· continuous improvement of the compliance framework to ensure an
effective and appropriate policies, processes, reporting and monitoring
· a Compliance function that directs and oversees the Company's
implementation of compliance programmes, policies and procedures which are
required to meet legal, compliance and regulatory requirements (including
sanctions)
· extensive focus on third party due diligence to take account of
lessons learnt from the past
· the Company's Governance, Risk and Compliance teams which, with
support from external advisers, continuously monitors current and forthcoming
changes to the regulatory* environment and emerging good practice
· disciplinary and IT lock-out processes to help ensure mandatory
governance training is completed on time
· a "Right to Speak" portal is in place to encourage the reporting of
governance issues.
Cyber Event
Change in risk level: Decreased
Ownership: Chief Digital Information Officer
Relevance: Industry general
Description
The Company is dependent on its internal and external IT systems for
day-to-day operations. Should the Company, or its key cloud service suppliers,
be affected by a cyber event (denial of service, data breach, compromise)
resulting from an external or internal threat, this could result in suspension
of critical business services and loss of data. Subsequently, the Company
could receive fines, suffer reputational damage and be unable to meet customer
expectations (leading to a loss of customer confidence). Prolonged outages
could further erode trust in the business resulting in long-term reputational
damage.
The change in ways of working that we have seen over the past few have
affected our operational dynamic with significant levels of remote working
continuing to be the norm. The Company has invested, as part of our pandemic
response, in improvements to protection of mobile devices and remote access.
As we look to the future, maintaining cyber security integrity in a growth
environment will be critical; disruptive cyber events remain a serious threat
to our digital ecosystem and to the smooth running of our business. We
continue to invest in our cyber security programme which includes mitigation
and risk reduction activities across people, process and technology.
Mitigation
The Company has an established cyber security improvement programme which has
evolved to meet the needs of the new Essentra, it aims to mitigate the risks
and operational disruption caused by cyber events. The programme includes:
· endpoint protection (including zero-trust remote access),
encryption of data, enhanced cloud-based security tooling and protection, web
and email content protection
· specific focus on mitigating cyber risks in relation to shop-floor
IT infrastructure
· identity and access management
· continued cyber security awareness training for all employees
· vulnerability and penetration testing for external IT services and
websites.
During the year, specific effort has gone into maintaining the cyber control
environment through the separation of the Packaging and Filters divisions and
the delivery of transitional services.
OPERATIONAL RISKS
Execution of the Strategic Plan
Change in risk level: New Risk
Ownership: Chief Strategy Officer
Relevance: Company specific
Description
The Company outlined ambitious plans during the recent Capital Markets Day
underpinned by a number of strategic initiatives. These initiatives include,
but are not limited to digital transformation, our approach to cross-selling
and product category management. Whilst elements of this strategy are touched
upon in other Principal Risks, there is a wider risk in relation to the
Company's ability to deliver the initiatives that underpin the growth
commitments made to the market. Additionally, there is a risk that the Company
suffers from initiative overload and cannot effectively prioritise critical
strategic tasks.
Mitigation
The Company's "hassle-free" strategy is in place and is underpinned by ongoing
work on Product Category management and our digital transformation. The
Company already seeks to drive the cross-selling of products across
geographical and market boundaries. This is particularly the case for some of
our more recent acquisitions. Work is ongoing to ensure the Company's project
portfolio is adequately scoped for the level of resource available and
prioritised towards those activities that are critical to achieving strategic
objectives.
Health and Safety Performance
Change in risk level: Unchanged
Ownership: Chief Operations Officer
Relevance: Company specific
Description
The safety, health and wellbeing of our employees remains one of our highest
priorities.
Essentra has many manufacturing, distribution and administrative facilities
across the world, along with internationally mobile employees. Manufacturing
and distribution can be inherently risky given the use of industrial machinery
and high-speed manufacturing processes. In addition, the Company must comply
with national safety regulation in multiple jurisdictions.
Should a serious incident occur involving our employees or visitors, or should
there be any breach of safety regulation, there is a risk of prosecution and
considerable reputational damage as well as potentially significant financial
costs.
As we seek to grow the business both organically and inorganically, we are
mindful of the affect this might have on our risk profile. Our approach to
integration ensures early deployment of Essentra's safety practices. More
generally we continue to drive our safety culture through the 'tone at the
top' and across the whole company.
Mitigation
The "tone from the top" continues to reinforce safety, health and wellbeing
behaviours across all of our businesses and employees. The establishment of
appropriate Safety Management Systems is a high priority for management teams.
Some of the key mitigations which are in place include:
· regular reporting to the GEC and the Board on Health, Safety and
Environment (HSE) related matters
· a Company HSE policy detailing required standards, governance, roles
and responsibilities at all sites
· increasing use of the Enabler system to automate our Global 'Stop,
Think, Examine, Proceed' (STEP) programme. This is a hazard identification and
process improvement initiative that empowers the entire workforce to recognise
and address safety improvement opportunities. Corrective actions are assigned
with clear ownership and targeted completion within 48 hours
· conducting performance monitoring and Health and Safety Audits,
incorporating reporting and escalation arrangements to ensure all actions are
closed
· undertaking root cause analysis for any issues identified through
investigation of serious incidents, including near misses and ensuring lessons
learnt are cascaded across the Group
· embedding our health and wellbeing strategy with a specific
workstream that considers our leaders, managers and employees and their
physical and emotional wellbeing
· focused HSE events throughout the year to highlight particular risks
and help keep safety at the forefront of our minds.
With the increased focus on emotional health and wellbeing, we have introduced
awareness training for leaders and managers. We have developed training
materials for employees and are now moving towards introducing proactive steps
for employees to manage their own wellbeing.
During 2023, we aim to make better use of the data held within our Health and
Safety management system and develop leading indicators to help identify
improvement areas before issues occur. Furthermore, we will continue to drive
our safety culture across the organisation
DISRUPTIVE RISKS
Operational and Supply Chain Disruption
Change in risk level: Increased
Ownership: Chief Operations Officer
Relevance: Industry general
Description
We operate a diverse, global operational footprint and supply chain across our
business. Ensuring these operations and supply chains are resilient is a
fundamental part of maintaining our customer service levels and hassle-free
proposition by giving options and alternatives, to minimise the impact of
disruption.
Disruptive events could be focused on particular locations, driven by single
points of failure in our operations or supply chain, be localised natural
events or result from political conflict. Here, our global footprint provides
a degree of risk diversification, through alternative manufacturing options
elsewhere in the Company. Equally, disruptive events might be broader in
nature and impact a number of sites simultaneously, for example an extreme
weather event, or climate change related issues in the longer term. In this
situation, our global footprint may expose us to a broader set of potential
disruption risks than more focused businesses.
Robust business continuity planning and management practices are required to
minimise the impact on production capability, supply chain management,
customer relationships, reputation, revenue and profit.
We experienced continuing disruption to our China site as a result of COVID-19
related restrictions and outbreaks.
The Company is increasingly reliant on the digital ecosystem within its supply
chain. Some elements are addressed in our management of our Cyber Event risk
and others more broadly by the continuity planning activities described below.
Additionally, during 2022, as part of our TCFD activity, we have developed the
work performed with external consultants in 2021 to better understand the
potential impact of climate change on our business over the short, medium and
long term, both for physical and transition risks, to enable us better to
embed these considerations in our risk management processes.
Mitigation
We continue to review and refresh our business continuity management and
planning frameworks and processes. We also have commenced a number of
initiatives to better understand our supply chain and identify and mitigate
potential stress points. During the last year we have implemented a new
distribution model for EMEA; a warehouse hub is in place in Germany and
another recently went live in Poland.
In 2023, work is planned to consider the distribution model in the Americas
and Asia, to identify and eliminate single points of failure in our supplier
base and to develop resilience plans at a global level.
Mitigating actions that we have in place for single location issues include:
· leveraging our global manufacturing footprint to provide
alternative manufacturing locations
· fire and other risk prevention systems
· assessing and managing operational risks via the enterprise risk
management process
· ensuring comprehensive maintenance plans are in place for key
manufacturing equipment
· ensuring resilience arrangements are in place and are tested for
key operational IT hardware and software
· maintaining an insurance programme and working closely with our
insurers to ensure complete and comprehensive cover to prevent losses, along
with identifying and pursuing opportunities to improve site-level resilience
to human factor, natural disaster and fire-related issues
· performing tests and ensuring any lessons learnt (along with any
learnt from real-world events) are fed back into the planning process
· ensuring non-operational employees are equipped to work from
alternative locations should the need arise.
Additional measures to mitigate against multi-site issues include:
· enhancing our multi-site capabilities and manufacturing flexibility
· identifying alternative sources of supply for key raw materials and
supply guarantees where necessary and feasible
· global, standard site/network assessment approaches for pandemic
and other issues.
Emerging risk Risk owner Risk description Mitigation
Regulatory change Company Secretary The risk that Essentra does not or is unable to comply with changes in the We continue to proactively monitor and review developments in the regulatory
regulatory environment. environments in which we operate. This includes leverage the knowledge of
those colleagues operating in local markets and seeking external advice.
Governments might react to prevailing economic conditions by increasing taxes
and tariffs. Evolving public sentiment on sustainability might result in
further legislation with which the Company must comply. The geographical
breadth of the Company's operations adds a degree of complexity to this
emerging risk.
Technology disruptors Chief Marketing Officer and Chief Digital Information Officer The risk that the Company does not manage its response to evolving We continue to monitor and review developments in the external market through
technologies effectively. This may include losing competitive advantage as our networks. This includes innovation and futures sessions with existing
rivals deploy advanced manufacturing technologies, artificial intelligence and suppliers. We are also involved in a range of external technical focus groups
robotics to strengthen product development, marketing, production, to support the identification of future technology trends.
distribution and support functions. In addition, the rapid emergence of
alternative materials might affect demand for our products.
Sentiment towards Chief Sales Officer and Chief Marketing Officer Market and stakeholder sentiment towards plastic continues to evolve at pace We continue to work internally and with our supply chain to identify
and could affect medium-term demand for many of Essentra's products. opportunities to reduce the extent to which we use virgin plastic in our
Plastic products and to use alternative materials.
Consolidated Income Statement
For the year ended 31 December 2022
Note 2022 2021(1)
£m
£m
Revenue 2 337.9 301.7
Operating (loss)/profit(2) 2 (11.3) 7.7
Finance income 4 7.1 2.1
Finance expense 4 (24.9) (16.9)
Loss before tax (29.1) (7.1)
Income tax (expense)/credit (2.0) 2.2
Loss for the year from continuing operations (31.1) (4.9)
(Loss)/profit from discontinued operations 13 (152.7) 33.2
(Loss)/profit for the year (183.8) 28.3
Attributable to:
Equity holders of Essentra plc (188.0) 26.9
Non-controlling interests 4.2 1.4
(Loss)/profit for the year (183.8) 28.3
Earnings per share attributable to equity holders of Essentra plc:
Basic 5 (62.4)p 8.9p
Diluted 5 (62.4)p 8.9p
Earnings per share from continuing operations attributable to equity holders
of Essentra plc:
Basic 5 (10.3)p (1.6)p
Diluted 5 (10.3)p (1.6)p
Adjusted profit measure: continuing operations Note 2022 2021(1)
£m
£m
Operating (loss)/profit (11.3) 7.7
Amortisation of acquired intangible assets 10.4 8.6
Adjusting items 3 26.0 10.1
Adjusted operating profit(3) 25.1 26.4
Notes:
1. The Group disposed of the Packaging business and the Filters business
during the year ended 31 December 2022. The results of these operations have
been re-presented as discontinued operations. See note 13 for details.
2. Includes impairment charge on trade receivables of £0.8m (2021: £0.7m).
3. See note 16 for further details of the adjusted profit measure.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022
Note 2022 2021(1)
£m
£m
(Loss)/profit for the year (183.8) 28.3
Other comprehensive (expense)/income:
Items that will not be reclassified to profit or loss in subsequent years
Remeasurement of defined benefit pension schemes (20.5) 28.5
Deferred tax income/(expense) on remeasurement of defined benefit pension 5.1 (7.9)
schemes
(15.4) 20.6
Items that may be reclassified to profit or loss in subsequent years
Effective portion of changes in fair value of cash flow hedges:
Net change in fair value of cash flow hedges transferred to the income (16.4) (1.8)
statement
Ineffective portion of changes in fair value of cash flow hedges transferred 1.0 (0.5)
to the income statement
Effective portion of changes in fair value of cash flow hedges 16.1 0.9
Foreign exchange translation differences:
Attributable to equity holders of Essentra plc:
Arising on translation of foreign operations 54.6 (23.4)
Recycling of foreign currency translation reserve 13 (38.7) -
Arising on effective net investment hedges (21.7) (0.4)
Income tax credit 0.9 0.4
Attributable to non-controlling interests (0.1) (0.1)
(4.3) (24.9)
Total other comprehensive expense for the year, net of tax (19.7) (4.3)
Total comprehensive (expense)/income for the year (203.5) 24.0
Attributable to:
Equity holders of Essentra plc (207.6) 22.7
Non-controlling interests 4.1 1.3
Total comprehensive (expense)/income for the year (203.5) 24.0
Attributable to:
Continuing operations (12.1) (9.2)
Discontinued operations (191.4) 33.2
Total comprehensive (expense)/income for the year (203.5) 24.0
Note:
1. The Group disposed of the Packaging business and the Filters business
during the year ended 31 December 2022. The results of these operations have
been re-presented as discontinued operations. See note 13 for details.
Consolidated Balance Sheet
At 31 December 2022
Note 31 December 31 December
2022 2021
£m £m
Assets
Property, plant and equipment 6 65.2 254.3
Lease right-of-use asset 8 21.0 50.4
Investment properties 6 7.0 -
Intangible assets 7 206.6 483.5
Long-term receivables 11.6 5.2
Derivative assets 8.3 0.7
Deferred tax assets 11.7 11.6
Retirement benefit assets 7.9 34.1
Total non-current assets 339.3 839.8
Inventories 65.0 128.7
Income tax receivable 1.1 1.5
Trade and other receivables 66.4 175.2
Derivative assets 0.2 0.5
Cash and cash equivalents 421.4 136.3
Total current assets 554.1 442.2
Total assets 893.4 1,282.0
Equity
Issued share capital 10 75.6 75.6
Merger reserve 385.2 385.2
Capital redemption reserve 0.1 0.1
Other reserve (132.8) (132.8)
Cash flow hedging reserve (0.8) (1.5)
Translation reserve (52.4) (47.5)
Retained earnings 129.2 333.6
Attributable to equity holders of Essentra plc 404.1 612.7
Non-controlling interests - 16.2
Total equity 404.1 628.9
Note 31 December 31 December
2022 2021
£m
£m
Liabilities
Interest bearing loans and borrowings 11 85.0 313.3
Lease liabilities 11 18.0 46.1
Retirement benefit obligations 9 18.5 25.1
Provisions 1.1 2.5
Other financial liabilities 18 2.4 5.6
Deferred tax liabilities 7.6 45.3
Total non-current liabilities 132.6 437.9
Interest bearing loans and borrowings 11 208.0 -
Lease liabilities 11 4.9 11.6
Derivative liabilities 1.3 0.1
Income tax payable 16.2 21.5
Trade and other payables 91.5 180.9
Other financial liabilities 18 24.1 -
Provisions 10.7 1.1
Total current liabilities 356.7 215.2
Total liabilities 489.3 653.1
Total equity and liabilities 893.4 1,282.0
Consolidated Statement of Changes in Equity
For the year ended 31 December 2022
2022
Note Issued Merger Capital redemption reserve Other Cash flow hedging and cost of hedging reserves Translation reserve Retained earnings Non-controlling interests Total
reserve
capital
£m reserve £m £m £m £m equity
£m
£m £m £m
At 1 January 2022 75.6 385.2 0.1 (132.8) (1.5) (47.5) 333.6 16.2 628.9
(Loss)/profit for the year - - - - - - (188.0) 4.2 (183.8)
Other comprehensive expense - - - - 0.7 (4.9) (15.4) (0.1) (19.7)
Total comprehensive (expense)/income for the year - - - - 0.7 (4.9) (203.4) 4.1 (203.5)
Recycling of non-controlling interest 13 - - - - - - - (18.4) (18.4)
Share option expense - - - - - - 3.1 - 3.1
Tax relating to share-based incentives - - - - - - (0.6) - (0.6)
Net impact of IAS 29(1) - - - - - - 15.5 - 15.5
Dividends paid 14 - - - - - - (19.0) (1.9) (20.9)
At 31 December 2022 75.6 385.2 0.1 (132.8) (0.8) (52.4) 129.2 - 404.1
2021
Note Issued Merger Capital Other Cash flow Translation Retained Non-controlling interests Total
reserve
redemption
hedging and cost of hedging reserves
reserve
earnings
capital
reserve reserve
£m equity
£m
£m £m £m
£m £m £m £m
At 1 January 2021 75.6 385.2 0.1 (132.8) (0.1) (24.1) 300.8 13.3 618.0
Profit for the year - - - - - - 26.9 1.4 28.3
Other comprehensive income/(expense) - - - - (1.4) (23.4) 20.6 (0.1) (4.3)
Total comprehensive loss for the year - - - - (1.4) (23.4) 47.5 1.3 24.0
Equity issue to non-controlling interest - - - - - - - 3.1 3.1
Share option expense - - - - - - 0.8 - 0.8
Tax relating to share-based incentives - - - - - - 0.5 - 0.5
Dividends paid 14 - - - - - - (16.0) (1.5) (17.5)
At 31 December 2021 75.6 385.2 0.1 (132.8) (1.5) (47.5) 333.6 16.2 628.9
Notes:
1. The Group applied IAS 29 'Financial Reporting in Hyperinflationary
Economies' for the first time during the year to 31 December 2022. See
'Changes in accounting policies' under note 1 'basis of preparation' for
further details of the net impact on retained earnings.
Consolidated Statement of Cash Flows
For the year ended 31 December 2022
Note 2022 2021(1)
£m
£m
Operating activities
(Loss)/profit for the year from:
Continuing operations (31.1) (4.9)
Discontinued operations (152.7) 33.2
(Loss)/profit for the year (183.8) 28.3
Adjustments for:
Income tax (credit)/expense (2.0) 4.9
Net finance expense 4 18.4 16.5
Intangible amortisation 7 19.6 25.0
Adjusting items 3 26.0 10.1
Loss on business disposals 13 19.0 -
Impairment of acquired intangible assets 182.7 -
on discontinued operations
Depreciation of property, plant and equipment 6 29.5 36.6
Lease right-of-use asset depreciation 8 10.1 12.0
Loss on disposal of right of use asset 0.2 -
Loss on disposal of fixed assets 0.3 -
Impairment of fixed assets 0.5 0.5
Share option expense 2.6 0.8
Hedging activities and other movements 0.8 (0.5)
Increase in inventories (27.4) (28.3)
Increase in trade and other receivables (35.5) (27.9)
Decrease in trade and other payables 41.2 26.3
Cash outflow in respect of adjusting items (23.7) (23.9)
Movement in provisions 1.0 (0.2)
Adjustment for pension contributions 0.2 (4.8)
Movement due to hyperinflation (3.2) -
Cash inflow from operating activities 76.5 75.4
Income tax paid (12.5) (12.2)
Net cash inflow from operating activities 64.0 63.2
Note 2022 2021(1)
£m
£m
Investing activities
Interest received 2.3 0.4
Acquisition of property, plant and equipment(3) (39.7) (38.5)
Proceeds from sale of property, plant and equipment 0.5 8.9
Payments for non-acquired intangible assets (1.0) (3.2)
Acquisition of businesses net of cash acquired(2) 12 (27.9) (14.6)
Proceeds from sale of businesses net of cash disposed(2) 13 416.9 -
Cash outflow from costs on business disposals (31.5) -
Net cash inflow/(outflow) from investing activities 319.6 (47.0)
Financing activities
Interest paid (19.5) (11.0)
Dividends paid to equity holders (19.0) (16.0)
Dividends paid to non-controlling interests (1.9) (1.5)
Arrangement fee paid for financing activities - (4.4)
Repayments of long-term loans (124.2) (182.5)
Proceeds from long-term loans 65.0 211.4
Proceeds from early settlement of derivative contracts 6.5 -
Lease liability principal repayments (11.5) (12.8)
Proceeds from equity issue to non-controlling interests - 3.1
Net cash outflow from financing activities (104.6) (13.7)
Net increase in cash and cash equivalents 11 279.0 2.5
Net cash and cash equivalents at the beginning of the year 136.3 135.8
Net increase in cash and cash equivalents 279.0 2.5
Net effect of currency translation on cash and cash equivalents 6.1 (2.0)
Net cash and cash equivalents at the end of the year 11 421.4 136.3
Notes:
1. The Group disposed of the Packaging business and the Filters business
during the year ended 31 December 2022. The results of these operations have
been re-presented as discontinued operations. See note 13 for details.
2. Acquisition of businesses is net of cash acquired of £3.5m (2021:
£nil). See note 12. Proceeds from sale of businesses is net of cash disposed
of £45.7m. See note 13.
3. Acquisition of property, plant and equipment Includes capex accrual
movements of £0.4m (2021: £0.3m).
Basis of Preparation and Principal Accounting Policies
Accounting Policies
1 Basis of preparation
The financial information set out in this document does not constitute
statutory accounts for Essentra plc for the year ended 31 December 2022 but is
extracted from the 2022 Annual Report.
Annual Report for 2022 will be delivered to the Registrar of Companies in due
course. The auditors' report on those accounts are unqualified and neither
drew attention to any matters by way of emphasis nor contained a statement
under either section 498(2) of Companies Act 2006 (accounting records or
returns inadequate or accounts not agreeing with records and returns), or sec
on 498(3) of Companies Act 2006 (failure to obtain necessary information and
explanations).
The Group's consolidated financial statements for the year ended 31 December
2022 have been prepared in accordance with UK-adopted International Accounting
Standards and comply with the requirements of the Companies Act 2006.
These consolidated financial statements are prepared under the historical cost
convention unless otherwise stated.
The preparation of financial statements that conform with adopted IFRS
requires the use of estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of income and expense during the reporting period. Although
these estimates are based on management's best knowledge of the amount, event
or actions, actual results may ultimately differ from those 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 and future periods if relevant. For the purposes of these
financial statements "Essentra" or "the Group" means Essentra plc (the
"Company") and its subsidiaries.
On 1 October 2022, the Group completed its sale of ESNT Packaging &
Securing Solutions Limited and Essentra Packaging US Inc and their respective
subsidiary companies (together the 'Packaging business'). On 3 December 2022,
the Group also completed the sale of Essentra Filter Holdings Limited and its
respective subsidiary companies (the 'Filters business'). The results of the
Packaging business and the Filters business have been classified as
discontinued operations at 31 December 2022 and comparative information has
been re-presented.
In preparing the consolidated financial statements management have taken into
account the potential effects of climate changes including medium to longer
term transitional risks resulting from the relative uncertainty created by the
global shift towards a more sustainable, net-zero economy, which include
regulatory, geopolitical and social pressures that may impact the operations
of the business in future. Management have considered the potential effects
of climate related changes in its assessment of going concern, longer-term
viability of the business, in preparing the Group's future cash flow forecasts
underpinning impairment testing, and in its assessment of the residual values
of property, plant and equipment and have determined that there is no material
impact on these financial statement items.
Going concern
The Directors have prepared the consolidated financial statements for the year
ended 31 December 2022 on a going concern basis. In adopting the going concern
basis, the Directors have considered the Group's balance sheet position,
forecast earnings and cash flows for a period of at least 18 months from the
date of approval of these consolidated financial statements. The disposal of
the Packaging business and Filters business have been included in the
Directors' going concern assessment.
At 31 December 2022, the Group's external financing arrangements amounted to
£491.7m, comprising United States Private Placement Loan Notes (USPP) of
US$350.0m (with a range of expiry dates from November 2024 to July 2033) and
a multi-currency revolving credit facility (RCF) of £200.0m (expiring in
November 2025).
On 1 October 2022, the Group completed its disposal of the Packaging business
and on 3 December 2022, the Group completed of the disposal of the Filters
business. In December 2022 the Group repaid its RCF loan to £nil, and
continues to maintain a facility of £200.0m. Furthermore, as a consequence of
the business disposals, the Group was required to repay $247m of its USPP loan
Notes, classified as current liabilities at the balance sheet date, which were
repaid in full during January 2023.
No amount was drawn under the RCF as at 31 December 2022, with the available
undrawn balance amounting to £200.0m. The facility is subject to two
covenants, which are tested semi-annually: net debt to EBITDA (leverage) and
EBITA to net finance charges. Despite the significant economic
and operational challenges in the recent years, the Group has not sought to
change either of the two covenants. The Directors believe that the Group is
well placed to manage its business risks and, after making enquiries including
a review of forecasts and predictions, taking account of reasonably possible
changes in trading performances and considering the existing borrowing
facilities, including the available liquidity, have a reasonable expectation
that the Group has adequate resources to continue in operational existence for
at least the next 18 months following the date of approval of the financial
statements, and no breaches of covenants are expected.
As part of the going concern assessment, the Board has considered a downside
scenario that includes reasonably plausible changes in macro-economic
conditions and is considered to represent a severe but plausible scenario. The
results of this scenario show that there is sufficient liquidity in the
business for a period of at least 18 months from the date of approval of these
financial statements, and do not indicate any covenant breach during the test
period. The downside scenario assumes a period of supressed revenue growth
into the latter part of 2023 and subsequently limits growth in 2024. Further,
the downside scenario assumes a high inflationary cost environment not fully
offset by price increases, and higher than planned cost base assuming the
business does not right-size costs in line with expectations, as the Group
transitions to a pure-play Components business. The financial impact of the
downside scenario in 2023 and 2024 is to reduce adjusted operating profits by
45% and 4% respectively compared to the Groups strategic plan.
The overall level of liquidity (defined as available undrawn borrowing
facility plus cash and cash equivalent) at 31 December 2022 was £621.4m,
which was significantly higher than the £352.1m as at 31 December 2021.
Adjusting for the repayment of borrowings of $247m in January 2023, planned
special dividend of £90m, and planned share buyback programme of £60m, this
still leaves overall liquidity at £265.6m. Capital expenditure, sales and
general overhead, and working capital will continue to be managed closely to
ensure sufficient liquidity.
The scenarios do not indicate a material uncertainty which may cast
significant doubt over the Company's and Group's ability to continue as a
going concern. The Directors have a reasonable expectation that the Company
has adequate resources to continue in operational existence for the
foreseeable future, and accordingly have adopted the going concern basis in
preparing the consolidated financial statements. This disclosure has been
prepared in accordance with the Financial Reporting Council's UK Corporate
Governance Code.
1 Basis of preparation continued
Changes in accounting policies
i) Application of IAS 29 Financial Reporting in Hyperinflationary Economies
During 2022, the Group held trade and assets denominated in Turkish Lira where
IAS 29 has been applied for the first time. The Components division's business
in Turkey holds property, plant and equipment, intangible assets, lease
right-of-use assets and inventory that are classed as non-monetary and, along
with any associated deferred tax, must be adjusted for the effect of inflation
every reporting period. The income statement must be adjusted for the Consumer
Price Index since the date of the transaction. The application of the
standard has a material impact on the consolidated financial statements which
includes the results and financial position of its Turkey operations restated
to the measuring unit current at the end of the period.
A summary of the impact on the consolidated balance sheet is shown below:
As at 31 December 2022
£m
Goodwill 10.3
Intangibles 3.6
Property, plant & equipment 3.2
Lease right-of-use asset 2.7
Inventory 0.4
Deferred tax liabilities (2.2)
Impact on net assets 18.0
Favourable impact on income statement(1) 2.5
Increase in equity 15.5
Total equity 18.0
(Note:)
(1. For the year ended 31 December 2022, a monetary gain of £3.2m was
included within net finance expense.)
(Ii) Application of IAS 40 Investment Properties
During 2022, the Group transferred property with a carrying amount of £7.0m
from Property, Plant and Equipment to Investment Properties. Investment
properties are measured initially at cost less accumulated depreciation (on a
straight-line basis) and impairment losses.
The application of the standard had no effect on the income statement for the
year and no amounts were required to be restated in respect of prior years.
ii) Other pronouncements
The Group adopted the following new pronouncements with effect from 1 January
2022, which did not have a material impact on the Group's consolidated
financial statements:
· Amendments to IAS 16 - Property Plant and Equipment: Proceeds
before intended use;
· Amendments to IAS 37 - Onerous Contracts: Cost of Fulfilling a
Contract;
· Amendments to IFRS 3 - Reference to the Conceptual Framework; and
· Annual Improvements to IFRS Standards 2018 - 2020 Cycle.
The following new standards and amendments to standards issued before 31
December 2022 with an effective date on or after 1 January 2023 which are not
expected to have a material impact on the Group's consolidated financial
statements, have not been early adopted by the Group:
· IFRS 17 Insurance Contracts and Amendments to IFRS 17
· Amendments to IAS 12 - Deferred Tax Related to Assets and
Liabilities Arising from a Single Transaction;
· Amendments to IAS 1 - Disclosure of Accounting Policies; and
· Amendment to IAS 8 - Definition of Accounting Estimates.
Notes to the Consolidated Financial Statements
2. Segment analysis
The Group has determined its operating segments based upon the information
reported to the Group Management Committee, which is the Group's Chief
Operating Decision Maker. Segment information is reported on a divisional
basis consistent with the basis upon which the Group manages its operations,
allocates resources, and assesses performance. The adjusted operating
profit/loss presented for each operating segment includes the effect of the
allocation of certain functional costs such as finance, human resources, legal
and IT, as well as costs relating to management of the divisions, based on a
consistently applied internal management methodology.
The Group's operating segments, as reported, are as follows:
Components is a global market leading manufacturer and distributor of plastic
injection moulded, vinyl dip moulded and metal items.
Packaging is one of only two multi-continental suppliers of a full secondary
packaging range to the health and personal care sectors. On 1 October 2022,
the Group completed its sale of the Packaging business and in accordance with
IFRS 5, this segment has been re-presented within discontinued operations.
Filters is the only global independent supplier of innovative cigarette
filters and related solutions to the tobacco industry. On 3 December 2022,
the Group completed the sale of the Filters business and in accordance with
IFRS 5, this segment has been re-presented within discontinued operations.
2022(1)
Components Central Continuing Discontinued Total
Services
Operations
£m
Operations(5) £m
£m £m
£m
Income statement information
External revenue 337.9 - 337.9 653.9 991.8
Adjusted operating profit after allocation of central costs to discontinued 63.7 (24.9) 38.8 38.4 77.2
operations(2)
Central cost allocations to discontinued operations(4) - (13.7) (13.7) 13.7 -
Adjusted operating profit 63.7 (38.6) 25.1 52.1 77.2
Amortisation and impairment of acquired intangible assets (10.4) - (10.4) (189.2) (199.6)
Adjusting items (12.4) (13.6) (26.0) - (26.0)
Operating profit/(loss) 40.9 (52.2) (11.3) (137.1) (148.4)
Balance sheet information
Segment assets 204.5 31.7 236.2 - 236.2
Intangible assets 204.4 2.2 206.6 - 206.6
Unallocated items(3) - 450.6 450.6 - 450.6
Total assets 408.9 484.5 893.4 - 893.4
Segment liabilities 78.7 74.0 152.7 - 152.7
Unallocated items(3) - 336.6 336.6 - 336.6
Total liabilities 78.7 410.6 489.3 - 489.3
Other segment information
Capital expenditure (cash spend) 12.1 1.4 13.5 27.5 41.0
Depreciation of plant, property and equipment 8.5 5.4 13.9 15.6 29.5
Average number of employees 3,114 234 3,348 4,067 7,415
2. Segment analysis continued
2021(1)
Components Central Continuing Discontinued Total
Services
Operations
Operations
£m
£m
£m £m £m
Income statement information
External revenue 301.7 - 301.7 658.0 959.7
Adjusted operating profit after allocation of central costs to discontinued 56.9 (16.6) 40.3 41.9 82.2
operations(2)
Central cost allocations to discontinued operations(4) - (13.9) (13.9) 13.9 -
Adjusted operating profit 56.9 (30.5) 26.4 55.8 82.2
Amortisation of acquired intangible assets (8.6) - (8.6) (13.8) (22.4)
Adjusting items (0.4) (9.7) (10.1) - (10.1)
Operating profit/(loss) 47.9 (40.2) 7.7 42.0 49.7
Balance sheet information
Segment assets 172.4 21.8 194.2 419.6 613.8
Intangible assets 158.9 4.5 163.4 320.1 483.5
Unallocated items(3) - 184.7 184.7 - 184.7
Total assets 331.3 211.0 542.3 739.7 1,282.0
Segment liabilities 74.2 29.2 103.4 144.4 247.8
Unallocated items(3) - 405.3 405.3 - 405.3
Total liabilities 74.2 434.5 508.7 144.4 653.1
Other segment information
Capital expenditure (cash spend) 9.1 3.9 13.0 28.7 41.7
Depreciation of plant, property and equipment 7.2 5.1 12.3 24.3 36.6
Average number of employees 2,708 287 2,995 5,191 8,186
Notes:
1. The Group disposed of the Packaging business and the Filters business
during the year ended 31 December 2022. The results of these operations have
been re-presented above as discontinued operations. Refer to note 13 for
further details.
2. Central Service costs after allocations of £24.9m (2021: 16.6m) includes
executive and non-executive management, group finance, tax, treasury, legal,
group assurance, human resources, information technology, corporate
development, investor relations and other services provided centrally to
support the operating segments.
3. The unallocated assets relate to income and deferred tax assets,
retirement benefit assets, derivatives, short-term investments, loan
receivables 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.
4. Central service cost allocations 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 divisions on an internal
management methodology. Adjusted operating profit of £38.8m in 2022 includes
costs that would have otherwise been allocated to the Packaging and Filters
businesses had those businesses not been disposed. Had those additional costs
been adjusted for, the adjusted operating profit would have been £43.0m.
5. Operating loss from discontinued operations for the year ended 31
December 2022 excludes the loss on disposal of £19.0m (2021: £nil).
6. Total Group net finance expense of £18.4m (2021: £16.5m) and total
Group income tax credit of £2.0m (2021: £4.9m charge) cannot be meaningfully
allocated by segment.
7. On a continuing basis, no customer accounted for more than 10% of revenue
in either 2022 or 2021.
2. Segment analysis continued
Geographic segment information:
2022 2021(1)
External revenue by destination Continuing Operations Discontinued Operations Total Continuing Operations Discontinued Operations Total
£m £m £m £m £m £m
United Kingdom 21.0 39.9 60.9 21.0 49.8 70.8
Rest of Europe and Africa 146.1 211.4 357.5 135.5 246.8 382.3
Americas 122.4 184.8 307.2 106.5 189.8 296.3
Asia and Middle East 48.4 217.8 266.2 38.7 171.6 210.3
Total external revenue by destination 337.9 653.9 991.8 301.7 658.0 959.7
Notes:
1. The Group disposed of the Packaging business and the Filters business
during the year ended 31 December 2022. The results of these operations have
been re-presented above as discontinued operations. Refer to note 13 for
further details.
2. Non-current assets in the UK total £91.1m (2021: £145.6m), with the
other significant location being the USA with £114.2m (2021: £309.8m).
3. Adjusting items
Adjusting items are separately presented from other items by virtue of their
nature, size and/or incidence. They are identified separately in order for the
reader to obtain a clearer understanding of the underlying results of the
ongoing Group's operations, by excluding items which, in management's view, do
not form part of the Group's underlying operating results, such as gains,
losses or costs arising from business acquisition and disposal activities,
significant restructuring and closure costs, and costs of major Software as a
Service projects, items which are non-recurring or one-off in nature (such as
the costs of fundamental strategic review and reorganisation), and (from 2022)
charges relating to the Group's legacy defined benefit pension schemes, and
the related tax effect, as adjusting items.
Continuing operations 2022 2021(1)
£m £m
Costs relating to restructuring following disposals of businesses(2) 10.4 -
Gains/losses and transaction costs relating to acquisitions and disposals of 0.3 (3.6)
businesses(3)
Acquisition integration and restructuring costs(4) 0.2 0.3
Customisation and configuration costs of significant software as a service 12.4 11.8
("SaaS") arrangements(5)
Defined benefit pension scheme charges(6) 2.0 -
Other(7) 0.7 1.6
Adjusting items before tax 26.0 10.1
Tax 2.8 (0.5)
Adjusting items after tax 28.8 9.6
Notes:
1. The Group disposed of the Packaging and Filters businesses during the
year ended 31 December 2022 and consequently, comparative information for the
year ended 31 December 2021 has been re-presented. See note 13 for further
details.
2. Costs of £9.9m (including advisory fees of £5.7m) in relation to major
restructuring activities to "right size" the continuing operations of the
business following the disposal of the Filters and Packaging businesses; a
charge of £0.5m in relation to the acceleration of share options in respect
of certain senior management employees leaving the business following the
completion of the strategic review;
3. Costs of £0.3m were incurred in relation to the acquisition of the
Wixroyd Group, acquired in December 2022.
In 2021 a credit of £4.4m in relation to the reversal of certain claim
provisions in relation to prior disposals, following the conclusion of
negotiation with the purchasers; a gain of £0.4m in relation to a prior
acquisition for claims made against the vendor. These are offset by
acquisition-related costs of £1.0m in relation to the acquisition of Jiangxi
Hengzhu Electrical Cabinet Lock Co., Ltd ("Hengzhu") and £0.2m related to
costs incurred in pursuit of acquisition targets.
4. Comprises costs of £0.2m for the integration of Hengzhu, acquired in
2021, into the business. In 2021 £0.3m for the integration of Hengzhu into
the existing business.
5. Costs of significant SaaS arrangements which, in the view of management,
represents investment in upgrading the Group's technological capability, were
expensed as adjusting items in accordance with the Group's accounting
policies. In the current year, costs of £12.4m (2021: £11.8m) were
attributable to major SaaS projects and relate primarily to the costs of
implementing a new cloud-based enterprise resource planning (ERP) system
within the Group.
6. Costs of £2.0m were incurred in relation to defined benefit pension
scheme charges which, following the outcome of the strategic review, no longer
pertain to the continuing operations of the Group.
7. Comprises £0.6m write-down of centrally held IT assets following
completion of the strategic review, £0.6m costs of restructuring activities
within the continuing European and Americas businesses, offset by a £0.5m
credit relating to adjustments to the carrying value of lease right-of-use
assets.
In 2021, £2.9m of professional and advisory fees in relation to strategic
reviews of the on-going business and the now disposed Group's Filters and
Packaging businesses. Components restructuring, comprised £0.6m costs in
relation to restructuring activities within the European and Americas
businesses, offset by a £0.6m credit relating to the reversal of certain
prior provisions, and a £1.3m credit relating to adjustments to the carrying
value of lease right-of-use assets.
4. Net finance expense from continuing operations
Note 2022 2021(1)
£m £m
Finance income
Bank deposits 1.4 -
Other finance income(2) 5.1 1.9
Net interest on pension scheme assets 9 0.6 0.2
Total finance income 7.1 2.1
Finance expense
Interest on loans and overdrafts (15.9) (10.9)
Amortisation of bank facility fees (4.7) (1.1)
Other finance expense(3) (2.2) (2.9)
Net interest on pension scheme liabilities 9 (0.6) (0.6)
Interest on leases (1.5) (1.4)
Total finance expense (24.9) (16.9)
Net finance expense (17.8) (14.8)
Notes:
1. The Group disposed of the Packaging business and the Filters business
during the year ended 31 December 2022. The results of these operations have
been re-presented above as discontinued operations. Refer to note 13 for
further details. The total net finance expense for the Group, including
discontinued operations, was £18.4m (2021: £16.5m).
2. Included within other finance income is £1.8m (2021: £1.9m) relating to
exchange gains on cash, borrowings and leases and £3.2m relating to monetary
gains on Hyperinflation economies (2021: £nil).
3. Included within other finance expense is £0.9m (2021: £nil) relating to
loss on derivative financial instruments, £0.8m (2021: £nil) of hedge
ineffectiveness, and £0.3m (2021: £2.7m) relating to exchange losses on
cash, borrowings and leases.
5. Earnings per share
Discontinued operations Continuing operations
2022 2021(1) 2022 2021(1)
£m £m £m £m
Earnings from continuing operations
(Loss)/profit attributable to equity holders of the Company (156.9) 31.8 (31.1) (4.9)
Adjustments:
Amortisation of acquired intangible assets 10.4 8.6
Tax on amortisation of acquired intangible assets (2.4) (2.1)
Adjusting items(2) 26.0 10.1
Tax on adjusting items(2) 2.8 (0.5)
Adjusted earnings attributable to equity holders of the Company 5.7 11.2
Notes:
1. The Group disposed of the Packaging business and the Filters business
during the year ended 31 December 2022 and consequently, comparative
information for the year ended 31 December 2021 has been re-presented. See
note 13 for further details.
2. Refer to note 3 for details of adjusting items.
2022 2021
million million
Weighted average number of ordinary shares
Basic weighted average ordinary shares outstanding(1) 301.1 301.0
Dilutive effect of employee share option plans 2.0 1.3
Diluted weighted average ordinary shares 303.1 302.3
Note:
1. The basic weighted average number of ordinary shares in issue excludes
shares held in treasury and shares held by the employee benefit trust.
2022 2021(1)
pence pence
Earnings per share from continuing operations(2)
Basic (loss)/earnings per share (10.3)p (1.6)p
Adjustment 12.2p 5.3p
Adjusted basic earnings per share 1.9p 3.7p
Diluted (loss)/earnings per share from continuing operations (10.3)p (1.6)p
Adjustment 12.2p 5.3p
Adjusted diluted earnings per share from continuing operations 1.9p 3.7p
Earnings per share discontinued operations
Basic (loss)/earnings per share (52.1)p 10.6p
Diluted (loss)/earnings per share (52.1)p 10.5p
Notes:
1. The Group disposed of the Packaging business and the Filters business
during the year ended 31 December 2022 and consequently, comparative
information for the year ended 31 December 2021 has been re-presented. See
note 13 for further details.
2. Adjusted earnings per share from continuing operations is provided to
reflect the underlying performance of the Group.
6. Investment Properties, Property, plant and equipment
2022 2022 2021
Note Total Land and buildings Plant and machinery Fixtures, fittings and equipment Total Land and buildings Plant and machinery Fixtures, Total
Investment properties(5)
property,
fittings and equipment
property,
£m £m £m
plant and equipment(1,2) £m £m
plant and equipment(1,2)
£m
£m
£m £m
Cost
Beginning of year - 79.4 386.5 78.9 544.8 84.8 387.2 78.4 550.4
Acquisitions 12 - 0.5 0.7 0.2 1.4 (0.5) 2.4 0.1 2.0
Additions - 2.5 33.1 4.0 39.6 2.1 31.8 4.9 38.8
Disposals - (0.7) (9.4) - (10.1) (4.2) (20.6) (3.2) (28.0)
Business disposals 13 - (43.5) (324.5) (14.4) (382.4) - - - -
Transfers 7.0 (7.0) - - (7.0) - - - -
Currency translation(3) - 6.5 39.2 3.3 49.0 (2.8) (14.3) (1.3) (18.4)
End of year 7.0 37.7 125.6 72.0 235.3 79.4 386.5 78.9 544.8
Accumulated depreciation and impairment
Beginning of year - 18.0 223.7 48.8 290.5 17.2 226.0 44.7 287.9
Charge in period(6) - 2.8 18.5 8.2 29.5 3.2 25.3 8.1 36.6
Disposals - (0.7) (8.7) - (9.4) (0.8) (19.2) (3.2) (23.2)
Business disposals 13 - (9.0) (161.2) (0.1) (170.3) - - - -
Impairment(4) - - 0.1 0.4 0.5 0.2 0.5 - 0.7
Currency translation(3) - 3.1 23.3 2.9 29.3 (1.8) (8.9) (0.8) (11.5)
End of year - 14.2 95.7 60.2 170.1 18.0 223.7 48.8 290.5
Net book value at end of year 7.0 23.5 29.9 11.8 65.2 61.4 162.8 30.1 254.3
Notes:
1. Included within land and buildings, plant and machinery and fixtures,
fittings and equipment are assets in the course of construction of £0.3m
(2021: £1.7m) which were not depreciated during the year.
2. Contractual commitments to purchase property, plant and equipment
amounted to £0.3m at 31 December 2022 (2021: £0.4m).
3. Currency translation as at 31 December 2022 includes £3.2m (2021: £nil)
in respect of adjustments for hyperinflation. See 'Changes in accounting
policies' in note 1 'basis of preparation' for further details of the Group's
application of IAS 29 during the year.
4. Property, plant and equipment with a net book value of £0.6m (2021:
£1.1m) was impaired by £0.6m (2021: £1.1m) to a recoverable amount of £nil
(2021: £nil), which represented fair value less cost to sell. £0.6m (2021:
£0.8m) of this impairment relates to restructuring projects and has been
charged to adjusting items. Furthermore, £nil (2021: £0.4m) has been written
back to a recoverable amount of £nil (2021: £0.4m) and this has been charged
to adjusting items. Refer to note 3 for further details of adjusting items.
5. During the year to 31 December 2022, land and buildings with a net book
value of £7.0m, over which the UK Essentra Pension Plan holds security, were
reclassified as investment properties. The transfer follows the disposal of
the Filters business which held a pre-existing property lease arrangement with
the continuing Group. At the date of disposal of the Filters business on 3
December 2022 (see note 13), the continuing Group ceased owner-occupation.
Following its assessment of the remaining useful economic life associated to
investment properties at the balance sheet date, the Group is depreciating
owned freehold investment property at 2% on a straight-line basis. No amounts
were received in respect of rental income during the year.
6. Included within the depreciation charge for the period is £13.9m (2021:
£12.3m) relating to continuing operations.
7. Intangible assets
2022 2021
Note Goodwill Customer relationships Other intangible assets(1,2) Total Goodwill Customer relationships Other Total
intangible assets(1,2)
£m £m £m £m £m £m
£m
£m
Cost
Beginning of year 354.9 423.2 26.4 804.5 356.0 424.4 23.1 803.5
Acquisitions(8) 12 20.7 8.2 0.6 29.5 4.5 8.6 - 13.1
Additions - - 1.0 1.0 - - 3.2 3.2
Disposals - - (1.4) (1.4) - - - -
Business disposals(4) 13 (271.9) (319.2) (2.7) (593.8) - - - -
Currency translation(7) 36.4 47.1 0.9 84.4 (5.6) (9.8) 0.1 (15.3)
End of year 140.1 159.3 24.8 324.2 354.9 423.2 26.4 804.5
Accumulated amortisation and impairment
Beginning of year 27.9 280.9 12.2 321.0 27.8 264.3 9.0 301.1
Charge for the year(3) - 16.6 3.0 19.6 - 22.2 2.8 25.0
Business disposals(4) 13 (214.6) (228.0) (1.1) (443.7)
Impairment(5) 181.6 1.1 - 182.7 - - 0.3 0.3
Disposal - - (0.8) (0.8)
Currency translation(7) 9.6 28.5 0.7 38.8 0.1 (5.6) 0.1 (5.4)
End of year 4.5 99.1 14.0 117.6 27.9 280.9 12.2 321.0
Net book value at end of year 135.6 60.2 10.8 206.6 327.0 142.3 14.2 483.5
Notes:
1. Other intangible assets principally comprise trade names acquired with
Reid Supply, developed technology acquired with Richco, order backlog,
software development and e-Commerce development costs. Salary costs of £0.2m
(2021: £0.7m) were capitalised as part of other intangible assets during the
year.
2. Included within other intangible assets at 31 December 2022, are assets
in the course of construction of £nil (2021: £0.9m) which were not amortised
during the year.
3. Amortisation charged on other intangible assets (which includes
e-Commerce development and software development costs not acquired through a
business combination), is included within operating profit before amortisation
of acquired intangibles and adjusting items. Amortisation charged on customer
relationships acquired in a business combination is excluded from the Group's
adjusted operating profit measure. Included within the amortisation charge for
the period is £13.1m (2021: £11.2m) relating to continuing operations.
4. The Group disposed of the Packaging business and the Filters business
during the year to 31 December 2022. The goodwill disposed was £35.6m and
£21.7m, respectively. Refer to note 13 for further details.
5. An impairment charge of £181.6m was recognised at 30 June 2022 following
the Group's impairment assessment in respect of the carrying value of goodwill
allocated to the Packaging business prior to its disposal. In addition, an
impairment charge of £1.1m was recognised relating to intangible assets held
in India following an impairment review triggered by the divestment of the
Packaging business. These impairment charges have been included within the
result from discontinued operations.
6. The weighted average remaining useful lives of customer relationships and
other intangible assets at the end of the year were 5.8 years and 4.3 years
(2021: 9.0 years and 5.2 years) respectively.
7. Currency translation as at 31 December 2022 includes £13.9m (2021:
£nil) in respect of adjustments for hyperinflation. See 'Changes in
accounting policies' in note 1 'basis of preparation' for further details of
the Group's application of IAS 29 during the year.
8 Acquisitions includes goodwill of £20.2m and customer relationships and
other intangibles of £8.8m relating to the acquisition of the Wixroyd Group,
and £0.5m relating to the Hengzhu acquisition. See note 12.
Essentra tests intangible assets annually for impairment, or more frequently
if there are indications 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 and
tangible assets for each cash generating unit or group of cash generating
units as appropriate.
Goodwill is allocated to groups of cash generating units, being the operating
segments, as follows:
2022 2021
£m £m
Components 135.6 96.8
Packaging - discontinued - 208.5
Filters - discontinued - 21.7
Total net book value of goodwill 135.6 327.0
7. Intangible assets continued
Customer relationships and other intangible assets are allocated to the
businesses to which they relate, as follows:
Business 2022 2021
£m £m
Components - Businesses of former Moss and Skiffy Continuing 8.3 8.8
Components - Businesses of former Richco Continuing 13.4 15.3
Components - Business of former Mesan Continuing 0.9 1.4
Components - Business of former Abric Continuing 5.9 6.7
Components - Business of former Micro Plastics, Inc. Continuing 3.8 3.7
Components - Industrial Supply Continuing 0.7 1.6
Components - Innovative Components Continuing 6.6 6.6
Components - Hengzhu Continuing 8.3 8.8
Components - Wixroyd Group Continuing 8.8 -
Components - e-Commerce development costs Continuing 5.9 6.3
Components - other businesses Continuing 3.7 3.0
Components - Sweden Continuing 2.5 -
Software and development costs Continuing 2.2 4.5
Packaging - Americas Discontinued - 45.5
Packaging - Asia Discontinued - 1.1
Packaging - Europe Discontinued - 38.2
Packaging - Nekicesa Discontinued - 3.7
Filters Discontinued - 1.3
Total net book value of customer relationships and other intangible assets 71.0 156.5
Following an impairment assessment of the carrying value of intangible assets
held by the Group's operations performed by management at 31 December 2022, no
impairment charge was required to be recognised on the Group's continuing
operations.
The impairment assessment for intangible assets (excluding goodwill) and
property, plant and equipment is performed on the cash generating units within
the divisions. The cash generating units are primarily the manufacturing
sites. Goodwill is tested at the divisional level, which is the level that
management monitor goodwill. The recoverable amount is estimated on the basis
of value in use, i.e. discounted cash flows expected to be generated by the
group by its 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 reflecting the age and condition of the asset.
The impairment tests for goodwill and intangible assets are based on the Board
approved business plan (the "Plan"). Cash flow projections are over five years
using the approved annual budget for the first year and subsequent years
based on the Group and Divisional Strategic Plan. The Group's impairment test
incorporates the following assumptions:
· The key assumptions in the cash flow projections for the Plan are
revenue growth and operating margin. Operating margin is primarily based upon
the historical levels achieved, adjusted by targets set for revenue expansion
and cost control and reduction within the Plan period. The values assigned to
these assumptions represent management's assessment of market condition and
scope for cost and profitability improvement, taking into account realisable
synergies resulting from integration activities. The annual revenue growth
rate over the five year forecast period averages 6.6% with a terminal growth
rate of 2.4% from 2028 onwards. The average operating profit margin over the
five year forecast period is assumed to improve by 120 bps.
· The estimated cash flows are discounted using a post-tax discount
rate based upon Essentra's estimated post-tax weighted average cost of capital
of 10.8% (2021: 6.5%). The post-tax discount rate for 2022 was significantly
higher than for 2021 as the rate for 2021 was a blended rate incorporating the
Packaging and Filters businesses that were sold during 2022, whereas the rate
for 2022 was for the Components business only, which generally had a higher
discount rate than the Packaging and Filters businesses. The specific pre-tax
discount rates applied for the Group on continuing operations are 11.0% (2021:
8.4% for Components).
8. Lease right-of-use asset
2022 2021
Land and buildings Plant and machinery Fixtures, fittings and equipment Total Land and buildings Plant and machinery Fixtures, Total
fittings and equipment
£m £m £m £m £m £m
£m
£m
Cost
Beginning of year 100.5 13.4 0.4 114.3 102.0 13.9 0.4 116.3
Additions, extensions and surrenders 7.6 2.7 - 10.3 8.2 1.8 - 10.0
Terminations (6.9) (1.5) (0.1) (8.5) (6.3) (1.7) - (8.0)
Business disposals (71.2) (12.4) (0.2) (83.8) - - - -
Acquisitions - - - - 2.0 - - 2.0
Currency translation(4) 10.3 0.7 0.1 11.1 (5.4) (0.6) - (6.0)
End of year 40.3 2.9 0.2 43.4 100.5 13.4 0.4 114.3
Accumulated depreciation and impairment
Beginning of year 56.6 7.0 0.3 63.9 57.7 5.7 0.2 63.6
Charge for the year(3) 7.4 2.5 0.2 10.1 9.0 2.9 0.1 12.0
Terminations (6.7) (1.3) (0.1) (8.1) (6.0) (1.3) - (7.3)
Disposal of businesses (40.4) (6.8) (0.2) (47.4) - - - -
Impairment write back(1) (0.6) - - (0.6) (1.1) - - (1.1)
Currency translation(4) 4.1 0.5 (0.1) 4.5 (3.0) (0.3) - (3.3)
End of year 20.4 1.9 0.1 22.4 56.6 7.0 0.3 63.9
Net book value at end of year 19.9 1.0 0.1 21.0 43.9 6.4 0.1 50.4
Notes:
1. During the year, an impairment write back of £0.6m (2021: impairment
write back of £1.1m) was recognised in adjusting items (refer to note 3). The
assets were uplifted to their recoverable amount, which represented their fair
value.
2. Contractual commitments to lease property, plant and equipment amounted
to £nil at 31 December 2022 (2021: £nil).
3. Depreciation charge of £10.1m in the year includes an amount of £5.6m
relating to continuing operations and £4.5m relating to discontinued
operations.
4. Currency translation as at 31 December 2022 includes net book value
movement of £2.7m in respect of adjustments for hyperinflation. See 'Changes
in accounting policies' in note 1 'basis of preparation' for further details
of the Group's application of IAS 29 during the year.
9. 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 2021 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 on a total group
basis (including discontinued operations) are as follows:
2022 2021
£m £m
Amounts expensed against operating profit
Defined contribution schemes 7.0 6.9
Defined benefit schemes - current service cost 2.0 1.5
Defined benefit schemes - curtailment gain - (0.2)
Other post-employment obligations 0.4 0.4
Total operating expense 9.4 8.6
Amounts included as finance (income)/expense
Net interest on defined benefit scheme assets(1) (0.6) (0.2)
Net interest on defined benefit scheme liabilities(2) 0.7 0.8
Net finance expense(1) 0.1 0.6
Notes:
1. Net interest income on defined benefit scheme assets on a continuing basis
(note 4) was £0.6m (2021: £0.2m)
2. Net interest expense on defined benefit scheme liabilities on a continuing
basis (note 4) was £0.6m (2021: £0.6m)
Amounts recognised in the consolidated statement of comprehensive income
Losses on defined benefit scheme assets excluding amounts in net finance 108.5 0.6
income
Gains on changes in assumptions and experience to the present (88.0) (29.1)
value of defined benefit scheme liabilities
Remeasurement losses/(gains) of defined benefit schemes 20.5 (28.5)
During the period, the company incurred administrative expenses totalling
£2.0m which, in management's judgement, are not considered to be part of the
Group's ongoing operations. As such, these expenses have been classified as
adjusting items and have been presented separately (see note 3).
During 2015, the principal defined benefit pension schemes in the UK and the
US were closed to future accrual. 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.
In April 2022, the Company, Essentra Components Limited and Essentra Pension
Trustees Limited (the trustee of the UK Essentra Pension Plan) entered into a
flexible apportionment agreement ("FAA") subject to UK legislation such that
Essentra Packaging and Security Limited (a former participating employer and
Group subsidiary disposed of as part of the Packaging business), and Essentra
Filter Products Limited and Essentra Pte Limited (both former participating
employers and Group subsidiaries disposed of as part of the Filters business)
transferred all defined benefit pension liabilities to Essentra Components
Limited, a continuing participating employer of the UK Essentra Pension Plan.
The principal assumptions used by the independent qualified actuaries for the
purposes of IAS 19 are as follows:
2022 2022 2021 2021
Europe US Europe US
Increase in salaries (pre-2010)(1) n/a n/a n/a n/a
Increase in salaries (post-2010)(1) n/a n/a n/a n/a
Increase in pensions(1)
at RPI capped at 5% 3.0% n/a 3.1% n/a
at CPI capped at 5% 2.7% n/a 2.7% n/a
at CPI minimum 3%, capped at 5% 3.3% n/a 3.3% n/a
at CPI capped at 2.5% 2.2% n/a 2.2% n/a
Discount rate 4.8% 5.0% 1.9% 2.8%
Inflation rate - RPI 3.1% n/a 3.2% n/a
Inflation rate - CPI 2.7% n/a 2.7% n/a
Notes:
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%.
2. During 2021, the Group changed its methodology and assumptions relating to
inflation applied to the UK defined benefit pension scheme (included within
Europe) pertaining to the Retail Prices Index (RPI) and the Consumer Prices
Index (CPI). This follows the government's announcement in November 2020 that
RPI inflation will be aligned with CPIH inflation (CPI plus housing) from
2030. As such, the actuary derived the inflation assumption based on a
'term-based' curve approach, by weighing the Scheme's projected cash flows
with the gilt-based RPI curve.
3. Due to the timescale covered, the assumptions applied may not be borne out
in practice.
The life expectancy assumptions (in number of years) used to estimate defined
benefit obligations at the year-end are as follows:
2022 2022 2021 2021
Europe US Europe US
Male retiring today at age 65 22.0 20.5 22.0 20.5
Female retiring today at age 65 24.4 22.5 24.4 22.5
Male retiring in 20 years at age 65 23.3 22.1 23.2 22.0
Female retiring in 20 years at age 65 25.9 24.0 25.8 23.9
9. Employee benefits continued
Movement in the fair value of post-employment obligations recognised during
the year:
2022 2021
Defined benefit pension scheme Defined benefit pension scheme
Assets Liabilities Other(1) Total Assets Liabilities Other Total
£m £m £m £m £m £m £m £m
Beginning of year 305.9 (293.1) (3.8) 9.0 312.0 (332.0) (3.9) (23.9)
Current service cost and administrative expense(2) (1.8) (0.2) (0.4) (2.4) (1.5) - (0.3) (1.8)
Employer contributions 0.7 0.2 - 0.9 6.3 0.1 - 6.4
Reduction on plan assets excluding amounts in net finance income(3) (108.5) - - (108.5) (0.6) - - (0.6)
Actuarial gains arising from change in financial assumptions - 95.5 - 95.5 - 18.5 0.3 18.8
Actuarial gains arising from change in demographic assumptions - (1.9) - (1.9) - 4.5 - 4.5
Actuarial (losses)/gains arising from experience adjustment - (5.6) - (5.6) - 5.8 - 5.8
Finance income/(expense) 6.3 (6.3) (0.1) (0.1) 4.7 (5.1) (0.2) (0.6)
Benefits paid (11.5) 11.5 - - (16.1) 16.1 - -
Curtailments - - - - - - 0.2 0.2
Currency translation 7.2 (9.4) (0.1) (2.3) 1.1 (1.0) 0.1 0.2
Business disposals(4) - 0.6 4.2 4.8 - - - -
End of year 198.3 (208.7) (0.2) (10.6) 305.9 (293.1) (3.8) 9.0
Defined benefit schemes - net retirement benefit assets/(obligations) (10.4) 12.8
Notes:
1. Included within the other category above are other post-employment
obligations outside of Europe and the US which are required under local law
and the pension schemes disposed of due to the sale of the Packaging and
Filters businesses.
2. During the period, the company incurred administrative expenses totalling
£2.0m which, in management's judgement, are not considered to be part of the
Group's ongoing operations. As such, these expenses have been classified as
adjusting items and have been presented separately (see note 3).
3. Included within reduction on plan assets is an actuarial loss of £10.8m
relating to an investment decision to purchase a bulk purchase annuity
("buy-in") contract. A premium of £38.2m was paid to purchase buy-in to
insure against liabilities within the UK defined benefits scheme. The loss
represented the difference between the premium paid and the estimated present
value of the obligations and is included within other comprehensive income.
4. The Group disposed of the Packaging business and the Filters business
during the year to 31 December 2022 (refer to note 13 for further details).
The participating employers in the UK Essentra Pension Plan of the divested
businesses transferred their defined benefit pension liabilities to Essentra
Components Limited as part of the FAA executed in April 2022.
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 2022.
(Increase)/decrease in schemes net liabilities
Europe US Total
£m £m £m
0.5% decrease in the discount rate (9.7) (3.4) (13.1)
1.0% increase in the rate of inflation (8.2) n/a (8.2)
1.0% increase in rate of salary/pension increases n/a n/a n/a
1 year increase in life expectancy (4.8) (1.9) (6.7)
1 year decrease in life expectancy 3.3 1.9 5.2
0.5% increase in the discount rate 8.0 3.3 11.3
1.0% decrease in rate of salary/pension increases n/a n/a n/a
1.0% decrease in the rate of inflation 6.6 n/a 6.6
10. Issued share capital
2022 2021
£m £m
Issued, authorised and fully paid ordinary shares 75.6 75.6
of 25p (2021: 25p) each
Number of ordinary shares in issue
Beginning of year 302,590,708 302,590,708
End of year 302,590,708 302,590,708
At 31 December 2022, the Company held 897,944 (2021: 905,157) of its own
shares with a nominal value of £0.2m (2021: £0.2m) in treasury. This
represents 0.3% (2021: 0.3%) of the number of ordinary shares in issue.
11. Analysis of net funding surplus/(debt)
1 January 2022 Cash flow Business disposals Business acquisitions Lease additions Exchange movements Non-cash movements 31 December 2022 1 January Cash flow Business combinations Lease additions Exchange movements Non-cash movements 31 December 2021
£m
2021
£m £m £m £m £m £m £m
£m £m £m £m £m £m
£m
Cash at bank and in hand 123.9 (115.7) 434.9 (27.9) - 6.2 - 421.4 121.5 4.2 - - (1.8) - 123.9
Short-term deposits and investments 12.4 5.7 (18.0) - - (0.1) - - 14.3 (1.7) - - (0.2) - 12.4
Cash and cash equivalents in the statement of cash flows 136.3 (110.0) 416.9 (27.9) - 6.1 - 421.4 135.8 2.5 - - (2.0) - 136.3
Derivative financial instruments hedging private placement loans(5) - (6.5) - - - 13.4 1.4 8.3 - - - - - - -
Debt due within one year - - - - - (1.2) (206.8) (208.0)
Debt due after one year (313.3) 59.2 - - - (31.2) 200.3 (85.0) (285.2) (24.5) - - (2.5) (1.1) (313.3)
Lease liabilities due within one year (11.6) 14.3 7.5 - (2.9) (0.9) (11.3) (4.9) (11.9) 15.6 (0.3) (2.0) 0.3 (13.3) (11.6)
Lease liabilities due after one year (46.1) - 30.1 - (7.4) (3.3) 8.7 (18.0) (49.1) - (1.7) (8.0) 1.2 11.5 (46.1)
Debt from net financing activities (371.0) 67.0 37.6 - (10.3) (23.2) (7.7) (307.6) (346.2) (8.9) (2.0) (10.0) (1.0) (2.9) (371.0)
Net (debt)/funding surplus (234.7) (43.0) 454.5 (27.9) (10.3) (17.1) (7.7) 113.8 (210.4) (6.4) (2.0) (10.0) (3.0) (2.9) (234.7)
Notes:
1. The non-cash movements in debt due after one year represents the
amortisation and write down of prepaid facility fees £4.8m (2021: £1.1m
amortisation of prepaid facility fees) and the revaluation of loan to fair
value £1.7m. Loans of £185.0m has been reallocated to debt due within one
year following an agreement to repay on demand in January 2023.
2. The net non-cash movements in lease liabilities represents lease
surrenders of £0.2m (2021: £1.0m) due to renegotiated lease terms, offset by
interest on leases of £2.8m (2021: £2.8m).
3. The net cash outflow relating to lease liabilities for low value, short
term and variable lease payments was £0.2m (2021: £0.3m).
4. During the year £8.7m (2021: £10.5m) of lease liabilities moved from
due after one year to due within one year.
5. Included within non-cash movements for derivative financial instruments
hedging private placement loans is £1.4m (2021: £nil) relating to the fair
value movements on cross currency interest rate swaps.
12. Acquisitions
Acquisition of Wixroyd Group
On 1 December 2022, Essentra acquired 100% of the equity interests of Wixroyd
Holdings Limited (the "Wixroyd Group"), a leading UK supplier of industrial
parts for the engineering sector for an initial consideration of £31.4m. The
consideration payable for the Wixroyd Group comprises an initial cash
consideration of £31.4m and up to £7.0m deferred earn-out consideration. The
deferred earn-out consideration is conditional on achieving certain
performance criteria for the 12-month period commencing 1 January 2023.
On acquisition, the assets and liabilities of the business acquired were
adjusted to reflect their fair value to Essentra. The most significant fair
value adjustment arising on the acquisition of the Wixroyd Group related to
attributing fair value to the acquired intangible asset recognised in the form
of customer relationships. In determining the fair value of the intangible
asset, the Group used an external valuation specialist whose assessment
considered forecast cash flows from the Wixroyd Group's customer contracts,
expected attrition rates based on an analysis of historic customer sales data,
and the application of an appropriate discount rate specific to the customer
relationship asset. The resulting analysis indicated a provisional fair value
for the customer relationships asset of £8.2m, with a corresponding
provisional deferred tax liability in relation to the intangible asset of
£1.4m.
Under IFRS 3 Business Combinations, the fair value of assets and liabilities
must be finalised within a 12-month "measurement period" from the date of
acquisition. At the reporting date, the purchase price allocation and fair
value adjustments are provisional.The acquired business contributed revenues
of £0.7m and net profit of £0.1m to the Group for the period from 1 December
to 31 December 2022 and these results are included within these consolidated
financial statements. Had the acquisition completed on 1 January 2022, the
contribution to the Group's revenue and operating profit would have been
£10.5m and £2.8m higher respectively.
Acquisition-related costs of £0.3m are included within adjusting items in the
consolidated income statement (see note 3) and in operating cash flows in the
consolidated statement of cash flows.
The Groups' provisional assessment of the fair value of the assets and
liabilities recognised as part of the acquisition of the Wixroyd Group are
detailed below:
Provisional fair value
£m
Intangible assets(1) 8.8
Property, plant and equipment 1.4
Inventories 2.3
Trade and other receivables 1.6
Corporation tax receivable 0.4
Cash and cash equivalents 3.5
Corporation tax payable (0.4)
Trade and other payables (2.0)
Deferred tax liabilities (1.8)
Net identifiable assets acquired 13.8
Goodwill(2) 20.2
Total consideration 34.0
Cash consideration 31.4
Deferred consideration(3) 2.6
Total consideration 34.0
Note
1. Intangible assets comprises customer relationships of £8.2m and other
intangible assets of £0.6m.
2. Goodwill recognised of £20.2m represents the expected operating and
financial synergies, and the value of the assembled workforce acquired.
Goodwill is not deductible for tax purposes.
3. Includes £0.2m relating to an amount withheld pending resolution of an
uncertain tax position.
Acquisition of Hengzhu
On 2 August 2021, Essentra acquired the trade and assets of Jiangxi Hengzhu Electrical Cabinet Lock Co., Ltd ("Hengzhu"), an access hardware manufacturer and distributor in China via an newly incorporated entity, Essentra Hengzhu Precision Components Co Ltd, which acquired 100% of the business for ¥103m (approximately £11.8m). Essentra had subscribed and paid up 73% of the issued share capital of Essentra Hengzhu Precision Components Co Ltd with the remaining 27% stake subject to put and call options exercisable 6 months after issuance of the subsidiary's audit report for 2022. The remaining 27% stake does not confer any shareholder right (including, entitlement to dividends and right to transfer to other parties) to the vendor shareholder. Therefore it is concluded that the amount payable under the put option of £4.7m (2021: £4.2m) in substance represents deferred consideration and is accounted for as a financial liability. No non-controlling interest is recognised in respect of this acquisition.
Acquisition of Micro Plastics
On 12 December 2017, Essentra acquired 100% of the share capital of Micro
Plastics, Inc. The transaction was settled with cash consideration of £19.7m
and deferred consideration of £3.7m, of which £1.3m (2021: £1.2m) remains
payable to the vendor.
13. Discontinued operations
On 1 October 2022, the Group completed its sale of ESNT Packaging &
Securing Solutions Limited and Essentra Packaging US Inc and their respective
subsidiary companies (together the 'Packaging business'). On 3 December 2022,
the Group also completed the sale of Essentra Filter Holdings Limited and its
respective subsidiary companies (the 'Filters business'). The results of the
Packaging business and the Filters business have been classified as
discontinued operations at 31 December 2022 and comparative information has
been re-presented. Financial information relating to these discontinued
operations for the period to their respective dates of disposal, is set out
below. On 28 September 2022 the Group also completed the sale of its Packaging
business in India for cash consideration of £1.1m on net assets of £2.2m,
resulting in a loss on disposal of £1.1m, which has been included in the loss
on disposal reported below.
Total (loss)/profit for the year from discontinued operations
The Group recognised a total £152.7m loss (2021: £33.2 profit) for the year
from discontinued operations as reported in the consolidated income statement.
2022 2021(1)
Packaging business Filters Total Total
£m
business £m £m
£m
Total consideration received or receivable(2) 294.1 161.1 455.2 -
Net assets disposed (300.6) (180.1) (480.7) -
Costs of disposal (23.4) (27.2) (50.6) -
Recycling of non-controlling interest - 18.4 18.4 -
Recycling of foreign currency translation reserve 27.5 11.2 38.7 -
Loss on disposal of discontinued operations before tax (2.4) (16.6) (19.0) -
Income tax on disposal - - - -
(Loss)/profit for the period after tax(3) (173.6) 39.9 (133.7) 33.2
Total (loss)/profit for the year from discontinued operations (176.0) 23.3 (152.7) 33.2
Notes:
1. The Group disposed of the Packaging business and the Filters business
during the year ended 31 December 2022. The results of these discontinued
operations have been re-presented.
2. Total consideration of £161.1m in respect of the Filters business
includes £10.6m in respect of the fair value of contingent consideration
receivable, included within long-term receivables.
3. This represents the (loss)/profit for the period for operations up until
the date of disposal including an impairment of goodwill in respect of the
Packaging business of £181.6m recorded in June 2022 by reference to the fair
value less costs to dispose established by the sale and purchase agreement
signed with the buyer on 24 June 2022.
Net assets disposed
The assets and liabilities of the disposed businesses were as follows:
2022
Packaging Filters Total
business business £m
£m £m
Property, plant and equipment 123.1 89.0 212.1
Lease right-of-use assets 19.8 16.6 36.4
Intangible assets 126.8 23.3 150.1
Long-term receivables 1.9 1.7 3.6
Deferred tax assets 7.7 1.4 9.1
Income tax receivable 0.3 0.1 0.4
Inventories 47.0 56.6 103.6
Trade and other receivables(1) 93.6 66.7 160.3
Cash and cash equivalents 11.8 33.9 45.7
Total assets 432.0 289.3 721.3
Trade and other payables 80.1 71.1 151.2
Lease liabilities due less than one year 4.3 3.2 7.5
Lease liabilities due greater than one year 15.5 14.6 30.1
Retirement benefit obligations 0.6 4.2 4.8
Provisions 2.3 0.2 2.5
Deferred tax liabilities 26.5 10.9 37.4
Income tax payable 2.1 5.0 7.1
Total liabilities 131.4 109.2 240.6
Net assets disposed 300.6 180.1 480.7
Notes:
1. Trade and other receivables are stated after provisions of £2.3m.
13. Discontinued operations continued
Income statement analysis of discontinued operations:
2022 2021(1)
Packaging Filters Total discontinued operations Packaging Filters Total discontinued operations
£m
£m
business business business business
£m £m £m £m
Revenue 319.1 334.8 653.9 362.4 295.6 658.0
Operating (loss)/profit(2) (184.7) 47.6 (137.1) 6.6 35.4 42.0
Finance income 0.1 1.4 1.5 - 0.6 0.6
Finance expense (0.6) (1.5) (2.1) (1.0) (1.4) (2.4)
(Loss)/profit before tax (185.2) 47.5 (137.7) 5.6 34.6 40.2
Income tax credit/(expense) 11.6 (7.6) 4.0 (2.6) (4.4) (7.0)
(Loss)/profit for the period after tax (173.6) 39.9 (133.7) 3.0 30.2 33.2
Note:
1. The Group disposed of the Packaging business and the Filters business
during the year ended 31 December 2022. The results of these discontinued
operations have been re-presented.
2. The operating result of discontinued operations is stated after
impairment charges of £182.7m. An impairment charge of £181.6m was
recognised at 30 June 2022 following the Group's impairment assessment in
respect of the carrying value of goodwill allocated to the Packaging business
prior to its disposal. In addition, an impairment charge of £1.1m was
recognised relating to intangible assets held in India following an impairment
review triggered by the divestment of the Packaging business.
Cash flow information from discontinued operations:
2022 2021
Packaging Filters Total Total
business business £m £m
£m £m
Cash consideration 299.5 163.1 462.6 -
Cash and cash equivalents disposed (11.8) (33.9) (45.7) -
Proceeds from disposal of businesses net of cash disposed 287.7 129.2 416.9 -
Net cash inflow from operating activities 24.0 35.7 59.7 66.1
Net cash inflow from investing activities 255.8 103.0 358.8 (19.7)
Net cash outflow from financing activities (4.6) (5.7) (10.3) (7.5)
Increase in cash and cash equivalents 275.2 133.0 408.2 38.9
14. Dividends
Per share Total
2022 2021 2022 2021
p p £m £m
2021 interim: paid 29 October 2021 - 2.0 - 6.0
2021 proposed final: paid 1 June 2022 - 4.0 - 12.1
2022 interim: paid 28 October 2022 2.3 - 6.9 -
2022 special dividend: payable 27 April 2023 29.8 - 90.0 -
2022 proposed final: payable 30 June 2023 1.0 - 3.0 -
As announced by the Group on 2 February 2023, Essentra intends to pay a
special dividend of £90m on 27 April 2023 to shareholders on the register of
the Company on 21 March 2023. The ordinary shares were quoted ex-dividend on
20 March 2023.
Subject to approval at the Annual General Meeting on 3 May 2023, the proposed
final dividend for the year ended 31 December 2022 will be paid on 30 June
2023 to shareholders on the register of the Company on 19 May 2023. The
ordinary shares will be quoted ex-dividend on 18 May 2023.
15. Related parties
Other than the compensation of key management, Essentra has not entered any
material transactions with related parties since the last Annual Report.
ITC Essentra Limited was 50% owned by the Group until its disposal on 3
December 2022. Until that date, its results were fully consolidated within the
Group's results as it was deemed Essentra had control up to the date of
disposal by virtue of its having control of the board. At the date of
disposal, the entity had gross assets of £34.0m (31 December 2021: £27.6m)
and gross liabilities of £14.6m (31 December 2021: £9.9m). Operating profit
for the period to disposal was £6.9m (2021: £5.0m) and cash decreased by
£0.5m (2021: £0.8m increase).
China Tobacco Essentra (Xiamen) Filters Co., Ltd was 49% owned by the Group
until its disposal on 3 December 2022. Until that date, its results were
fully consolidated within the Group's results as it was deemed Essentra had
control up to the date of disposal by virtue of its having control of the
board. As the date of disposal, the entity had gross assets of £30.0m (31
December 2021: £20.3m) and gross liabilities of £12.7m (31 December 2021:
£5.4m). Operating profit for the period to disposal was £2.4m (2021: £0.8m
loss) and cash decreased by £0.9m (2021: £0.2m).
16. Adjusted performance measures
The Group presents alternative performance measures including adjusted
operating profit, adjusted operating profit after allocation of central costs,
adjusted operating cash flow and adjusted earnings per share, which are not
defined or specified in accordance with UK adopted International Financial
Reporting Standards. These non-GAAP measures enable management to reflect the
underlying performance of the continuing operations of the Group and provides
investors with a more meaningful comparison of how the business is managed and
measured on a periodic basis.
The adjusted performance measures presented below cannot be derived directly
from the Group's consolidated financial statements and therefore, a
reconciliation of the adjusted performance measure to the most directly
comparable reported measure in accordance with UK adopted International
Financial Reporting Standards has been provided.
Reconciliation to the Group's adjusted profit measures
Continuing operations 2022 2021
£m £m
Operating (loss)/profit Reported statutory measure (11.3) 7.7
Amortisation of acquired intangible assets 10.4 8.6
Adjusting items Note 3 26.0 10.1
Adjusted operating profit Adjusted performance measure 25.1 26.4
Finance income Note 4 7.1 2.1
Finance expenses Note 4 (24.9) (16.9)
Adjusted profit before income tax Adjusted performance measure 7.3 11.6
Tax on adjusted profit (1.6) (0.4)
Adjusted net income Adjusted performance measure 5.7 11.2
Reconciliation of reported statutory measures to the Group's segment analysis
2022 2021
Components Central Services Continuing Operations Discontinued Operations Total Components Central Continuing Operations Discontinued Operations Total
£m
£m
£m
£m
£m
£m
Services
£m
£m
£m
£m
Operating (loss)/profit Reported statutory measure 40.9 (52.2) (11.3) (137.1) (148.4) 47.9 (40.2) 7.7 42.0 49.7
Adjusting items Note 3 12.4 13.6 26.0 - 26.0 0.4 9.7 10.1 - 10.1
Amortisation and impairment of acquired intangible assets 10.4 - 10.4 189.2 199.6 8.6 - 8.6 13.8 22.4
Adjusted operating profit Adjusted performance measure 63.7 (38.6) 25.1 52.1 77.2 56.9 (30.5) 26.4 55.8 82.2
Notes:
1. The Group disposed of the Packaging business and the Filters business
during the year ended 31 December 2022. The results of these operations have
been re-presented above as discontinued operations.
16. Adjusted performance measures continued
Net funding surplus/(debt)
Net funding surplus/(debt) is defined as cash and cash equivalents (including
short-term liquid investments) and derivatives against hedging placement
loans, net of lease liabilities and interest-bearing loans and borrowings. It
is a measure that provides additional information on the Group's financial
position.
2022 2021
£m £m
Cash and cash equivalents Reported statutory measure 421.4 136.3
Debt liabilities Note 11 (293.0) (313.3)
Lease liabilities Note 11 (22.9) (57.7)
Derivative financial instruments hedging placement loans Note 11 8.3 -
Net funding surplus/(debt) Adjusted performance measure 113.8 (234.7)
Reconciliation to the Group's adjusted operating cash flow measure
Adjusted operating cash flow from continuing operations is presented to
exclude the impact of tax, adjusting items, interest and other items not
impacting operating profit. Net capital expenditure is included in this
measure as management regards investment in operational assets (tangible and
intangible) as integral to the underlying cash generation capability of the
Group, except amounts relating to adjusting items.
2022 2021
£m £m
Net cash inflow from operating activities Reported statutory measure 64.0 63.2
Adjusted for: net cash outflow from discontinued operations Note 24 (59.7) (66.1)
Operating net cash inflow/(outflow) from continuing activities 4.3 (2.9)
Cash outflow from adjusting items 23.7 23.9
Tax paid on continuing operations 5.0 4.7
Adjustments for pension contributions - 4.8
Net capex expenditure on continuing operations (12.8) (12.7)
Adjusted operating cash flow from continuing operations Adjusted performance measure 20.2 17.8
2022 2021
£m £m
Adjusted operating profit from continuing operations Adjusted performance measure 25.1 26.4
Depreciation of property, plant and equipment 13.9 12.3
Lease right-of-use asset depreciation 5.6 5.4
Amortisation of non-acquired intangible assets 2.7 2.6
Share option expense 1.4 (0.7)
Other non-cash items(1) (1.5) (0.5)
Working capital movements (14.2) (15.0)
Net capital expenditure (12.8) (12.7)
Adjusted operating cash inflow from Adjusted performance measure 20.2 17.8
continuing operations
Reconciliation of cash flows from adjusting items:
Adjusting items 26.0 10.1
Non-cash credit/(charge) in adjusting items (2.0) 6.6
Cash outflow on adjusting items recognised in the year 24.0 16.7
Utilisation of prior year and acquired accruals and provisions (0.3) 7.2
Cash outflow from adjusting items Adjusted performance measure 23.7 23.9
Notes:
1. Other non-cash items comprise impairment of fixed assets £0.5m (2021:
£0.2m), inflow from hedging activities and other movements £1.1m (2021:
£0.5m outflow), movement in provisions £0.1m (2021: less £0.2m) and less
movement due to hyperinflation £3.2m (2021: £nil).
17. Post balance sheet events
As a consequence of the business disposals, the Group was required to repay
$247m of its US Private Placement Loan Notes, classified as current
liabilities at the balance sheet date, which were repaid in full during
January 2023.
18. Financial risk management
Total financial assets and liabilities
The table below sets out the Group's accounting categories and fair value for
each class of financial asset and liability:
2022 2021
Fair Amortised cost Total carrying value Fair Amortised cost Total carrying value
value
value
£m £m
£m £m
£m £m
Trade and other receivables(2) - 63.0 63.0 - 169.9 169.9
Cash and cash equivalents - 421.4 421.4 - 136.3 136.3
Interest bearing loans and borrowings(3) - (293.0) (293.0) - (313.3) (313.3)
Lease liabilities - (22.9) (22.9) - (57.7) (57.7)
Trade and other payables - (82.0) (82.0) - (167.7) (167.7)
Level 2 of fair value hierarchy
Derivative assets(5) 8.5 - 8.5 1.2 - 1.2
Derivative liabilities(5) (1.3) - (1.3) (0.1) - (0.1)
Level 3 of fair value hierarchy
Trade receivables subject to factoring - - - 4.0 - 4.0
Other financial assets(6) 11.6 - 11.6 - - -
Other non-current financial liabilities(4) (2.4) - (2.4) (5.6) - (5.6)
Other current financial liabilities(7) (24.1) - (24.1) - - -
Total (7.7) 86.5 78.8 (0.5) (232.5) (233.0)
Notes:
1. Financial assets and liabilities held at amortised cost mostly have short
terms to maturity. For this reason, their carrying amounts at the reporting
date approximate the fair values.
2. Total trade and other receivables carried at £66.4m (2021: £175.2m)
include prepayments of £3.4m (2021: £6.5m) which are not financial assets
and are therefore excluded from the above analysis.
3. Included within interest bearing loans and borrowings are $350m (2021:
$350m) US Private Placement Loan Notes. The Loan Notes are held at amortised
cost with a carrying value of £293.0m (2021: £257.7m). The Group estimates
that the total fair value of the Loan Notes at 31 December 2022 is £277.7m
(2021: £270.5m). Unsecured bank loans amounting to £nil (2021: £55.6m),
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.
4. Included other non-current financial liabilities (classified as level 3
in the fair value hierarchy), is an amount of £2.4m representing deferred
consideration payable in respect of acquisitions (2021: £5.6m).
5. Fair values of forward foreign exchange contracts and cross currency
interest rate swaps have been calculated at year end forward exchange rates
compared to contracted rates using observable market data from third party
financial institutions.
6. Other financial assets, included within long term receivables of £11.6m
(2021: £5.2m), includes deferred contingent consideration receivable
amounting to £10.6m following the disposal of the Filters business.
The consideration, which is structured as an earn-out, has been classified as
a long-term receivable in the consolidated financial statements. The fair
value has been determined at the completion date based on management's best
estimate of the Filters business achieving future performance targets to which
the earn-out is linked with forecast earnings being a critical unobservable
input into the fair value measurement. Management have assessed and concluded
that any difference in fair value between completion date and 31 December 2022
would be immaterial.
7. Other current financial liabilities include £18.0m which represents
management's best estimate of the combined expected settlement payable by the
Group through the respective completion accounts mechanisms linked to both the
Filters business and Packaging business disposals. The amount recognised is
based on the facts and circumstances that were present and known at the
balance sheet date. Other current financial liabilities also include £6.1m
(2021: £nil) in respect of acquisitions.
8. During the year, a fair value loss of £nil (2021: £nil) was recognised
in respect of financial instruments at level 3 fair value hierarchy, and
£nil (2021: £nil) was settled in cash. No other fair value gains or losses
were recorded in profit or loss and other comprehensive income.
19. 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.
20. Directors' responsibility statement
We confirm that to the best of our knowledge
· the Group financial statements, which have been prepared in
accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006, give a true and fair view of the
assets, liabilities, financial position and profit of the Group; and
· the announcement includes a fair review of the development and
performance of the business and the position of the Group and company,
together with a description of the principal risks and uncertainties that it
faces
On behalf of the Board
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