REG - Essentra plc - Results for the Half Year Ended 30 June 2022
17/08/2022 07:00
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RNS Number : 2393W Essentra plc 17 August 2022
ESSENTRA PLC
("Essentra" or the "Company")
A leading global provider of essential components and solutions
RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2022
A strong H1 2022 performance with strategic progress
· Significant first step taken to reposition Essentra as a pure-play
Components business with the sale of Packaging to Mayr-Melnhof ("MM") Group
announced in June, expected to complete in Q4 2022
· The Filters strategic review continues to progress, and the Company
expects to provide an update by the end of Q3
· After completion, we expect the sale of Packaging to enhance
Essentra's balance sheet leaving the continuing Group with a small net cash
balance, excluding lease liabilities. This position will be reviewed after the
conclusion of the Filters strategic review. The Board intends to return a
portion of Packaging proceeds to shareholders after the conclusion of both
strategic reviews
· Strong performance across the continuing(1) Group in H1 2022.
Revenue up 14.0% on a like-for-like(2) ("LFL") constant currency basis and
adjusted(3) operating profit up 43.8%
· Components delivered a strong performance with revenue growth of
18.6% (12.7% LFL) on a constant currency basis, with growth driven through
price and volume. Adjusted operating profit increased to £35.9m and adjusted
operating margins expanded to 20.4% (H1 2021: 18.1% on a constant currency
basis)
· Filters revenue grew 15.4% on a constant currency basis, underpinned
by growth of outsourcing contract wins and an increase in China JV volumes.
Adjusted operating profit increased to £15.1m with operating margins
expanding to 9.2% (H1 2021: 8.3%, on a constant currency basis)
· Adjusted(3) operating cash flow of £15.9m in H1 2022 (H1 2021:
£17.7m), a reduction due to working capital investment to support growth
· Group net debt of £248.9m (H1 2021: £159.1m), with net debt / EBITDA
at 1.9x (including lease liabilities 2.1x). The increase includes adjusting
items related to the strategic reviews, increased levels of working capital
and higher interest expense, led by USD forex and a one-off revaluation of the
US private placement loan notes to be repaid in association with the disposal
of the Packaging business
· Discontinued operations made a post-tax loss of £182.8m after
incurring adjusting items of £193.6m (including a non-cash £181.6m
impairment of goodwill for the Packaging business)
· Given the continuing Group's strong performance and aligned with
our progressive dividend policy, the Board has recommended an interim dividend
of 2.3p per share, +15% compared to H1 2021
(1 Continuing Operations excludes the Packaging division, which has been
reported under IFRS 5 as a discontinued operation at the HY 2022 results)
(2 Excludes the impact of acquisitions, disposals and foreign exchange)
(3 Before amortisation of acquired intangible assets and adjusting items.
Further details can be found in Note 3 of the condensed consolidated interim
financial statements)
( )
Commenting on today's results, Paul Forman, Chief Executive, said:
"We have made significant progress on our journey to reposition Essentra as a
leading manufacturer and distributor of components, with the announced sale of
Packaging to MM Group. This transaction will further strengthen our balance
sheet and give Components the flexibility to accelerate investment in growth
opportunities.
The strategic review of Filters is progressing well, and the Board remains
focused on maximising shareholder value. We will provide a further update
towards the end of Q3 2022. The Company has delivered a strong first half; the
Components and Filters divisions have delivered double digit H1 growth,
including margin expansion and we continue to see strength in our order book,
providing encouragement as we move into the second half.
Whilst we are mindful of the wider macroeconomic uncertainty, the Group
remains well positioned with organic and inorganic growth opportunities,
strong order books and a robust balance sheet. We expect to deliver adjusted
operating profit in line with the Board's expectations."
( )
Results at a glance:
HY 2022 HY 2021 (restated)(4) % change Actual FX % change Constant FX
Continuing operations
Revenue £340.8m £287.9m +18 +17
Adjusted(1) operating profit £35.3m £24.6m +44 +44
Adjusted(1) pre-tax profit £23.4m £18.1m +29 +27
Adjusted(1) net income(2) £17.2m £16.5m +4 +2
Adjusted(1) basic earnings per share 5.3p 5.2p +2 (1)
Free cash flow(3) £9.3m £1.1m n/a n/a
Continuing operations
Reported operating profit £11.0m £17.6m (38) (37)
Reported pre-tax (loss) / profit £(0.9)m £11.1m n/a n/a
Reported net (loss) / income(2) £(4.6)m £11.4m n/a n/a
Reported (loss) / basic earnings per share (1.9)p 3.6p n/a n/a
Reported net cash inflow from operating activities £6.2m £7.9m n/a n/a
Discontinued operations
Post-tax (loss) / profit £(182.8)m £5.2m n/a n/a
Total Group
Dividend per share 2.3p 2.0p +15 n/a
Net debt (including lease liabilities) £309.9m £212.2m +46 n/a
Net debt (excluding lease liabilities) £248.9m £159.1m +56 n/a
Net debt to adjusted EBITDA(5) (including lease liabilities) 2.1x 1.7x n/a n/a
Net debt to adjusted EBITDA(5) (excluding lease liabilities) 1.9x 1.5x n/a n/a
Group Reported pre-tax (loss) / profit £(194.7)m £18.0m n/a n/a
Group Reported net (loss) / income(2) £(187.4)m £16.6m n/a n/a
Group Reported basic earnings per share (62.7)p 5.3p n/a n/a
(1 Before amortisation of acquired intangible assets and adjusting items.)
(Further details can be found in Note 3 of the condensed consolidated interim
financial statements)
(2 Net income is defined as profit / (loss) after tax, before non-controlling
interests
3 A reconciliation of free cash flow is set out in the Financial Review)
(4 The results of the Packaging division are presented as results from a
discontinued operation and the comparative information has been restated
accordingly. See n)(ote 1 and 16 of the condensed consolidated interim
financial statements for further details of restatements)
(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)
( )
Statutory to Adjusted Reconciliation: Continuing operations
30 June 2022 Reported Acquisitions Amortisation of acquired intangible assets Adjusting items Tax on adjustments FX LFL / Adjusted(1)
Revenue £341m £(9)m - - - - £332m
Operating profit £11m - £5m £19m - - £35m
Pre-tax (loss) / profit £(1)m - £5m £19m - - £23m
Net (loss) / income £(5)m - £5m £19m £(2)m - £17m
30 June 2021 Reported (restated) Acquisitions Amortisation of acquired intangible assets Adjusting items Tax on adjustments (restated) FX LFL / Adjusted(1,2) (restated)
(restated)
Revenue £288m - - - - £3m £291m
Operating profit £18m - £4m £3m - - £25m
Pre-tax profit £11m - £4m £3m - - £18m
Net income £11m - £4m £3m £(2)m - £16m
(1) (Adjusted operating profit, adjusted pre-tax profit and adjusted net
income relate to continuing operations)
(2 The results of the Packaging division are presented as results from a
discontinued operation and the comparative information has been restated
accordingly. See n)(ote 16 of the condensed consolidated interim financial
statements)
( )
Strategic Review of Filters Business
In Q4 2021, Essentra set out its strategic goal to become a pure-play
Components business, maximising shareholder value and the potential of each
business. The strategic reviews of Packaging and Filters ran in parallel, and
in June 2022, the Company announced the sale of Packaging to MM Group, which
is expected to complete in Q4 2022.
The Board remains focused on maximising shareholder value with the strategic
review of Filters. The strategic review is progressing well, and a further
update is expected in Q3 2022.
IFRS 5: Packaging Discontinued Operations and IAS 36: Impairment of Assets
The disposal of the Packaging business has a material impact on the
presentation of the Group's condensed consolidated financial statements for
the six months ended 30 June 2022. See note 1 and note 16 for further details.
Packaging has met the International Financial Reporting Standards ("IFRS")
criteria to be classified as held for sale in the half year results.
Operations have therefore been classified as discontinued. Components and
Filters businesses represent the continuing operations of Essentra, together
with central services. The comparative period financial statements have been
restated.
As a result of meeting the IFRS 5 (non-current assets held for sale and
discontinued operations) definition as held for sale, the Company has measured
the Packaging business at the lower of its carrying amount and fair value less
costs to sell, consequently recognising a discontinued operations impairment
charge of £181.6m as an adjusting item.
Given the challenging business and macroeconomic backdrop that the business
currently faces, and the level of interest the sale of the Packaging business
received, the Board believes MM Group's offer is attractive, and in the best
interest of shareholders, unlocking value today. Furthermore, the Board
believes its decision to transform the Group into a pure-play Components
business will present significant opportunities to accelerate growth and
expand market share.
The sale of Packaging is expected to complete in Q4 2022 and, as further
explained in the Class 1 Circular for the transaction (which was approved by
the Company's shareholders on 8 August 2022), the Board intends to use the
proceeds to reduce the Company's debt and contribute £5m to Essentra's
defined benefit pension schemes. Following the conclusion of the Filters
strategic review, the Board intends to return a proportion of the residual net
transaction proceeds to shareholders, after allowing for sufficient
flexibility of the Components business to pursue value creating opportunities.
The timing, quantum and method of return will be subject to the Board's
consideration at the appropriate time.
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.£2m increase in profit before tax has been
recognised within the half year results. The Components business in Turkey
contributes c.3% revenue to the continuing Group.
Alternative Performance Measures
Constant foreign exchange rates. Movements in exchange rates relative to
sterling affect actual results as reported. The constant exchange rate basis
("constant currency") adjusts the comparative to exclude such movements, to
show the underlying performance of the Company.
The principal exchange rates for Essentra were:
-------- Average -------- -------- Closing --------
HY 2022 HY 2021 HY 2022 HY 2021
US$:£ 1.29 1.39 1.21 1.38
€:£ 1.18 1.15 1.16 1.17
Re-translating at HY 2022 average exchange rates increases the prior year
revenue and adjusted operating profit on a continuing operations basis by
£3.3m and £nil respectively.
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 HY 2022 LFL results are
adjusted for the acquisition of Jiangxi Hengzhu Electrical Cabinet Lock Co.,
Ltd ("Hengzhu") on 2 August 2021.
Adjusted basis. The term "adjusted" excludes the impact of amortisation of
acquired intangible assets and adjusting items, less any associated tax
impact. On a continuing basis, H1 2022 amortisation of acquired intangible
assets was £5.0m (2021: £4.2m), and there was a pre-tax charge for adjusting
items of £19.3m (2021: £2.8m). This included reorganisation of the remaining
Group (£13.1m) and investment in major Software as a Service ("SaaS")
projects (£6.2m).
Discontinued operations amortisation of intangible assets totalled £6.6m and
there were adjusting item expenses of £193.6m, driven by impairment of
goodwill £181.6m, separation costs in relation to Packaging (£9.6m) and
other impairments and reorganisation expenses (£2.4m). For more information
on the performance of discontinued operations, see note 16 to the condensed
consolidated interim 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 currency, 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.
Operating Review
On a continuing operations basis, the H1 2022 result was strong, with double
digit revenue growth and margin expansion in the Filters and Components
divisions. H1 2022 revenue increased by 18.4% (17.0% at constant currency) to
£340.8m, whilst on a LFL constant currency basis, revenue increased by 14.0%
compared to H1 2021.
On an adjusted basis, continuing operating profit was up 43.5% (43.8% at
constant currency) to £35.3m, which has been driven by increased trading
volumes, effective management of supply chain disruption and cost inflation
through focused pricing activities, as well as cost saving programmes.
Adjusted operating margin improved 190bps to 10.4% on a constant currency
basis (8.5% H1 2021).
Including amortisation of acquired intangible assets of £5.0m and a pre-tax
charge from adjusting items of £19.3m, continuing operating profit was
£11.0m (2021: £17.6m).
The Group has discontinued operations as a result of Packaging sale to MM,
which had revenue of £205.6m and adjusted operating profit of £6.7m (£3.9m
after allocating central costs). The operating loss as reported was £193.5m,
a result of an impairment charge of £181.6m and other adjusting items of
£12.0m.
Net finance expense for continuing operations was higher than the prior year
at £11.9m (2021: £6.5m). This increase was driven by a one-off revaluation
of the US loan notes associated with the disposal of the Packaging business.
The effective tax rate on continuing underlying profit before tax (before
adjusting items) was 26.5% (2021: 8.7%). The increase in the tax rate is
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.
The underlying effective tax rate for the continuing Group is adversely
impacted by the accounting treatment for consolidation adjustments between the
continuing and discontinued operations, net of a favourable impact of IAS29
(hyperinflation accounting). Excluding these significant impacts the
continuing Group's underlying effective tax rate would be 21.4% which is
within our forecast tax rate range of 21% to 22% (on a continuing operations
basis). The previously disclosed forecast tax range including the Packaging
division was 19%-20% with the movement a result of some lower tax
jurisdictions in the Packaging division.
On a continuing adjusted basis, net income of £17.2m was up 4.2% (2.2% at
constant currency) and adjusted basic earnings per share was 5.3p. On a
continuing reported basis, net loss of £4.6m and basic earnings per share of
1.9p loss compared to a net gain of £11.4m and earnings per share of 3.6p
respectively in 2021.
Continuing adjusted operating cash flow was £15.9m (H1 2021: £17.7m),
equating to a cash conversion of 45% compared to 72% in H1 2021. This includes
an outflow of net working capital for the year of £24.0m (H1 2021: £10.7m).
The increase in net working capital on continuing operations to £115.1m (H1
2021: £82.1m) was predominately due to higher inventory and receivables
levels, supporting growth and increased trading volumes. Our average net
working capital to sales ratio increased to 15.3% compared to 14.8% on a
continuing operations basis in 2021.
Outlook
Statement
Essentra has made a strong start to the year, with sales and order book ahead
of 2021. Whilst the macroeconomic environment remains uncertain, Essentra
continues to manage cost inflation and supply chain challenges. We are
proactively protecting margins through pricing actions and cost mitigation
activities.
We expect Components to take market share due to its enhanced digital customer
experience and cross-selling activities. Filters should see strong growth from
the ramp up of the China JV entering its second year of production, as well as
continued outsourcing contract wins.
The Packaging sale to MM Group is expected to complete in Q4 2022, and we will
provide an update on the strategic review of Filters towards the end of Q3
2022. After the completion of Packaging, we expect to hold a small net cash
position (excluding lease liabilities) and will review this position moving
forward after both strategic reviews have concluded.
The continuing Group expects to deliver adjusted operating profit in line with
the Board's expectations.
Business Review
Summary growth in revenue by Division
% growth LFL Acquisitions Foreign Exchange Total
Components +12.7 +5.9 (0.1) +18.5
Filters +15.4 - +2.8 +18.2
Continuing Operations +14.0 +3.0 +1.4 +18.4
Discontinued Operations +9.5 - +0.4 +9.9
The following review is given at constant currency exchange rates and on an
adjusted basis, unless otherwise stated.
Components
2022 % growth % growth
£m Actual FX Constant FX
Revenue 175.9 +18.5 +18.6
Adjusted(1) operating profit 35.9 +33.0 +33.7
Adjusted(1) operating margin 20.4% +220bps +230bps
(1) (Before amortisation of acquired intangible assets, adjusting items and
includes an allocation of certain functional costs)
Components has delivered strong growth and margin expansion in H1 alongside a
backdrop of headwinds including inflationary cost pressures and the return of
temporary local lockdowns in China. In response to increased inflationary
pressures (materials, labour and freight), and to protect our margins, the
division has passed through price increases to customers. The business
continues to monitor and review price increases through H2.
Revenue for the year increased by 18.6% to £175.9m on a constant currency
basis (LFL 12.7%). LFL revenue per trading day adjusted growth of 15.9% in Q1
and 9.3% in Q2.
Adjusted operating profit increased by 33.7% to £35.9m, equating to a margin
of 20.4% (2021: 18.2%). The 230bps improvement (at constant currency) reflects
the improved trading volumes and success in implementing price increases to
offset inflation.
As noted previously, Turkey has experienced an accelerated rate of inflation.
We are mindful of the needs of our people and have responded by adjusting wage
inflation at our manufacturing facility in Istanbul. We have reviewed our
domestic pricing regularly to mitigate cost increases, and continue to ensure
that pricing within the export market for goods manufactured in Turkey remains
competitive. Our actions to date have ensured underlying operating margins in
Turkey remain stable.
We are pleased to see positive progress in customer service levels through H1.
Whilst we continue to face supply chain challenges across the division, our
backlog, which peaked in August 2021, has shown substantial improvement in the
first six months of the year. A reduction of c.70% of the exceptional backlog
levels, indicates a return to normalised levels of order book backlog. In
2022, the business is supported by a strong new order intake, and closing
order book. Our on time in full ("OTIF") metric is also recovering since the
start of the year, as we continue to drive service improvements.
The division continues to deliver progress on its digital journey, consistent
with the commitment to provide customers with a "hassle-free" experience. The
division has taken further steps to digitise the customer experience journey
in 2022 and we continue to see increased engagements with the websites that
have been deployed. Developments this year include the launch of our website
in Turkey as we move our focus to enhancements and improvements. The
integration of Artificial Intelligence activities in our sales and marketing
teams has continued and we are driving commercial effectiveness through the
deployment of predictive marketing programmes. Furthermore, we have recently
established a new Digital Hub in Istanbul, where we are focusing the
recruitment of new digital talent.
We continue to review the approach taken with Business Process Redesign
("BPR"), and recognise an initial delay in H1 as we continue to stabilise and
re-develop the programme with a pure-play Components model in mind. With
support from the new programme team that were put in place towards the end of
2021, we will recommence the roll out in EMEA in H2 as well as commencing the
implementation and planning stages in AMERS, as we look towards a Q1 2023 roll
out in this region.
The Components division continues to make excellent progress towards meeting
its sustainability targets. Our investment in research and development
continues, and we are pleased to share that our Kidlington, Oxford facility
has achieved a 50/50 balance of virgin and post-consumer recycled plastics
within its Low-Density Polyethylene ("LDPE") product range. Across the whole
division we continue to take steps towards achieving the target of using 20%
recycled or renewable polymer raw materials by 2025, finishing Q2 2022 with an
exit run rate of recycled material consumption of c.11% of total material
(c.10% end of Q4 2021).
Filters
2022 % growth % growth
£m Actual FX Constant FX
Revenue 164.9 +18.2 +15.4
Adjusted(1) operating profit 15.1 +31.3 +27.2
Adjusted(1) operating margin 9.2% +100bps +90bps
(1) (Before amortisation of acquired intangible assets, adjusting items and
includes an allocation of certain functional costs)
The Filters division saw revenue growth of 15.4% compared to the prior year on
a constant currency basis. The core Filters business (excluding Tapes
business) was up by 16.5%.
The division has continued to see strong growth momentum in 2022. Q1 was up by
15.9% and Q2 14.9% on a constant currency basis. The growth has been driven by
increased outsourcing contract business, as well as supporting our
multi-national companies ("MNCs") with their business continuity plans
("BCP"), supporting optionality as supply and demand adjusted to events such
as Russia's invasion of Ukraine as well as the pandemic. Sales into the
Chinese market have grown, with the support of the Joint Venture which has now
been operational for twelve months contributing c.6% to the sales growth in
H1. Prices have been reviewed and adjusted, supporting in the protection of
margin against cost inflation (raw materials and freight).
In relation to the division's 'game changers', the pipeline of outsourcing
contract opportunities built in 2021 has continued to support growth in 2022.
Significant investment has led to the securing of new outsourcing contracts
across the range of our customer base (MNC, Monopoly and Independents),
primarily for manufacture in EMEA and Asia, leading to contracted business
growth of 19.0% in H1 2022 compared to the prior year.
The China JV production volumes have continued to increase through 2022, with
the JV reaching profitability in June 2022, a major milestone twelve months
after production officially commenced, and continues to operate in line with
expectations. The JV is a great platform to capture opportunities available in
the world's largest tobacco market, which is also shifting towards speciality
products, and will be further enhanced by future investment in the China
Development Centre.
Our pipeline of ECO and next generation products ("NGP") continues to gain
commercial interest, with a further three new commercial contracts gained in
H1 2022 for ECO products. The division remains uniquely positioned to be a key
global player in the outsourced filter market using strong technological
knowledge. We remain pleased with the increased levels of interest the market
is showing towards these new products which are intended to meet EU Single Use
Plastics Directive initiatives for plastic-free and biodegradable products.
The Tapes business has continued to develop its key account management
structure, growing a deeper understanding of customer needs, and supporting
development of relevant value propositions in paper and board. For the first
time, the Tapes business has over 50% of business in non-tobacco.
As well as strong financial performance, and commercial progress in H1 2022,
the division as a whole has maintained world class service and quality
metrics, strengthening customer relationships, driving agility through the
supply chain.
Adjusted operating profit increased 27.2% to £15.1m, equating to an operating
margin of 9.2% (90bps improvement at constant currency), largely driven by the
volume gearing effect from the revenue increase and favourable mix of
outsourcing and BCP volumes, whilst pricing actions are successfully
mitigating inflationary pressures.
Discontinued Operations - Packaging
2022 % growth % growth
£m Actual FX Constant FX
Revenue 205.6 +9.9 +9.5
Adjusted(1) operating profit 3.9 (59.4) (59.4)
Adjusted(1) operating margin 1.9% (320)bps (320)bps
(1) (Before amortisation of acquired intangible assets, adjusting items and
includes an allocation of certain functional costs)
Packaging divisional revenue was 9.5% up on the prior year at constant
currency. Growth in H1 continues to be driven by underlying market recovery,
as seen towards the end of 2021.
Adjusted operating margins reduced in H1 by 320bps to 1.9% compared to H1
2021. The business faced inflationary cost pressures at the start of 2022 and
incurred a delay in passing through cost inflation to customers. During Q2,
cost inflation was fully passed through to customers supporting the recovery
of operating margins.
Further information relating to financial performance of discontinued
operations can be found in note 16 to the condensed consolidated interim
financial statements.
Financial Review
Net finance expense. Net finance expense from continuing operations of £11.9m
was £5.4m above the prior year comparative. The Group incurred a one-off
interest expense of £6.1m relating to the revaluation of the US private
placement notes to be repaid in association with the disposal of the Packaging
business. The Group also incurred an increase in net interest charged on net
debt due to higher market interest rates during the period.
£m
HY 2022 HY 2021 (restated)
Net interest charged on net debt 6.1 3.3
Amortisation of bank fees 0.8 0.5
Net IAS 19 pension finance charge - 0.3
Interest on leases 1.1 1.0
Gains / (losses) on forex movements (1.0) 0.3
Net other finance expense 1.0 1.1
Monetary gain on hyperinflation economies (2.2) -
Loan revaluations associated with discontinued activity 6.1 -
Net finance expense from continuing operations 11.9 6.5
Interest on discontinued leases and other discontinued finance charges/gains 0.3 0.5
Total Group net finance expense 12.2 7.0
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").
£m HY 2022 HY 2021
(restated)
Inventories 117.5 82.1
Trade & other receivables 143.4 118.6
Trade & other payables (151.5) (122.5)
Adjustments 5.7 3.9
Net working capital - continued operations 115.1 82.1
Net working capital - discontinued operations 63.0 37.8
Total Group working capital 178.1 119.9
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-up of inventory, to mitigate supply chain disruption, protecting
service levels supporting sales growth. Moving through the second half,
working capital levels are expected to unwind, and reduce.
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 and is presented below to
exclude cash flow on discontinued operations. 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.
Adjusted operating cash flow on continuing operations was 10% lower than the
previous year at £15.9m (2021: £17.7m), which equated to an operating cash
conversion of 45% in the year (2021: 72%). Free cash flow was £9.3m compared
to £1.1m in 2021. The improvement in free cash flow was due to lower pension
contributions and lower underlying tax payments.
In H1 2022, for the total Group there was a £11.5m net increase in cash and
cash equivalents to £153.6m (2021: decrease of £0.4m to £132.5m).
Continuing operations HY 2022 HY 2021 (restated)
£m
Adjusted operating profit 35.3 24.6
Depreciation and amortisation of non-acquired intangible assets 14.1 12.4
Lease right-of-use asset depreciation 4.3 3.7
Share option expense / other movements 0.8 (1.5)
Change in working capital (24.0) (10.7)
Operating cashflow due to hyperinflation (1.7) -
Net capital expenditure (excluding disposal proceeds relating to adjusting (12.9) (10.8)
items)
Adjusted operating cash flow 15.9 17.7
Tax(1) 0.4 (6.7)
Cash outflow in respect of adjusting items (23.4) (9.7)
Pension obligations 0.4 (4.2)
Add back: net capital expenditure (excluding disposal proceeds relating to 12.9 10.8
adjusting items)
Net cash inflow from operating activities 6.2 7.9
Adjusted operating cash flow 15.9 17.7
Tax(1) 0.4 (6.7)
Net interest paid (7.4) (5.7)
Pension obligations 0.4 (4.2)
Free cash flow 9.3 1.1
Net increase in cash & cash equivalents (Total Group) 11.8 (0.4)
(1 Tax excludes the tax paid/received in relation to adjusting items. This is
included within the cash outflow in respect of adjusting items)
Net debt. Net debt at the end of the period was £309.9m, a £75.2m increase
from 1 January 2022 (including lease liabilities). The overall increase was
driven by foreign exchange movement on USPP loan notes, adjusting items linked
to strategic review activity, dividend payments and working capital outflows
to support revenue growth.
The Group's financial ratios remain within an acceptable range. The ratio of
net debt to EBITDA including lease liabilities was 2.1x (30 June 2021: 1.7x).
Net debt to EBITDA excluding lease liabilities was 1.9x (30 June 2021: 1.5x).
Interest cover was 4.3x (30 June 2021: 4.9x).
The Company has a commitment to repay a portion of USPP loans 60 days after
receipt of funds and completion of the Packaging sale. As a result, a
reclassification of USPP 2017 and 2019 loan notes is required, and a total
c.£174m has been reclassified to current liabilities for the interim period
ended June 2022.
Linked to the early repayment of these loan notes, an accelerated net finance
charge for £6.1m has been recognised, with the overall impact on net debt
being £4.1m.
£m 2022
Net debt as at 1 January 2022 234.7
Free cash flow from continuing operations (9.3)
Cash outflow from discontinued operations 12.8
Cash outflow in respect of adjusting items 31.1
Foreign exchange 27.4
Dividends to equity holders 12.0
Loan revaluations 4.1
Derivative revaluations (10.7)
Lease liability movements 7.0
Amortisation of pre-paid facilities 0.8
Net debt as at 30 June 2022 309.9
Pensions. As at 30 June 2022, the Company's IAS 19 pension net surplus was
£0.2m (FY 2021: net surplus of £9.0m). During the period 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.
Dividend. In keeping with the Company's progressive dividend policy, the Board
of Directors recommends an interim dividend of 2.3 pence per 25 pence ordinary
share (HY 2021: 2.0p). The interim dividend will be paid on 28 October 2022 to
equity holders on the share register on 23 September 2022, the ex-dividend
date will be 22 September 2022. 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 7 October 2022. The Board will review the dividend policy on
completion of both strategic reviews, ensuring that the policy is appropriate
for the continuing Group.
Board changes. As planned and previously communicated, Dupsy Abiola was
appointed as a Non-Executive Director in March 2022 and Jack Clarke was
appointed as Chief Financial Officer in April 2022, and both successfully
stood for election at the 2022 AGM.
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. Essentra uses derivatives only to
manage currency and interest rate risk arising from the underlying business
activities. No transactions of a speculative nature are undertaken. 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. At 30 June 2022, Essentra's US dollar-denominated assets were
approximately 65% hedged by its US dollar-denominated borrowings.
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. Our principal risks are detailed
later in this document.
Enquiries
Essentra plc Tulchan Communications LLP
Jack Clarke, Chief Financial Officer Olivia Peters
Claire Goodman, Group Investor Relations Manager Lisa Jarrett-Kerr
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 17 August 2022 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.
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.
Notes to Editors
About Essentra plc
Essentra plc is a FTSE 250 company and a leading global provider of essential
components and solutions. Organised into three global divisions, Essentra
focuses on the light manufacture and distribution of high volume, enabling
components which serve customers in a wide variety of end-markets and
geographies.
Headquartered in the United Kingdom, Essentra's global network extends to 34
countries and includes 8,327 employees, 47 principal manufacturing facilities,
28 sales & distribution operations and two research & development
centres. For further information, please visit www.essentraplc.com.
Essentra Components
Essentra Components is a global market leading manufacturer and distributor of
plastic injection moulded, vinyl dip moulded and metal items. Operating in 25
countries worldwide, 1 digital innovation centre, 13 manufacturing facilities
23 sales & distribution centres serve more than 79,000 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 and construction. The division also includes the Reid Supply
business, which provides a wide range of branded hardware supplies to a broad
base of industrial customers, largely located in the US Mid-West.
Essentra Packaging
Essentra Packaging is one of only two multicontinental suppliers of a full
secondary packaging range to the health and personal care sectors, with 23
facilities across three geographic regions. The division's innovative products
include cartons, leaflets, self-adhesive labels and printed foils used in
blister packs, which help customers to meet the rapidly-changing requirements
of these end-markets and can also be combined with Essentra's authentication
solutions to help the fight against counterfeiting.
Essentra Filters
Essentra Filters is the only global independent cigarette filter supplier.
Currently headquartered in Singapore, the division has 12 sites across nine
countries, including two innovation centres, providing a flexible
infrastructure strategically positioned to serve the tobacco sector. The
business supplies a wide range of value-adding high-quality innovative
filters, packaging solutions to the roll your own segment and analytical
laboratory services for ingredient measurement to the industry: Essentra's
offering also includes Heat Not Burn and e-cigarette solutions to the rapidly
evolving market for Next Generation Products. The division also includes the
Tear Tapes business, which is globally recognised as the leading manufacturer
and supplier of pressure-sensitive tear tapes, that are largely used in the
tobacco, e-commerce, food and beverage and specialist packaging sectors.
Risk Report
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. We are committed
to managing risks in a proactive and effective manner to protect and enhance
value and provide assurance to the Board and our stakeholders.
A refreshed risk management framework has been developed for identifying and
managing risk within defined appetite levels, at both a strategic and an
operational level. This framework was designed to provide the Group Risk
Committee ("GRC") and the Board with a clear line of sight over risk, to
enable informed decision-making and to deliver improved resilience. We
continue making significant progress in evolving our risk management processes
as we continue to ensure our risk management processes are aligned with FTSE
250 upper quartile practice.
Risk can present itself in many forms and has the potential to impact: health,
safety and wellbeing; the environment; our communities; our reputation;
regulatory compliance; market and financial performance and, therefore, the
achievement of our corporate purpose. By understanding and managing risk, we
provide greater certainty and confidence to our shareholders, workforce,
customers, suppliers, and the communities in which we operate.
The Board confirms its risk appetite biannually by mapping its Principal Risks
against a scale from "risk-averse" to "risk neutral" to "risk tolerant" and
this informs the development 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.
Responding to continued disruption in 2022
Whilst 2020 was the year in which we first experienced the disruption caused
by the COVID-19 pandemic, 2021 and the first half of 2022 presented a
different range of risks and challenges to which we needed to react and adapt.
The Company now faces differing forms of disruption from supply chain
constraints to rapidly changing workforce availability and escalating
geopolitical tensions.
The risk management lessons we learnt over the past two years have resulted in
us being well placed to manage our responses to these events quickly and
robustly. They also resulted in a review and revision of our risk management
framework to allow us to better consider risk at both a strategic and an
operational level with a view to improving business resilience over the short
to long term.
Looking forward, we anticipate that certain pandemic related risks will remain
in some of our operational sites and end-markets, 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 them efficiently and effectively. Additionally, as the strategic reviews
progress we continue to analyse and assess the Emerging Risk landscape, with
particular focus on the Components division's processes, to ensure the Group's
risk management practices continue not only to protect stakeholder value but
to support its creation in line with our strategic growth objectives.
It remains critical for us to continue to scan the horizon for additional new,
emerging or disruptive risks which could significantly affect our ability to
meet our strategic growth objectives. Despite the focus on mitigating the
impacts of an increasing range of disruptive risks, we have during the year
paid close attention to the increasing momentum associated with the risk
agendas for ESG and climate change along with the potential impacts of the
evolving economic and global geopolitical situation.
Principal Risks
The GRC has responsibility for enabling the identification and management of
Essentra's Principal Risks. Through the GRC, an assessment has been undertaken
to consider the appropriateness and adequacy of our Principal Risks. This
assessment required each GRC risk owner to provide analysis of material
changes in the risk they manage and whether they consider it to have more or
less impact during the course of the year on achievement of our strategic
objectives. The responses from this assessment were considered by both the GRC
and the Audit & Risk Committee (ARC).
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.
Since our 2021 Annual Report and Accounts, one Principal Risk - Failure to
Achieve Acceptable Returns from the Packaging Division - has been removed
following the announcement of the sale of the Packaging Division, which is
anticipated to complete in Q4 2022. We have not identified any new Principal
or Emerging risks in the first half of the year. The table below sets out
movements in our Principal Risks.
Principal Risk Movement from 2021 Description
PR 1 Tobacco Industry Dynamics Unchanged The Filters division supplies filter products and packaging solutions to
manufacturers in the tobacco industry. Changes in the traditional tobacco
market present both opportunities and risks for the division, notably from our
ability to supply sustainable filters.
(Managing Director, Filters)
Whilst we have a strong market position, the future growth opportunities may
be affected by the longer-term dynamics of the tobacco industry. These include
declining combustible markets, a shift towards Next Generation Products (NGP)
and other tobacco substitutes. The focus of stakeholders on the environmental
and sustainability elements of tobacco markets, notably around the use of
single-use plastics, provides an additional area of risk and opportunity for
the business.
The social pressures and the evolving regulatory environment continue to move
towards reducing the prevalence of smoking worldwide and also minimising its
environmental impact. This
presents an opportunity for growth through our existing sustainable product
portfolio and new innovations.
The continuing changing trends in global consumption and end-markets for our
products requires increased oversight of where our products are used and a
robust framework to ensure regulatory compliance. Tobacco-related litigation
could also affect Essentra; however, there is no history of the Company being
involved in such a claim.
There has been no change to the overall assessment of this risk.
PR 2 Delivery of Strategic Projects Unchanged Our success is dependent, in part, on our ability to deliver key strategic
projects on time and within budget to realise their full potential. We invest
in, and deliver, significant strategic, operational and capital expenditure
projects in order to drive the business forward, in particular, our ongoing
(Company Secretary and General Counsel) Business Process Redesign implementation. Additionally, over recent years we
have actively reviewed our portfolio of businesses, engaging in acquisitions
and disposals as appropriate. Failure to deliver such key projects effectively
and efficiently could result in significantly increased project costs and
impede our ability to execute our strategic plans.
Over the past two years, our ability to deliver complex projects has been
affected by some of the restrictions and other disruptions relating to the
COVID-19 pandemic. This resulted in an enhanced capability to deliver projects
in a complex and dynamic environment and now, as restrictions on travel are
relaxed, we are well placed to manage this risk.
We continue to focus on the project governance arrangements and resources to
accelerate delivery of the Business Process Redesign programme delivery plan.
There has been no change to the overall assessment of this risk.
PR 3 Regulatory Governance Unchanged The Company operates across many international jurisdictions and engages with
a wide range of stakeholders, including a diverse workforce, customer and
supplier base. Some of our locations are considered higher risk from a
regulatory perspective. We are required to comply with multiple areas of
(Company Secretary and General Counsel) 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 and enforcement
agencies, with heightened political tensions internationally.
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. Whilst the strategic reviews
slightly heighten this risk, there is robust mitigation in place and overall,
the level of risk to the Company has remained the same.
PR 4 Cyber Event Unchanged 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
(Group IT Director) 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 risk in relation to remote working during the pandemic still affects the
business, with ransomware attacks currently becoming increasingly prevalent,
however this is reducing as some of the workforce returns to the office.
During the pandemic, the Company invested in improvements to protection of
mobile devices and remote access to mitigate the risks associated with remote
working.
The strategic reviews introduce a number of new elements to this risk in
relation to staff turnover and the potential delivery of transitional services
agreements.
Disruptive cyber events remain a serious threat 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. Following an increase in the risk level highlighted in the Annual
Report and Accounts, there has been no further change.
PR 5 Operational and Supply Chain Disruption Unchanged We operate a diverse, global operational footprint and supply chain across
each of our divisions. Ensuring these operations and supply chains are
resilient is a fundamental part of maintaining our customer service levels by
giving options and alternatives, to minimise the impact of disruption.
(Company Secretary and General Counsel)
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
risk diversification, through alternative manufacturing options elsewhere in
the Group. Equally, disruptive events might be broader in nature and impact a
number of sites simultaneously, for example via the COVID-19 pandemic, 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
minimize the impact on production capability, supply chain management,
customer relationships, reputation, revenue and profit.
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.
There has been no change to the overall assessment of this risk.
PR 6 Exposure to the Cyclical Industrial Market Increasing The Components division 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
(Managing Director, Components) crisis in 2008-2009 to the COVID-19 pandemic, economic cycles have affected
demand in these broad industrial markets.
The Components division sells to a broad base of end-markets including
automotive, capital goods and electronics. This market breadth provides a
degree of risk diversification; however, future downturns in industrial
production are almost certain to happen, albeit with an uncertain timeframe.
The Components division seeks to operate a flexible model whereby changes to
its cost base can be quickly made to maintain operating margins against
fluctuations in demand. The risk is that the business is not able to execute
such changes, or they are not robust enough to minimise the impact on
operating margins.
Additionally, the division, given its end-markets, supply chains and operating
model, has a specific exposure to the Operational & Supply Chain
Disruption Principal Risk.
At present, this risk continues to be broadly managed through the M&A
pipeline. However, additional focus on this risk will be given following the
conclusion of the strategic reviews.
Whilst prevailing economic conditions indicate potential recession in many of
our end markets, the mitigations that the Company has in place remain
appropriate.
Following the removal of the Principal Risk relating to the Packaging division
our assessment is that the Company is increasingly exposed to this risk.
PR 7 Environmental, Social Governance (ESG) Unchanged Environmental, Social and Governance (ESG) issues are increasingly fundamental
for all companies and stakeholders. Essentra has specific exposure to
tobacco-related regulation, potential changes in relation to the regulation of
single-use plastics, climate change and multiple other topics.
(Company Secretary and General Counsel)
Failure to meet stakeholder expectations on increasing environmental and/or
social 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 workforce focus on ESG.
The Components division is exposed to ESG risks around the reduction in single
use plastics, but also in relation, in the longer term, to climate change
given the breadth of its operational footprint. The division is actively
working to incorporate more sustainable materials and believes it has the
innovation capabilities to enable future growth opportunities with the use of
these materials. Similarly, Filters is exposed to single use plastic
legislation and is actively developing new innovative products including the
recently launched "ECO" range of biodegradable filters.
There has been no change to the overall assessment of this risk since the
Annual Report & Accounts.
PR 8 Internal Processes and Control Unchanged Processes and controls play an important part in our ability to prevent and
detect errors in our management information and also inappropriate and
unethical behaviour. This might include fraud, deliberate or accidental
financial misstatement or improper accounting practices. If the design,
(Chief Financial Officer) operation or the assurance over these controls is ineffective, ownership is
not defined or controls are overridden, there is a greater risk of operational
loss and reputational damage.
The changes in ways of working as a result of the COVID-19 pandemic resulted
in a greater adoption of remote working arrangements. In the short term, this
created an increased risk around our capability to maintain a robust system of
internal control. However, during the first half of the year we were able to
operate our processes and controls consistently with this more flexible
working environment.
The continuing implementation of Microsoft Dynamics 365 in the Components
division along with an increasing focus on the Company's internal controls
over financial reporting will help to reduce this risk over time.
There has been no change to the impact of this risk, however the probability
has slightly increased as a result of key resources being focused on the
execution of the strategic reviews.
PR 9 Safety, Health & Wellbeing Unchanged The safety, health and wellbeing of our workforce remains one of our highest
priorities.
Essentra has many manufacturing, distribution and administrative facilities
(Group Human Resources Director) 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 members of our workforce 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.
Increasingly, given the changes and ways of working resulting from the
COVID-19 pandemic along with the uncertainty associated with the strategic
reviews, the emotional wellbeing of our leaders, managers and workforce has an
increased focus.
There has been no change to the assessment of this risk.
PR 10 Talent and Workforce management Increasing 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. The change agenda, including the recently announced
strategic reviews, coupled with workforce and labour market dynamics, requires
(Group Human Resources Director) 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 on our future strategic direction.
The experience of the past two and a half years has clearly indicated the
effect major health events, be they global, regional or country specific, can
have on the availability of resources. There remains a risk that future major
health events could result in further labour disruption.
There has been no change to the overall assessment of impact, but the
probability of this risk is increasing as strategic review related
reorganisations are finalised.
PR 11 Strategic Reviews Unchanged In October and November 2021, the Company announced strategic reviews of both
the Filters and Packaging divisions. These reviews have a view to maximising
shareholder value through focusing on the growth potential of pure-play global
components business whilst Filters and Packaging benefit from new ownership
(Company Secretary and General Counsel) structures.
Whilst the strategic reviews create significant opportunities for the
respective businesses and our people, the uncertainty, both internal and
external, caused by these announcements creates a number of potential risks.
These include but are not limited to:
• a lack of focus on 'business-as-usual' activities
• poor execution of the review and any
resulting decisions
• talent flight
• customer, supplier and competitor behaviours,
compliance issues
• adverse investor feedback.
The reviews comprise a number of complex projects with significant
interdependencies; however, Essentra is well placed to deliver them and
external/temporary resource has been identified where there are known capacity
and capability gaps.
There has been no change to the assessment of this risk.
Emerging Risks
The Group's risks are continually reviewed and reassessed through a bottom up
and top down process as well as input from external sources with escalation
and reporting to the Board. The process fully considers all relevant internal
and external factors and captures those risks which are current but have not
yet fully crystallised, as well as those which are expected to crystallise in
future periods.
The Emerging Risk remains broadly unchanged to those set out in the 2021
Annual Report and Accounts. Further detail is set out in the table below:
Risk (Owner) Risk Description
ER1 Technology disruptors The risk that Essentra does not manage its response to evolving technologies
effectively. This may include losing competitive advantage as rivals deploy
advanced manufacturing technologies, artificial intelligence and robotics to
strengthen product development, marketing, production, distribution and
(Divisional Managing Directors) support functions.
We continue to monitor and review developments in the external market through
our networks. This includes innovation and futures sessions with existing
suppliers. We are also involved in a range of external technical focus groups
to support the identification of future technology trends.
Further detail on these risks and how they are managed is available in the
2021 Annual Report and Accounts.
Condensed consolidated income statement
(restated)* (restated)*
Six months Six months Year
ended ended ended
Note 30 Jun 2022 30 Jun 2021 31 Dec 2021
£m £m £m
Revenue 2 340.8 287.9 597.3
Operating profit 11.0 17.6 43.3
Finance income 4.3 1.1 2.8
Finance expense (16.2) (7.6) (18.4)
(Loss)/profit before tax (0.9) 11.1 27.7
Income tax (charge)/credit (3.7) 0.3 (1.4)
(Loss)/profit for the period from continuing operations (4.6) 11.4 26.3
(Loss)/profit from discontinued operations 16 (182.8) 5.2 2.0
(Loss)/profit for the period (187.4) 16.6 28.3
Attributable to:
Equity holders of Essentra plc (188.6) 15.9 26.9
Non-controlling interests 1.2 0.7 1.4
(Loss)/profit for the period (187.4) 16.6 28.3
* The prior periods have been restated for discontinued operations. See basis
of preparation in note 1 for further details of prior period restatements.
(Loss)/earnings per share attributable to equity holders of Essentra plc:
Basic 5 (62.7)p 5.3p 8.9p
Diluted 5 (62.7)p 5.2p 8.9p
(Loss)/earnings per share from continuing operations attributable to equity
holders of Essentra plc:
Basic 5 (1.9)p 3.6p 8.3p
Diluted 5 (1.9)p 3.5p 8.2p
Adjusted profit measure: continuing operations
Operating profit 11.0 17.6 43.3
Amortisation of acquired intangible assets 5.0 4.2 8.6
Adjusting items 3,16 19.3 2.8 13.8
Adjusted operating profit 35.3 24.6 65.7
See note 3 for further details of the adjusted profit measure.
Condensed consolidated statement of comprehensive income
(restated)*
Six months Six months Year
ended ended ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
£m £m £m
(Loss)/profit for the period (187.4) 16.6 28.3
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Remeasurement of defined benefit pension schemes (6.0) 11.9 28.5
Deferred tax on remeasurement of defined benefit pension schemes 1.4 (3.8) (7.9)
(4.6) 8.1 20.6
Items that may be reclassified subsequently to profit or loss:
Changes attributable to cash flow hedges:
Net change in fair value of cash flow hedges transferred to the income (12.6) (0.2) (1.8)
statement
Ineffective portion of changes in fair value of cash flow hedges transferred 2.6 - (0.5)
to the income statement
Effective portion of changes in fair value of cash flow hedges 9.7 0.3 0.9
Foreign exchange translation differences:
Attributable to equity holders of Essentra plc:
Arising on translation of foreign operations 47.0 (19.3) (23.4)
Arising on effective net investment hedges (17.9) 3.2 (0.4)
Income tax (expense)/credit (2.5) 0.1 0.4
Attributable to non-controlling interests 0.8 (0.7) (0.1)
27.1 (16.6) (24.9)
Other comprehensive income for the period, net of tax 22.5 (8.5) (4.3)
Total comprehensive income for the period (164.9) 8.1 24.0
Attributable to:
Equity holders of Essentra plc (166.9) 8.1 22.7
Non-controlling interests 2.0 - 1.3
Total comprehensive income for the period (164.9) 8.1 24.0
* See basis of preparation in note 1 for further details of the prior period
restatement.
Condensed consolidated balance sheet
(restated)*
Note 30 Jun 2022 30 Jun 2021 31 Dec 2021
£m £m £m
Assets
Property, plant and equipment 6 159.7 249.9 254.3
Lease right-of-use asset 7, 16 38.7 45.9 50.4
Intangible assets 8 206.4 481.7 483.5
Long-term receivables 2.8 4.6 5.2
Derivative assets 14 10.7 - 0.7
Deferred tax assets 8.8 19.3 11.6
Retirement benefit assets 9 22.9 18.3 34.1
Total non-current assets 450.0 819.7 839.8
Inventories 117.5 110.3 128.7
Income tax receivable 1.2 3.9 1.5
Trade and other receivables 143.4 185.0 175.2
Derivative assets 14 0.1 0.3 0.5
Cash and cash equivalents 10, 16 143.3 132.5 136.3
Total current assets 405.5 432.0 442.2
Assets in disposal group held for sale 16 409.0 - -
Total assets 1,264.5 1,251.7 1,282.0
Equity
Issued share capital 75.6 75.6 75.6
Merger relief reserve 385.2 385.2 385.2
Capital redemption reserve 0.1 0.1 0.1
Other reserve (132.8) (132.8) (132.8)
Cash flow hedging reserve (1.8) - (1.5)
Translation reserve (20.9) (40.1) (47.5)
Retained earnings 145.3 315.8 333.6
Attributable to equity holders of Essentra plc 450.7 603.8 612.7
Non-controlling interests 18.2 16.4 16.2
Total equity 468.9 620.2 628.9
Liabilities
Interest bearing loans and borrowings 10 142.7 291.6 313.3
Lease liabilities 10, 16 33.8 42.7 46.1
Retirement benefit obligations 9 22.1 25.7 25.1
Provisions 1.1 2.5 2.5
Other financial liabilities 14 1.3 1.2 5.6
Other payables - 1.1 -
Deferred tax liabilities 17.5 44.2 45.3
Total non-current liabilities 218.5 409.0 437.9
Interest bearing loans and borrowings 10 270.5 - -
Lease liabilities 10, 16 6.9 10.4 11.6
Derivative liabilities 14 0.4 0.1 0.1
Income tax payable 19.7 28.2 21.5
Other financial liabilities 14 4.6 - -
Trade and other payables 151.5 179.9 180.9
Provisions - 3.9 1.1
Total current liabilities 453.6 222.5 215.2
Liabilities in disposal group held for sale 16 123.5 - -
Total liabilities 795.6 631.5 653.1
Total equity and liabilities 1,264.5 1,251.7 1,282.0
* See basis of preparation in note 1 for further details of the prior period
restatement.
Condensed consolidated statement of changes in equity
Six months ended 30 June 2022
Issued capital Merger relief reserve Capital redemption reserve Other reserve Cash flow hedging and cost of hedging reserves(2) Translation reserve Retained earnings Non- controlling interests Total equity
£m £m £m £m £m £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 period (188.6) 1.2 (187.4)
Other comprehensive income (0.3) 26.6 (4.6) 0.8 22.5
Total comprehensive income for the period - - - - (0.3) 26.6 (193.2) 2.0 (164.9)
Share option credit 1.6 - 1.6
Tax relating to share- based incentives (0.6) - (0.6)
Net impact of IAS 29(3) 15.9 - 15.9
Dividends paid (12.0) - (12.0)
At 30 June 2022 75.6 385.2 0.1 (132.8) (1.8) (20.9) 145.3 18.2 468.9
Six months ended 30 June 2021 (restated)(1)
Issued capital Merger relief reserve Capital redemption reserve Other reserve Cash flow hedging and cost of hedging reserves Translation reserve Retained earnings Non- controlling interests Total equity
£m £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 period (restated)(1) 15.9 0.7 16.6
Other comprehensive income 0.1 (16.0) 8.1 (0.7) (8.5)
Total comprehensive income for the period - - - - 0.1 (16.0) 24.0 - 8.1
Equity issue to non-controlling interest - 3.1 3.1
Share option expense (0.5) - (0.5)
Tax relating to share-based incentives 1.4 - 1.4
Dividends paid (9.9) - (9.9)
At 30 June 2021 75.6 385.2 0.1 (132.8) - (40.1) 315.8 16.4 620.2
Condensed consolidated statement of changes in equity (continued)
Year ended 31 December 2021
Issued capital Merger relief reserve Capital redemption reserve Other reserve Cash flow hedging and cost of hedging reserves Translation reserve Retained earnings Non- controlling interests Total equity
£m £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 period 26.9 1.4 28.3
Other comprehensive income (1.4) (23.4) 20.6 (0.1) (4.3)
Total comprehensive income for the period - - - - (1.4) (23.4) 47.5 1.3 24.0
Equity issue to non-controlling interest 3.1 3.1
Share option credit 0.8 - 0.8
Tax relating to share-based incentives 0.5 - 0.5
Dividends paid (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
1 See basis of preparation in note 1 for further details of the prior period
restatement.
2 See note 14 for details of hedging reserve movements in relation to
derivatives.
3 See note 1 for details on the net impact on retained earnings as a result of
the index-based adjustments in Turkey under IAS 29 'Financial Reporting in
Hyperinflationary Economies'.
Condensed consolidated statement of cash flows
(restated)*
Six months Six months Year
ended ended ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
£m £m £m
Operating activities
(Loss)/profit from continuing operations (4.6) 11.4 26.3
(Loss)/profit from discontinued operations (182.8) 5.2 2.0
(Loss)/profit for the period (187.4) 16.6 28.3
Adjustments for:
Income tax (credit)/expense (7.3) 1.4 4.9
Net finance expense 12.2 7.0 16.5
Intangible amortisation 12.9 12.3 25.0
Adjusting items 212.9 (0.2) 11.8
Depreciation of property, plant and equipment 19.7 18.2 36.6
Lease right-of-use asset depreciation 6.1 5.8 12.0
Profit on disposal of fixed assets (0.1) (0.1) -
Impairment of fixed assets - 0.2 0.5
Share option expense/(credit) 1.6 (0.5) 0.8
Hedging activities and other movements - (0.7) (0.5)
Increase in inventories (22.6) (10.9) (28.3)
Increase in trade and other receivables (50.8) (35.5) (27.9)
Increase in trade and other payables 32.1 31.3 26.3
Cash outflow in respect of adjusting items (24.6) (12.7) (25.6)
Adjustment for pension contributions 0.4 (4.2) (4.8)
Movement in provisions (0.2) 0.1 (0.2)
Movement due to hyperinflation (1.7) - -
Cash inflow from operating activities 3.2 28.1 75.4
Income tax paid (6.3) (7.3) (12.2)
Net cash (outflow)/inflow from operating activities (3.1) 20.8 63.2
Investing activities
Interest received 0.4 1.0 0.4
Acquisition of property, plant and equipment (22.8) (16.1) (38.5)
Proceeds from sale of property, plant and equipment 0.2 8.5 8.9
Payments for intangible assets (1.2) (1.4) (3.2)
Acquisition of businesses net of cash acquired - (1.9) (14.6)
Movement due to hyperinflation 0.2 - -
Net cash outflow from investing activities (23.2) (9.9) (47.0)
Financing activities
Interest paid (8.1) (7.2) (11.0)
Dividends paid to equity holders (12.0) (9.9) (16.0)
Dividends paid to non-controlling interests - - (1.5)
Arrangement fee paid for financing facilities - - (4.4)
Prepaid facility fees - (1.0) -
Repayments of long-term loans - - (182.5)
Proceeds from long-term loans 65.0 10.0 211.4
Lease liability payments (6.8) (6.3) (12.8)
Proceeds from equity issue to non-controlling interest - 3.1 3.1
Net cash inflow/(outflow) from financing activities 38.1 (11.3) (13.7)
Net increase/(decrease) in cash and cash equivalents 11.8 (0.4) 2.5
Net cash and cash equivalents at the beginning of the period 136.3 135.8 135.8
Net increase/(decrease) in cash and cash equivalents 11.8 (0.4) 2.5
Net effect of currency translation on cash and cash equivalents 5.5 (2.9) (2.0)
Net cash and cash equivalents at the end of the period 10, 16 153.6 132.5 136.3
* See basis of preparation in note 1 for further details of the prior period
restatement.
1. Basis of preparation
The condensed consolidated interim financial statements of the Group have been
prepared in accordance with UK-adopted IAS 34 Interim Financial Reporting and
the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority. For the purposes of the condensed
consolidated interim financial statements 'Essentra' or 'the Group' means
Essentra plc and its subsidiaries.
On 31 December 2020, IFRS as adopted by the European Union at that date was
brought into UK law and became UK-adopted international accounting standards,
with future changes being subject to endorsement by the UK Endorsement Board.
Essentra plc ("the Company") transitioned to UK-adopted international
accounting standards in its consolidated financial statements on 1 January
2021. There was no impact or changes in accounting policies from the
transition.
Except as described below, the accounting policies applied in these condensed
consolidated interim financial statements are the same as those applied in the
Group's consolidated financial statements as at 30 June 2021 and for the year
ended 31 December 2021 which has been prepared in accordance with UK-adopted
International Accounting Standards and with the requirements of the Companies
Act 2006 as applicable to companies reporting under those standards.
The condensed consolidated interim financial statements do not include all the
notes of the type normally included in an annual financial report.
Accordingly, this report is to be read in conjunction with the annual report
for the year ended 31 December 2021 and any public announcements made by
Essentra plc during the interim reporting period.
The comparative figures for the financial year ended 31 December 2021 are not
the Company's statutory accounts for that financial year. Those accounts have
been reported on by the Company's auditor and delivered to the Registrar of
Companies. The report of the auditor was (i) unqualified, (ii) did not include
a reference to any matters to which the auditor drew attention by way of
emphasis without qualifying their report, and (iii) did not contain a
statement under Section 498(2) or (3) of the Companies Act 2006. These
condensed consolidated interim financial statements have been reviewed but not
audited.
The preparation of the condensed consolidated interim financial statements
requires management to make estimates and assumptions that affect the
reporting amounts of revenues, expenses, assets and liabilities at 30 June
2022. If in the future such estimates and assumptions, which are based on
management's best judgement at the date of the condensed consolidated interim
financial statements, deviate from the actual circumstances, the original
estimates and assumptions will be modified as appropriate in the period in
which the circumstances change.
Income tax expense is recognised based upon the best estimate of the weighted
average income tax rate on profit before tax expected for the full financial
year, taking into account the weighted average rate for each jurisdiction.
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.
On 24 June 2022, Essentra entered into a sale and purchase agreement with
Mayr-Melnhof Group to dispose of the Group's operations in Packaging. The
transaction is expected to complete in the fourth quarter of 2022. The results
of Packaging are presented as results from a discontinued operation in the
consolidated income statement, and the comparative information has been
re-presented accordingly. The assets and liabilities of Packaging have also
been presented as held for sale on the balance sheet as at 30 June 2022.
As part of the announcement made on 24 June 2022, it was noted that the
Group's Indian packaging operations would not form part Mayr-Melnhof Group.
The results of the Packaging India business, which are not material to the
Group, are presented as part of discontinued operations and the assets and
liabilities are included within held for sale within the Condensed
consolidated balance sheet.
The accounting policies used in the presentation of the condensed consolidated
interim financial statements are detailed below. These policies have been
consistently applied to all periods presented.
Application of IAS 29 Financial Reporting in Hyperinflationary Economies
During the six month period, 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, 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 condensed
consolidated interim 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 is shown below:
Impact on the consolidated balance sheet:
As at 30 June 2022
£m
Goodwill 9.5
Intangibles 3.7
Property, plant and equipment 3.2
Lease right-of-use asset 2.0
Inventories 1.8
Deferred tax liabilities (2.3)
Impact on net assets 17.9
Impact on income statement 2.0
Impact on equity 15.9
Total equity 17.9
For the six months ended 30 June 2022 a monetary gain of £2.2m was included
within net finance expense. Comparative amounts presented in the condensed
consolidated interim financial statements were not restated. When applying
IAS29 on an ongoing basis, comparatives in a stable currency are not restated
and the effect of inflating opening balances to the measuring unit current at
the end of the reporting period is presented in equity.
Software as a service ('SaaS') arrangements
Details on the impact of the change in accounting policy relating to software
as a service arrangements can be found in the Essentra Annual Report 2021 on
page 149. Prior periods were restated for this change in policy and
accordingly, the balance sheet as at 30 June 2021 and consolidated income
statement period ended 30 June 2021 have now also been restated in accordance
with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
The table below show the impact of the change in accounting policy on
previously reported financial results and position.
Impact on the consolidated balance sheet:
As at 30 June 2021
£m
Property, plant and equipment (0.9)
Intangibles (21.2)
Net deferred tax liabilities 4.9
Reduction in net assets (17.2)
Increase in adjusting items (reduction in continuing profit) (5.3)
Decrease in depreciation (increase in continuing profit) 0.2
Deferred tax credit 1.1
Impact on income statement (4.0)
Pronouncements
The Group adopted the following new pronouncements during the period to 30
June 2022, which did not have a material impact on the Group's condensed
consolidated interim 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
· Annual Improvements to IFRS Standards 2018 - 2020
· Amendments to IFRS 3 Reference to the Conceptual Framework
Going concern
At 30 June 2022, the Group's financing arrangements amounted to £564.3m,
comprising United States Private Placement (USPP) of US$350.0m (with a range
of expiry dates from November 2024 to July 2033) and a revolving credit
facility (RCF) of £275.0m
At 30 June 2022, £150.8m of the RCF facility was undrawn. The facility is
subject to two covenants, which are tested semi-annually: net debt to EBITDA
(leverage) and EBITA to net finance charges. 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 banking
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 12 months following the date of approval of the financial
statements, and no breaches of covenants are expected.
On 24 June the Group announced an agreement to sell the Packaging business for
proceeds of £312m on a cash free debt free basis.
As a consequence of this, Essentra's current intention is to reduce the
drawings under its RCF to nil (as of 30 June 2022, the drawing on the RCF loan
was £124.2m). The Company also intends to prepay, with a make-whole premium
the entirety of the $100m outstanding notes issued under the Group's 2017 and
2019 note purchase agreements. Furthermore, the Company also intends to repay
a proportion of the $250m loan notes issued in 2021. The amount to be repaid
for these is estimated to be $74m. These prepayments are expected to result
in an aggregate payment to the holders of notes of USD174m in addition to any
make whole payments. The loans have been classified as current liabilities
however their early repayment is conditional on receipt of the proceeds from
the sale of the Packaging business. This classification as current liabilities
does not indicate a going concern problem.
As part of the going concern assessment, the Board has considered a downside
scenario in 2023 that reflects the current uncertainty in the global economy
and which management consider to be severe but plausible. The results of this
scenario show that there is sufficient liquidity in the business for a period
of at least 12 months from the date of approval of these condensed
consolidated interim financial statements, and do not indicate any covenant
breach during the test period. The downside scenario in H2 2022 includes an
assumption of a similar extent to disruptions as seen in 2021, with no assumed
increase in revenue or profit, as well as modelling a further macro-economic
decline in 2023, especially for the Components business and a year on year
decline in sales of 10%. Set against this were mitigating actions including
tight management of capital expenditure, sales and general overhead, and
working capital control.
At 30 June 2022, the Group's liquidity position (defined as the headroom
available under the banking facilities plus cash resources) amounted to
£304.4m. Excluding amount attributable to minority interests, the liquidity
was £292.2m.
The severe but plausible scenario does 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 outcome of the Packaging strategic review and
uses of proceeds has been included as a separate scenario as part of the going
concern testing, given the announcement of the sale on 24 June 2022. No
breaches of covenants and facility limits are anticipated in this event, which
has also been tested alongside the downside scenario. Therefore, the Directors
continue to adopt the going concern basis of accounting in preparing the
condensed consolidated interim financial statements.
Further information on the Group's borrowing facilities, cash resources and
other financial instruments can be found in notes 10 and 14 to the financial
statements.
Critical Accounting Judgements and Estimates
The following provides information on those policies that management considers
critical because of the level of judgement and estimation required which often
involves assumptions regarding future events which can vary from what is
anticipated. The Directors believe that the financial statements reflect
appropriate judgements and estimates and provide a true and fair view of
Essentra's performance and financial position.
Accounting Estimates
i Business combinations and intangible assets
IFRS 3 requires the identification of acquired intangible assets as part of a
business combination. The methods used to value such intangible assets require
the use of estimates and judgements such as customer attrition, cash flow
generation from the existing relationships with customers and returns on other
assets. Future results are impacted by the amortisation periods adopted and
changes to the estimated useful lives would result in different effects on the
income statement and balance sheet.
Goodwill is not amortised but is tested at least annually for impairment,
along with the finite-lived intangible assets and other assets of the Group's
cash generating units. Tests for impairment are based on discounted cash flows
and assumptions (including discount rates, timing and growth prospects) which
are inherently subjective. Judgement is also required in identifying the
events which indicate potential impairment, and in assessing fair value of
individual assets when allocating an impairment loss in a cash-generating unit
or groups of cash-generating units. The Group performs various sensitivity
analyses in respect of the tests for impairment.
The useful lives of the Group's finite-lived intangible assets are reviewed
following the tests for impairment at least annually.
Judgement may also be required in determining the fair value of other assets
acquired and liabilities (including contingent liabilities) assumed.
In preparing the condensed consolidated interim financial statements the Group
has considered the impact that climate change may have on key accounting
judgements and estimates including asset useful economic lives and asset
valuations and impairments. The Group continues to introduce initiatives
designed to reduce the carbon emissions from its operations. As a result, the
Group considers the environmental assumptions embedded within the Group's
strategic business plan to support the key forward looking accounting
judgements and estimates.
ii Taxation
Liabilities for tax contingencies require management judgements and estimates
in respect of tax audit issues and exposures in each of the jurisdictions in
which it operates. Management is also required to make an estimate of the
current tax liability together with an assessment of the temporary differences
which arise as a consequence of different accounting and tax treatments. Where
management conclude that a tax position is uncertain, a current tax liability
is held for anticipated taxes that are considered probable based on the
information available.
Included in the tax payable is a liability of £6.3m (31 December 2021:
£7.4m) for transfer pricing matters and £12.3m (31 December 2021: £12.3m)
for other uncertain tax positions. The movement is due to adjustments for
current year transactions including foreign exchange movements, expiry of
statute of limitations following the passage of time and agreement reached
with tax authorities on previous matters.
Management may engage with professional advisors in making their assessment
and, if appropriate, will liaise with the relevant taxation authorities to
resolve the matter. The tax liability is reassessed in each period to reflect
management's best estimate in light of information available. If the final
outcome of these matters differs to the liability held in the financial
statements, the difference may impact the income tax expense/(credit) in the
year the matter is concluded.
iii Pensions
Essentra accounts for its defined benefit pension schemes in accordance with
IAS 19. The application of IAS 19 requires the exercise of judgement in
relation to the assumptions used and for each assumption there is a range of
possible outcomes. In consultation with Essentra's actuaries, management
decides the point within those ranges that most appropriately reflects
Essentra's circumstances. Small changes to these assumptions can have a
significant impact on valuations. The Group performs a sensitivity analysis
for the significant assumptions used in determining post-employment costs and
liabilities, as detailed in note 18 of the Essentra Annual Report 2021.
iv Assets held for sale - estimation of costs to sell
Where a business is classified as assets held for sale, management is required
to estimate certain future costs to sell the business in order to calculate
the net assets' fair value (being proceeds less cost to sell). In
determining the estimated costs to sell, management considers all the
information available to them at the time and where appropriate may engage
with external advisors to provide support in making of these estimates.
Accounting Judgements
i Adjusting items
Judgement is required to determine whether items should be included within
adjusting items by virtue of their size or incidence. Details of the items
categorised as adjusting items are disclosed in note 3.
As restructuring and reorganisation costs are recognised (for instance with
respect to site rationalisation initiatives), estimates are often involved in
relation to property-related costs (such as restoration and dilapidation
costs, recoverable amount of lease right of use assets and potential sublet
income) and asset impairment charges (in assessing recoverable amount such as
fair value from potential sale of assets). Where appropriate and possible,
management may engage with professional advisors in making these assessments.
ii Consolidation of subsidiary
Judgement is required to establish whether control exists over an entity in
which Essentra holds part of the share capital. Essentra has a 49%
shareholding in China Tobacco Essentra (Xiamen) Filters Co., Ltd which has
been consolidated as a subsidiary within the condensed consolidated interim
financial statements because management have assessed that Essentra has
control over the entity to direct the relevant activities (including approval
of budgets and capital investments, and appointment of key management
personnel) that significantly affect the entity's returns and the ability to
use its power to affect those returns, through a majority of membership in the
entity's governing body (primarily the board of directors). Subsidiaries are
fully consolidated during the period which the Group holds control.
iii Leases and lease right-of-use assets
A key judgement in determining the right-of-use asset and lease liability is
establishing whether it is reasonably certain that an option to extend the
lease will be exercised. Distinguishing whether a lease will be extended or
otherwise could have a material impact on the value of the right-of-use assets
and lease liabilities recognised on the balance sheet, but may not have a
material impact on the income statement.
In determining the lease term, management considers all facts and
circumstances that create an economic incentive to exercise an extension
option, or not exercise a termination option. Extension options (or periods
after termination options) are only included in the lease term if the lease is
reasonably certain to be extended (or not terminated).
The assessment is reviewed if a significant event or a significant change in
circumstances occurs which affects this assessment and that is within the
control of the lessee.
iv Assets held for sale
Non-current assets, or disposal groups comprising assets and liabilities, are
classified as held for sale if it is highly probable that they will be
recovered primarily through sale rather than through continuing use. Such
assets, or disposal groups, are generally measured at the lower of their
carrying amount and fair value less costs to sell. Impairment losses on
initial classification as held for sale and subsequent gains and losses on
remeasurement are recognised in profit or loss.
We assessed the status of the currently ongoing strategic review for the
Filters division, and considered the applicability of the requirements in
relation to assets held for sale. At present no decision or commitment has
been entered into by management. Management therefore concluded that the
business under strategic review does not meet the requirements under IFRS 5 to
be classified as 'held for sale' as at 30 June 2022.
2. Segment analysis
In accordance with IFRS 8, Essentra has determined its operating segments
based upon the information reported to the Group Management Committee.
The operating segments are as follows:
Components is a global market leading manufacturer and distributor of plastic
injection moulded, vinyl dip moulded and metal items.
Filters is the only global independent supplier of innovative cigarette
filters and related solutions to the tobacco industry.
Packaging is one of only two multi-continental suppliers of a full secondary
packaging range to the health and personal care sectors. On 24 June 2022 the
Group announced the sale of the Packaging business and in accordance with IFRS
5 this segment has been presented within discontinued operations. The
Packaging business will continue to operate until the sale is complete, which
is expected to be later this year.
The adjusted operating profit presented for each operating segment includes
the effect of allocation of certain functional costs such as finance, human
resources, legal and IT, as well as costs relating to management of the
divisions on an internal management methodology.
Six months ended 30 June 2022
Components Filters Central Services(2) Total Continuing Operations Discontinued Operations Total Group
£m £m £m £m £m £m
External revenue 175.9 164.9 - 340.8 205.6 546.4
Total revenue 175.9 164.9 - 340.8 205.6 546.4
Adjusted operating profit(3) 35.9 15.1 (12.9) 38.1 3.9 42.0
Segment assets 212.4 225.9 23.8 462.1 270.2 732.3
Intangible assets 178.8 23.4 4.2 206.4 122.8 329.2
Unallocated items (4) - - 187.0 187.0 16.0 203.0
Total assets 391.2 249.3 215.0 855.5 409.0 1,264.5
Segment liabilities 78.7 79.5 39.6 197.8 98.5 296.3
Unallocated items (4) - - 472.9 472.9 26.4 499.3
Total liabilities 78.7 79.5 512.5 670.7 124.9 795.6
2. Segment analysis (continued)
(restated)(1)
Six months ended 30 June 2021
Components Filters Central Services(2) Total Continuing Operations Discontinued Operations Total Group
Restated £m £m £m £m £m £m
External revenue 148.4 139.5 - 287.9 187.0 474.9
Total revenue 148.4 139.5 - 287.9 187.0 474.9
Adjusted operating profit(3) 27.0 11.5 (12.2) 26.3 9.6 35.9
Segment assets 163.8 191.4 23.3 378.5 217.1 595.6
Intangible assets 150.6 22.7 5.5 178.8 302.9 481.7
Unallocated items (4) - - 174.4 174.4 - 174.4
Total assets 314.4 214.1 203.2 731.7 520.0 1,251.7
Segment liabilities 69.6 60.4 28.7 158.7 83.0 241.7
Unallocated items (4) - - 389.8 389.8 - 389.8
Total liabilities 69.6 60.4 418.5 548.5 83.0 631.5
(restated)(1)
Year ended 31 December 2021
Components Filters Central Services(2) Total Continuing Operations Discontinued Operations Total Group
£m £m £m £m £m £m
External revenue 301.7 295.6 - 597.3 362.4 959.7
Total revenue 301.7 295.6 - 597.3 362.4 959.7
Adjusted operating profit(3) 56.9 28.2 (16.6) 68.5 15.4 83.9
Segment assets 172.4 199.7 21.8 393.9 219.9 613.8
Intangible assets 158.9 23.0 4.5 186.4 297.1 483.5
Unallocated items (4) - - 184.7 184.7 - 184.7
Total assets 331.3 222.7 211.0 765.0 517.0 1,282.0
Segment liabilities 74.2 66.7 29.2 170.1 77.7 247.8
Unallocated items (4) - - 405.3 405.3 - 405.3
Total liabilities 74.2 66.7 434.5 575.4 77.7 653.1
( )
(1) See basis of preparation in note 1 for further details of the prior period
restatements.
(2) Central Services includes executive and non-executive management, group
finance, tax, treasury, legal, group assurance, human resources, information
technology, corporate development, group operations, corporate affairs and
other services provided centrally to support the operating segments.
(3) Operating profit before acquired intangible amortisation and adjusting
items. This also includes the allocation of certain costs using an internal
management methodology between continuing and discontinued operations.
(4) The unallocated assets relate to income and deferred tax assets,
retirement benefit assets, derivatives, other financial assets 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.
3. Adjusting items
(restated)* (restated)*
Six months Six months Year
ended ended ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
£m £m £m
Losses/(gains) and transaction costs relating to acquisitions and disposals of 192.6 (4.3) (2.9)
businesses(1)
Customisation and configuration costs of significant software as a service 6.2 5.3 11.8
("SaaS") arrangements
Acquisition integration and restructuring costs - 0.2 0.6
Other(2) 14.1 (1.4) 2.3
Adjusting items in total Group 212.9 (0.2) 11.8
Adjusting items in continuing operations 19.3 2.8 13.8
Adjusting items in discontinued operations 193.6 (3.0) (2.0)
* Year ended 31 December 2021 has been restated to reallocate £0.5m of
separation fees relating to the sale of the Packaging business to transaction
costs relating to acquisitions and disposals. See basis of preparation in
note 1 for further details of the prior year restatement due to SaaS
arrangements.
Adjusting items are separately presented from other items by virtue of their
nature, size and/or incidence (considered for each operating segment). 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 the impact of 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 other items which are non-recurring or
one-off in nature (such as the costs of fundamental strategic review and
reorganisation). Operating profit before adjusting items and acquired
intangible amortisation is called adjusted operating profit, which forms the
primary basis of management's review and assessment of operational performance
of the Group's businesses.
1 Losses/gains and transaction costs relating to acquisitions and disposals of
businesses are made up of a £181.6m anticipated loss on disposal of the
packaging business due to an impairment of goodwill, £0.3m impairment of
property, plant and equipment and £1.1m relating to intangible assets in
India following an impairment review triggered by the divestment of the
Packaging division. £9.6m relates to advisory costs in relation to the
separation of the Packaging division.
2 The other adjusting items of £14.1m for the six months ended 30 June 2022
relates to:
• £9.7m of advisory costs in relation to the strategic review of the Filters
divisions.
• £3.4m of advisory costs in relation to a strategic review of the Group's
operational structure and cost profile, and certain redundancies in enabling
functions made as part of the review.
• £0.5m in relation to Filters restructuring, including rationalisation of the
division's R&D facilities in the US.
• £1.0m restructuring costs in the Packaging division, involving management
restructuring and redundancies at various sites.
• £0.5m net credit relating to Components restructuring, comprising £0.2m
costs in relation to restructuring activities, offset by a £0.1m credit
relating to the reversal of historical provisions within the Components Europe
and in the Americas businesses, comprising £0.1m costs in relation to
restructuring activities, offset by a £0.7m credit relating to adjustment on
the carrying value of lease right-of-use assets.
4. Taxation
The taxation charges for the continuing operations for the six months ended 30
June 2022 and 30 June 2021 are based on the expected effective tax rate for
the full year, including the impact of prior period tax adjustments. The
enacted tax rates and forecast profits of the jurisdictions the Group operate
in determines this effective tax rate. The taxation charges for the
discontinued operations are based on the results for the period applying the
relevant tax rates by jurisdiction.
The Group's underlying effective rate has been affected by the application of
IAS 29 in respect of hyperinflation in Turkey and accounting adjustments
required for discontinued operations in accordance with IFRS 5. The impact
of these accounting standards is an increase in the underlying effective tax
rate of 5.2%.
5. Earnings per share
(restated)(*) (restated)(*)
Six months Six months Year
ended ended ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
£m £m £m
Earnings: Continuing operations
(Loss)/earnings attributable to equity holders of Essentra plc (5.8) 10.7 24.9
Adjustments
Amortisation of acquired intangible assets 5.0 4.2 8.6
Adjusting items 19.3 2.8 13.8
24.3 7.0 22.4
Tax on adjustments (2.5) (1.9) (3.1)
Adjusted earnings 16.0 15.8 44.2
Earnings: Discontinued operations
(Loss)/earnings attributable to equity holders of Essentra plc (182.8) 5.2 2.0
Adjustments
Amortisation of acquired intangible assets 6.6 6.9 13.8
Adjusting items 193.6 (3.0) (2.0)
200.2 3.9 11.8
Tax on adjustments (12.5) (1.5) (3.2)
Adjusted earnings 4.9 7.6 10.6
Weighted average number of shares
Basic weighted average ordinary shares outstanding (million) 301.0 301.0 301.0
Dilutive effect of employee share option plans (million) 2.2 1.2 1.3
Diluted weighted average ordinary shares (million) 303.2 302.2 302.3
Earnings per share: Continuing operations (pence)
Basic (loss)/earnings per share (1.9)p 3.6p 8.3p
Adjustment 7.2p 1.6p 6.4p
Basic adjusted earnings per share 5.3p 5.2p 14.7p
Diluted (loss)/earnings per share (1.9)p 3.5p 8.2p
Adjustment 7.2p 1.7p 6.4p
Diluted adjusted earnings per share 5.3p 5.2p 14.6p
Earnings per share: Discontinued operations (pence)
Basic (loss)/earnings per share (60.7)p 1.7p 0.7p
Adjustment 62.3p 0.8p 2.8p
Basic adjusted earnings per share 1.6p 2.5p 3.5p
Diluted (loss)/earnings per share (60.7)p 1.7p 0.7p
Diluted adjusted earnings per share 1.6p 2.5p 3.5p
Earnings per share: Total Group (pence)
Basic (loss)/earnings per share (62.7)p 5.3p 8.9p
Adjustment 69.6p 2.4p 9.3p
Basic adjusted earnings per share 6.9p 7.7p 18.2p
Diluted (loss)/earnings per share (62.7)p 5.2p 8.9p
Diluted adjusted earnings per share 6.9p 7.7p 18.1p
* See basis of preparation in note 1 for further details of the prior period
restatements.
( )
Adjusted earnings per share is provided to reflect the underlying earnings
performance of Essentra. The basic weighted average number of ordinary shares
in issue excludes shares held in treasury and shares held by an employee
benefit trust.
6. Property, plant and equipment
During the period, the additions of land and buildings, plant and machinery
and fixtures, fittings and equipment amounted to £22.1m (six months ended 30
June 2021: £16.3m; year ended 31 December 2021: £38.8m) and there was an
increase of £16.3m (six months ended 30 June 2021: decrease of £6.1m; year
ended 31 December 2021: decrease of £6.9m) in net book value due to foreign
exchange movements which includes the impact from the application of IAS 29.
Land and buildings, plant and machinery and fixtures, fittings and equipment
with a net book value of £0.5m (six months ended 30 June 2021: £3.7m; year
ended 31 December 2021: £4.8m) were disposed of for proceeds of £0.2m (six
months ended 30 June 2021: £8.5m; year ended 31 December 2021: £8.9m).
At 30 June 2022 property, plant and equipment with a net book value of
£159.7m excludes £112.8m which has been classified within assets held for
sale (see note 16).
The impact of IAS 29 'Financial Reporting in Hyperinflationary Economies' on
property, plant and equipment is shown within note 1.
7. Lease right-of-use assets
The Group's non-current assets include right-of-use assets from asset leasing
arrangements. Depreciation is charged to the income statement so as to
depreciate the right-of-use asset from the lease commencement date to the
earlier of the end of the useful life of the right-of-use asset and the end of
the lease term.
During the period, the additions to right-of-use assets amounted to £7.0m
(six months ended 30 June 2021: £1.0m; year ended 31 December 2021: £10.0m)
and the depreciation of right-of-use assets amounted to £6.1m (six months
ended 30 June 2021: £5.8m; year ended 31 December 2021: £12.0m).
During the period the right-of-use assets net book value increased by £2.9m
(six months ended 30 June 2021: decrease of £1.6m; year ended 31 December
2021: decrease of £2.7m) due to foreign exchange movements.
Right-of-use assets with a net book value of £nil (six months ended 30 June
2021: £nil; year ended 31 December 2021: £2.0m) were acquired through
business combinations in the period (see note 16).
At 30 June 2022 lease right-of-use assets with a net book value of £38.7m
excludes £18.6m which has been classified within assets held for sale (see
note 16).
The impact of IAS 29 'Financial Reporting in Hyperinflationary Economies' on
lease right-of-use assets is shown within note 1.
8. Intangible assets
During the period, the additions of intangible assets (excluding acquisitions)
amounted to £1.2m (six months ended 30 June 2021: £1.4m; year ended 31
December 2021: £3.2m) and there was an intangible net book value increase of
£28.4m (six months ended 30 June 2021: decrease of £10.0m; year ended 31
December 2021: decrease of £9.9m) due to foreign exchange movements.
Included within intangibles were goodwill assets of £158.0m (six months ended
30 June 2021: £322.4m; year ended 31 December 2021: £327.0m) and there was a
goodwill net book value increase of £16.7m (six months ended 30 June 2021:
decrease of £5.8m; year ended 31 December 2021: decrease of £5.7m) due to
foreign exchange movements.
Included in gross carrying amount of goodwill assets at 1 January 2022 was
£354.9m and the accumulated impairment losses were £27.9m. As at 30 June
2022 gross carrying amount was £382.2m and accumulated losses were
£210.8m. This includes goodwill within assets held for sale.
As at 30 June 2022 intangible assets with a net book value of £206.4m
excludes £122.8m which has been classified within assets held for sale (see
note 16).
On 24 June 2022 the Group announced the sale of the Packaging business to
Mayr-Melnhof Group for a consideration of £312m on a cash-free, debt-free
basis. The sale is expected to complete in Q4 2022 and in accordance with
IFRS 5 the assets and liabilities of the discontinued business has been
presented as held for sale on the balance sheet as at 30 June 2022. Further
in accordance with IFRS 5 an impairment expense is required if the net assets
are higher than the fair value (being the proceeds less estimated cost to
sell). As a consequence, the Group has recognised an expense of £181.6m
within discontinued operations for the six months ended 30 June 2022.
For the Filters and Components businesses 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. Impairment test assumptions used by the Group can
be found within the Annual Report 2021 Financial Statements on page 170.
The impact of IAS 29 'Financial Reporting in Hyperinflationary Economies' on
intangible assets is shown within note 1.
9. Retirement benefit obligations
Movement in pension net assets/(liabilities) during the period
Six months Six months Year
ended ended ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
£m £m £m
Movements
Beginning of period 9.0 (23.9) (23.9)
Current service cost and administrative expense (1.1) (0.9) (1.8)
Employer contributions 0.7 5.1 6.4
Reduction on plan assets excluding amounts in net finance income (73.8) (12.3) (0.6)
Actuarial gains arising from changes in financial assumptions 57.6 23.1 18.8
Actuarial gains arising from change in demographic assumptions 4.8 - 4.5
Actuarial gains arising from experience adjustment 5.4 1.1 5.8
Net finance cost - (0.3) (0.6)
Curtailments - - 0.2
Currency translation (2.4) 0.7 0.2
End of period - total Group 0.2 (7.4) 9.0
End of period - continuing operations 0.8 (6.8) 9.6
End of period - liabilities held for sale (0.6) (0.6) (0.6)
The assets and liabilities of the principal defined benefit schemes were
reviewed by independent qualified actuaries as at 30 June 2022. The assets of
the schemes have been updated to the balance sheet date to take account of the
investment returns achieved by the schemes and the contributions made during
the period. The liabilities of the schemes at the balance sheet date have been
updated to reflect the latest discount rates and other assumptions as well as
benefit payments. The principal assumptions used by the independent qualified
actuaries were as follows:
Europe
30 Jun 2022 30 Jun 2021 31 Dec 2021
Rate of increase in pensions
At RPI capped at 5% 3.00% 3.00% 3.10%
At CPI capped at 5% 2.60% 2.50% 2.70%
At CPI minimum 3%, capped at 5% 3.20% 3.20% 3.30%
At CPI capped at 2.5% 2.10% 2.10% 2.20%
Discount rate 3.70% 1.90% 1.90%
Inflation rate - RPI 3.10% 3.10% 3.20%
Inflation rate - CPI 2.60% 2.50% 2.70%
US
30 Jun 2022 30 Jun 2021 31 Dec 2021
Discount rate 4.59% 2.78% 2.80%
Included within reduction on plan assets is an actuarial loss of £7.1m
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.
10. Analysis of net debt
30 Jun 2022 31 Dec 2021
£m £m
Cash at bank and in hand 132.3 123.9
Short-term deposits and investments 21.3 12.4
Cash and cash equivalents 153.6 136.3
Derivative financial instruments hedging placement loans 10.7 -
Loans and borrowings due within one year (270.5) -
Loans and borrowings due after one year (142.7) (313.3)
Lease liabilities within one year (11.6) (11.6)
Lease liabilities after one year (49.4) (46.1)
Net debt (309.9) (234.7)
Lease liabilities are measured at the present value of future lease payments,
including variable lease payments and the exercise price of purchase options
where it is reasonably certain that the option will be exercised, discounted
using the interest rate implicit in the lease, if readily determinable, or
alternatively the lessee's incremental borrowing rate.
At 30 June 2022, the Group's committed facilities primarily comprised a series
of US Private Placement Loan Notes from various financial institutions
totalling US$350.0m and a syndicated revolving credit facilities of £275.0m
from its banks. At 30 June 2022, the available bank facilities totalled
£275.0m (31 December 2021: £275.0m) of which £124.2m (31 December 2021:
£59.2m) has been drawn down and £150.8m (31 December 2021: £215.8m) was
undrawn.
The Group issued $250m of additional USPP loan notes on 27 July 2021 with
terms of 7 ($80m), 10 ($85m) and 12 ($85m) years.
As a consequence of the commitment to sell the Packaging business the business
the Group has obtained lenders' consent under terms which requires repayment
of drawn down loan balances within 60 days of receiving the proceeds from the
sale. For this reason, loans of £124.2m have been classified as due within
one year. The requirement to pay within one year is conditional on the
completion of the sale of Packaging.
Furthermore, under the terms of US Private Placement Loan Notes, the Group is
required to make an offer for a proportion of its loan notes. The portion of
the notes offered to be repaid will depend on the net proceeds from disposals
received by Essentra in the year up to the date of the disposal. The Company
intends to pay back the $100m 2017 and 2019 loan notes in full including any
make whole payments. For 2021 loan notes, it will be open to each holder of
notes issued under its purchase agreement to elect whether or not to take up
this offer. We estimate the total loan note uptake to be $74.0m. The repayment
of these $174m US Loan Notes is also only conditional on the sale of Packaging
completing. The current liabilities for all loans recognised totalling
£270.5m will not become due within one year if the sale does not complete.
11. Acquisitions
Acquisition of Hengzhu
On 2 August 2021, Essentra acquired the majority of the share capital of
Jiangxi Hengzhu Electrical Cabinet Lock Co., Ltd ("Hengzhu"), an access
hardware manufacturer and distributor in China. Essentra initially acquired
73% of the business for ¥103m (approximately £11.8m), with the remaining 27%
stake subject to put and call options whereby Essentra may acquire the
minority shareholding for consideration determined by the future operating
performance of the business to 31 December 2022 and capped at a maximum of
¥37.5m (approximately £4.2m) and are exercisable 18 months after the
acquisition. The capped consideration has not changed since acquisition. The
remaining 27% stake does not confer any shareholder right (including voting
right, 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 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. As at 31 December 2021 £2.5m of
deferred consideration was paid out to the vendor, with the remainder to be
paid in the future.
12. Dividends
Per share Total
Six months Six months Year Six months Six months Year
ended ended ended ended ended ended
30 Jun 2022 30 Jun 2021 31 Dec 2021 30 Jun 2022 30 Jun 2021 31 Dec 2021
p p p £m £m £m
2021 interim:
paid 29 October 2021 2.0 2.0 6.0 6.0
2021 final:
paid 1 June 2022 4.0 12.1
2022 interim:
payable 28 October 2022 2.3 6.9
2.3 2.0 6.0 6.9 6.0 18.1
The interim dividend for 2022 of 2.3p per 25p ordinary share will be paid on
28 October 2022 to equity holders on the register of shares on 23 September
2022.
In the table above, each dividend is shown in the period that it is
attributable to. For accounting purpose, dividends are recognised in the
period in which they are approved by the shareholders of the Company (final
dividend) or paid (interim dividend).
13. Related party transactions
Essentra has not entered into any material transactions with related parties
since the last Annual Report.
14. Financial instruments
Essentra held the following financial instruments at fair value at 30 June
2022. The only financial instrument with fair value determined by reference to
significant unobservable inputs, which is classified as level 3 in the fair
value hierarchy, are the deferred considerations relating to the acquisitions
of Micro Plastics and Hengzhu. The fair value of the deferred considerations
are estimated based on an assessment of the likely outcome of the acquired
business' financial performance, and reflects management's expectation of the
performance during the earn out period. The other financial instruments
included in the table below are determined to be level 2 in the fair value
hierarchy. There have been no transfers between levels of the fair value
hierarchy. There are no non-recurring fair value measurements.
30 Jun 2022 31 Dec 2021
£m £m
Financial assets
Derivatives - foreign exchange swaps 0.1 0.5
Derivatives - cross currency interest rate swaps on USPP loan 10.7 0.7
Financial liabilities
Derivatives - foreign exchange swaps (0.4) (0.1)
Deferred consideration (5.9) (5.6)
Net assets/(liabilities) 4.5 (4.5)
Essentra had US dollar and euro denominated borrowings which it designated as
hedges of its net investments in subsidiary undertakings. The euro
borrowings were repaid in the second half of 2021. The exchange losses of
£17.6m (30 June 2021: £0.5m gain) on the US dollar borrowings and the gain
of £nil (30 June 2021: £2.6m gains) on the euro borrowings were recognised
in other comprehensive income.
At 30 June 2022, the carrying amount of the US Private Placement Loan Notes
were £289.3m with a fair value of £254.4m. At 30 June 2021, the carrying
amount of the US Private Placement Loan Notes were £72.5m with a fair value
of £78.3m. For all other financial instruments, the fair value approximates
to the carrying amount.
Fair values of forward foreign exchange contracts and cross currency swaps
have been calculated at period end forward exchange rates compared to
contracted rates.
During the period, no fair value gain or loss (30 June 2021: £nil) was
recognised in respect of financial instruments at level 3 fair value
hierarchy, and £nil (30 June 2021: £nil) was settled in cash.
15. Post balance sheet event
Further to an announcement on 15 July 2022 by Essentra plc regarding the
publication of a shareholder circular relating to the proposed disposal of
ESNT Packaging & Securing Solutions Limited and Essentra Packaging US Inc
and their respective subsidiary companies to the Mayr-Melnhof Group (the
"Disposal"), on 8 August 2022 an ordinary resolution to approve the Disposal
was duly passed by the Company's shareholders.
16. Discontinued operations
Disposal of Packaging business
On 24 June 2022, Essentra entered into a sale and purchase agreement with
Mayr-Melnhof Group to dispose of the Group's Packaging business. The
transaction is expected to complete in H2 2022. The results of Packaging are
presented as results from a discontinued operation in the consolidated income
statement, and the comparative information has been re-presented
accordingly. Assets and liabilities relating to the Packaging business have
been separately disclosed as items held for sale.
The results of continuing and discontinued operations are as follows:
Six months ended 30 June 2022
Continuing Discontinued Total
Operations Operations Group
£m £m £m
External revenue 340.8 205.6 546.4
Adjusted operating profit 35.3 6.7 42.0
Amortisation of acquired intangible assets (5.0) (6.6) (11.6)
Adjusting items* (19.3) (193.6) (212.9)
Operating profit/(loss) 11.0 (193.5) (182.5)
Finance income 4.3 0.1 4.4
Finance expense (16.2) (0.4) (16.6)
Loss before tax (0.9) (193.8) (194.7)
Income tax (expense)/credit (3.7) 11.0 7.3
Loss after tax (4.6) (182.8) (187.4)
* Adjusting items from discontinued operations includes £181.6m of loss on
disposal due to goodwill impairment.
Six months ended 30 June 2021
Continuing Discontinued Total
Operations Operations Group
£m £m £m
External revenue 287.9 187.0 474.9
Adjusted operating profit 24.6 11.3 35.9
Amortisation of acquired intangible assets (4.2) (6.9) (11.1)
Adjusting items (2.8) 3.0 0.2
Operating profit 17.6 7.4 25.0
Finance income 1.1 - 1.1
Finance expense (7.6) (0.5) (8.1)
Profit before tax 11.1 6.9 18.0
Income tax credit/(expense) 0.3 (1.7) (1.4)
Profit after tax 11.4 5.2 16.6
16. Discontinued operations (continued)
Year ended 31 December 2021
Continuing Discontinued Total
Operations Operations Group
£m £m £m
External revenue 597.3 362.4 959.7
Adjusted operating profit 65.7 18.2 83.9
Amortisation of acquired intangible assets (8.6) (13.8) (22.4)
Adjusting items (13.8) 2.0 (11.8)
Operating profit 43.3 6.4 49.7
Finance income 2.8 - 2.8
Finance expense (18.4) (0.9) (19.3)
Profit before tax 27.7 5.5 33.2
Income tax expense (1.4) (3.5) (4.9)
Profit after tax 26.3 2.0 28.3
The results from discontinued operations are attributable entirely to the
equity holders of Essentra plc. The earnings per share of discontinued
operations are disclosed in note 5.
16. Discontinued operations (continued)
Cash flows of discontinued operations are as follows:
Six months Six months Year
ended ended ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
£m £m £m
Net cash outflow from operating activities (9.3) 12.9 17.9
Net cash inflow from investing activities (10.8) 1.8 (6.9)
Net cash inflow from financing activities (2.3) (3.0) (5.8)
Net cash flows for the period (22.4) 11.7 5.2
The assets and liabilities of the Packaging Business which were presented as
assets and liabilities in the disposal group held for sale, and the assets and
liabilities of the rest of the Group were as follows:
Rest of Held for Total
Group Sale Group
As at 30 June 2022 £m £m £m
Property, plant and equipment 159.7 112.8 272.5
Lease right-of-use asset 38.7 18.6 57.3
Intangible assets 206.4 122.8 329.2
Long-term receivables 2.8 1.7 4.5
Derivative assets 10.8 - 10.8
Income tax receivable 1.2 0.5 1.7
Deferred tax asset 8.8 5.2 14.0
Inventories 117.5 42.0 159.5
Trade and other receivables 143.4 95.1 238.5
Retirement benefit assets 22.9 - 22.9
Cash and cash equivalents 143.3 10.3 153.6
Total assets 855.5 409.0 1,264.5
Trade and other payables 151.5 74.8 226.3
Interest bearing loans and borrowings due less than one year 270.5 - 270.5
Interest bearing loans and borrowings due greater than one year 142.7 - 142.7
Lease liabilities due less than one year 6.9 4.7 11.6
Lease liabilities due greater than one year 33.8 15.6 49.4
Retirement benefit obligations 22.1 0.6 22.7
Other financial liabilities 5.9 - 5.9
Provisions 1.1 2.0 3.1
Deferred tax liabilities 17.5 24.6 42.1
Derivative liabilities 0.4 - 0.4
Income tax payable 19.7 1.2 20.9
Total liabilities 672.1 123.5 795.6
The cumulative income or expenses included in other comprehensive income
relating to the Packaging business included forex gains on subsidiaries
denominated in non-sterling currencies. On completion of the disposal, these
gains will then be recycled to loss on business disposals.
Responsibility statement of the directors in respect of the half-yearly
financial report
We confirm that to the best of our knowledge:
• the condensed set of financial statements has been prepared in accordance
with UK adopted International Accounting Standard 34, 'Interim Financial
Reporting';
• the interim management report includes a fair review of the information
required by the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication
of important events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial statements;
and a description of the principal risks and uncertainties for the remaining
six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the related
party transactions described in the last annual report that could do so.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Paul
Forman
Jack Clarke
Chief Executive
Officer
Chief Financial Officer
16 August 2022
Independent review report to Essentra plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Essentra plc's condensed consolidated interim financial
statements (the "interim financial statements") in the Results for the Half
Year Ended 30 June 2022 of Essentra plc for the 6 month period ended
30 June 2022 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
· the Condensed consolidated balance sheet as at 30 June 2022;
· the Condensed consolidated income statement and Condensed
consolidated statement of comprehensive income for the period then ended;
· the Condensed consolidated statement of cash flows for the period
then ended;
· the Condensed consolidated statement of changes in equity for the
period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Results for the Half Year
Ended 30 June 2022 of Essentra plc have been prepared in accordance with UK
adopted International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the Results for the Half Year
Ended 30 June 2022 and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the interim
financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with this ISRE. However, future events or
conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Results for the Half Year Ended 30 June 2022, including the interim
financial statements, is the responsibility of, and has been approved by the
directors. The directors are responsible for preparing the Results for the
Half Year Ended 30 June 2022 in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority. In preparing the Results for the Half Year Ended 30 June 2022,
including the interim financial statements, the directors are responsible for
assessing the group's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Results for the Half Year Ended 30 June 2022 based on our
review. Our conclusion, including our Conclusions relating to going concern,
is based on procedures that are less extensive than audit procedures, as
described in the Basis for conclusion paragraph of this report. This report,
including the conclusion, has been prepared for and only for the company for
the purpose of complying with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority and for no
other purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom this
report is shown or into whose hands it may come save where expressly agreed by
our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
Milton Keynes
16 August 2022
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