REG - Essentra plc - Results for the Half Year Ended 30 June 2023
16/08/2023 07:00
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RNS Number : 4303J Essentra plc 16 August 2023
ESSENTRA PLC
("Essentra" or the "Company")
RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2023
A resilient half year performance. FY 23 expectations unchanged.
Results at a glance
( ) H1 2023 £m H1 2022(2) £m % change Actual FX % change Constant FX
Revenue 166.3 175.9 -5.5 -7.1
Adjusted(1) operating profit 23.0 15.1 +52.3 +48.7
Adjusted(1) operating margin 13.8% 8.6% 520bps 520bps
Adjusted(1) pre-tax profit 23.0 3.4 >100% >100%
Adjusted(1) basic earnings per share 5.9p 0.9p >100% >100%
Adjusted(1) net cash flow from operating activities 20.5 (0.9) - -
Reported operating profit 10.3 1.0 >100% >100%
Reported pre-tax profit / (loss) 10.3 (10.7) - -
Reported net profit / (loss) 7.7 (9.0) - -
Reported profit / (loss) per share 2.6p (3.0)p - -
Dividend per share(5) 1.2p 2.3p -47.8 -
Net cash inflow / (outflow) from operating activities(6) 8.9 (6.4) - -
Free cash flow(6) 15.3 (3.5) - -
Net debt(4) 8.3 309.9 - -
Net debt to adjusted EBITDA(3,4) 0.2x 2.1x - -
Financial and operational resilience
· H1 2023 performance in line with expectations
· Revenue decline of 5.5% to £166.3m (H1 2022(2): £175.9m)
· Adjusted(1) operating profit increase to £23.0m (H1 2022(2):
£15.1m)
· Pro-active and disciplined management of costs
· Strong pricing maintained, offsetting inflation
· Wixroyd integration on track, unlocking new cross-sell
opportunities across Europe
· Central corporate costs resized as Essentra transitions to a
pure-play business. Remain on track to deliver the previously guided run rate
of c.£13m
Strong balance sheet, enabling investment in organic and inorganic growth
· Adjusted(1) operating cash flow of £20.5m, cash conversion of
89.1%
· Reported net cash inflow from operating activities £8.9m (H1 2022:
outflow £6.4m)
· Net debt of £8.3m, representing leverage of 0.2x EBITDA(3,4)
(incl. IFRS 16 lease liabilities of £21.2m) providing significant headroom
for investment
· Bolt-on acquisition pipeline is actively being managed supporting
further value-enhancing M&A
· Delivering on the commitment to return £150m to shareholders.
£89.8m special dividend paid in April 2023, and 27% of the £60m share
buyback programme completed in H1
· Interim ordinary dividend of 1.2p per share, in line with the
Company's previously stated policy
Outlook for FY 2023 unchanged
· The Board's expectations for FY 2023 remain unchanged
· The business remains resilient and has the ability to manage volume
impacts, through implementation of pricing actions, and careful cost
management
· Essentra remains focussed on enhancing its hassle-free customer
proposition, delivering strong profit margins, and continues to invest in
growth initiatives, whilst delivering on its sustainability goals
· Management re-affirm confidence in the medium-term targets outlined
at the Capital Markets Event in November 2022
Commenting on the half year results, Scott Fawcett, Chief Executive, said:
"Essentra has shown financial and operational resilience in its first half
year as a pure-play Components business, making further progress towards our
medium-term targets, despite the macro-economic backdrop.
We continue to demonstrate the strength of our business model, which is
underpinned by our global footprint, the breadth of our offer across a wide
range of end-markets and our focus on our hassle-free customer proposition.
Wixroyd, acquired at the end of 2022, is performing well, and is enhancing
Essentra's capabilities in hardware components, unlocking new cross-sell
opportunities as products are launched into Europe.
We expect to make further progress in the second half of the year, supported
by continued cost management initiatives, maintaining our pricing actions, and
delivering new business wins. Our strong balance sheet supports organic growth
and further investment in disciplined, value enhancing M&A. Our
expectations for 2023 remain unchanged."
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 16 August 2023 at Deutsche Bank, 1
Great Winchester St, London EC2N 2DB.
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.
Enquiries
Essentra plc Teneo
Jack Clarke, Chief Financial Officer Olivia Peters
Claire Goodman, Investor Relations Manager essentra@teneo.com
Emma Reid, Company Secretary
Tel: +44 (0)1908 359100 Tel: +44 (0)20 7353 4200
(Notes:)
(1 On a continuing operations basis, 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 The Group disposed of the Packaging and Filters businesses during the year
ended 31 December 2022. The results of these operations have been re-presented
as discontinued operations. See note 12 for further detail)
(3 EBITDA is defined as operating profit before depreciation (and other
amounts written off property, plant and equipment), share option expense,
intangible amortisation and adjusting items. For 2023 EBITDA is calculated on
a continuing basis and for 2022 on a total Group basis)
(4 Presented on a last twelve months basis including lease liabilities.
£12.9m net funding surplus when excluding lease liabilities; 0.3x net funding
surplus to EBITDA (H1 2022: 1.9x net debt to EBITDA excluding lease
liabilities). For 2023 EBITDA is calculated on a continuing operations basis
and for 2022 on a total Group basis)
(5 The 2023 interim dividend has been calculated on the earnings of the
continuing operations of the business. The 2022 interim dividend of 2.3 pence
per share was calculated on the Group earnings which included the earnings now
reported as discontinued operations)
(6 A reconciliation of free cash flow and net cash inflow from operating
activities on continuing operations is set out in the Financial Review
section)
Notes to Editors
About Essentra plc
Essentra plc is a FTSE 250 company and a leading global provider of essential
components and solutions, focusing on the manufacture and distribution of
plastic injection moulded, vinyl dip moulded and metal items.
Headquartered in the United Kingdom, Essentra's global network extends to 28
countries worldwide and includes over 3,000 employees, 13 manufacturing
facilities, 24 distribution centres and 33 sales & service centres serving
c.74,000 customers with a rapid supply of low cost but essential products for
a variety of applications in industries such as equipment manufacturing,
automotive, fabrication, electronics, medical and renewable energy.
For further information, please visit www.essentraplc.com
(http://www.essentraplc.com)
Cautionary forward-looking statement
These results contain forward-looking statements based on current expectations
and assumptions. Various known and unknown risks, uncertainties and other
factors may cause actual results to differ from future results or developments
expressed or implied from the forward-looking statements. Each forward-looking
statement speaks only as of the date of this document. The Company accepts no
obligation to revise or update these forward-looking statements publicly or
adjust them to future events or developments, whether as a result of new
information, future events or otherwise, except to the extent legally
required.
CEO Review
Revenue in H1 2023 reduced by 5.5% to £166.3m (7.1% decline at constant
currency), and 10.4% LFL decline excluding the acquisition of Wixroyd,
completed in December 2022. H1 2022 was particularly strong due to significant
end-market recovery and easing supply chains.
Essentra demonstrated continued financial resilience in the first half of
2023, making progress against our medium-term targets delivering £23.0m
adjusted operating profit and 13.8% adjusted operating profit margin. Pricing
actions at the start of 2023 combined with disciplined cost management
initiatives have supported margin performance partly offsetting sales volume
decline in the period, and will continue to benefit the business in the second
half of the year.
As part of our transition to a pure-play Components business, the right-sizing
of central corporate costs is progressing, recognising £6.2m of central
corporate costs in the period. A one-off cost of £0.9m has been recognised
within adjusting items relating to a restructuring of the business following
the two disposals and the business remains on track to deliver the previous
guided run rate of c.£13m. H1 2022 central corporate costs totalled £20.0m,
of which £12.1m related to central corporate costs for the continuing
business, and £7.9m of central corporate costs previously allocated to
discontinued operations.
The business continues to hold a strong balance sheet, with H1 2023 adjusted
EBITDA to net debt leverage of 0.2x including IFRS 16 lease liabilities, and
generated £20.5m of adjusted operating cash flow (89.1% cash conversion).
Essentra is therefore well placed, with substantial headroom, to support
future organic growth opportunities and drive further investment across an
active and value-enhancing M&A pipeline.
EMEA
H1 2023 % growth % growth
£m Actual FX Constant FX
Revenue 89.8 +0.2 -0.1
Gross profit 45.2 -1.7 -2.2
Gross margin 50.3% -100bps -110bps
EMEA has seen a broadly flat revenue performance in H1, with evidence of
softening towards the end of Q2 2023 in line with macro-economic trends and
levels of industrial production. Whilst the consumer products end-market
segment has seen a reduction year-on-year, consistent with trends communicated
at FY 2022 results, the region has seen an expansion of renewable energy and
industrial equipment end-market segments supported by new business wins.
Revenue in H1 2023 was £89.8m, a 0.1% reduction on a constant currency basis.
On a LFL trading day adjusted revenue basis and after adjusting for the
acquisition of Wixroyd, the region saw a decline of -4.3% in Q1, improving to
0.2% in Q2.
The Wixroyd business, acquired in December 2022, has expanded Essentra's
capabilities in hardware components and has performed in line with
expectations in H1 2023. Integration is progressing well, with c.750 SKUs
being launched into Europe, unlocking new cross-sell opportunities.
The region anticipates the expansion of our access hardware proposition in H2,
as well as driving further exposure to machinery and automation end-markets,
supported by new product introductions, and the acceleration of cross-selling.
H1 2023 gross margin of 50.3% remains strong, led by pricing offsetting
inflation, and pro-active cost control including operational efficiencies,
partly mitigating volume decline. The business will continue to sustain
pricing actions and disciplined cost management through the second half.
AMERICAS
H1 2023 % growth % growth
£m Actual FX Constant FX
Revenue 56.6 -8.3 -12.6
Gross profit 21.0 -9.5 -13.1
Gross margin 37.1% -50bps -20bps
Consistent with the market environment described in our previous trading
update, distributors have continued to destock in the first six months of the
year, which has had an impact on the Americas region. Encouragingly, in Q2
2023, end-user channels have seen signs of improvement.
Revenue in H1 2023 was £56.6m, a 12.6% reduction on a constant currency
basis. Trading day adjusted revenue saw a decline of 12.2% in Q1 compared to
decline of 14.3% in Q2. The business continues to focus on the normalisation
of distributor volumes, and driving new business across the customer base,
including cross-sell, as well as new customer acquisition.
The region is focussed on the acceleration of near-shoring opportunities,
enabled by the opening of the manufacturing facility in Monterrey, Mexico
which is commencing operations. This expansion project builds Essentra's
manufacturing presence, increasing capacity to support future wider growth
plans, and will bring production closer to customer demand.
H1 2023 gross margin of 37.1% saw a 20bps reduction on the prior year on a
constant currency basis, and the region will continue to sustain pricing
actions and disciplined cost management through the second half.
APAC
H1 2023 % growth % growth
£m Actual FX Constant FX
Revenue 19.9 -19.1 -18.3
Gross profit 6.8 -19.0 -18.8
Gross margin 34.2% +10bps -20bps
In keeping with the market environment outlined in previous trading updates,
APAC performance has been driven by the market dynamic in China, which has
seen a steady and gradual improvement with recovery initially seen from the
end of the first quarter. The consumer products end-market segment has
contracted compared to the previous year, although remains the largest
end-market segment. The renewables end-market segment has more than doubled
year-on-year, supported by new business wins, including solar projects.
Revenue in H1 2023 was £19.9m, a 18.3% reduction on a constant currency
basis. Trading day adjusted revenue saw a decline of 27.5% in Q1, improving to
a decline of 10.5% in Q2.
The region continues to explore commercial opportunities in emerging Asia
markets, notably Vietnam, and anticipates that the integration of the Hengzhu
business acquired in 2021 will accelerate, encouraged by the lifting of
pandemic related restrictions in China, with access hardware solutions being
an enabler of cross-selling.
H1 2023 gross margin of 34.2% saw a 20bps reduction on the prior year on a
constant currency basis. The focus remains on disciplined cost management and
operational excellence to maintain profit margins through H2.
Group strategy and medium term targets. Essentra is a leading global provider
of essential components and solutions, focusing on the manufacture and
distribution of injection moulded, vinyl dip moulded and metal items. We have
a unique business model, in a highly fragmented market, combining
manufacturing and distribution, enabling breadth and depth of product offer.
The business is diversified, with a high margin and scope to expand through
scale and operational effectiveness. With strong returns, and cash conversion,
the business is able to further drive growth through value enhancing M&A
and has a disciplined approach to acquisitions, integrating ten acquisitions
in the previous twelve years.
In November 2022, Management laid out a clear strategy to drive organic growth
and market share gains. The ambition of the business is to double the revenue
and triple operating profits in the medium term, with clear metrics to achieve
our strategy:
Medium-term financial targets:
· Organic revenue >5% CAGR
· Total revenue >10% CAGR
· Adjusted operating margin c.18%
· Operating cash conversion >85%
· Net debt to EBITDA <1.5x
Supported by:
· A clear strategy to drive market share gains, supported by a leading
market position in a highly fragmented market
· Margin expansion from scale, operating efficiencies, and pricing
initiatives
· A highly cash generative business with continued focus on working
capital management
· A strong financial framework and balance sheet to pursue value
enhancing bolt-on M&A
Our "hassle-free" customer experience. Our two closely linked customer
experience KPIs continue to show good progress, and are aligned with our
commitment to a "hassle-free" proposition. Monthly post-purchase questionnaire
metrics indicate a continued improvement year-on-year (ahead of the
publication of the annual customer survey that is expected to take place in
H2), and we have seen an improvement in on-time-in-full performance ("OTIF")
compared to H1 2022, which is aligned with the prior year exit rate (in excess
of 82%). We maintain the expectation that OTIF service levels will return to
pre-pandemic levels by the end the of the year.
The business continues to make further digital progress, continuing to enhance
the next generation websites, that are live in 26 countries. Supported by the
new digital hub in Turkey that was established in 2022, new functionalities
have been launched, including "my account" and continued AI developments that
will improve organic traffic and customer conversation rates for the majority
of customers' that start their journey online.
ERP implementation progress. The business continues to make progress with the
ERP implementation, following a phased approach. We maintain the expectation
that the platform will be deployed across all five Eastern Europe sites
including the distribution hub in Poland in 2023 and we will continue to make
improvements in our live countries in Spain and France. Continuous
improvements will benefit future site deployments, whilst maintaining focus on
a "hassle-free" customer experience. It is anticipated that up to £12.0m will
be spent in 2023 in line with previous guidance. As of the half year, £4.9m
adjusting items have been recognised, relating to Software as a Service
("SaaS") costs.
ESG progress. Essentra continues to focus on the five pillars of its ESG
strategy as previously announced at the Capital Markets Event in November
2022, comprising of Planet, Culture, Communities, Components and Customers,
and has made excellent progress towards the mid-term targets in H1 2023.
Renewable energy consumption globally has increased to over 40% (FY 2022: 31%)
including the renewable energy generated at our Rayong site in Thailand, which
commenced operation in Q1 2023. This has had a beneficial impact on our
emissions intensity, which is tracking at 44.5T CO2e per GBP million of
revenue at the half year. (FY 2022: 58.4T).
As shared at the full year results announcement, Essentra achieved its 2025
emissions reduction target at the end of 2022, and has committed to the
Science Based Targets initiative. We anticipate that new targets will be
submitted for validation in Q3 2023 including short-term and net zero targets
for our scope 1, 2 and 3 emissions.
In terms of our waste reduction targets, five additional sites are on target
to reach zero waste to landfill by end of 2023, which will bring our total to
17 sites, representing just under 50% of our global footprint.
Essentra has continued to expand the range of products that are made using
more sustainable materials, over 3,900 products contain recycled content
across the product offering. The business remains confident in achieving the
previously set target of 20% (of raw materials from sustainable sources by
2025 across our polymer ranges) earlier than initially targeted, achieving in
excess of 20% at the half year and is developing the next set of targets to
build on this progress. Our new centre of excellence, which will be open in
Kidlington in Q3 2023, is a dedicated facility for trialling and showcasing
new and innovative materials.
We have progressed our Communities ESG pillar throughout the period, and have
applied to join the UN Global Compact, a strategic initiative that supports
global companies that are committed to responsible business practices.
Essentra has also committed to increasing engagement with retail shareholders
through membership of The Engagement Appeal ("TEA"). TEA's objective is to
increase interaction between corporate firms and their retail investors and
Essentra looks forward to supporting and growing The Engagement Appeal
movement.
Management changes. To support the Company's transition to a pure-play
Components business and achievement of our medium-term targets, the Company
has made changes to the Group Executive Committee ("GEC").
Gabriele Hannen was appointed as Chief Strategy Officer in March 2023, having
joined Essentra in 2019 as Finance Director for the Components business.
Gabriele has previously held a variety of Finance and wider leadership roles
with a focus on business growth and change. In this role, Gabriele will
support the delivery of both short-term performance and long-term strategic
objectives, including the delivery and implementation of the new ERP platform.
Stuart Payne has been appointed as Asia Managing Director on a secondment
basis, effective from 1 June 2023. Stuart joined Essentra in 2021 and has a
broad experience that will help lead the APAC business to deliver its
financial and non-financial goals for 2023.
Catherine Lynch has been appointed to the role of Chief People Officer,
joining the Company in August 2023, bringing a wealth of experience across a
variety of sectors and involvement in transformation projects and
acquisitions, most recently at Rentokil. Catherine is a Non-Executive Director
and Remuneration Committee Chair at Staffline Plc, an AIM listed business.
Oshin Cassidy, Group HR Director, who played a pivotal role during the
strategic review, left the Company at the end of June 2023.
Shareholder returns. The Board announced a £60m share buyback programme in
February 2023, funded through the residual net transaction proceeds from the
disposals of its Filters and Packaging businesses, which completed in Q4 2022.
During the period, a total of 8.37m shares were purchased, at an average
purchase price of 193.7 pence per share, totalling £16.2m. The programme is
c.27% complete as of 30 June 2023. Of the shares purchased, 4.14m were
transferred into treasury, and 4.23m have subsequently been cancelled, which
represented 1.4% of the issued share capital of the Company (excluding
treasury shares) when the programme commenced.
As previously announced, the Company paid a special dividend of £89.8m,
representing approximately 29.8 pence per ordinary share, on 27 April 2023.
Ordinary Dividend. The Board of Directors has declared a 2023 interim dividend
of 1.2 pence per share. The interim dividend is in line with the Board's
commitment to a progressive dividend policy maintaining dividend cover in the
order of three times earnings. The interim dividend has been calculated on the
earnings of the continuing operations of the business (2022 interim dividend
of 2.3 pence per share was calculated on the Group earnings, which includes
the earnings that are now reported as discontinued operations).
The interim dividend will be paid on 27 October 2023 to shareholders on the
share register at the record date, being 22 September 2023. The ex-dividend
date will be 21 September 2023. Essentra operates a Dividend Re-Investment
Programme ("DRIP"), details of which are available from the Company's
Registrars, Computershare Investor Services PLC. The final date for DRIP
elections will be 6 October 2023.
Outlook. Guidance for 2023 remains unchanged. The business has historically
shown resilience through the cycle and continues to manage volume impacts
through disciplined cost management and pricing actions.
Whilst we continue to see distributor destocking and changes in the European
macro-economic environment, profitability continues to be robust as we move
into H2 2023 and China's reopening is showing a steady improvement,
benefitting our business in Asia.
Management retains confidence that Essentra's robust and differentiated
business model will support continued delivery against the medium-term targets
shared at the capital markets event in November 2022. Essentra's global
manufacturing and distribution footprint, market-leading positions and focus
on delivering excellent customer service will support ongoing organic growth
and profitability, whilst the continued strength of our balance sheet will
drive disciplined investment in our strong pipeline of value enhancing bolt-on
M&A opportunities, which is being actively managed.
Financial Review
Discontinued Operations. The results of the Packaging business and the Filters
business have been classified as discontinued operations at 31 December 2022
and comparative information for H1 2022 has been re-presented. Discontinued
operations recognised a £0.8m post-tax loss (H1 2022: £178.4m loss) for the
period, as reported in the Condensed Consolidated Income Statement. Refer to
note 12 in the Condensed Consolidated Interim Financial Statements for further
information.
Constant foreign exchange rates. The constant exchange rate basis ("constant
FX") adjusts the comparative to exclude the effect of currency movements, to
show the underlying performance of the Company. The principal exchange rates
for Essentra were:
-------- Average -------- -------- Closing --------
H1 2023 H1 2022 H1 2023 H1 2022
US$:£ 1.23 1.29 1.27 1.21
€:£ 1.14 1.18 1.17 1.16
Re-translating at H1 2023 average exchange rates increases the prior year
revenue by £3.0m, increases prior year gross profit by £1.2m and increases
prior year operating profit by £0.3m.
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 H1 2023 LFL results are
adjusted for the acquisition of Wixroyd Group ("Wixroyd") on 1 December 2022.
The H1 2022 results have been adjusted for the completion of the Packaging
business disposal previously announced on 3 October 2022 and the completion of
the Filters business disposal previously announced on 5 December 2022.
Adjusted basis. The term "adjusted" excludes the impact of amortisation of
acquired intangible assets and adjusting items, less any associated tax
impact. In H1 2023, amortisation of acquired intangible assets was £5.7m (H1
2022: £5.0m), and there was a pre-tax charge for adjusting items of £7.0m
(H1 2022: £9.1m). In the current year, the adjusting items include £4.9m
major software as a service ("SaaS") development expenditure (the majority of
which is relating to the ERP implementation); £0.9m from restructuring
activities to right-size the Group following the disposal of Filters and
Packaging, and £0.8m relating to legacy pension scheme costs. A further
£0.4m was incurred relating to the acquisition of Wixroyd. Further details on
adjusting items are shown in note 3 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 FX, LFL and adjusted measures are provided to reflect the underlying
financial performance of Essentra. For further details on the performance
metrics used by Essentra, please refer to pages 17, 20-21 and 25 of the 2022
Annual Report.
( )
IAS 29: Turkey Hyperinflation. International Accounting Standard ("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 2023. As a result of IAS 29, a
reduction in net assets of £2.4m and a reduction in profit before tax of
£0.8m has been recognised within the 2023 half year results. The Components
business in Turkey contributes c.8% revenue to the Group.
Statutory to Adjusted Reconciliation:
30 June 2023 Reported Acquisitions Amortisation of acquired intangible assets Adjusting items Tax on adjustments FX LFL (1,3) / Adjusted
Revenue £166m £(6)m - - - - £160m
Operating profit £10m - £6m £7m - - £23m
Pre-tax profit £10m - £6m £7m - - £23m
Net income £8m - £6m £7m £(3)m - £18m
(Values are presented on a rounded basis)
( )
30 June 2022(2) Reported Acquisitions Amortisation of acquired intangible assets Adjusting items Tax on adjustments FX LFL (1,3) / Adjusted
Revenue £176m - - - - £3m £179m
Operating profit £1m - £5m £9m - - £15m
Pre-tax (loss) / profit £(11)m - £5m £9m - - £3m
Net (loss) / income £(9)m - £5m £9m £(2)m - £3m
(Values are presented on a rounded basis)
( )
(1) (Adjusted operating profit, adjusted pre-tax profit and adjusted net
income relate to continuing operations)
(2 Prior year has been re-presented to remove the disposed Packaging and
Filters businesses. See note 1 to the Condensed Consolidated Interim Financial
Statements)
(3 Like-for-like has been adjusted for the acquisition of Wixroyd)
Net finance expense. Net finance expense of £nil compared to £11.7m in the
prior year period, and is broken down as follows:
H1 2023 H1 2022(1)
£m £m
Interest income (2.0) (0.1)
Interest expense 2.0 6.4
Amortisation and write-off of bank fees - 0.8
Net IAS 19 pension finance charge 0.1 -
Interest on leases 0.8 0.6
Net other finance (income) / expense including FX gains and losses (0.2) 0.1
Monetary gain on hyperinflation (0.7) (2.2)
Loan revaluations associated with discontinued activity - 6.1
Total net finance expense on continuing operations 0.0 11.7
Interest on discontinued leases and other discontinued finance charges/gains - 0.5
Total Group net finance expense 0.0 12.2
(1 Prior year has been re-presented to remove the disposed Packaging and
Filters businesses. See note 1 to the Condensed Consolidated Interim Financial
Statements)
The reduction in net finance expense is led by the previously communicated
changes to the Company's main sources of funding after the strategic review
process. H1 2022 also includes a one-off item, related to loan revaluations
associated with discontinued activities (£6.1m).
Tax. The effective tax rate on underlying profit before tax (before adjusting
items and amortisation of acquired intangible assets) was 23.5% (H1 2022
re-presented: 21.5%). The underlying effective tax rate for H1 2023 is within
the continuing operations FY 2023 forecast tax rate range of 23% to 25%.
Consistent with the disclosure of tax rates at FY 2022, this increased tax
rate compared to the prior year is primarily driven by the previously
announced increase of the UK income tax rate from 19% to 25% with effect from
1 April 2023, partially offset by a reduction in the Turkish income tax rate
from 23% to 20% and a favourable profit mix in the period.
Net working capital. Net working capital is defined as Inventories plus Trade
& other receivables less Trade & other payables, adjusted to exclude
interest accruals and capital payables ("Adjustments").
H1 2023 H1 2022(1)
£m £m
Inventories 59.2 63.6
Trade & other receivables 68.8 73.4
Trade & other payables (68.6) (89.8)
Adjustments 2.1 4.0
Net working capital 61.5 51.2
(1 Prior year has been re-presented to remove the disposed Packaging and
Filters businesses. See note 1 to the Condensed Consolidated Interim Financial
Statements)
The increase in net working capital is predominately due to a reduction in
Trade and other payables as a result of re-sizing the cost base in the current
year, as well as £9.1m included in the prior year period associated with the
cost of disposals. This is partly offset by a reduction in receivables, as
well as inventory rebalancing, after an initial inventory build in the prior
year period.
Adjusted operating cash flow from continuing operations. Adjusted operating
cash flow from continuing operations of £20.5m equated to an operating cash
conversion of 89.1% at the half year. Free cash flow was £15.3m compared to
an outflow of £3.5m in H1 2022.
H1 2023 H1 2022
£m £m
Adjusted operating profit 23.0 15.1
Depreciation and amortisation of non-acquired intangible assets 6.9 8.5
Right-of-use asset depreciation 2.7 2.7
Share option expense / other movements (0.6) (1.0)
Change in working capital (6.7) (19.7)
Net capital expenditure (4.8) (6.5)
Adjusted operating cash flow 20.5 (0.9)
Tax(1) (1.4) 4.1
Cash outflow in respect of adjusting items(1,2) (15.0) (16.5)
Pension contribution(2) - 0.4
Add back: net capital expenditure 4.8 6.5
Net cash inflow / (outflow) from operating activities(3) 8.9 (6.4)
Adjusted operating cash flow 20.5 (0.9)
Tax(1) (1.4) 4.1
Net interest paid (3.8) (7.1)
Pension contribution(2) - 0.4
Free cash flow 15.3 (3.5)
(1 Tax paid excludes the tax paid/received in relation to adjusting items and
discontinued operations. This is included within the cash outflow in respect
of adjusting items and discontinued operations)
(2 Pension contribution of £2.5m in H1 2023 for legacy pension schemes has
been included within cash outflow in respect of adjusting items)
(3 Statutory cash flows from operating activities can be found in the
Condensed Consolidated Interim Financial Statements)
Net funding surplus / debt. Net debt at the end of the period was £8.3m
compared to a net funding surplus of £113.8m at 31 December 2022 (including
lease liabilities). The overall increase in net debt was mainly driven by
shareholder capital returns previously communicated at the FY 2022 results,
offset by free cash flow generated in the period.
The Group's financial ratios remain healthy. Net debt to EBITDA (on a
continuing basis) including lease liabilities was 0.2x (H1 2022: net debt 2.1x
on a total group basis). The ratio of net funding surplus to EBITDA (on a
continuing basis) excluding lease liabilities was (0.3)x (H1 2022: net debt
1.9x on total group basis).
2023
£m
Net funding surplus as at 1 January 2023 113.8
Free cash flow 15.3
Cash flow from discontinued businesses including disposal costs (14.3)
Cash outflow in respect of adjusting items (15.0)
Foreign exchange 4.2
Special dividend to equity holders (89.8)
Share buyback (16.2)
Final 2022 dividend to equity holders (3.0)
Lease liability movements (1.9)
Movement in loan hedging derivatives (1.4)
Net debt as at 30 June 2023 (8.3)
Pensions. As at 30 June 2023, the Company's IAS 19 net pension net liability
was £6.8m (FY 2022: £10.6m). The decrease in the liability is a result of an
actuarial gain (driven by an increase in discount rate) being netted off
against an adverse return on plan assets.
Treasury policy and controls. Essentra has a centralised treasury function to
manage funding, liquidity and exposure to interest rate and foreign exchange
risk. Treasury policies are approved by the Board and cover the nature of the
exposure to be hedged, the types of derivatives that may be employed and the
criteria for investing and borrowing cash. The Company intends to use
derivatives to manage foreign currency and interest rate risk arising from
underlying business activities. Whilst some transactions may be of a more
speculative nature, they are in place with a view to manage exchange rate risk
only. Underlying policy assumptions and activities are reviewed by the
Treasury Committee. Controls over exposure changes and transaction
authenticity are in place, and dealings are restricted to those banks with the
relevant combination of geographical presence, expertise and suitable credit
rating.
Foreign exchange risk. The majority of Essentra's net assets are in currencies
other than sterling. The Company's normal policy is to reduce the translation
exposure and the resulting impact on shareholders' funds through measures such
as borrowing in those currencies in which the Group has significant net
assets. The majority of Essentra's transactions are carried out in the
functional currencies of its operations, and therefore transaction exposure is
limited. However, where such exposure does occur, Essentra uses forward
foreign currency contracts to hedge its exposure to movements in exchange
rates on its highly probable forecast foreign currency sales and purchases
over a period of up to 18 months.
Management of principal risks. The Board considers risk assessment,
identification of mitigating actions and internal controls to be fundamental
to achieving Essentra's strategic objectives.
2023 HALF YEAR RISK DISCLOSURE
There have been no material changes to the Company's Principal and Emerging
Risks since the publication of the 2022 Annual Report and Accounts. Whilst the
macro-economic environment, geopolitical situation and general trading
conditions continue to be difficult, the Company remains confident that the
mitigations already in place are sufficient to manage the risk within the
previously agreed risk appetite.
The Board has established a risk and internal control structure designed to
manage the delivery of the Company's strategic objectives. The Risk Assurance
team, independent of management, enables and facilitates the risk management
process across the Company and acts as the custodian of the Company's risk
framework and supports risk management activities.
The Group Executive Committee ("GEC") (formerly the Group Management Committee
("GMC")) has assumed the risk responsibilities previously discharged by the
Group Risk Committee ("GRC"). These responsibilities are to focus and
co-ordinate risk management activities throughout the Company and to
facilitate the appropriate identification, evaluation, mitigation and
management of all key business risks. In addition, the GEC reviews the risk
appetite and ongoing risk management approach and makes recommendations on
risk appetite to the Board and actions required to ensure adequate controls
and mitigating actions are in place against identified risks.
As an important part of fulfilling its responsibilities, the Board receives
regular reporting from the Chief Executive in relation to risks and exposures
to enable the Board to challenge and review the GEC's approach and views on
key risks.
The regional and functional leadership teams will undertake regular reviews
during the course of the year and engage in facilitated discussions with Risk
Assurance to consider the risk environment for their particular functional or
geographic area of responsibility, and how these could impact on the
achievement of the Company's strategic objectives.
The Board considers the nature and extent of the Principal Risks it is
prepared to take in achieving its strategic objectives - its risk appetite -
biannually by evaluating these risks against a three-point scale from
"risk-averse" to "risk-neutral" to "risk-tolerant". This informs the
development and focus of mitigating actions for each of the Principal Risks
with a particular focus on risks that are assessed to be outside the agreed
appetite.
At a strategic level, the Company's risk management objectives are to:
· Identify the Company's significant risks and appropriate mitigating
actions
· Formulate the risk appetite and ensure that the business profile
and plans are consistent with it
· Develop plans to bring any exposures that are outside appetite in
line with the agreed appetite
· Ensure that growth plans are properly supported by an effective
risk management framework
· Help management teams improve the control and co-ordination of
risk-taking across the Company.
During the period, the Board has considered the Principal and Emerging Risks,
as disclosed on pages 54-65 of our 2022 Annual Reports and Accounts, in the
context of the objectives noted above and across four risk categories:
strategic risks, external risks, operational risks and disruptive risks. These
risks are summarised as follows:
Strategic risks
· Macro-economic environment - delivering successfully throughout the
economic cycle. Whilst the broad economic environment has low growth rates in
many end-markets, the Company continues to manage its cost base to minimise
the impact on operating margins
· Environment - our impact on the environment (including single-use
plastics) and climate change
· Social - the impact of our business on our stakeholders and the
societies in which we operate
· Digital transformation - the delivery of our Business Process
Redesign programme, our eCommerce platforms and the integrity and fidelity of
our data
· Leadership talent and capability - our ability to attract, retain,
develop and motivate the talent we need to be successful
· M&A execution and integration - our ability to successfully
deliver on our inorganic growth plans
External risks
· Governance - ensuring legal and regulatory compliance across the broad
range of jurisdictions in which we operate
· Cyber event - the impact of a cyber security breach or data breach
Operational risks
· Execution of strategic plan - our ability to deliver on our
operational and commercial improvement plans to drive organic growth
· Health and safety performance - ensuring the physical and emotional
wellbeing of our people
Disruptive risks
· Operational and supply chain disruption - the impact of disruptive
events across our broad operational footprint and diverse supply chains
Emerging risks
· Regulatory change - compliance with changes in the regulatory
environment which is complicated by the geographical breadth of the Company's
operations
· Technology disruptors - responding to evolving technologies effectively
to avoid losing competitive advantage as rivals deploy advanced manufacturing
technologies
· Sentiment towards plastic - sentiment is evolving at pace and could
affect medium-term demand for many of Essentra's products
Condensed consolidated income statement
Six months Six months Year
ended ended ended
Note 30 Jun 2023 30 Jun 2022 31 Dec 2022
£m £m(1) £m
Revenue 2 166.3 175.9 337.9
Gross Profit 2 73.0 77.6 148.0
Operating profit/(loss)(2) 10.3 1.0 (11.3)
Finance income 6.9 3.6 7.1
Finance expense (6.9) (15.3) (24.9)
Profit/(loss) before tax 10.3 (10.7) (29.1)
Income tax (charge)/credit (2.6) 1.7 (2.0)
Profit/(loss) for the period from continuing operations 7.7 (9.0) (31.1)
Loss from discontinued operations 12 (0.8) (178.4) (152.7)
Profit/(loss) for the period 6.9 (187.4) (183.8)
Attributable to:
Equity holders of Essentra plc 6.9 (188.6) (188.0)
Non-controlling interests - 1.2 4.2
Profit/(loss) for the period 6.9 (187.4) (183.8)
Earnings per share attributable to equity holders of Essentra plc:
Basic 5 2.3p (62.7)p (62.4)p
Diluted 5 2.3p (62.7)p (62.4)p
Earnings per share from continuing operations attributable to equity holders
of Essentra plc:
Basic 5 2.6p (3.0)p (10.3)p
Diluted 5 2.6p (3.0)p (10.3)p
Adjusted profit measure: continuing operations
Operating profit/(loss) 10.3 1.0 (11.3)
Amortisation of acquired intangible assets 5.7 5.0 10.4
Adjusting items 3 7.0 9.1 26.0
Adjusting operating profit(3) 23.0 15.1 25.1
(Notes:)
(1) (The Group disposed of the Packaging and Filters businesses during the year
ended 31 December 2022. The results of these operations have been re-presented
as discontinued operations. See note 12 for details)
(2) (Includes impairment charge on trade receivables of £0.3m (six months ended
30 June 2022: £0.1m credit))
(3) (See note 3 for further details of the adjusted profit measure)
Condensed consolidated statement of comprehensive income
Six months Six months Year
ended ended en
de
d
Note 30 Jun 2023 30 Jun 2022 31 Dec 2022
£m £m(1) £m
Profit/(loss) for the period 6.9 (187.4) (183.8)
Other comprehensive income/(expense):
Items that will not be reclassified to profit or loss in subsequent periods:
Remeasurement of defined benefit pension schemes 1.4 (6.0) (20.5)
Deferred tax (charge)/credit on remeasurement of defined benefit pension (0.4) 1.4 5.1
schemes
1.0 (4.6) (15.4)
Items that may be reclassified subsequently to profit or loss in subsequent
periods:
Effective portion of changes in fair value of cash flow hedges:
Net change in fair value of cash flow hedges transferred to the income 2.3 (12.6) (16.4)
statement
Ineffective portion of changes in fair value of cash flow hedges transferred 0.1 2.6 1.0
to the income statement
Effective portion of changes in fair value of cash flow hedges (0.6) 9.7 16.1
Foreign exchange translation differences:
Attributable to equity holders of Essentra plc:
Arising on translation of foreign operations (18.9) 47.0 54.6
Recycling of foreign currency translation reserve - - (38.7)
Arising on effective net investment hedges 15 1.0 (17.9) (21.7)
Income tax (expense)/credit (1.4) (2.5) 0.9
Attributable to non-controlling interests - 0.8 (0.1)
(17.5) 27.1 (4.3)
Total other comprehensive (expense)/income for the period, net of tax (16.5) 22.5 (19.7)
Total comprehensive expense for the period (9.6) (164.9) (203.5)
Attributable to:
Equity holders of Essentra plc (9.6) (166.9) (207.6)
Non-controlling interests - 2.0 4.1
Total comprehensive expense for the period (9.6) (164.9) (203.5)
Attributable to:
Continuing operations (8.8) 13.5 (12.1)
Discontinued operations (0.8) (178.4) (191.4)
Total comprehensive expense for the period (9.6) (164.9) (203.5)
( ) ( )
(Notes:)
( ) (1) (The Group disposed of the Packaging and Filters businesses during the year
ended 31 December 2022. The results of these operations have been re-presented
as discontinued operations. See note 12 for details)
Condensed consolidated balance sheet
Note 30 Jun 2023 30 Jun 2022 31 Dec 2022
£m £m £m
Assets
Property, plant and equipment 6 60.0 159.7 65.2
Lease right-of-use asset 7 18.5 38.7 21.0
Investment properties 7.0 - 7.0
Intangible assets 8 187.5 206.4 206.6
Long-term receivables 18.2 2.8 11.6
Derivative assets 15 6.9 10.7 8.3
Deferred tax assets 9.8 8.8 11.7
Retirement benefit assets 9 9.5 22.9 7.9
Total non-current assets 317.4 450.0 339.3
Inventories 59.2 117.5 65.0
Income tax receivable - 1.2 1.1
Trade and other receivables 68.8 143.4 66.4
Derivative assets 15 0.6 0.1 0.2
Cash and cash equivalents 10 96.3 143.3 421.4
Total current assets 224.9 405.5 554.1
Assets in disposal group held for sale or distribution 12 - 409.0 -
Total assets 542.3 1,264.5 893.4
Equity
Issued share capital 14 74.6 75.6 75.6
Merger relief reserve 385.2 385.2 385.2
Capital redemption reserve 14 1.1 0.1 0.1
Other reserve (132.8) (132.8) (132.8)
Cash flow hedging reserve 1.0 (1.8) (0.8)
Translation reserve (71.7) (20.9) (52.4)
Retained earnings 26.2 145.3 129.2
Attributable to equity holders of Essentra plc 283.6 450.7 404.1
Non-controlling interests - 18.2 -
Total equity 283.6 468.9 404.1
Liabilities
Interest bearing loans and borrowings 10 90.3 142.7 85.0
Lease liabilities 10 16.7 33.8 18.0
Retirement benefit obligations 9 16.3 22.1 18.5
Provisions 0.7 1.1 1.1
Other financial liabilities - 1.3 2.4
Deferred tax liabilities 6.8 17.5 7.6
Total non-current liabilities 130.8 218.5 132.6
Interest bearing loans and borrowings 10 - 270.5 208.0
Lease liabilities 10 4.5 6.9 4.9
Derivative liabilities 15 0.5 0.4 1.3
Income tax payable 15.7 19.7 16.2
Trade and other payables 68.6 151.5 91.5
Other financial liabilities 32.1 4.6 24.1
Provisions 6.5 - 10.7
Total current liabilities 127.9 453.6 356.7
Liabilities in disposal group held for sale or distribution 12 - 123.5 -
Total liabilities 258.7 795.6 489.3
Total equity and liabilities 542.3 1,264.5 893.4
Condensed consolidated statement of changes in equity
Six months ended 30 June 2023
Issued capital Merger relief reserve Capital redemption reserve Other reserve Cash flow hedging and Translation reserve Retained earnings Non- controlling interests Total equity
cost of hedging reserves(1)
£m £m £m £m £m £m £m £m £m
At 1 January 2023 75.6 385.2 0.1 (132.8) (0.8) (52.4) 129.2 - 404.1
Profit for the period 6.9 - 6.9
Other comprehensive income/(expense) 1.8 (19.3) 1.0 - (16.5)
Total comprehensive income/(expense) for the period - - - - 1.8 (19.3) 7.9 - (9.6)
Share option expense 0.7 - 0.7
Tax relating to share-based incentives (0.2) - (0.2)
Net impact of hyperinflation(2) (2.4) - (2.4)
Purchase of own shares (16.2) - (16.2)
Cancellation of shares (1.0) 1.0 - - -
Dividends paid (92.8) - (92.8)
At 30 June 2023 74.6 385.2 1.1 (132.8) 1.0 (71.7) 26.2 - 283.6
Six months ended 30 June 2022
Issued capital Merger relief reserve Capital redemption reserve Other reserve Cash flow hedging and cost of hedging reserves(1) 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/(expense) (0.3) 26.6 (4.6) 0.8 22.5
Total comprehensive income/(expense) for the period - - - - (0.3) 26.6 (193.2) 2.0 (164.9)
Share option expense 1.6 - 1.6
Tax relating to share-based incentives (0.6) - (0.6)
Net impact of hyperinflation(2) 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
Condensed consolidated statement of changes in equity (continued)
Year ended 31 December 2022
Issued capital Merger relief reserve Capital redemption reserve Other reserve Cash flow hedging and cost of hedging reserves(1) 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 (188.0) 4.2 (183.8)
Other comprehensive income/(expense) 0.7 (4.9) (15.4) (0.1) (19.7)
Total comprehensive income/(expense) for the period - - - - 0.7 (4.9) (203.4) 4.1 (203.5)
Recycling of non-controlling interest (18.4) (18.4)
Share option expense 3.1 - 3.1
Tax relating to share-based incentives (0.6) - (0.6)
Net impact of hyperinflation(2) 15.5 - 15.5
Dividends paid (19.0) (1.9) (20.9)
At 31 December 2022 75.6 385.2 0.1 (132.8) (0.8) (52.4) 129.2 - 404.1
(Notes:)
(1) (See note 15 for details of hedging reserve movements in relation to
derivatives)
(2) (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
Six months Six months Year
ended ended ended
30 Jun 2023 30 Jun 2022 31 Dec 2022
Note £m £m(1) £m
Operating activities
Profit/(loss) for the period from:
Continuing operations 7.7 (9.0) (31.1)
Discontinued operations (0.8) (178.4) (152.7)
Profit/(loss) for the period 6.9 (187.4) (183.8)
Adjustments for:
Income tax expense/(credit) 2.4 (7.3) (2.0)
Net finance expense - 12.2 18.4
Intangible amortisation 6.5 12.9 19.6
Adjusting items 7.0 9.1 26.0
Loss on business disposals including cost of disposals - 19.3 19.0
Impairment of acquired intangible assets on discontinued operations - 182.7 182.7
Depreciation of property, plant and equipment 6.1 19.7 29.5
Lease right-of-use asset depreciation 2.7 6.1 10.1
Loss on disposal of right-of-use asset - - 0.2
Profit on disposal of fixed assets - (0.1) 0.3
Impairment of fixed assets - 0.3 0.5
Share option expense 0.7 1.6 2.6
Hedging activities and other movements (0.6) - 0.8
Decrease/(increase) in inventories 2.7 (22.6) (27.4)
Increase in trade and other receivables (6.8) (50.8) (35.5)
(Decrease)/increase in trade and other payables (2.7) 32.1 41.2
Cash outflow in respect of adjusting items 3 (15.0) (9.7) (23.7)
Movement in provisions (1.1) (0.2) 1.0
Adjustment for pension contributions - 0.4 0.2
Movement due to hyperinflation (0.7) (1.7) (3.2)
Cash inflow from operating activities 8.1 16.6 76.5
Income tax paid (1.9) (6.3) (12.5)
Net cash inflow from operating activities 6.2 10.3 64.0
Investing activities
Interest received 2.0 0.4 2.3
Acquisition of property, plant and equipment (4.4) (22.6) (39.7)
Proceeds from sale of property, plant and equipment - 0.2 0.5
Payments for non-acquired intangible assets (0.4) (1.2) (1.0)
Acquisition of businesses net of cash acquired - - (27.9)
Proceeds from sale of businesses net of cash disposed - - 416.9
Cash outflow from costs on business disposals (11.6) (13.4) (31.5)
Net cash (outflow)/inflow from investing activities (14.4) (36.6) 319.6
Financing activities
Interest paid (5.8) (8.1) (19.5)
Dividends paid to equity holders (92.8) (12.0) (19.0)
Dividends paid to non-controlling interests - - (1.9)
Repayments of long-term loans (204.7) - (124.2)
Proceeds from long-term loans 10.0 65.0 65.0
Proceeds from early settlement of derivative contracts - - 6.5
Lease liability principal payments (2.8) (6.8) (11.5)
Purchase of own shares (16.2) - -
Net cash (outflow)/inflow from financing activities (312.3) 38.1 (104.6)
Net (decrease)/increase in cash and cash equivalents (320.5) 11.8 279.0
Net cash and cash equivalents at the beginning of the period 421.4 136.3 136.3
Net (decrease)/increase in cash and cash equivalents (320.5) 11.8 279.0
Net effect of currency translation on cash and cash equivalents (4.6) 5.5 6.1
Net cash and cash equivalents at the end of the period 10 96.3 153.6 421.4
( )
(Notes:)
(1) (The Group disposed of the Packaging and Filters businesses during the year
ended 31 December 2022. The results of these operations have been re-presented
as discontinued operations. See note 12 for details)
1. Basis of preparation
The condensed consolidated interim financial statements of the Essentra plc
Group have 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.
For the purpose of the condensed consolidated interim financial statements,
'Essentra' or 'the Group' means Essentra plc and its subsidiaries. References
to the 'Company' mean Essentra plc.
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 and for the year ended 31
December 2022 which comply with applicable law and UK-adopted international
accounting standards and also 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. The financial
statements have been reviewed, not audited.
The financial reporting framework that has been applied in the preparation of
the full annual financial statements of the Group is applicable law and
UK-adopted international accounting standards.
The interim report does 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 2022,
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, and any public announcements made
by Essentra plc during the interim reporting period.
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 as at 30 June
2023. If in the future such estimates and assumptions, which are based on
management's best judgement at the date of the condensed set of 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.
The comparative figures for the financial year ended 31 December 2022 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.
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 Group's foreign operations in Turkey, whose functional currency is the
Turkish Lira, were designated as hyperinflationary during the year ended 31
December 2022. Over the six months to 30 June 2023 the Turkish economy
continued to be designated as hyperinflationary, and therefore the Group has
continued to apply hyperinflationary accounting to its Turkish operations for
the reporting period ended 30 June 2023. The price index used to apply IAS 29
is the Turkish Consumer Price Index. At 30 June 2023 the price index was
1,351.59 (31 December 2022: 1,128.45, 30 June 2022: 977.90, 31 December 2021:
686.95).
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.
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.
As set out on page 143 of the Annual Report for the year ended 31 December
2022, on 1 October 2022, the Group completed its sale of ESNT Packaging &
Securing Solutions Limited and Essentra Packaging US Inc and their respective
subsidiary companies (together the 'Packaging business'). On 3 December 2022,
the Group also completed the sale of Essentra Filter Holdings Limited and its
respective subsidiary companies (the 'Filters business'). The results of the
Packaging and Filters businesses have been classified as discontinued
operations at 31 December 2022 and comparative information has been
re-presented.
Following the disposal of its Packaging and Filters businesses in 2022, and
the Group's transition to a pure-play Components business, based upon the most
recent reliable information, the Group has updated the inputs into its
inventory provisioning calculations in order to ensure that inventories
continue to be measured at the lower of cost and net realisable value.
In preparing these condensed consolidated interim financial statements
management have taken into account the potential effects of climate changes
including medium to longer term transitional risks resulting from the relative
uncertainty created by the global shift towards a more sustainable, net-zero
economy, which include regulatory, geopolitical and social pressures that may
impact the operations of the business in future. Management have considered
the potential effects of climate related changes in its assessment of going
concern, longer-term viability of the business, in preparing the Group's
future cash flow forecasts underpinning impairment testing, and in its
assessment of the residual values of property, plant and equipment and have
determined that there is no material impact on these condensed consolidated
interim financial statement items.
Pronouncements
The Group adopted the following new pronouncements during the period to 30
June 2023, which did not have a material impact on the Group's condensed
consolidated interim financial statements:
· Amendments to IAS 12 - Deferred Tax Related to Assets and Liabilities
Arising from a Single Transaction;
· Amendments to IAS 1 - Disclosure of Accounting Policies; and
· Amendment to IAS 8 - Definition of Accounting Estimates.
Going concern
At 30 June 2023, the Group's financing arrangements amounted to £280.7m,
comprising United States Private Placement (USPP) of US$102.5m (with a range
of expiry dates from July 2028 to July 2033) and a multi-currency revolving
credit facility (RCF) of £200.0m (expiring in November 2025).
At 30 June 2023, £190.0m 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 (interest cover). 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 performance 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 18 months following the date of
approval of the financial statements, and no breaches of covenants are
expected.
As part of the going concern assessment, the Board has considered a downside
scenario that includes reasonably plausible changes in macro-economic
conditions and is considered to represent a severe but plausible scenario. The
results of this scenario show that there is sufficient liquidity in the
business for a period of at least 18 months from the date of approval of these
financial statements, and do not indicate any covenant breach during the test
period. The downside scenario assumes a period of supressed revenue growth
into the latter part of 2023 and subsequently limits growth in 2024. Further,
the downside scenario assumes a high inflationary cost environment that is not
fully offset by price increases. The financial impact of the downside scenario
in 2023 and 2024 is to reduce adjusted operating profits by 35% and 9%
respectively compared to the Group's strategic plan.
The overall level of liquidity (defined as available undrawn borrowing
facility plus cash and cash equivalents) at 30 June 2023 was £286.3m, which
is after the repayment of borrowings of $247m in January 2023, a special
dividend of £89.8m, and share buybacks of £16.2m (of a total planned £60m
under the buyback programme). Capital expenditure, sales and general overhead,
and working capital will continue to be managed closely to ensure sufficient
liquidity.
The scenarios do not indicate a material uncertainty which may cast
significant doubt over the Company's and Group's ability to continue as a
going concern. Based on these scenarios and taking into consideration the
risks detailed in note 19 of the Annual Report for 2022, the Directors have a
reasonable expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future, and accordingly have adopted
the going concern basis in preparing the 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 15 to the condensed
consolidated interim financial statements.
Critical Accounting Judgements and Estimates
The preparation of the condensed consolidated interim financial statements
requires the Directors and management to make judgements and estimates in
respect of certain items where the choice of accounting policy and assumptions
applied in determining the judgement or estimate could materially affect the
Group's financial position, results, or cash flows at the reporting date.
Management regularly reviews the critical accounting judgements that
significantly impact the amounts recognised in the condensed consolidated
interim financial statements and the critical accounting estimates that due to
their significant estimation uncertainty, may give rise to a material
adjustment in the next financial reporting period.
Although the determination of accounting estimates is based on management's
best estimate considering its knowledge of the amount, event or actions,
actual results may ultimately differ from those estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis and revisions to
accounting estimates are recognised in the period in which the estimate is
revised and future periods if the revision affects both current and future
reporting periods.
The Group's critical accounting judgements and estimates are detailed below.
Accounting Judgements
Adjusting items
Adjusting items are separately presented from other items of financial
performance as this enables management to reflect the underlying performance
of the continuing operations of the Group. Judgement is required to determine
whether such items of financial performance should be included within
adjusting items by virtue of their nature, size or incidence. The Group's
accounting policy concerning adjusting items is detailed under alternative
performance measures.
Adjusting items of £7.0m (six months ended 30 June 2022: £9.1m) have been
reported in continuing operations including £0.9m of costs incurred relating
to acquisitions, disposals and restructuring of the continuing business
following the sale of the Filters and Packaging businesses, and £4.9m has
been incurred in relation to the customisation and configuration costs of
significant "software as a service" ("SaaS") arrangements which, in
management's judgement, constitute material one-off charges to upgrade the
Group's technical capabilities and meets the Group's policy for being
categorised as adjusting items.
A complete analysis of the amounts included in adjusting items is detailed in
note 3.
"Software as a service" ("SaaS") arrangements
The recognition of customisation and configuration costs (which are included
within adjusting items) relating to SaaS arrangements involves a number of key
judgements:
· whether a software arrangement is a SaaS arrangement: management
considers the fact pattern of the software arrangement carefully to identify
SaaS arrangements, distinguishing from other arrangements such as "platform as
a service" or "infrastructure as a service";
· whether any cost incurred in customisation and configuration results
in additional code from which the Group has the power to obtain the future
economic benefits and restricts other third parties' access to those benefits:
management considered whether the code can be used in or transferred to
another computing arrangement;
· whether the customisation and configuration service provided by the
SaaS provider is distinct from the regular SaaS arrangement: management
considers factors such as whether the Group can benefit from the service
separately from the other elements of deliverables from the SaaS provider;
· whether a third-party providing customisation and configuration
services is in effect a subcontractor of the SaaS provider: management
considers factors such as the nature of the contractual and working
relationship between the SaaS provider and the third party, the obligations of
the third party who has the primary responsibility for the services that it
provides.
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.
Accounting Estimates
Business disposals - completion accounts
At 30 June 2023 the Group has recognised £24.1m (31 December 2022: £18.0m)
in other financial liabilities in relation to the completion accounts
processes in respect of the Group's disposals of the Packaging and Filters
businesses.
The amount recognised, based on the facts and circumstances that were present
and known at the balance sheet date, represents management's best estimate of
the expected settlement payable through the respective completion accounts
processes and other mechanisms allowed by the share purchase agreements
("SPA"). Although the outcome of the completion accounts process for both the
Packaging and Filters businesses remains inherently uncertain at the end of
the reporting period, given that the SPA terms related to the completion
accounts mechanisms are complex, and the completion accounts could be the
subject of commercial negotiation and, in the absence of agreement, an expert
determination process, it is therefore recognised that the final amount agreed
could be materially different from the estimate.
The future range of possible outcomes associated with the various assumptions
and judgements applied in the determination of the total value of the
financial liability recognised at 30 June 2023 could therefore lead to a
material increase or decrease in the value of the financial liability
recognised in the next financial year, the extent of which is dependent upon
the outcome and timing of many variables linked to the SPA mechanisms in place
and the associated commercial negotiations that will ensue. The assessed range
of possible future outcomes in the next financial year could potentially lead
to a decrease in the liability of up to £9.1m or an increase of up to
£12.9m.
Measurement of contingent consideration
The Group recognised a net loss of £16.6m on the disposal of the Filters
business during the year ended 31 December 2022. The value of the loss is
subject to finalisation of the deferred contingent consideration receivable
which requires judgement. The maximum potential undiscounted deferred
contingent consideration amount that the Group could receive is £20.0m.
Deferred consideration is structured as an earn-out in two tranches of up to
£10.0m with each tranche contingent upon the Filters business achieving
certain contractual profit performance targets in its financial years ending
31 December 2023 and 31 December 2024 (the 'earn-out years'), respectively.
Management has, with the assistance of an external valuation specialist,
determined the fair value of contingent consideration receivable using an
option pricing model which applies prudent assumptions to risk-free cash flows
in each of the earn-out years. For valuation purposes, as inputs into the
model are intended to be risk-neutral, profit forecasts for the earn-out years
are discounted to neutralise forecast risk by applying a risk-adjusted rate to
expected cash flows based on an industry specific and geographically derived
weighted average cost of capital. The resulting risk-adjusted profit for each
earn-out year has been modelled against the respective contractually agreed
profit performance target with the calculated earn-out achieved discounted to
present value by applying a rate that reflects counterparty credit risk and
the timing of future cash flows.
At 30 June 2023, deferred contingent consideration receivable with a fair
value of £17.7m (31 December 2022: £10.6m) has been classified as a
long-term receivable in the consolidated financial statements (refer to
note 15). The actual earn-out receivable when the contingent consideration is
finalised may differ materially from the fair value estimate at 30 June 2023
as a result of reasonable changes to assumptions applied.
Based on information available at the reporting date, the assessed range of
possible future outcomes could potentially lead to a decrease of £17.7m were
the conditions for the earn-out to fail in their entirety, representing the
resolution of the uncertainty inherent in the cash flows. Any future
movements in fair value of the deferred contingent consideration when
remeasured at subsequent reporting period end dates will be taken through the
consolidated income statement and recognised as part of the result from
discontinued operations.
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 the Group 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 concludes a tax position is uncertain, a current
tax liability is held for anticipated taxes that are considered probable based
on the information available.
Key judgement areas for the Group include the pricing of intercompany goods
and services as well as the tax consequences arising from restructuring
operations. 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 materially impact the income
tax charge / (credit) in the period the matter is concluded.
At 30 June 2023, included in the tax payable is a liability of £3.8m (31
December 2022: £4.4m) for transfer pricing matters and £7.6m (31 December
2022: £11.7m) for other uncertain tax positions. The reduction in each
provision is primarily due to the expiry of statute of limitations following
the passage of time, favourable agreements reached with tax authorities on
previous matters, and part of the liability transferring with disposed
entities. Adjustments for current year transactions and foreign exchange
movements complete the movement in the period. Of the £11.4m recognised at
the end of the reporting period, a possible range of outcomes could
potentially see between £2.1m and £6.0m resolved in the next financial year
as a result of expiring statute of limitations and completion of tax audits.
In addition, the Group has recognised a net deferred tax asset of £5.4m (31
December 2022: £7.3m) in the UK. The assessed range of possible future
outcomes in the next financial year could potentially lead to a decrease in
the deferred tax asset of up to £0.7m or an increase of up to £2.6m,
notwithstanding that the Group has unrecognised UK tax losses which could be
utilised as information on the sustainable long term UK profitability position
becomes available.
Retirement benefit obligations
At 30 June 2023, the net retirement benefit liability was £6.8m (31 December
2022: £10.6m liability) including a retirement benefit liability of £16.3m
(31 December 2022: £18.5m). The measurement of defined benefit obligations
requires the application of judgement in relation to the key assumptions used,
particularly in determining the discount rate, inflation rate, and mortality
rates.
In consultation with Essentra's actuaries, management determines the point
within the range of possible outcomes for those assumptions applied at the
balance sheet date that most appropriately reflects Essentra's circumstances.
Small changes to these assumptions can have a material impact on the
valuation and therefore reported amounts. Consequently, the Group performs a
sensitivity analysis for the key assumptions applied in determining
post-employment costs and liabilities, as detailed in note 18 of the Essentra
Annual Report 2022.
Provision for contractual obligations
The provision for contractual obligations represents amounts that the Group
may be liable to pay arising from the disposal of the Packaging and Filters
businesses during the year.
At 30 June 2023 provisions for contractual obligations amounted to £4.3m (31
December 2022: £5.5m), representing the Group's estimate of ongoing
obligations due to each of the buyers under the respective Share Purchase
Agreements.
Based on management's assessment at the balance sheet date, the resolution to
the uncertainty inherent in the assumptions applied in determining the Group's
provisions for contractual obligations, could result in a material impact
to the value and settlement of the liability in the next reporting period.
The assessed range of possible future outcomes in the next financial year
could potentially lead to a decrease in the provision of up to £3.3m or an
increase of up to £1.7m.
2. Segment analysis
The Group has determined its operating segments based upon the information
reported to the Board of Directors ("Board"), which is the Group's Chief
Operating Decision Maker. Segment information is reported on a geographical
basis consistent with the basis upon which the Group manages its operations,
allocates resources, and assesses performance. Central corporate costs include
executive and non-executive management, investor relations, corporate
development, corporate reward, governance, risk and assurance, group finance,
tax, treasury and related information technology costs.
Following the disposal of the Packaging and Filters businesses during the year
ended 31 December 2022, the Group has changed the way its information is
reported to the Board. Previously performance was reported on a divisional
basis. Performance is now managed on a geographical basis with Gross profit
introduced as an additional segment profit measure. Central corporate costs
(previously disclosed as Central Services) now exclude certain costs that are
now regarded as attributable to the operating segments.
Six months ended 30 June 2023
EMEA Americas Asia Unallocated operating expenses(3) Continuing operations Discontinued operations Total
£m £m £m £m £m £m £m
External revenue 89.8 56.6 19.9 - 166.3 - 166.3
Gross profit 45.2 21.0 6.8 - 73.0 - 73.0
Adjusted operating profit/(loss) 27.6 9.8 1.6 (9.8) 29.2 (1.0) 28.2
before corporate costs
Central corporate costs(2) (6.2) - (6.2)
Adjusted operating profit / (loss) 23.0 (1.0) 22.0
Amortisation and impairment of acquired intangible assets (5.7) - (5.7)
Adjusting items (7.0) - (7.0)
Operating profit / (loss) 10.3 (1.0) 9.3
Six months ended 30 June 2022
EMEA Americas Asia Unallocated operating expenses(3) Continuing operations Discontinued operations Total
£m £m £m £m £m £m £m(1)
External revenue 89.6 61.7 24.6 - 175.9 370.5 546.4
Gross profit 46.0 23.2 8.4 - 77.6 58.3 135.9
Adjusted operating profit/(loss) 28.6 12.8 3.3 (9.6) 35.1 17.2 52.3
before corporate costs
Central corporate costs(2) (12.1) - (12.1)
Adjusted operating profit after allocation of operating expenses to 23.0 17.2 40.2
discontinued operations
Operating expenses allocated to discontinued operations (7.9) 7.9 -
Adjusted operating profit 15.1 25.1 40.2
Amortisation and impairment of acquired intangible assets (5.0) (189.3) (194.3)
Adjusting items (9.1) - (9.1)
Operating profit / (loss)(4) 1.0 (164.2) (163.2)
(Notes:) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( )
(1) (During the year ended 31 December 2022 the Group disposed of the Packaging
and Filters businesses. For the six months ended 30 June 2022, the results of
these operations have been re-presented above as discontinued operations.
Refer to note 12 for further details)
(2) (Central corporate costs (previously disclosed as Central Services) include
executive and non-executive management, investor relations, corporate
development, corporate reward, governance, risk and assurance, group finance,
tax, treasury, and related information technology costs. The comparative
numbers have been re-presented to exclude certain costs that, following the
completion of the strategic review, are now regarded as attributable to the
operating segments. For the six months ended 30 June 2022, the effect of this
change is to reallocate £0.8m of costs previously included within Central
Services, to unallocated operating expenses)
(3) (Unallocated operating expenses include operating expenses relating to the
regions that are managed at a total trading level rather than by individual
segment)
(4) (Operating loss from discontinued operations for the six months ended 30 June
2022 exclude costs relating to the disposal of discontinued operations
amounting to £19.3m. Refer to note 12 for further details)
3. Adjusting items from continuing operations
Six months Six months Year
ended ended ended
30 Jun 2023 30 Jun 2022 31 Dec 2022
£m £m(1) £m
Costs relating to restructuring following business disposals(2) 0.9 3.4 10.4
Transaction costs relating to acquisitions(3) 0.4 - 0.3
Acquisition integration and restructuring costs - - 0.2
Customisation and configuration costs of significant software as a service 4.9 6.2 12.4
("SaaS") arrangements(4)
Defined benefit pension scheme charges(5) 0.8 - 2.0
Other(6) - (0.5) 0.7
Adjusting items 7.0 9.1 26.0
Tax (1.5) (1.2) 2.8
Adjusting items after tax 5.5 7.9 28.8
Reconciliation of cash flows from adjusting items:
Adjusting items 7.0 9.1 26.0
Non-cash charge in adjusting items (0.8) (1.1) (2.0)
Cash outflow on pension contributions 2.5 - -
Utilisation of prior year and acquired accruals and provisions 6.3 1.7 (0.3)
Cash outflow from adjusting items 15.0 9.7 23.7
Adjusting items are separately presented from other items by virtue of their
nature, size and/or incidence. They are identified separately in order for the
reader to obtain a clearer understanding of the underlying results of the
ongoing Group's operations, by excluding items which, in management's view, do
not form part of the Group's underlying operating results, such as gains,
losses or costs arising from business acquisition and disposal activities,
significant restructuring and closure costs, and costs of major Software as a
Service projects, items which are non-recurring or one-off in nature (such as
the costs of fundamental strategic review and reorganisation) and (from 2022)
charges relating to the Group's legacy defined benefit pension schemes, as
adjusting items. 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.
(Notes:) ( )
1 (The Group disposed of the Packaging and Filters businesses during the year
ended 31 December 2022 and consequently, comparative information for the year
ended 31 December 2022 has been re-presented. See note 12 for further details)
2 (Costs of £0.9m in relation to major restructuring activities to right-size
the continuing operations of the business following the disposal of the
Filters and Packaging businesses (six months ended 30 June 2022: £3.4m))
3 (Comprises costs of £0.4m relating to the acquisition of Wixroyd Group,
acquired in December 2022 (six months ended 30 June 2022: £nil))
4 (Costs of significant SaaS arrangements, which in the view of management,
represents investment in upgrading the Group's technological capability, were
expensed as adjusting items in accordance with the Group's accounting
policies. In the current period, costs of £4.9m (six months ended 30 June
2022: £6.2m) were attributable to major SaaS projects and relate primarily to
the costs of implementing a new cloud-based enterprise resource planning
("ERP") system within the Group)
5 (Costs of £0.8m (six months ended 30 June 2022: £nil) were incurred in
relation to defined benefit pension scheme charges which, following the
outcome of the strategic review, no longer pertain to the continuing
operations of the Group)
6 (Costs for the six months ended 30 June 2022 include £0.2m costs of
restructuring activities within the continuing European and Americas
businesses, offset by a £0.7m credit relating to adjustments to the carrying
value of right-of-use assets)
4. Taxation
The taxation charges for the continuing operations for the six months ended 30
June 2023 and 30 June 2022 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 effective tax rate on underlying profit before tax (before adjusting items
and amortisation of acquired intangible assets) was 23.5% (six months ended 30
June 2022 re-presented: 21.5%). The underlying effective tax rate for H1 2023
is within the continuing operations 2023 forecast tax rate range of 23% to
25%.
5. Earnings per share
Six months Six months Year
ended ended ended
30 Jun 2023 30 Jun 2022 31 Dec 2022
£m £m(1) £m
Earnings from continuing operations
Profit/(loss) attributable to equity holders of the Company 7.7 (9.0) (31.1)
Adjustments:
Amortisation of acquired intangible assets 5.7 5.0 10.4
Tax on amortisation of acquired intangible assets (1.3) (1.2) (2.4)
Adjusting items 7.0 9.1 26.0
Tax relief on adjusting items (1.5) (1.2) 2.8
Adjusted earnings attributable to equity holders of the Company 17.6 2.7 5.7
Earnings from discontinued operations
Earnings attributable to equity holders of Essentra plc (0.8) (179.6) (156.9)
Weighted average number of shares
Basic weighted average ordinary shares outstanding (million) 298.5 301.0 301.1
Dilutive effect of employee share option plans (million) 1.9 2.2 2.0
Diluted weighted average ordinary shares (million) 300.4 303.2 303.1
Earnings per share from continuing operations (pence)
Basic earnings per share 2.6p (3.0)p (10.3)p
Adjustment 3.3p 3.9p 12.2p
Basic adjusted earnings per share from continuing operations 5.9p 0.9p 1.9p
Diluted earnings per share from continuing operations 2.6p (3.0)p (10.3)p
Adjustment 3.3p 3.9p 12.2p
Diluted adjusted earnings per share from continuing operations 5.9p 0.9p 1.9p
Earnings per share from discontinued operations (pence)
Basic earnings per share (0.3)p (59.7)p (52.1)p
Diluted earnings per share (0.3)p (59.7)p (52.1)p
Total Earnings per share attributable to equity holders of the Company (pence)
Basic earnings per share 2.3p (62.7)p (62.4)p
Diluted earnings per share 2.3p (62.7)p (62.4)p
(Notes:)
(1) (The Group disposed of the Packaging and Filters businesses during the year
ended 31 December 2022, and consequently, comparative information for the six
months ended 30 June 2022 has been re-presented. See note 12 for further
details)
(2) (Adjusted earnings per share from continuing operations is provided to reflect
the underlying performance of the Group. 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 £4.3m (six months ended 30
June 2022: £22.1m; year ended 31 December 2022: £39.6m) and there was a
decrease of £3.3m (six months ended 30 June 2022: increase of £16.3m; year
ended 31 December 2022: increase of £19.7m) 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 £0.1m (six months ended 30 June 2022: £0.5m; year
ended 31 December 2022: £0.7m) were disposed of for proceeds of £nil (six
months ended 30 June 2022: £0.2m; year ended 31 December 2022: £0.5m).
As at 30 June 2022, property, plant and equipment with a net book value of
£159.7m excluded £112.8m which was classified within assets held for sale.
No amounts were held within assets held for sale at either 30 June 2023 or 31
December 2022 (see note 12).
Contractual commitments to purchase property, plant and equipment amounted to
£nil at 30 June 2023 (31 December 2022: £0.3m).
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 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, additions to right-of-use assets amounted to £1.9m (six
months ended 30 June 2022: £7.0m; year ended 31 December 2022: £10.3m) and
the depreciation of right-of-use assets amounted to £2.7m (six months ended
30 June 2022: £6.1m; year ended 31 December 2022: £10.1m).
During the period the right-of-use assets net book value reduced by £1.2m
(six months ended 30 June 2022: increase of £2.9m; year ended 31 December
2022: increase of £6.6m) due to foreign exchange movements.
At 30 June 2022 lease right-of-use assets with a net book value of £38.7m
excluded £18.6m which was classified within assets held for sale. No amounts
were held within assets held for sale at either 30 June 2023 or 31 December
2022 (see note 12).
At 30 June 2023 contractual commitments to lease property, plant and
equipment, where leases have not yet commenced, amounted to £0.7m per year
over a 20 year period (30 June 2022: £nil; 31 December 2022: £nil).
8. Intangible assets
During the period, the additions of intangible assets (not through
acquisitions) amounted to £0.4m (six months ended 30 June 2022: £1.2m; year
ended 31 December 2022: £1.0m) and there was an intangible net book value
decrease of £12.4m (six months ended 30 June 2022: increase of £28.4m; year
ended 31 December 2022: £45.6m) due to foreign exchange movements.
Included within intangibles were goodwill assets of £126.5m (six months ended
30 June 2022: £158.0m; year ended 31 December 2022: £135.6m) and there was a
goodwill net book value decrease of £8.4m (six months ended 30 June 2022:
increase of £16.7m; year ended 31 December 2022: increase of £26.8m) due to
foreign exchange movements.
Included in the gross carrying amount of goodwill assets as at 1 January 2023
was £140.1m and the accumulated losses were £4.5m. As at 30 June 2023 the
gross carrying amount was £130.7m and the accumulated losses were £4.2m.
As at 30 June 2022 intangible assets with a book value of £206.4m excluded
£122.8m which was classified within assets held for sale (see note 12).
On 24 June 2022 the Group announced the sale of the Packaging business to
Mayr-Melnhof for a consideration of £312m on a cash-free, debt-free basis.
The sale completed on 1 October 2022 and in accordance with IFRS 5 the assets
and liabilities of the discontinued business were 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 recognised an expense of £181.6m within discontinued operations for the
six months ended 30 June 2022.
The cash generating units are primarily the manufacturing and distribution
sites, at which impairment of intangible assets (excluding goodwill) and
property, plant and equipment would be performed. Prior to the disposal of the
Packaging and Filters businesses goodwill was allocated to groups of cash
generating units, being the previous operating segments: Components, Packaging
and Filters. Following the disposal of the Packaging and Filters businesses,
the goodwill associated with those operating segments was also disposed of.
Management have reviewed the cash-generating-units ('CGU') across the Group,
and have concluded that the CGUs for the remaining Components business
continue to be primarily the manufacturing and distribution sites. Goodwill
previously allocated to the Components segment has now been reallocated to the
newly created geographical segments: EMEA, Americas and Asia. These new
operating segments, represented by groups of cash-generating-units (the
manufacturing and distribution sites) are considered to represent the lowest
level within the Group at which goodwill is monitored for internal management
purposes.
The impairment tests for goodwill and intangible assets are based on the Board
approved business plan (the "Plan"). Cash flow projections are over five
years using the approved annual budget for the first year and subsequent years
based on the Group Strategic Plan. The key assumptions in the cash flow
projections for the Plan are set out below.
Operating segment Average annual growth rate Terminal Improvement in average operating profit after allocation of corporate costs Pre-tax
over five year
growth rate over five year forecast period
discount rate
Forecast period from 2028
onwards
EMEA 5.5% 2.3% 436 bps 16.3%
Americas 4.8% 2.7% 542 bps 13.6%
Asia 6.6% 2.0% 375 bps 15.1%
Operating margin is primarily based upon the historical levels achieved,
adjusted by targets set for revenue expansion and cost control and reduction
within the Plan period. The values assigned to these assumptions represent
management's assessment of market condition and scope for cost and
profitability improvement, taking into account realisable synergies resulting
from integration activities. The estimated cash flows are discounted using a
post-tax discount rate based upon Essentra's estimated post-tax weighted
average cost of capital by operating segment.
For the Asia CGU the recoverable amount is sensitive to reasonably possible
changes in the underlying cash flows and key assumptions. Management
considered the following reasonably possible changes in the key assumptions,
in the context of the macro-economic conditions in China, and the associated
impact on the impairment assessment, in relation to the Asia CGU:
Change in key assumption Impairment
£m
50 bps increase in pre-tax discount rate 0.8
100 bps reduction in terminal growth rate 0.9
100 bps reduction in each year's growth rate 0.5
100 bps reduction in operating profit margin in the terminal year 1.7
Operating margin is primarily based upon the historical levels achieved,
adjusted by targets set for revenue expansion and cost control and reduction
within the Plan period. The values assigned to these assumptions represent
management's assessment of market condition and scope for cost and
profitability improvement, taking into account realisable synergies resulting
from integration activities. The estimated cash flows are discounted using a
post-tax discount rate based upon Essentra's estimated post-tax weighted
average cost of capital by operating segment.
For the Asia CGU the recoverable amount is sensitive to reasonably possible
changes in the underlying cash flows and key assumptions. Management
considered the following reasonably possible changes in the key assumptions,
in the context of the macro-economic conditions in China, and the associated
impact on the impairment assessment, in relation to the Asia CGU:
Change in key assumption Impairment
£m
50 bps increase in pre-tax discount rate 0.8
100 bps reduction in terminal growth rate 0.9
100 bps reduction in each year's growth rate 0.5
100 bps reduction in operating profit margin in the terminal year 1.7
9. Retirement benefit obligations
Movement in pension net (liabilities)/assets during the period
Six months Six months Year
ended ended ended
30 Jun 2023 30 Jun 2022 31 Dec 2022
£m £m £m
Movements
Beginning of period (10.6) 9.0 9.0
Current service cost and administrative expense (0.8) (1.1) (2.4)
Employer contributions 2.5 0.7 0.9
Reduction on plan assets excluding amounts in net finance income (3.1) (73.8) (108.5)
Actuarial gains arising from changes in financial assumptions 5.8 57.6 95.5
Actuarial gains/(losses) arising from change in demographic assumptions - 4.8 (1.9)
Actuarial (losses)/gains arising from experience adjustment (1.2) 5.4 (5.6)
Net finance cost (0.3) - (0.1)
Currency translation 0.9 (2.4) (2.3)
Business disposals - - 4.8
End of period (6.8) 0.2 (10.6)
At 30 June 2022 the net retirement benefit asset of £0.2m included
liabilities held for sale of £0.6m. No amounts were held for sale as at 30
June 2023 or 31 December 2022.
The assets and liabilities of the principal defined benefit schemes were
reviewed by independent qualified actuaries as at 30 June 2023. 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 2023 30 Jun 2022 31 Dec 2022
Rate of increase in pensions
At RPI capped at 5% 3.10% 3.00% 3.00%
At CPI capped at 5% 2.80% 2.60% 2.70%
At CPI minimum 3%, capped at 5% 3.30% 3.20% 3.30%
At CPI capped at 2.5% 2.20% 2.10% 2.20%
Discount rate 5.20% 3.70% 4.80%
Inflation rate - RPI 3.20% 3.10% 3.10%
Inflation rate - CPI 2.80% 2.60% 2.70%
US
30 Jun 2023 30 Jun 2022 31 Dec 2022
Discount rate 4.96% 4.59% 5.00%
Included within the six months ended 30 June 2022 reduction on plan assets was
an actuarial loss of £7.1m relating to an investment decision to purchase a
bulk purchase annuity ('buy-in') contract. In that period, a premium of
£38.2m was paid to purchase buy-in to insure against liabilities within the
UK defined benefits scheme. The actuarial loss represented the difference
between the premium paid and the estimated present value of the obligations
and was included within other comprehensive income.
10. Analysis of net (debt)/funding surplus
30 Jun 2023 31 Dec 2022
£m £m
Cash at bank and in hand 96.3 421.4
Cash and cash equivalents in the statement of cash flows 96.3 421.4
Derivative financial instruments hedging private placement loans 6.9 8.3
Debt due within one year - (208.0)
Debt due after one year (90.3) (85.0)
Lease liabilities due within one year (4.5) (4.9)
Lease liabilities due after one year (16.7) (18.0)
Debt from net financing activities (104.6) (307.6)
Net (debt)/funding surplus (8.3) 113.8
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 2023, the Group's committed facilities primarily comprised a series
of US Private Placement Loan Notes from various financial institutions
totalling US$102.5m and a syndicated multi-currency revolving credit
facilities of £200.0m from its banks. At 30 June 2023, the available bank
facilities totalled £200.0m (31 December 2022: £200.0m) of which £10.0m (31
December 2022: £nil) was drawn down and £190.0m (31 December 2022: £200.0m)
was undrawn.
As a consequence of the business disposals, in January 2023, the Group was
required to repay $247m of its US Private Placement Loan Notes.
11. Acquisitions
Acquisition of Wixroyd Group
On 1 December 2022, Essentra acquired 100% of the equity interests of Wixroyd
Holdings Limited (the "Wixroyd Group"), a leading UK supplier of industrial
parts for the engineering sector for an initial consideration of £31.4m. The
consideration payable for the Wixroyd Group comprises an initial cash
consideration of £31.4m and up to £7.0m deferred earn-out consideration. The
deferred earn-out consideration is conditional upon achieving certain
performance criteria for the 12-month period commencing 1 January 2023.
During 2023 Essentra reassessed the fair value adjustments and made changes to
inventories. The impact of this on goodwill is an increase of £0.6m. The
process of allocating the purchase price, including the split between goodwill
and intangible assets and fair value adjustments, will be concluded by 31
December 2023. Accordingly the purchase price allocation presented in these
interim financial statements remains provisional.
Acquisition of Hengzhu
On 2 August 2021, Essentra acquired the trade and assets of Jiangxi Hengzhu
Electrical Cabinet Lock Co., Ltd ("Hengzhu"), an access hardware manufacturer
and distributor in China via an newly incorporated entity, Essentra Hengzhu
Precision Components Co Ltd, which acquired 100% of the business for ¥103m
(approximately £11.8m). Essentra had subscribed and paid up 73% of the issued
share capital of Essentra Hengzhu Precision Components Co Ltd with the
remaining 27% stake subject to put and call options exercisable 6 months after
issuance of the subsidiary's audit report for 2022. The remaining 27% stake
does not confer any shareholder right (including, entitlement to dividends and
right to transfer to other parties) to the vendor shareholder. Therefore it is
concluded that the amount payable under the put option of £4.2m (31 December
2022: £4.7m) in substance represents deferred consideration and is accounted
for as a financial liability. No non-controlling interest is recognised in
respect of this acquisition.
Acquisition of Micro Plastics
On 12 December 2017, Essentra acquired 100% of the share capital of Micro
Plastics, Inc. The transaction was settled with cash consideration of £19.7m
and deferred consideration of £3.7m, of which £1.4m (31 December 2022:
£1.3m) remains payable to the vendor.
12. Discontinued operations
Disposal of Packaging and Filters businesses
On 1 October 2022, the Group completed its sale of ESNT Packaging &
Securing Solutions Limited and Essentra Packaging US Inc and their respective
subsidiary companies (together the 'Packaging business'). On 3 December 2022,
the Group also completed the sale of Essentra Filter Holdings Limited and its
respective subsidiary companies (the 'Filters business'). The results of the
Packaging business and the Filters business have been classified as
discontinued operations at 31 December 2022 and comparative information has
been re-presented. Financial information relating to these discontinued
operations for the period up to their respective dates of disposal, is
included below and in note 15. On 28 September 2022 the Group also completed
the sale of its Packaging business in India for cash consideration of £1.1m.
Income statement analysis of discontinued operations:
Six months Six months Year
ended ended ended
30 Jun 2023 30 Jun 2022 31 Dec 2022
Total discontinued operations £m £m £m
Revenue - 370.5 653.9
Gross profit - 58.3 116.8
Operating loss(1) (1.0) (164.2) (137.1)
Finance income - 0.8 1.5
Finance expense - (1.3) (2.1)
Loss before tax (1.0) (164.7) (137.7)
Income tax credit 0.2 5.6 4.0
Loss for the period after tax (0.8) (159.1) (133.7)
Loss on disposal of discontinued operations before tax(2) - (19.3) (19.0)
Total loss for the period from discontinued operations (0.8) (178.4) (152.7)
(Notes:)
(1) (For the six months ended 30 June 2023 the operating loss from discontinued
operations includes gross income of £4.0m and costs of £5.0m)
(2) (For the six months ended 30 June 2022 the loss on disposal of discontinued
operations before tax includes costs of disposal of £19.3m. For the year
ended 31 December 2022 refer to page 181 of the 2022 Essentra plc Annual
Report for the calculation of the loss on disposal of discontinued operations
of £19.0m)
The results from discontinued operations are attributable entirely to the
equity holders of Essentra plc. The results for the six months ended 30 June
2022 included results attributable to non-controlling interests of £1.2m
(year ended 31 December 2022: £4.2m). The earnings per share of discontinued
operations are disclosed in note 5.
Cash flows of discontinued operations are as follows:
Six months Six months Year
ended ended ended
30 Jun 2023 30 Jun 2022 31 Dec 2022
Total discontinued operations £m £m £m
Net cash (outflow)/inflow from operating activities (2.7) 16.7 59.7
Net cash (outflow)/inflow from investing activities (11.6) (30.3) 358.8
Net cash outflow from financing activities - (4.8) (10.3)
(Decrease)/increase in cash and cash equivalents (14.3) (18.4) 408.2
12. Discontinued operations (continued)
At 30 June 2022, 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
For the six months ended to 30 June 2022, 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 were recycled to loss on business
disposals.
13. Dividends
Per share Total
Six months Six months Year Six months Six months Year
ended ended ended ended ended ended
30 Jun 2023 30 Jun 2022 31 Dec 2022 30 Jun 2023 30 Jun 2022 31 Dec 2022
p p p £m £m £m
2022 interim:
paid 28 October 2022 2.3 2.3 6.9 6.9
2022 final:
paid 30 June 2023 1.0 3.0
2022 special dividend:
paid 27 April 2023(1) 29.8 89.8
2023 interim:
payable 27 October 2023 1.2 3.5
(Notes:) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( )
(1) (The special dividend paid on 27 April 2023 amounted to £89.8m and therefore
this figure has been re-presented)
( )
( )
In the table above, each dividend is shown in the period that it is
attributable to. The interim dividend for 2023 of 1.2p per 25p ordinary share
will be paid on 27 October 2023 to equity holders on the register at the
record date, being 22 September 2023. The estimated amount to be paid of
£3.5m has not been included as a liability in these accounts.
14. Issued Share Capital
During the period 8,371,017 (six months ended 30 June 2022: nil) 25p Ordinary
Shares ("shares") were purchased by the Company for total cash consideration
of £16.2m (six months ended 30 June 2022: £nil) at a weighted average price
of 193.7 pence per share, of which 4,229,696 shares with an aggregate nominal
value of £1.0m were cancelled, and £1.0m transferred from issued share
capital to the capital redemption reserve.
As at 30 June 2023 the number of shares in issue was 298,361,012 (31 December
2022: 302,590,708) of which 5,039,265 (31 December 2022: 897,944) were held in
treasury.
15. Financial instruments
Essentra held the following financial instruments at fair value at 30 June
2023. There have been no transfers between levels of the fair value hierarchy
and there are no non-recurring fair value measurements.
30 June 2023 31 Dec 2022
£m £m
Level 2 of fair value hierarchy
Derivative assets(1) 7.5 8.5
Derivative liabilities(1) (0.5) (1.3)
Level 3 of fair value hierarchy
Other financial assets(2) 18.2 11.6
Other non-current financial liabilities(3) - (2.4)
Other current financial liabilities(4) (32.1) (24.1)
Total (6.9) (7.7)
(Notes:)
(1) (Fair values of forward foreign exchange contracts, including options, and
cross currency interest rate swaps have been calculated at period-end forward
exchange rates compared to contracted rates using observable market data from
third party financial institutions.)
(2) (Includes deferred contingent consideration receivable amounting to £17.7m
(31 December 2022: £10.6m) following the disposal of the Filters business.
The consideration, which is structured as an earn-out, has been classified as
a long-term receivable. The fair value has been determined at the balance
sheet date based upon management's best estimate of the Filters business
achieving future performance targets to which the earn-out is linked with
forecast earnings being a critical unobservable input into the fair value
measurement. The increase of £7.1m in the valuation since 31 December 2022 is
due to the higher forecast earnings of the Filters business.)
(3) (As at 31 December 2022, included within other non-current financial
liabilities was an amount of £2.4m representing deferred consideration
payable in respect of the acquisition of Wixroyd Group. As at 30 June 2023 the
equivalent balance of £2.4m is now part of other current financial
liabilities.)
(4) (Other current financial liabilities include £24.1m (31 December 2022:
£18.0m) which represents management's best estimate of the combined expected
settlement payable by the Group through the respective completion accounts
mechanisms linked to both the Filters business and Packaging business
disposals. The amount recognised is based on the facts and circumstances that
were present and known at the balance sheet date. Other current financial
liabilities also include £8.0m (31 December 2022: £6.1m) in respect of
acquisitions.)
(5) (During the six months ended 30 June 2023, a fair value credit of £7.1m (six
months ended 30 June 2022: £nil) was recognised in respect of financial
instruments at level 3 fair value hierarchy, and £nil (six months ended 30
June 2022: £nil) was settled in cash. No other fair value gains or losses
were recorded in profit or loss and other comprehensive income.)
Essentra had US dollar denominated borrowings which it designated as hedges of
its net investments in subsidiary undertakings, upon which exchange gains of
£1.0m (six months ended 30 June 2022: £17.6m losses) were recognised in
other comprehensive income.
At 30 June 2023, the carrying amount of the US Private Placement Loan Notes
was £80.3m with a fair value of £66.9m. At 30 June 2022, the carrying amount
of the US Private Placement Loan Notes was £289.3m with a fair value of
£254.4m. For all other financial instruments the fair value approximates to
the carrying amount.
16. Related parties
During the period, the Company paid £27,899 to the wife of Scott Fawcett, CEO
of Essentra plc, in respect of her employment by the Group.
Scott's wife was employed by the Group prior to his appointment as a director
of Essentra plc on 1 January 2023.
There have been no changes in the related party transactions described in the
2022 Annual Report that have had a material effect on the financial position
or performance in the six months ended 30 June 2023.
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.
Scott
Fawcett
Jack Clarke
Chief
Executive
Chief Financial Officer
15 August 2023
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 2023 of Essentra plc for the 6 month period ended 30 June
2023 (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 2023;
· 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 2023 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 ("ISRE (UK) 2410"). 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 2023 and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the interim
financial statements.
Conclusion 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 ISRE (UK) 2410. 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 2023, 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 2023 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 2023,
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 2023 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
Watford
15 August 2023
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