TIDMESNT
RNS Number : 9932G
Essentra plc
30 July 2021
ESSENTRA PLC
(the "Company")
A leading global provider of essential components and
solutions
RESULTS FOR THE HALF YEARED 30 JUNE 2021
Encouraging H1 performance, with a positive full year outlook,
focused on delivering organic growth and accretive M&A
Summary:
-- The Company delivered an encouraging H1 2021 results
performance, demonstrating a continuously improving rebound from
COVID-19 ("the pandemic"), driven by Essentra's strong market
positions, balanced portfolio and agile operations
-- Revenue increase of 7.5% vs H1 2020 on a like-for-like (1)
(LFL) basis, with continued positive momentum resulting in a return
to quarterly growth
o Compared to H1 2019, H1 2021 revenue is down 1.9% on a LFL
basis
o Adjusted(2) operating profit up 34.0% vs H1 2020 (at constant FX) to GBP35.7m
o Reported operating profit of GBP30.1m versus GBP15.6m in H1 2020
o Adjusted(2) basic EPS higher by 39.9% (at constant FX) at 7.7p
(H1 2020: 6.2p)
o Reported basic EPS of 6.6p compares to 2.3p in H1 2020
o Adjusted(2) operating cash flow of GBP22.4m in H1 2021
o Reported net cash inflow from operating activities of GBP26.1m
in H1 2021
-- Well positioned for sustained growth in all divisions with
clear and successful strategies based on innovation, sustainability
and strong customer partnerships
o Components - improving trend since the onset of the pandemic
has led to a strong H1 2021 performance
o Packaging - whilst the impact to the underlying market
continued to affect H1 2021, customer relationships continue to
strengthen and we are expecting to see the market return to
moderate growth in H2 2021
o Filters - strong performance seen in H1 2021, led by
outsourcing contracts won
-- Margin expansion in Q2 (vs Q2 2020 and Q1 2021) across all
Divisions driven by self-help actions and operational leverage,
despite cost inflation
o Price increases being implemented to offset the impact of
inflationary cost pressures
o Progress made on strategic initiatives, underpinning future
profitability and providing the platform for industry average
margin delivery in Packaging towards the end of the year
-- Value enhancing and strategic acquisition of Hengzhu
announced in Components, 3C! integration on plan in Packaging
-- Strong balance sheet maintained, providing strategic optionality
o Net debt of GBP212.2m (H1 2020: GBP297.0m), with net debt /
EBITDA at 1.7x (excluding lease liabilities, net debt / EBITDA
ratio is 1.5x)
-- Issue of $250m private placement debt in July, securing more long term funding
-- Interim dividend of 2.0p per share declared, in line with our progressive policy
(1) Excludes the impact of acquisitions, disposals and foreign
exchange
(2) Before amortisation of acquired intangible assets and
adjusting items
Results at a glance:
HY 2021 HY 2020 % change % change
Actual Constant
FX FX
-------- -------- ---------
Revenue GBP475m GBP448m +6 +12
Adjusted(1) operating profit GBP36m GBP29m +23 +34
Adjusted(1) pre-tax profit GBP29m GBP21m +35 +51
Adjusted(1) net income(2) GBP24m GBP17m +39 +55
Adjusted(1) basic earnings
per share 7.7p 6.2p +24 +40
Dividend per share 2.0p - n/a n/a
Net debt (including lease GBP212m GBP297m -29 n/a
liabilities)
Net debt (excluding lease GBP159m GBP238m -33 n/a
liabilities)
Net debt to EBITDA (including
lease liabilities) 1.7x 2.5x n/a n/a
Net debt to EBITDA (excluding
lease liabilities) 1.5x 2.3x n/a n/a
Free cash flow(3) GBP5m GBP12m n/a n/a
Reported operating profit GBP30m GBP16m +93 +118
Reported pre-tax profit GBP23m GBP8m +192 +273
Reported net income(2) GBP21m GBP7m +194 +265
Reported basic earnings
per share 6.6p 2.3p +187 +266
Reported net cash inflow GBP26m GBP38m n/a n/a
from operating activities
(1) Before amortisation of acquired intangible assets and adjusting items
(2) Net income is defined as profit after tax, before minority interests
(3) A reconciliation of free cash flow is set out in the Financial Review
Statutory to Adjusted Reconciliation:
30 June Amortisation
2021 of acquired
Acquisitions intangible Adjusting LFL /
Reported and disposals assets items Tax on adjustments FX Adjusted(1)
--------- --------------- ------------- ----------- ------------------- ---
Revenue GBP475m GBP(17)m - - - - GBP458m
Operating GBP30m - GBP11m GBP(5)m - - GBP36m
profit
Pre-tax GBP23m - GBP11m GBP(5)m - - GBP29m
profit
Net income GBP21m - GBP11m GBP(5)m GBP(3)m - GBP24m
----------- --------- --------------- ------------- ----------- ------------------- --- -------------
30 June Amortisation
2020 of acquired
Acquisitions intangible Adjusting LFL(2)
Reported and disposals assets items Tax on adjustments FX / Adjusted(1,2)
--------- --------------- ------------- ----------- ------------------- ---------
Revenue GBP448m - - - - GBP(22)m GBP426m
Operating GBP16m - GBP11m GBP2m - GBP(2)m GBP27m
profit
Pre-tax GBP8m - GBP11m GBP2m - GBP(2)m GBP19m
profit
Net income GBP7m - GBP11m GBP2m GBP(3)m GBP(2)m GBP15m
----------- --------- --------------- ------------- ----------- ------------------- --------- -----------------
(1) Adjusted operating profit, adjusted pre-tax profit and
adjusted net income relate to total Group
(2) 2020 Adjusted figures are presented at 2021 constant FX
rates
Commenting on today's results, Paul Forman, Chief Executive,
said:
"I am extremely pleased with the start to the year that we have
had. The first half of 2021, much like the bulk of 2020, brought
with it numerous challenges due to the ongoing pandemic, and I am
very proud of how we have navigated through these difficult times,
to deliver strong top and bottom line growth, with margin expansion
across all divisions in Q2. Encouragingly, we are now trading ahead
of 2019 levels with Q2 revenue up by 2.5% LFL.
In particular, I am profoundly grateful for the incredible
energy, commitment and passion demonstrated by all of our employees
in the face of continued pressures.
Components and Filters have had a particularly strong H1 2021,
whilst Packaging has made good progress in margin initiatives and
is coping well with continued difficult conditions within its
underlying market. Whilst we remain mindful of external pressures
in the current environment, we have been quick to take proactive
actions to mitigate any headwinds, such as the pricing actions we
have taken in Components and Packaging in order to protect
margins.
The recent issuance of our private placement debt provides us
with optimal long term funding. The strength of our balance sheet
and liquidity position means we are well positioned to pursue
attractive bolt-on acquisition opportunities, just like the one we
will be completing on shortly in Components (Hengzhu) - which
provides us with the ideal platform to take our fastest growing
product range (access hardware) into our top target geographic
market (China).
Whilst there is more for us still to do, our H1 2021 results
demonstrate our ability to deliver financial progress despite a
challenging market backdrop. We are well positioned for the
remainder of 2021 and are on track to deliver full year adjusted
operating profit in-line with the Board's expectations".
Outlook Statement
The Company has had an encouraging start to the year , but the
pandemic continues to contribute to an uncertain macro-economic
environment. The portfolio of end-markets served across the Group
provides a degree of resilience against this uncertainty. The
Company has dealt with some supply chain disruption in the year
thus far - and this remains a risk that we must continue to monitor
closely.
On a constant currency basis, revenue in our underlying business
continues to improve, and the divisional outlook for the remainder
of 2021 suggests that: both Components and Filters should see a
continuation in growth (albeit the rate of growth may moderate as
comparatives become tougher), whilst in Packaging we expect to see
the market return to moderate growth in the second half of 2021
with global healthcare systems expected to start catching up on the
significant backlog of prescriptions and elective surgeries.
The Company expects to deliver a FY 2021 operating profit in
line with the Board's expectations. Our profit margin percentage
target expectations for 2022 from a divisional perspective are:
Components to return to pre-pandemic margin levels, as the division
benefits from volume leverage and adjusts to operating in a new
supply chain environment, notwithstanding continued reinvestment to
support further growth; Packaging to achieve industry average
margin of 8-10% by the end of 2021 (barring any major unforeseen
macro-economic events or extended lockdowns), with full year
delivery of this industry average margin being achieved in 2022,
driven by volume leverage and the already executed strategic
footprint initiatives; and finally Filters to return to
pre-pandemic margin levels, as the division benefits from further
progress in the delivery of its 'gamechangers' as well as expected
improvement in NPI volume. Clearly this will be dependent on
continued macroeconomic progress and some recovery in healthcare
markets specifically.
Alternative Performance Measures
Constant foreign exchange rates. Movements in exchange rates
relative to sterling affect actual results as reported. The
constant exchange rate basis ("constant FX") adjusts the
comparative to exclude such movements, to show the underlying
performance of the Company. The principal exchange rates for
Essentra in HY 2021 were:
-------- Average -------- -------- Closing --------
HY 2021 HY 2020 HY 2021 HY 2020
--------- --------------------- -------------------- -------------------- --------------------
US$:GBP 1.39 1.27 1.38 1.23
EUR:GBP 1.15 1.14 1.17 1.10
--------- --------------------- -------------------- -------------------- --------------------
Re-translating at HY 2021 average exchange rates decreases the
prior year revenue and adjusted operating profit by GBP22.8m and
GBP2.4m respectively.
Like-for-like ("LFL"). The term "like-for-like" describes the
performance of the continuing business on a comparable basis,
adjusting for the impact of acquisitions, disposals and foreign
exchange. The HY 2021 LFL results (when compared to HY 2020) are
adjusted for the acquisition of 3C! Packaging, Inc. on 17 September
2020. Additionally, when HY 2021 LFL performance is compared
against HY 2019, then the following are also adjusted for: the
acquisition of the Innovative Components business on 26 June 2019,
the acquisition of Nekicesa Packaging on 6 September 2019, the
divestment of the Pipe Protection Technologies business on 14
January 2019, the divestment of the Extrusion business on 11 June
2019, the divestment of the Speciality Tapes business on 28 June
2019 and finally the divestment of the Card Solutions business on
23 July 2019.
Adjusted basis. The term "adjusted" excludes the impact of
amortisation of acquired intangible assets and adjusting items,
less any associated tax impact. In HY 2021, amortisation of
acquired intangible assets was GBP11.1m (HY 2020: GBP10.9m), and
there was a pre-tax credit for adjusting items of GBP5.5m (HY 2020:
charge of GBP2.5m). The current half year net credit for adjusting
items is driven mainly by the release of provisions relating to
prior business disposals (GBP4.5m) and the gain made on the sale of
the Moorestown facility (GBP4.3m), being netted off against costs
incurred for strategic initiatives relating to footprint
optimisation (GBP2.9m) as well as transaction costs associated with
the proposed acquisition of Jiangxi Hengzhu Electrical Cabinet Lock
Co., Ltd (GBP0.5m). Further details on adjusting items are shown in
note 3 to the condensed consolidated interim financial
statements.
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 27 to 30 of the 2020 Annual Report.
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.
Operating Review
The HY 2021 result for the Group was encouraging. Overall,
compared to the prior period, HY 2021 revenue increased by 5.9%
(11.6% at constant exchange) to GBP474.9m, whilst on a LFL basis,
revenue increased by 7.5%. However, in order to fully appreciate
LFL Group performance, progressive quarterly trading needs to be
considered, as this gives more clarity on how, over time, the
Company became increasingly proficient at dealing with the impacts
and challenges of the pandemic. A trend of positive quarterly LFL
revenue momentum has built up ever since the major onset of the
pandemic - going from -9.8% in Q2 2020, to -6.7% in Q3 2020, to
-1.0% in Q4 2020, and then marking a return to positive quarterly
growth in 2021 with +1.4% in Q1 2021 and +13.7% in Q2 2021.
Direct comparisons with prior year are inevitably skewed due to
the impact of the pandemic taking its full grip from April last
year. Compared to H1 2019, H1 2021 revenue is down 1.9% on a LFL
basis (though on quarterly basis vs 2019, Q1 was down 6.2% whilst
Q2 rebounded being up by 2.5%).
On an adjusted basis, operating profit was up 23.1% (34.0% at
constant FX) at GBP35.7m, which was driven mainly by the volume
gearing effect from the revenue increase and cost savings emanating
from the strategic initiatives, being partially offset by general
inflationary costs pressure and increased costs pertaining to
performance related pay incentives. Adjusted operating margin
increased by 100bps (130bps at constant FX) to 7.5%. Q2 adjusted
operating margin was 9.8%, with margin expansion being delivered by
each of the divisions (in comparison to both Q2 2020 and Q1
2021).
Including amortisation of acquired intangible assets of GBP11.1m
and a pre-tax credit from adjusting items of GBP5.5m, operating
profit as reported was GBP30.1m (HY 2020: GBP15.6m); prior half
year included an overall adjusting items charge of GBP2.5m, whilst
HY 2021 has a total credit from adjusting items of GBP5.5m.
Net finance expense was below the prior year at GBP7.0m (2020:
GBP7.7m), which was mainly driven by lower interest costs on a
reduced level of net debt. The effective tax rate on underlying
profit before tax (before amortisation of acquired intangible
assets and adjusting items) was 16.7% (HY 2020: 19.2%). This
reduced tax rate is primarily driven by a one-off non-cash benefit
on the remeasurement of deferred tax assets as a result of the
enacted change in UK Corporation Tax rates, being partially offset
by a change in the geographical split of profits across the
Group.
On an adjusted basis, net income of GBP23.9m was up 39.0% (55.4%
at constant FX) and adjusted basic earnings per share increased by
24.2% (39.9% at constant FX) to 7.7p. On a total reported basis,
net income of GBP20.6m and earnings per share of 6.6p compared to
GBP7.0m and 2.3p respectively in 2020.
Adjusted operating cash flow was 1% higher than the previous
half year at GBP22.4m (2020: GBP22.1m). The increase in adjusted
operating cash flow was mainly driven by the improvement in
adjusted operating profit against HY 2020 of GBP6.7m, offset by
increased working capital outflows of GBP5.1m in order to support
growth. Adjusted free cash flow was GBP4.7m (compared to GBP11.5m
in 2020), after payments for tax, net interest and pensions.
Reported net cash inflow from operating activities is GBP26.1m
(2020: GBP37.7m).
Business Review
Summary growth in revenue by Division
% growth LFL Acquisitions Foreign Exchange Total Reported
/ Disposals
------ ------------- -----------------
Components +20.3 - -5.9 +14.4
Packaging -5.1 +9.7 -3.7 +0.9
Filters +12.8 - -8.2 +4.6
Total +7.5 +4.1 -5.7 +5.9
------------ ------ ------------- ----------------- ---------------
The following review is given at constant exchange rates and on
an adjusted basis, unless otherwise stated.
Components
HY 2021 % growth % growth
GBPm Actual FX Constant FX
-------- -----------
Revenue 148.4 +14.4 +20.3
Operating profit* 27.0 +13.0 +17.3
Operating margin* 18.2% -20bps -50bps
------------------- -------- ----------- -------------
* Adjusted basis
The Components division delivered a strong performance in H1
2021, with revenue increasing by 20.3% to GBP148.4m. On a per day
basis, adjusting for one less trading day in H1 2021, revenue was
up by c21%.
Since the onset of the pandemic, the division has rebounded to
deliver consistently improving quarterly trading performance, and
the positive momentum seen in the second half of 2020 has carried
across into 2021. In Q1, the business recorded revenue per day
growth of c5% (adjusting for two less trading days during Q1 2021),
which improved further as we moved in to Q2, where revenue per day
growth of c38% was delivered (adjusting for one more trading day
during Q2 2021). The pandemic took its full grip in April 2020,
hence prior year comparatives for Q2 are somewhat skewed due to
this reason. However, when compared to Q2 2019, current year Q2 is
up by c7% on a LFL revenue per day basis.
Consistent with the commitment to providing customers with a
"hassle-free" experience, the division has made further progress on
its 'digital journey' - including the continued roll out and
enhancement of our new digital platform, which has proven to be a
critical tool in upgrading the division's online presence and has
continued to differentiate us from our competitors. During the half
year, the Asian roll-out of the new digital platform commenced,
with our Singaporean and Malaysian websites going live in May. We
are taking this platform to our remaining Asian markets in H2 2021
(Europe and North America went live in prior years). This platform
has given the division the stage on which to promote an expanding
range of products that have both been organically introduced and
added from acquisitions. Further developments are in progress,
including the use of artificial intelligence. In order to
complement the ever-increasing functionality of our website, the
division has also been working on various other commercial
initiatives - key amongst these is our category management approach
- whereby our commercial teams are focused on global product
category expertise, rather than being totally regionally aligned -
an approach for which we have begun to reap rewards during the half
year, and that we will look to continue enhancing into the
future.
It should be noted that the growth in Components in the half
year has been delivered against a backdrop of supply chain
challenges, which have been exacerbated by the strong and
relentless rebound in demand seen . In the earlier part of half
year, the challenges were mainly driven by Brexit induced supply
chain disruptions, requiring additional administrative steps. In
response to these disruptions, certain product lead times had to be
permanently extended. As the half year progressed the challenges
have shifted more towards labour availability, mainly in the US.
These supply chain challenges are beginning to improve, as we
continue to drive proactive remediation actions. Our fully
automated German warehouse, which provides an enhanced logistical
platform from which to drive the European Components business, is
performing in line with expectations.
During the half year, the division has experienced inflationary
cost pressures - in terms of raw materials, labour and freight. To
counteract the impact of this inflation, and in order to protect
our margins, the business is implementing price increases in
H2.
In 2020 we announced a set of strategic footprint initiatives in
the Americas and Europe that would allow us to improve service for
our customers, maximise the opportunities for automation and
support anticipated growth for the division. Whilst we have made
some progress with the various initiatives, others have had to be
temporarily put on hold whilst we concentrate on remedying the
supply chain challenges highlighted above.
We have continued to invest in our BPR programme during the year
and have gone live with our first operational site in Spain in
early July. We plan to continue with our European roll out in the
remainder of 2021.
The division has continued with its drive on improving
sustainability, and during the half year has launched 40% recycled
content in UK manufactured LDPE ranges. Overall recycled material
is 7% for H1 2021.
In May, the business announced the acquisition of Jiangxi
Hengzhu Electrical Cabinet Lock Co., Ltd which is on track to
complete soon. This acquisition strengthens our position in China,
enabling us to expand our 'hero' access hardware range. We have
proven strong cross selling opportunities for this product range in
Europe and Hengzhu provides us with the ideal platform to further
penetrate Asia. There is also scope to leverage our operations
expertise to increase the efficiency of the business. The
acquisition is earnings accretive and will deliver sustainable
value to Essentra over the long-term.
Adjusted operating profit increased by 17.3% to GBP27.0m,
equating to a margin of 18.2% (decrease of 50 bps). This was driven
mainly by general inflationary costs pressure and increased costs
pertaining to performance related pay incentives, being partially
offset by the volume gearing effect from the revenue increase and
continued successful pricing management. Q2 adjusted operating
margin was 19.2%.
Packaging
HY 2021 % growth % growth
GBPm Actual FX Constant FX
-------- -----------
Revenue 187.0 +0.9 +4.6
Operating profit* 9.6 +95.9 +102.1
Operating margin* 5.1% +250bps +250bps
------------------- -------- ----------- -------------
* Adjusted basis
Revenue increased by 4.6% to GBP187.0m. On a LFL basis, the
revenue decline was 5.1% for the half year, which was driven by the
continued impact of a reduction in the level of prescriptions and
elective surgeries through lockdown periods (as seen since H2
2020). It should be noted that the prior half year comparator was
relatively unaffected by the pandemic - in fact during the early
days of the pandemic, volumes were actually boosted by enhanced
'over the counter' trade, which became particularly buoyant as
consumers starting stock piling medicines in their homes.
Over the course of H1 2021, there was a slight improvement in
performance: in Q1 the division delivered a LFL revenue decline of
5.4%, this marginally improved to -4.8% in Q2. The division is
operationally well poised for when the underlying end market
returns to growth.
During the pandemic, the combination of maintained high levels
of service, along with a clear key account management structure,
has meant that dialogue with customers has continued to be further
strengthened and deepened, with the division collaborating with its
customers to help meet a range of needs and objectives during these
unprecedented times. The division continued to win new business as
a result of its focus on supporting customers, and is very proud to
be playing a part in supporting the healthcare industry in its
fight against the COVID-19 virus, helping to produce secondary
packaging for anti-viral and vaccine products (now supplying three
of the five major vaccine producers). Moreover, the division has
recently run its annual customer survey, where it recorded an upper
quartile score of 8.4 out of 10, up from 8.1 achieved in the
previous survey.
The post-acquisition integration of 3C! Packaging is progressing
well. Two main highlights of the integration during the half year
have been: the highly experienced management team of 3C! have now
been given the responsibility of running the entire US Packaging
business, and the leveraging (into the wider division) of
innovation, value added products and services that the 3C! business
brought with it e.g. 3C!'s ClearCode technology is gaining a lot of
interest from the European market, and is being trialled by a major
customer.
Strategic cost reduction initiatives, in particular the recent
closure of our Portsmouth (UK) and Moorestown (USA) sites, continue
to support margin improvement. Whilst input costs have increased in
H1, we are implementing pricing actions to mitigate these
effects.
Adjusted operating profit increased 102.1% to GBP9.6m, equating
to a margin of 5.1% (250 bps increase). This was largely driven by
the delivery of savings emanating from gross margin initiatives,
procurement and organisational changes made in the prior year.
Netted off against this was the volume gearing effect from the
revenue decline . Q2 adjusted operating margin was 6.1%. We
maintain our target FY 2021 exit rate of delivering an 8-10%
margin, in line with the industry average, by the end of 2021
(barring any major unforeseen macro-economic events or extended
lockdowns).
Filters
HY 2021 % growth % growth
GBPm Actual FX Constant FX
-------- -----------
Revenue 139.5 +4.6 +12.8
Operating profit* 11.5 +6.5 +18.2
Operating margin* 8.2% +10bps +40bps
------------------- -------- ----------- -------------
* Adjusted basis
Total Filters divisional revenue was 12.8% up on the prior half
year period, of which the core Filters business (division excluding
Tear Tapes) was up by 14.6%.
Q1 2021 was up by 10.0% compared to Q1 2020 for the overall
division, mainly driven by the strong delivery of production
volumes for the previously announced outsourcing contract wins.
Q2 2021 was up by 15.5% as compared to the Q2 2020, with
continued benefit coming from the outsourcing contract volumes, and
also due to a softening in the prior period comparatives due to the
impact from government enforced facility closures in India and
Paraguay in April 2020. However, even when compared to Q2 2019,
current year Q2 revenue is up by 3.4%.
In relation to the division's game changers, as mentioned above,
the three previously announced outsourcing contracts are now
operating with full production volumes being achieved on all of
these. The division also has a healthy pipeline of potential
outsourcing contract opportunities. The China JV commenced
production in June, providing a great platform to capture the many
opportunities available in the world's largest tobacco market. We
continue to build our pipeline of next generation products (NGP)
opportunities - with one further patent application made and
several projects underway. In regards to the three proprietary
products launched in late 2020 (Eco Sensation, ECO Cavitec and ECO
Cavitec Sensation), which are intended to meet EU Single Use
Plastics Directive initiatives for plastic-free and biodegradable
products, we are very pleased with the ever-increasing levels of
interest the market is showing towards these new products, with a
rapidly growing number of projects already underway, that could
materialise into a significant number of opportunities. The
division has also actively been helping customers
with developing and commercialising other sustainable products
into market. We are partnering with a large customer who is
trialling these products in Europe in Q3 2021. In addition, there
are plans to launch Eco-Filters with another large customer in
early 2022.
In the Tear Tapes business, during the half year, we have
re-organised our sales teams into a global market category approach
to focus on specific categories of markets, customers and end uses,
whilst adopting an overall key account management approach for
mutual customers with the core Filters business.
Adjusted operating profit increased 18.2% to GBP11.5m, equating
to an operating margin of 8.2% (increase of 40 bps). This was
largely driven by the volume gearing effect from the revenue
increase, netted off against costs incurred for the set up for the
China JV. Q2 adjusted operating margin was 10.8%.
Financial Review
Net finance expense. Net finance expense of GBP7.0m was GBP0.7m
below the prior year period, and is broken down as follows:
GBPm HY 2021 HY 2020
--------
Net interest charged on net
debt 4.3 5.7
Amortisation of bank fees 0.5 0.4
IAS 19 pension finance charge 0.3 0.3
Interest on leases 1.4 1.0
Net other finance expense 0.5 0.3
Total net finance expense 7.0 7.7
------------------------------- -------- --------
Tax. The effective tax rate on underlying profit before tax
(before adjusting items and amortisation of acquired intangible
assets) was 16.7% (2020: 19.2%). This reduced tax rate is primarily
driven by a one-off non-cash benefit on the remeasurement of
deferred tax assets as a result of the enacted change in UK
Corporation Tax rates, being partially offset by a change in the
geographical split of profits across the Group.
Net working capital. Net working capital is defined as
Inventories plus Trade & Other Receivables less Trade &
Other Payables, adjusted to exclude Deferred Consideration
Receivable / Payable, Interest Accruals and Capital Payables
("Adjustments").
GBPm HY 2021 HY 2020
--------
Inventories 110.3 125.4
Trade & other receivables 185.0 177.6
Trade & other payables (179.9) (180.4)
Adjustments 4.5 5.3
Net working capital 119.9 127.9
--------------------------- -------- --------
The decrease in net working capital was largely driven by an FX
impact. Lower inventory levels, emanated primarily from the
Components and Filters divisions, both of which had a concerted
effort last half year to have a contingency build of inventory (in
light of the pandemic backdrop). This decrease in inventory levels
was netted off by an increase in trade and other receivables -
which is a function of the enhanced trading volumes in HY 2021 vs
HY 2020. During the period, there has been no deterioration in the
recoverability of trade and other receivables across all three
divisions.
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.
Adjusted operating cash flow was 1% higher than the previous
year at GBP22.4m (HY 2020: GBP22.1m), this equated to an operating
cash conversion of 63% in the half year (HY 2020: 76%). The
increase in adjusted operating cash flow was mainly driven by the
improvement in adjusted operating profit against HY 2020 of
GBP6.7m, offset by increased working capital outflows of GBP5.1m in
order to support growth. Adjusted free cash flow was GBP4.7m
(compared to GBP11.5m in 2020), after payments for tax, net
interest and pensions.
In HY 2021, there was a GBP0.4m net decrease in cash and cash
equivalents to GBP132.5m (HY 2020: increase of GBP87.2m to
GBP160.2m).
GBPm HY 2021 HY 2020
--------
Operating profit - adjusted 35.7 29.0
Depreciation and amortisation of non-acquired
intangible assets 19.6 19.8
Right-of-use asset depreciation 5.8 6.2
Share option expense / other movements (1.0) (0.5)
Change in working capital (15.1) (10.0)
Net capital expenditure (excluding disposal
proceeds relating to adjusting items) (22.6) (22.4)
Operating cash flow - adjusted 22.4 22.1
Tax (7.3) (4.3)
Cash outflow in respect of adjusting items (7.4) (2.2)
Pension obligations (4.2) (0.3)
Add back: net capital expenditure (excluding
disposal proceeds relating to adjusting items) 22.6 22.4
Net cash inflow from operating activities 26.1 37.7
Operating cash flow - adjusted 22.4 22.1
Tax (7.3) (4.3)
Net interest paid (6.2) (6.0)
Pension obligations (4.2) (0.3)
Free cash flow - adjusted 4.7 11.5
Net increase in cash & cash equivalents (0.4) 87.2
--------------------------------------------------- -------- --------
Net debt. Net debt at the end of the period was GBP212.2m, a
GBP1.8m increase from 1 January 2021 (including lease liabilities).
The overall increase was mainly driven by dividends paid to
shareholders and payouts for deferred consideration on
acquisitions, being offset by the net cash inflow from the free
cash flow generated by the Company during the half year and capital
contributions from non-controlling interests in the China Joint
Venture.
GBPm HY 2021
Net debt as at 1 January 2021 210.4
Free cash flow (4.7)
Cash inflow in respect of adjusting items (0.9)
Foreign exchange (1.9)
Acquisitions - net cash paid 1.9
Capital contributions from non-controlling
interests in the China JV (3.1)
Dividends 9.9
Lease liability movements -
Other 0.6
Net debt as at 30 June 2021 212.2
---------------------------------------------- --------
The Company's financial ratios remain healthy. The ratio of net
debt to EBITDA including lease liabilities was 1.7x (30 June 2020:
2.5x). Net debt to EBITDA excluding lease liabilities was 1.5x (30
June 2020: 2.3x). Interest cover was 4.9x (30 June 2020: 4.8x).
Refinancing activities . One of the main sources of funding for
the Company is a Revolving Credit Facility (RCF) provided by a
group of eight highly-rated banks, which as at the prior year end
was set to mature in its entirety in November 2022. However, for a
tranche involving five of the eight banks (worth GBP250m), during
the half year we have agreed an extension to the facility based on
new terms, which will now mature in November 2023. Additionally,
another bank has also joined this new syndicate, with a commitment
of a further GBP25m.
In July, the Company has agreed the issue of US $250 million of
medium and long-dated private placement debt. The issue comprises
US $80 million notes due 2028, US $85 million notes due 2031, and
US $85 million notes due 2033. The covenants on the notes are in
line with those on the Company's existing private placement notes
and its bank revolving credit facility. The proceeds will be used
for general corporate purposes and to repay shorter-dated bank debt
(with net debt level maintained), thereby diversifying the
Company's source of debt finance and lengthening its maturity
profile. Some of the proceeds have been swapped into Sterling, in
accordance with the Group's hedging policies.
Pensions. As at 30 June 2021, the Company's IAS 19 net pension
liability was GBP7.4m (FY 2020: GBP23.9m). This 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 of
plan assets.
Dividends . The Board of Directors has approved an interim
dividend of 2.0 pence per 25 pence ordinary share (HY 2020: nil).
The interim dividend will be paid on 29 October 2021 to equity
holders on the share register on 24 September 2021: the ex-dividend
date will be 23 September 2021. 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 8 October 2021.
Going forwards, a progressive dividend policy will continue to
be adopted.
Board changes. As reported previously, Tommy Breen retired as a
Non-Executive Director and Senior Independent Director, with effect
from the conclusion of the Annual General Meeting (AGM), held on
Thursday 20 May 2021. Mary Reilly became Senior Independent
Director upon Tommy's retirement, adding to her already existing
role as Chair of the Audit & Risk Committee and Board Employee
Champion.
Adrian I. Peace has been appointed as a Non-Executive Director
with effect from 28 June 2021. Adrian will also be an Employee
Champion for the North American region. Adrian brings extensive
experience in US and Global markets having operated in a range of
businesses including light and heavy manufacturing, distribution
and services sectors. Adrian has experience of leading full
P&Ls, digitising businesses and driving operational
efficiencies that have transformed the businesses he has worked
in.
Treasury policy and controls. Essentra has a centralised
treasury function to manage funding, liquidity and exposure to
interest rate and foreign exchange risk. Treasury policies are
approved by the Board and cover the nature of the exposure to be
hedged, the types of derivatives that may be employed and the
criteria for investing and borrowing cash. Essentra uses
derivatives only to manage currency and interest rate risk arising
from the underlying business activities. No transactions of a
speculative nature are undertaken. Underlying policy assumptions
and activities are reviewed by the Treasury Committee.
Controls over exposure changes and transaction authenticity are
in place, and dealings are restricted to those banks with the
relevant combination of geographical presence, expertise and
suitable credit rating.
Foreign exchange risk. The majority of Essentra's net assets are
in currencies other than sterling. The Company's normal policy is
to reduce the translation exposure and the resulting impact on
shareholders' funds through measures such as borrowing in those
currencies in which the Group has significant net assets. As at
30
June 2021, Essentra's US dollar-denominated assets were approximately 27% hedged by its US dollar-denominated borrowings, while its euro-denominated assets were approximately 30% hedged by its euro-denominated borrowings.
The majority of Essentra's transactions are carried out in the
functional currencies of its operations, and therefore transaction
exposure is limited. Essentra uses forward foreign currency
contracts to hedge its exposure to movements in exchange rates on
its highly probable forecast foreign currency sales and purchases
over a period of up to 18 months.
Management of principal risks. The Board considers risk
assessment, identification of mitigating actions and internal
controls to be fundamental to achieving Essentra's strategic
objectives. Our principal risks are detailed later in this
document.
The UK's Exit from the European Union ("Brexit")
Post-Brexit, the Company's focus has shifted to ensuring
effective management of new customs and delivery arrangements, in
order to maintain customer service levels. The supply chain
disruptions noted in Q1 2021 have settled down in Q2 2021 as both
business and logistics partners get used to the new arrangements.
Compared to pre-Brexit, there are additional administrative
steps/costs and longer lead times to get products and raw materials
into/out of Continental Europe, but these issues have now
stabilised. We continue to foresee no material direct impact to the
Company from Brexit, however the potential for certain supply chain
disruption remains a risk that we must continue to monitor
closely.
Business Process Redesign ("BPR")
The Company is currently part way through a business process
redesign project, supported by implementation of a new ERP system.
This project will support the strategic growth agenda of the
Company, along with improving process efficiencies and business
controls. We have completed scoping, process design and development
activity of the system, both for core finance & procurement
processes, as well as sales, manufacturing & warehouse
processes for the Components Division.
To date, the Dynamics365 system has been rolled out to cover HQ
finance & procurement processes (in July 2020) and Components
Spain (in early July 2021). We are now working on data and
configuration activity for the next set of countries in Components
Europe. In addition, the Dynamics365 CRM system (CE) has been
rolled out across the Components Division.
Over the cycle, the tangible benefits of the BPR programme are
estimated to offset the cost. With streamlined processes and modern
technology, the Company expects to become a much more agile and
nimble business.
Enquiries
Essentra plc Tulchan Communications LLP
Aamir Mohiuddin, Investor Relations Martin Robinson
Director Olivia Peters
Lucy Yank, Group Communications Hollie Ralston
Director Tel: +44 (0)20 7353 4200
Tel: +44 (0)1908 359100
Presentation
A copy of these results is available on www.essentraplc.com
The Half Year Results presentation to analysts and investors
will start at 08:30 (UK time), and will be held virtually.
There are two options for participating in the event:
1) View and listen in to a webcast of the presentation, which can be accessed at https://www.essentraplc.com/en/investors/company-information/webcasts-and-presentations
Please note that this option will not allow you to ask any
questions - it will be listen only mode.
2) If you wish to ask a question, or are unable to listen to the
audio via the webcast, please dial in to the audio conference call
using the details below:
Dial-in number: +44 (0)20 7192 8338 (UK / international
participants)
+1 646 741 3167 (US participants)
Toll-free number: 0800 279 6619 (UK participants)
+1 877 870 9135 (US participants)
Event Plus Passcode: 9073105
A recording of the presentation will be made available on the
website later in the day. A replay will additionally be available
as follows:
Replay number: +44 (0)333 300 9785 (UK / international
participants)
+1 917 677 7532 (US participants)
Toll-free number: 0808 238 0667 (UK participants)
+1 866 331 1332 (US participants)
Replay access code: 9073105
Replay available: For 7 days
Cautionary forward-looking statement
These results contain forward-looking statements based on
current expectations and assumptions. Various known and unknown
risks, uncertainties and other factors may cause actual results to
differ from future results or developments expressed or implied
from the forward-looking statements. Each forward-looking statement
speaks only as of the date of this document. The Company accepts no
obligation to revise or update these forward-looking statements
publicly or adjust them to future events of developments, whether
as a result of new information, future events or otherwise, except
to the extent legally required.
Notes to Editors
About Essentra plc
Essentra plc is a FTSE 250 company and a leading global provider
of essential components and solutions. Organised into three global
divisions, Essentra focuses on the light manufacture and
distribution of high volume, enabling components which serve
customers in a wide variety of end-markets and geographies.
Headquartered in the United Kingdom, Essentra's global network
extends to 34 countries and includes 7,430 employees, 48 principal
manufacturing facilities, 30 sales & distribution operations
and 3 research & development centres. For further information,
please visit www.essentraplc.com .
Essentra Components
Essentra Components is a global market leading manufacturer and
distributor of plastic injection moulded, vinyl dip moulded and
metal items. Operating in 25 countries worldwide, 14 manufacturing
facilities and 23 sales & distribution centres serve more than
82,000 customers with a rapid supply of low cost but essential
products for a variety of applications in industries such as
equipment manufacturing, automotive, fabrication, electronics and
construction. The division also includes the Reid Supply business,
which provides a wide range of branded hardware supplies to a broad
base of industrial customers, largely located in the US
Mid-West.
Essentra Packaging
Essentra Packaging is one of only two multicontinental suppliers
of a full secondary packaging range to the health and personal care
sectors, with 23 facilities across three geographic regions. The
division's innovative products include cartons, leaflets,
self-adhesive labels and printed foils used in blister packs, which
help customers to meet the rapidly-changing requirements of these
end-markets and can also be combined with Essentra's authentication
solutions to help the fight against counterfeiting.
Essentra Filters
Essentra Filters is the only global independent cigarette filter
supplier. The thirteen sites across nine countries, including three
R&D centres, provide a flexible infrastructure strategically
positioned to serve the tobacco sector. The business supplies a
wide range of value-adding high quality innovative filters,
packaging solutions to the roll your own segment and analytical
laboratory services for ingredient measurement to the industry:
Essentra's offering also includes Heat Not Burn and e-cigarette
solutions to the rapidly evolving market for Next Generation
Products. The division also includes the Tear Tapes business, which
is globally recognised as the leading manufacturer and supplier of
pressure-sensitive tear tapes, that are largely used in the
tobacco, food and drink and specialist packaging sectors
Risk Report
Our risk management activities aim to drive performance aligned
to our purpose, encourage growth through innovation and support the
achievement of our strategic objectives. In doing this we take a
balanced approach that puts risk management at the core of the
senior management agenda. We remain committed to managing risks in
a proactive and effective manner to protect and enhance value, and
provide assurance to the Board and our stakeholders.
A risk management framework is in place to identify and manage
risk within defined appetite levels, in relation to both operations
and strategy. The framework has been designed to provide the Group
Risk Committee (GRC) and the Board with a clear line of sight over
risk and opportunity and to enable informed decision making. Our
risk management framework continues to evolve as we seek to ensure
our risk management processes are aligned with FTSE 250 upper
quartile practice.
Risk can present itself in many forms and has the potential to
impact health and safety, the environment, our communities, our
reputation, regulatory compliance, market and financial performance
and therefore the achievement of our corporate objectives. By
understanding and managing risk, we provide greater certainty and
confidence to our shareholders, employees, customers, suppliers and
the communities in which we operate.
The Board confirms its risk appetite biannually by mapping its
Principal Risks against a scale from "risk-averse" to "risk
neutral" to "risk tolerant" and this informs the development of
mitigating actions for each of the Principal Risks.
At a strategic level, our risk management objectives are
to:-
-- identify the Company's significant risks and appropriate responses
-- formulate the risk appetite and ensure that our business
profile and plans are consistent with it
-- ensure that growth plans are properly supported by an effective risk infrastructure
-- help management teams to improve the control and
co-ordination of risk-taking across the Company
COVID-19
The COVID-19 pandemic remains a global crisis and, at the date
of this report, the situation remains volatile and uncertain across
many parts of the world. Whilst the Company's risk landscape has
changed during the COVID-19 pandemic, we believe that our focused
risk management activities across the Company have enabled an agile
and resilient response to the unrivalled challenges posed by the
pandemic and continue to deliver effective mitigating actions.
The impact of COVID-19 continues to test and challenge the
effectiveness of our approach to risk and its management. We
continue to operate with adapted ways of working as required and we
believe that our risk management framework continues to respond
effectively in protecting value. As we look to the future, there
remains a continued focus on enhancing our risk management
framework and building on the lessons learnt over the past 18
months to ensure our approach not only protects stakeholder value
but also supports its creation in line with our strategic growth
objectives.
There are risks emerging that subsequent waves of COVID-19, or
further variants, might delay recovery and return to work plans
with continued disruption across supply chains and the societies in
which we operate. Whilst our adoption of a new working model, based
around social distancing, workspace and facility transformation,
adapted work schedules, reduced travel and continuing remote
working, has proved successful, careful planning is required for a
transition back to normal working practices to ensure the ongoing
wellbeing of our employees.
We continue to scan the horizon for additional new, emerging or
disruptive risks which could significantly affect the Company's
ability to meet its strategic growth objectives. We continue to
note increasing momentum associated with the risk agendas for ESG
and climate change and our ability to effectively manage our talent
in a post COVID-19 working model has been on our risk radar during
the first half of the year.
Principal Risks
The GRC has responsibility for overseeing Essentra's Principal
Risks. Given the continue disruption and uncertainly caused by
COVID-19, our risk management approach has been to consider the
ongoing completeness and appropriateness of our Principal Risks. As
part of our approach we have considered the impact on each of our
Principal Risks and our risk appetite. Where necessary we have
modified our risk response.
A number of our risks were amplified as a result of COVID-19 in
2020 and this reassessment remains appropriate. We have not
identified any new Principal or Emerging risks in the first half of
the year. The table below sets out movements in our Principal
Risks.
Principal Risk Movement Description
from
2020
PR1 Failure No change The potential for a failure to deliver improving
to Achieve returns each year and demonstrating delivery
Acceptable of industry average returns by end of 2021
Returns from has been identified as a Principal Risk since
the Packaging 2017. This risk includes the potential of
Division the Packaging business failing to deliver
new business wins, expected cost savings
(Managing Director, or acceptable returns.
Packaging) There has been no change in the risk profile;
COVID-19 has impacted our ability to deliver
growth in 2020 with the underlying pharmaceutical
market in particular disrupted by the lack
of patient visits to GPs and significantly
fewer elective surgeries resulting in lower
demand for branded and generic drugs, however
subject to the pharmaceutical market recovering
in 2021, the division is on track to deliver
margin in line with the lower end of the
industry average range by 2021.
---------- -------------------------------------------------------
PR 2 Tobacco No change The Filters division supplies filter products
Industry Dynamics and packaging solutions to manufacturers
in the tobacco industry. Changes in the traditional
(Managing Director, tobacco market present both opportunities
Filters) and risks for the division. Whilst the Company
has a strong market position the future growth
opportunities may be affected by dynamics
of the tobacco industry such as the declining
combustible markets, shifting towards Next
Generation Products (NGP) as well as moving
towards other tobacco substitutes. The focus
of stakeholders on ESG objectives provides
an additional area of challenge for the business.
There is continued legislation to reduce
smoking prevalence and promote the use of
more sustainable products and practices,
for example the EU Single Use Plastics Directive.
This presents an opportunity for growth through
our sustainable product portfolio. The change
in global consumption and end markets for
our products requires increased oversight
of where our products are used and a robust
regulatory framework. Tobacco-related litigation
could also affect Essentra, although there
is no history of the Company being involved
in such a claim.
There has been no change to the overall assessment
of this risk.
---------- -------------------------------------------------------
PR 3 Delivery No change The Company's success is dependent on its
of Strategic ability to deliver key strategic projects
Projects on time and within budget, to realise their
full potential. The Company invests in, and
(Strategy and delivers, significant strategic, operational
Commercial and capital expenditure projects in order
Director) to drive the business forward, for example
our ongoing Business Process Redesign implementation.
In line with our strategic plans, this project
approach also includes the acquisition and
disposal of businesses. Failure to deliver
such key projects effectively and efficiently
could result in significantly increased project
costs and impede our ability to execute our
strategic plans.
There has been no change to the overall assessment
of this risk.
---------- -------------------------------------------------------
PR 4 Regulatory No change The Company operates across many international
Governance jurisdictions and engages with a wide range
of stakeholders, including a diverse employee,
(Company Secretary customer and supplier base. Some locations
and General we operate in are high risk. We are required
Counsel) to comply with multiple areas of legislation,
regulation and good practice for areas such
as Anti-Trust, Anti-Bribery, Sanctions and
Data Protection and Privacy. Our operations
are subject to an external environment which
is seeing increasing levels of scrutiny and
oversight from regulators and enforcement
agencies. Failure to manage effectively the
scrutiny and oversight and/or comply with
new laws and regulations could result in
significant fines, costs and reputational
damage to the Company. Changes in supply
chains and the adoption of remote working
environments as a result of COVID-19 potentially
increase compliance and control risks. Additionally,
COVID-19 has potentially increased the risk
in relation to data privacy given the additional
collection of personal data. We have not
seen a significant change in other regulatory
risks. Whilst the external environment is
generating additional compliance demands
and undertaking increased levels of enforcement,
the Company continues to drive continuous
improvements in its compliance activities
and overall the level of risk to the Company
has remained the same.
---------- -------------------------------------------------------
PR 5 Cyber-Attack No change The Company is dependent on its IT systems
for day-to-day operations. Should the Company
(Chief Information be affected by a cyber security breach, this
Officer) could result in suspension of some IT services
and loss of data. Subsequently, the Company
could receive fines, lose customer confidence
and suffer reputational damage. The risk
was heightened during the early phase of
the pandemic as a result of a significant
increase in remote working as part of COVID-19
crisis management. The Company continues
to mitigate these additional risks through
consistent deployment of our security controls
to devices away from the office, maintaining
software updates and the introduction of
stronger authentication for remote access
services. Cyber-attacks are a serious threat
to the smooth running of our business. We
continue to invest in our cyber security
programme which includes mitigation and risk
reduction activities across people, process
and technology.
---------- -------------------------------------------------------
PR 6 Macro-economic Down As a global business, changes to global economic
and Trade Deal conditions or trading arrangements have the
Uncertainty potential to impact us. Our international
(including trade flows expose the Company to tariffs,
Brexit) duties or quotas imposed through trade sanctions
and also to macroeconomic effects due to
(Group Programme regional or global industrial output changes.
Director) Essentra will need to adapt to geopolitical
changes that impact on patterns of trade
and the movement of labour and capital. A
trend towards protectionism, regionalism
and a rebalancing from West to East creates
risks and opportunities that Essentra will
need to manage and exploit. In light of the
Trade and Co-operation Agreement being agreed
between the UK and the EU, our Brexit focus
moved to continuing to ensure we are following
robust customs and shipment processes and
proactive management of goods across the
UK-EU border, to minimise delays to our customers,
and our working capital. The geopolitical
landscape is becoming gradually less uncertain,
as such, our assessment is that the probability
of this risk manifesting has reduced.
---------- -------------------------------------------------------
PR 7 Business No change We operate a global manufacturing footprint
Continuity and supply chain. Making this supply chain
Planning and resilient is a critical factor in serving
Management our customers, to minimise the impact of
potential disruptions. Business continuity
(Group Programme management issues can be focused on particular
Director) locations, driven by single point supply
chain failures. Here, our global footprint
provides risk diversification, via alternative
manufacturing routes. Equally, business continuity
issues can be broader in nature and impact
a number of sites simultaneously as has been
the potential with COVID-19. Our global footprint
may expose us to a broader set of potential
multi-site disruption risks, than more focused
companies. Robust business continuity planning
and management practices are required to
minimise the impact on production capability,
supply chain management, customer relationships,
reputation, revenue and profit. The Company
experienced some minor disruption through
COVID-19 related issues last year and the
risk of sites being temporarily shut due
to government imposed lockdowns remains.
---------- -------------------------------------------------------
PR 8 Environmental, Up Environmental, Social and Governance (ESG)
Social Governance issues are becoming increasingly fundamental
(ESG) for all companies. For Essentra, this includes
our exposure to tobacco-related products
(Group Programme in our cigarette filters, potential changes
Director) in regulation related to single-use plastics,
climate change and other topics. Failure
to meet stakeholder expectations on increasing
environmental and/or social governance obligations
could lead to reputational or commercial
risk for the Company. This includes risks
arising from changing investor attitudes,
increasing customer expectations, social
attitudes towards the health and environmental
impact of our products which may impact on
our ability to market them, along with ability
to attract and retain talent, given increasing
employee focus on sustainability-related
topics
Mitigation efforts are managed through the
Board Sustainability Committee and include
reviewing and assessing the Company's exposure
and response to sustainability related issues
and considering whether these are consistent
with the Company's risk appetite.
Given the increasing focus on the ESG agenda,
our assessment is that this risk has increased.
---------- -------------------------------------------------------
PR 9 Internal No change Processes and controls play an important
Processes and part in our ability to prevent and detect
Control inappropriate and unethical behaviour. This
(Chief Financial includes fraud, deliberate financial misstatement
Officer) and improper accounting practices. If the
design, operation or the assurance over these
controls is ineffective or ownership is not
defined or controls are overridden, there
is a greater risk of operational loss. In
response to COVID-19 there has been greater
adoption of flexible and remote working arrangements
resulting in an ongoing need to adapt our
controls and processes to these changing
ways of working.
Our roll-out of Minimum Control Standards
(MCS) across the Company helps maintain a
consistent standard and, as such, our assessment
is that there is no change to this risk.
---------- -------------------------------------------------------
PR 10 Safety, No change The safety, health and wellbeing of our employees
Health & Wellbeing is of the highest priority for the Company.
Essentra has many manufacturing facilities
(Group Programme across the world, along with non-manufacturing
Director) sites and internationally mobile employees.
Factory manufacturing can be inherently risky
given the use of industrial machinery and
high speed manufacturing processes. In addition,
the Company must comply with national safety
regulation in multiple jurisdictions. Should
an injury or fatality occur involving our
employees or visitors, or should there be
any breach of safety regulation resulting
in prosecution, considerable reputational
damage is anticipated as well as potentially
significant financial costs. Increasingly,
especially given recent COVID-19 related
events, the mental and emotional wellbeing
of our leaders, managers and workforce remains
a focus. The organisation is working in a
different way, which is impacting individuals
physically as well as emotionally. The prolonged
period of COVID-19 working practices and
the potential impact of further variants
increases risks in this area.
There has been no change to the assessment
of this risk.
---------- -------------------------------------------------------
PR 11 Talent Up Failure to acquire, retain, develop and motivate
to Deliver the required management and leadership necessary
our Future to evolve our business, develop our culture
and meet future customer needs. The change
(Group HR Director) agenda, increased movement in the recruitment
market, the continued stimulus and the impact
of COVID-19 overall creates a need to address
focus on attracting and retaining key talent
along with taking steps to avoid burn-out
and presenteeism. Additionally, we must continue
to evaluate and grow the agile skills required
to build for the future.
Talent attraction and retention challenges
continue to evolve across the Company with
many different underlying reasons. Immediate
steps have been taken to address the large
skills gap in the US with a more structured
plan established to consider the longer term
actions needed. In addition, new ways of
working and internal challenges is resulting
in fatigue and resilience is being challenged
which is likely to impact the talent pool,
potentially for the long term. Our assessment
is that this risk has increased.
---------- -------------------------------------------------------
PR 12 Exposure No change The Components division serves industrial
to the Cyclical OEM customers and hence, is exposed to overall
Industrial Industrial Production trends. Global Industrial
Market - Components Production has tended to be cyclical in nature
Division with major economic downturns leading to
a downturn in Industrial Production. From
(Managing Director, the Global Financial Crisis in 2008-2009
Components) to the current COVID-19 crisis, economic
cycles have impacted demand in the broad
industrial market. The Components division
sells to a broad base of key end markets
including Automotive, Capital Goods and Electronics.
This broad base of customers provides some
risk diversification, however, future downturns
in Industrial Production are almost certain
to happen, albeit with an uncertain timeframe.
The Components division can make changes
to its cost base and business model to maintain
operating margins against fluctuations in
demand. The risk is that such changes do
not happen quickly enough, or are not robust
enough to minimise the impact on operating
margins.
The key mitigating actions being taken include
optimising the Division's fixed cost base
such that it is a lower proportion of the
operating costs. Additionally, focus is being
given to d iversifying the market sectors
that we sell to; both within the industrial
sector and also beyond it.
---------- -------------------------------------------------------
Emerging Risks
The Group's risks are continually reviewed and reassessed
through a bottom up and top down process as well as input from
external sources with escalation and reporting to the Board. The
process fully considers all relevant internal and external factors
and captures those risks which are current but have not yet fully
crystallised, as well as those which are expected to crystallise in
future periods.
The Emerging Risks remain broadly unchanged to those set out in
the 2020 Annual Report and Accounts. Further detail is set out in
the table below:
Risk (Owner) Risk Description
ER1 Regulatory Essentra is a global company that must comply
change with regulatory requirements in many countries.
(Company Secretary Regulation is increasing worldwide and may potentially
and General Counsel) impact our products, operations, workforce and
relationships with suppliers, customers and stakeholders.
COVID-19 continues to affect supply chains and
the working environment, potentially leading to
new or additional areas of regulatory scrutiny
and subsequent regulatory change.
-----------------------------------------------------------
ER2 Technology The risk that Essentra does not manage its response
disruptors to evolving technologies effectively. This may
(Chief Information include losing competitive advantage as rivals
Officer) deploy advanced manufacturing technologies, artificial
intelligence and robotics to strengthen product
development, marketing, production, distribution
and support functions.
-----------------------------------------------------------
ER3 Evolving The debt market is evolving, and the lending condition
conditions of and appetite can be impacted by key events, we
the Debt Market have recently observed the effect from the COVID-19
(Chief Financial pandemic. Essentra continues to have strong liquidity
Officer) and we will stay alert to the change of investors'
appetite and respond optimally to it and maintain
our profile in the debt market.
-----------------------------------------------------------
Further detail on these risks and how they are managed is
available in the 2020 Annual Report and Accounts.
Condensed consolidated income statement
Six months Six months Year
ended ended ended
Note 30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPm GBPm GBPm
---------------------------------------------- ---- ---------- ---------- ------
Revenue 2 474.9 448.4 896.5
Operating profit 30.1 15.6 21.7
Finance income 1.1 0.7 1.9
Finance expense (8.1) (8.4) (17.6)
---------------------------------------------- ---- ---------- ---------- ------
Profit before tax 23.1 7.9 6.0
Income tax expense (2.5) (0.9) 0.3
---------------------------------------------- ---- ---------- ---------- ------
Profit for the period 20.6 7.0 6.3
---------------------------------------------- ---- ---------- ---------- ------
Attributable to:
Equity holders of Essentra plc 19.9 6.1 4.5
Non-controlling interests 0.7 0.9 1.8
---------------------------------------------- ---- ---------- ---------- ------
Profit for the period 20.6 7.0 6.3
---------------------------------------------- ---- ---------- ---------- ------
Earnings per share attributable to equity
holders of Essentra plc:
Basic 5 6.6p 2.3p 1.7p
---------------------------------------------- ---- ---------- ---------- ------
Diluted 5 6.6p 2.3p 1.6p
---------------------------------------------- ---- ---------- ---------- ------
Earnings per share from continuing operations
attributable to equity holders of Essentra
plc:
Basic 5 6.6p 2.3p 1.7p
---------------------------------------------- ---- ---------- ---------- ------
Diluted 5 6.6p 2.3p 1.6p
---------------------------------------------- ---- ---------- ---------- ------
Adjusted profit measure:
Operating profit 30.1 15.6 21.7
Amortisation of acquired intangible assets 11.1 10.9 22.6
Adjusting items 3 (5.5) 2.5 17.7
---------------------------------------------- ---- ---------- ---------- ------
Adjusted operating profit 35.7 29.0 62.0
---------------------------------------------- ---- ---------- ---------- ------
See note 3 for further details of the
adjusted profit measure.
---------------------------------------------- ---- ---------- ---------- ------
Condensed consolidated statement of comprehensive income
Six months Six months Year
ended ended ended
30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPm GBPm GBPm
---------------------------------------------------- ---------- ---------- ------
Profit for the period 20.6 7.0 6.3
Other comprehensive income:
Items that will not be reclassified to
profit or loss:
Remeasurement of defined benefit pension
schemes 11.9 (4.9) (6.7)
Deferred tax (expense)/income on remeasurement
of defined benefit pension schemes (3.8) 1.1 2.1
----------------------------------------------------- ---------- ---------- ------
8.1 (3.8) (4.6)
Items that may be reclassified subsequently
to profit or loss:
Effective portion of changes in fair value
of cash flow hedges:
Net change in fair value of cash flow
hedges transferred to the income statement (0.2) (0.8) (0.5)
Effective portion of changes in fair value
of cash flow hedges 0.3 0.3 0.1
Foreign exchange translation differences:
Attributable to equity holders of Essentra
plc:
Arising on translation of foreign operations (19.3) 32.0 (9.3)
Arising on effective net investment hedges 3.2 (9.8) (3.3)
Income tax income/(expense) 0.1 (1.6) (0.5)
Attributable to non-controlling interests (0.7) 0.1 (0.5)
----------------------------------------------------- ---------- ---------- ------
(16.6) 20.2 (14.0)
Other comprehensive income for the period,
net of tax (8.5) 16.4 (18.6)
Total comprehensive income for the period 12.1 23.4 (12.3)
----------------------------------------------------- ---------- ---------- ------
Attributable to:
Equity holders of Essentra plc 12.1 22.4 (13.6)
Non-controlling interests - 1.0 1.3
----------------------------------------------------- ---------- ---------- ------
12.1 23.4 (12.3)
---------------------------------------------------- ---------- ---------- ------
Condensed consolidated balance sheet
Note 30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPm GBPm GBPm
------------------------------------------- ---- ------- ------- -------
Assets
Property, plant and equipment 6 250.7 279.2 263.0
Lease right-of-use asset 7 45.9 51.4 52.7
Intangible assets 8 502.9 505.7 518.8
Long-term receivables 4.6 5.9 4.7
Deferred tax assets 14.4 13.1 16.8
Retirement benefit assets 9 18.3 18.8 12.6
------------------------------------------- ---- ------- ------- -------
Total non-current assets 836.8 874.1 868.6
Inventories 110.3 125.4 102.6
Income tax receivable 3.9 9.2 3.7
Trade and other receivables 185.0 177.6 154.2
Derivative assets 14 0.3 0.4 0.3
Cash and cash equivalents 10 132.5 160.2 135.8
Total current assets 432.0 472.8 396.6
Total assets 1,268.8 1,346.9 1,265.2
------------------------------------------- ---- ------- ------- -------
Equity
Issued share capital 75.6 66.0 75.6
Merger relief reserve 385.2 298.1 385.2
Capital redemption reserve 0.1 0.1 0.1
Other reserve (132.8) (132.8) (132.8)
Cash flow hedging reserve - (0.2) (0.1)
Translation reserve (40.1) 9.6 (24.1)
Retained earnings 332.9 314.0 313.9
------------------------------------------- ---- ------- ------- -------
Attributable to equity holders of Essentra
plc 620.9 554.8 617.8
Non-controlling interests 16.4 11.6 13.3
------------------------------------------- ---- ------- ------- -------
Total equity 637.3 566.4 631.1
------------------------------------------- ---- ------- ------- -------
Liabilities
Interest bearing loans and borrowings 10 291.6 398.1 285.2
Lease liabilities 10 42.7 47.1 49.1
Retirement benefit obligations 9 25.7 43.4 36.5
Provisions 2.5 6.4 8.0
Other financial liabilities 1.2 4.4 1.2
Other payables 1.1 - 2.2
Deferred tax liabilities 44.2 45.7 45.5
------------------------------------------- ---- ------- ------- -------
Total non-current liabilities 409.0 545.1 427.7
Lease liabilities 10 10.4 12.0 11.9
Derivative liabilities 14 0.1 0.8 0.5
Income tax payable 28.2 40.7 33.1
Trade and other payables 179.9 180.4 155.4
Provisions 3.9 1.5 5.5
------------------------------------------- ---- ------- ------- -------
Total current liabilities 222.5 235.4 206.4
Total liabilities 631.5 780.5 634.1
------------------------------------------- ---- ------- ------- -------
Total equity and liabilities 1,268.8 1,346.9 1,265.2
------------------------------------------- ---- ------- ------- -------
Condensed consolidated statement of changes in equity
Six months ended 30 June
2021
---------------- ------- ------- ---------- ------- -------- -------------------------------------------
Cash
Merger Capital flow Non-
Issued relief redemption Other hedging Translation Retained controlling Total
capital reserve reserve reserve reserve reserve earnings interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
At 1 January
2021 75.6 385.2 0.1 (132.8) (0.1) (24.1) 313.9 13.3 631.1
Profit for the
period 19.9 0.7 20.6
Other
comprehensive
income 0.1 (16.0) 8.1 (0.7) (8.5)
----------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
Total
comprehensive
income for the
period - - - - 0.1 (16.0) 28.0 - 12.1
Capital
contributions
from
non-controlling
interests - 3.1 3.1
Share option
expense (0.5) - (0.5)
Tax relating
to share-based
incentives 1.4 - 1.4
Dividends paid (9.9) - (9.9)
----------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
At 30 June 2021 75.6 385.2 0.1 (132.8) - (40.1) 332.9 16.4 637.3
----------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
Six months ended 30 June
2020
---------------- ------- ------- ---------- ------- -------- -------------------------------------------
Cash
Merger Capital flow Non-
Issued relief redemption Other hedging Translation Retained controlling Total
capital reserve reserve reserve reserve reserve earnings interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
At 1 January
2020 66.0 298.1 0.1 (132.8) 0.3 (11.0) 312.4 7.7 540.8
Profit for the
period 6.1 0.9 7.0
Other
comprehensive
income (0.5) 20.6 (3.8) 0.1 16.4
----------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
Total
comprehensive
income for the
period - - - - (0.5) 20.6 2.3 1.0 23.4
Equity issue
to
non-controlling
interest - 2.9 2.9
Share options
exercised 0.1 - 0.1
Share option
expense (0.3) - (0.3)
Tax relating
to share-based
incentives (0.5) - (0.5)
At 30 June 2020 66.0 298.1 0.1 (132.8) (0.2) 9.6 314.0 11.6 566.4
----------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
Condensed consolidated statement of changes in equity (continued)
Year ended 31 December
2020
---------------- ------- ------- ---------- ------- -------- -------------------------------------------
Cash
Merger Capital flow Non-
Issued relief redemption Other hedging Translation Retained controlling Total
capital reserve reserve reserve reserve reserve earnings interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
At 1 January
2020 66.0 298.1 0.1 (132.8) 0.3 (11.0) 312.4 7.7 540.8
Profit for the
period 4.5 1.8 6.3
Other
comprehensive
income (0.4) (13.1) (4.6) (0.5) (18.6)
----------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
Total
comprehensive
income for the
period - - - - (0.4) (13.1) (0.1) 1.3 (12.3)
Issue of share
capital 9.6 87.1 96.7
Equity issue
to
non-controlling
interest 5.0 5.0
Share options
exercised 0.1 - 0.1
Share option
expense 1.2 - 1.2
Tax relating
to share-based
incentives 0.3 - 0.3
Dividends paid - (0.7) (0.7)
----------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
At 31 December
2020 75.6 385.2 0.1 (132.8) (0.1) (24.1) 313.9 13.3 631.1
----------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
Condensed consolidated statement of cash flows
Six months Six months Year
ended ended ended
30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPm GBPm GBPm
--------------------------------------------- ---------- ---------- -------
Operating activities
Profit for the period 20.6 7.0 6.3
Adjustments for:
Income tax expense 2.5 0.9 (0.3)
Net finance expense 7.0 7.7 15.7
Intangible amortisation 12.5 12.3 25.2
Adjusting items (5.5) 2.5 17.7
Depreciation of property, plant and
equipment 18.2 18.4 37.6
Lease right-of-use asset depreciation 5.8 6.2 12.0
Profit on disposal of fixed assets (0.1) - (2.0)
Impairment of fixed assets 0.2 - 0.1
Share option expense (0.5) (0.3) 1.2
Hedging activities and other movements (0.7) - 1.3
(Increase)/decrease in inventories (10.9) (7.6) 9.6
(Increase)/decrease in trade and other
receivables (35.5) (3.3) 14.9
Increase/(decrease) in trade and other
payables 31.3 0.9 (18.3)
Cash outflow in respect of adjusting
items (7.4) (2.0) (10.9)
Adjustment for pension contributions (4.2) (0.3) 0.9
Movement in provisions 0.1 (0.2) -
--------------------------------------------- ---------- ---------- -------
Cash inflow from operating activities 33.4 42.2 111.0
Income tax paid (7.3) (4.5) (7.7)
--------------------------------------------- ---------- ---------- -------
Net cash inflow from operating activities 26.1 37.7 103.3
--------------------------------------------- ---------- ---------- -------
Investing activities
Interest received 1.0 1.2 1.9
Acquisition of property, plant and equipment (16.1) (15.6) (30.9)
Proceeds from sale of property, plant
and equipment 8.5 0.1 0.4
Payments for intangible assets (6.7) (6.8) (14.2)
Acquisition of businesses net of cash
acquired (1.9) 0.2 (41.2)
Proceeds from sale of businesses net
of cash disposed - 5.0 5.0
Short term investments - 0.6 0.6
--------------------------------------------- ---------- ---------- -------
Net cash outflow from investing activities (15.2) (15.3) (78.4)
--------------------------------------------- ---------- ---------- -------
Financing activities
Interest paid (7.2) (7.2) (14.7)
Dividends paid to equity holders (9.9) - -
Dividends paid to non-controlling interests - - (0.7)
Prepaid facility fees (1.0) (0.1) -
Repayments of long-term loans - (119.7) (352.9)
Proceeds from long-term loans 10.0 195.2 318.8
Lease liability payments (6.3) (6.4) (11.9)
Proceeds from equity issue - - 100.0
Costs incurred in equity issue - - (3.3)
Capital contributions from non-controlling
interests 3.1 2.9 5.0
Proceeds from sale of employee trust
shares - 0.1 0.1
--------------------------------------------- ---------- ---------- -------
Net cash (outflow)/inflow from financing
activities (11.3) 64.8 40.4
--------------------------------------------- ---------- ---------- -------
Net (decrease)/increase in cash and cash
equivalents (0.4) 87.2 65.3
--------------------------------------------- ---------- ---------- -------
Net cash and cash equivalents at the
beginning of the period 135.8 70.4 70.4
Net (decrease)/increase in cash and cash
equivalents (0.4) 87.2 65.3
Net effect of currency translation on
cash and cash equivalents (2.9) 2.6 0.1
--------------------------------------------- ---------- ---------- -------
Net cash and cash equivalents at the
end of the period 10 132.5 160.2 135.8
--------------------------------------------- ---------- ---------- -------
1. Basis of preparation
On 31 December 2020, IFRS as adopted by the European Union at
that date was brought into UK law and became UK-adopted
international accounting standards, with future changes being
subject to endorsement by the UK Endorsement Board. Essentra plc
("the Company") transitioned to UK-adopted international accounting
standards in its consolidated financial statements on 1 January
2021. There was no impact or changes in accounting policies from
the transition.
Except as described below, the accounting policies applied in
these condensed consolidated interim financial statements are the
same as those applied in the Group's consolidated financial
statements as at and for the year ended 31 December 2020 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
by the Company's auditor.
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 2020, which has been prepared in accordance
with both international accounting standards in conformity with the
requirements of the Companies Act 2006 and international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union, 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 reported amounts of revenues, expenses, assets and
liabilities at 30 June 2021. 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
2020 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.
For the purpose of the condensed consolidated interim financial
statements 'Essentra' or 'the Group' means Essentra plc and its
subsidiaries.
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.
In April 2021, the IFRS Interpretation Committee ('IFRIC') of
the International Accounting Standards Board ('IASB') published an
agenda decision which addresses how the costs for configuring or
customising a cloud-based software that is determined to be a
service contract should be accounted for. Given the recentness of
the agenda decision and the complexity of judgements involved, our
evaluation of the impact of the agenda decision is in progress.
These condensed consolidated interim financial statements do not
reflect any potential impact from the agenda decision, and we
expect to complete our assessment for the preparation of the 2021
annual financial statements.
Going concern
At 30 June 2021, the Group's financing arrangements amounted to
GBP443.6m, comprising United States Private Placement (USPP) of
US$100.0m (with a range of expiry dates from November 2024 to April
2030) and a multi-currency revolving credit facility (RCF) of
GBP375.0m (of which GBP275.0m expires in November 2023 following
extension agreed with lenders in January 2021, and the remaining
amount in November 2022). In addition, the Group has also recently
completed further financing through the issue of new USPP of
US$250.0m on 27 July 2021, of which US$80.0m expires in 2028,
US$85.0m in 2031 and US$85.0m in 2033.
At 30 June 2021, GBP149.9m 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. Despite the macroeconomic uncertainty, the Group
has not sought to change either of the two covenants. The Directors
believe that the Group is well placed to manage its business risks
and, after making enquiries including a review of forecasts and
predictions, taking account of reasonably possible changes in
trading performances and considering the existing banking
facilities, including the available liquidity, have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for at least the next 12 months following the
date of approval of the financial statements, and no breaches of
covenants are expected.
The uncertainty as to the future impact on the Group of the
Covid-19 pandemic has been considered as part of the Group's
adoption of the going concern basis, taking into account the
experience during 2020 and the most recent circumstances. As at 30
June 2021 and as at the date of approval of these financial
statements, all of the Group's manufacturing and distribution
facilities are operational and have broadly resumed to pre-pandemic
levels of service. Across the Group, public health measures advised
by governments are being followed in support of their efforts to
contain the spread of the virus, and the supply chain is being
proactively managed as are operating costs and the timing of
capital expenditure.
As part of the going concern assessment, the Board has also
considered a downside scenario that reflects the current
uncertainty in the global economy and which we consider to be
severe but plausible. The results of this scenario show that there
is sufficient liquidity in the business for a period of at least 12
months from the date of approval of these financial statements, and
do not indicate any covenant breach during the test period. The
scenario includes assumption for similar extent of disruptions as
seen in 2020. Set against this were mitigating actions including
tight management of capital expenditure, sales and general
overhead, and working capital. Overall level of liquidity (defined
as available undrawn borrowing facility plus cash and cash
equivalent excluding the amount attributable to non-controlling
interests) at the end of June 2021 remains strong.
The severe but plausible scenario does not indicate a material
uncertainty which may cast significant doubt over the Company's and
Group's ability to continue as a going concern. Therefore, the
Directors continue to adopt the going concern basis of accounting
in preparing the financial statements.
Further information on the Group's borrowing facilities, cash
resources and other financial instruments can be found in notes 10
and 14 to the financial statements.
Critical Accounting Judgements and Estimates
The following provides information on those policies that
management considers critical because of the level of judgement and
estimation required which often involves assumptions regarding
future events which can vary from what is anticipated. The
Directors believe that the financial statements reflect appropriate
judgements and estimates and provide a true and fair view of
Essentra's performance and financial position.
Accounting Estimates
i Business combinations and intangible assets
IFRS 3 requires the identification of acquired intangible assets
as part of a business combination. The methods used to value such
intangible assets require the use of estimates and judgements such
as customer attrition, cash flow generation from the existing
relationships with customers and returns on other assets. Future
results are impacted by the amortisation periods adopted and
changes to the estimated useful lives would result in different
effects on the income statement and balance sheet.
Goodwill is not amortised but is tested at least annually for
impairment, along with the finite-lived intangible assets and other
assets of the Group's cash generating units. Tests for impairment
are based on discounted cash flows and assumptions (including
discount rates, timing and growth prospects) which are inherently
subjective. Judgement is also required in identifying the events
which indicate potential impairment, and in assessing fair value of
individual assets when allocating an impairment loss in a
cash-generating unit or groups of cash-generating units. The Group
performs various sensitivity analyses in respect of the tests for
impairment.
The useful lives of the Group's finite-lived intangible assets
are reviewed following the tests for impairment at least
annually.
Judgement may also be required in determining the fair value of
other assets acquired and liabilities (including contingent
liabilities) assumed.
In preparing the condensed consolidated interim financial
statements, the Group has considered the impact that climate change
may have on key accounting judgements and estimates including asset
useful economic lives and asset valuations and impairments. The
Group continues to introduce initiatives designed to reduce the
carbon emissions from its operations. As a result, the Group
considers the environmental assumptions embedded within the Group's
strategic business plan to support the key forward looking
accounting judgements and estimates.
ii Taxation
Liabilities for tax contingencies require management judgements
and estimates in respect of tax audit issues and exposures in each
of the jurisdictions in which it operates. Management is also
required to make an estimate of the current tax liability together
with an assessment of the temporary differences which arise as a
consequence of different accounting and tax treatments. Where
management conclude that a tax position is uncertain, a current tax
liability is held for anticipated taxes that are considered
probable based on the information available.
Included in the tax payable is a liability of GBP9.7m (31
December 2020: GBP12.0m) for transfer pricing matters and GBP19.5m
(31 December 2020: GBP20.2m) for other uncertain tax positions. The
movement is due to adjustments for current year transactions
including foreign exchange movements, expiry of statute of
limitations following the passage of time and agreement reached
with tax authorities on previous matters.
Management may engage with professional advisors in making their
assessment and, if appropriate, will liaise with the relevant
taxation authorities to resolve the matter. The tax liability is
reassessed in each period to reflect management's best estimate in
light of information available. If the final outcome of these
matters differs to the liability held in the financial statements,
the difference may impact the income tax expense/(credit) in the
year the matter is concluded.
iii Pensions
Essentra accounts for its defined benefit pension schemes in
accordance with IAS 19. The application of IAS 19 requires the
exercise of judgement in relation to the assumptions used and for
each assumption there is a range of possible outcomes. In
consultation with Essentra's actuaries, management decides the
point within those ranges that most appropriately reflects
Essentra's circumstances. Small changes to these assumptions can
have a significant impact on valuations. The Group performs a
sensitivity analysis for the significant assumptions used in
determining post-employment costs and liabilities, as detailed in
note 18 of the Essentra Annual Report 2020.
Accounting Judgements
i Adjusting items
Judgement is required to determine whether items should be
included within adjusting items by virtue of their size or
incidence. Details of the items categorised as adjusting items are
disclosed in note 3.
As restructuring and reorganisation costs are recognised (for
instance with respect to site rationalisation initiatives),
estimates are often involved in relation to property-related costs
(such as restoration and dilapidation costs, recoverable amount of
lease right-of-use assets and potential sublet income) and asset
impairment charges (in assessing recoverable amount such as fair
value from potential sale of assets). Where appropriate and
possible, management may engage with professional advisors in
making these assessments.
ii Consolidation of subsidiary
Judgement is required to establish whether control exists over
an entity in which Essentra holds part of the share capital.
Essentra has a 49% shareholding in China Tobacco Essentra (Xiamen)
Filters Co., Ltd which has been consolidated as a subsidiary within
the consolidated interim financial statements because management
have assessed that Essentra has control over the entity to direct
the relevant activities (including approval of budgets and capital
investments, and appointment of key management personnel) that
significantly affect the entity's returns and the ability to use
its power to affect those returns, through a majority of membership
in the entity's governing body (primarily the board of directors).
Subsidiaries are fully consolidated during the period which the
Group holds control.
iii Leases and lease right-of-use assets
A key judgement in determining the right-of-use asset and lease
liability is establishing whether it is reasonably certain that an
option to extend the lease will be exercised. Distinguishing
whether a lease will be extended or otherwise could have a material
impact on the value of the right-of-use assets and lease
liabilities recognised on the balance sheet, but may not have a
material impact on the income statement.
In determining the lease term, management considers all facts
and circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. Extension
options (or periods after termination options) are only included in
the lease term if the lease is reasonably certain to be extended
(or not terminated).
The assessment is reviewed if a significant event or a
significant change in circumstances occurs which affects this
assessment and that is within the control of the lessee.
2. Segment analysis
In accordance with IFRS 8, Essentra has determined its operating
segments based upon the information reported to the Group
Management Committee.
The operating segments are as follows:
Components is a global market leading manufacturer and
distributor of plastic injection moulded, vinyl dip moulded and
metal items.
Packaging is one of only two multi-continental suppliers of a
full secondary packaging range to the health and personal care
sectors.
Filters is the only global independent supplier of innovative
cigarette filters and related solutions to the tobacco
industry.
The adjusted operating profit/loss presented for each operating
segment includes the effect of allocation of certain functional
costs such as finance, human resources, legal and IT, as well as
costs relating to management of the divisions on an internal
management methodology.
June 2021
---------- --------- ------- ---------------------
Central
Components Packaging Filters Services(1) Total
GBPm GBPm GBPm GBPm GBPm
-------------------- ---------- --------- ------- ------------ -------
External revenue 148.4 187.0 139.5 - 474.9
Total revenue 148.4 187.0 139.5 - 474.9
Adjusted operating
profit/(loss)
(2) 27.0 9.6 11.5 (12.4) 35.7
-------------------- ---------- --------- ------- ------------ -------
Segment assets 163.8 217.1 191.4 24.2 596.5
Intangible
assets 159.4 302.9 22.7 17.9 502.9
Unallocated
items (3) - - - 169.4 169.4
-------------------- ---------- --------- ------- ------------ -------
Total assets 323.2 520.0 214.1 211.5 1,268.8
-------------------- ---------- --------- ------- ------------ -------
Segment liabilities 69.6 83.0 60.4 28.7 241.7
Unallocated
items (3) - - - 389.8 389.8
-------------------- ---------- --------- ------- ------------ -------
Total liabilities 69.6 83.0 60.4 418.5 631.5
-------------------- ---------- --------- ------- ------------ -------
2. Segment analysis (continued)
June 2020
----------- --------- ------- ---------------------
Central
Components Packaging Filters Services(1) Total
GBPm GBPm GBPm GBPm GBPm
--------------------- ----------- --------- ------- ------------ -------
External revenue 129.7 185.3 133.4 - 448.4
Total revenue 129.7 185.3 133.4 - 448.4
Adjusted operating
profit/(loss)(2) 23.9 4.9 10.8 (10.6) 29.0
--------------------- ----------- --------- ------- ------------ -------
Segment assets 174.3 233.1 207.9 24.2 639.5
Intangible
assets 178.5 293.0 22.3 11.9 505.7
Unallocated
items (3) - - - 201.7 201.7
--------------------- ----------- --------- ------- ------------ -------
Total assets 352.8 526.1 230.2 237.8 1,346.9
--------------------- ----------- --------- ------- ------------ -------
Segment liabilities 65.3 92.2 58.2 36.1 251.8
Unallocated
items (3) - - - 528.7 528.7
--------------------- ----------- --------- ------- ------------ -------
Total liabilities 65.3 92.2 58.2 564.8 780.5
--------------------- ----------- --------- ------- ------------ -------
December 2020
----------- --------- ------- ---------------------
Central
Components Packaging Filters Services(1) Total
GBPm GBPm GBPm GBPm GBPm
--------------------- ----------- --------- ------- ------------ -------
External revenue 255.0 363.2 278.3 - 896.5
Total revenue 255.0 363.2 278.3 - 896.5
Adjusted operating
profit/(loss)(2) 45.5 13.8 25.2 (22.5) 62.0
--------------------- ----------- --------- ------- ------------ -------
Segment assets 149.1 218.5 186.6 23.0 577.2
Intangible
assets 165.2 316.0 22.6 15.0 518.8
Unallocated
items (3) - - - 169.2 169.2
--------------------- ----------- --------- ------- ------------ -------
Total assets 314.3 534.5 209.2 207.2 1,265.2
--------------------- ----------- --------- ------- ------------ -------
Segment liabilities 60.4 85.8 56.7 30.4 233.3
Unallocated
items (3) - - - 400.8 400.8
--------------------- ----------- --------- ------- ------------ -------
Total liabilities 60.4 85.8 56.7 431.2 634.1
--------------------- ----------- --------- ------- ------------ -------
(1) Central Services includes executive and non-executive
management, group finance, tax, treasury, legal, group assurance,
human resources, information technology, corporate development,
group operations, corporate affairs and other services provided
centrally to support the operating segments.
(2) Operating profit before acquired intangible amortisation
and adjusting items.
(3) The unallocated assets relate to income and deferred
tax assets, retirement benefit assets, derivatives, other
financial assets and cash and cash equivalents. The unallocated
liabilities relate to interest bearing loans and borrowings,
retirement benefit obligations, derivatives, deferred tax
liabilities and income tax payable. Intersegment transactions
are carried out on an arm's length basis.
3. Adjusting items
Six months Six months Year
ended ended ended
30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPm GBPm GBPm
--- ----------------------------------------------------- ----------- ---------- ------
(Gains)/losses and transaction costs relating
to acquisitions and disposals of businesses(1) (4.3) 3.5 5.7
Acquisition integration and restructuring
costs(2) 0.2 0.2 0.5
Other(3) (1.4) (1.2) 11.5
------------------------------------------------------ ----------- ---------- ------
Adjusting items (5.5) 2.5 17.7
------------------------------------------------------ ----------- ---------- ------
Adjusting items are separately presented from other items by
virtue of their nature, size and/or incidence (considered for
each operating segment). They are identified separately in order
for the reader to obtain a clearer understanding of the underlying
results of the ongoing Group's operations, by excluding the impact
of items which, in management's view, do not form part of the
Group's underlying operating results, such as gains, losses or
costs arising from business acquisition and disposal activities,
significant restructuring and closure costs and other items which
are non-recurring or one-off in nature (such as the costs of
fundamental strategic review and reorganisation). Operating profit
before adjusting items and acquired intangible amortisation is
called adjusted operating profit, which forms the primary basis
of management's review and assessment of operational performance
of the Group's businesses.
1 Losses/gains and transaction costs relating to acquisitions and
disposals of businesses are made up of a credit of GBP4.4m in
relation to the reversal of certain claim provisions in relation
to prior disposals, following the conclusion of negotiation with
the purchasers; a gain of GBP0.4m in relation to a prior acquisition
for claims made against the vendor; and a GBP0.1m gain from the
Pipe Protection Technology disposal in relation to recharges
to sub-tenant for dilapidations. These are offset by acquisition-related
costs of GBP0.5m in relation to the acquisition of Jiangxi Hengzhu
Electrical Cabinet Lock Co., Ltd ("Hengzhu"), and GBP0.1m of
costs in setting up the Filters China joint venture.
2 Acquisition integration and restructuring costs relate to the
integration of the 3C! business, acquired in 2020, into the existing
business.
3 The other adjusting items gain of GBP1.4m for the six months
ended 30 June 2021 relates to:
-- GBP4.3m profit on disposal of Moorestown property following the
restructuring activities in the Packaging division initiated
in 2020.
-- GBP1.1m restructuring costs in the Packaging division, involving
management restructuring and redundancies at various European
sites.
-- GBP0.8m in relation to Filters restructuring, including rationalisation
of the division's R&D facilities in the US.
-- GBP0.8m of advisory costs in relation to a strategic review of
the Group's operational structure and cost profile, and certain
redundancies in enabling functions as part of the review.
-- GBP0.2m net charge relating to Components restructuring, comprising
GBP0.6m costs in relation to restructuring activities within
the Components Europe and Americas businesses, offset by a GBP0.4m
credit relating to adjustment on the carrying value of lease
right-of-use assets.
4. Taxation
The taxation charges for the six months ended 30 June 2021 and
30 June 2020 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.
Finance Act 2021 was substantively enacted on 24 May 2021 which
included increasing the main rate of UK corporation tax to 25% from
1 April 2023. As a consequence of this legislation change the Group
has a one-off non-cash tax credit of GBP2.2m arising in the period
as a result of revaluing UK deferred tax assets expected to reverse
after 1 April 2023 to 25%. The impact of this change on the Group's
expected underlying effective tax rate for the full year is a
reduction of 3.2%. Compared to the prior period the reduction in
rate is partially offset by the impact of a change in the
geographical split of profits across the Group.
The effective tax rate on underlying profit before tax before
adjusting items is 16.7% (six months ended 30 June 2020: 19.2%)
including the impact of the rate change. The reported effective tax
rate is 10.8% (six months ended 30 June 2020: 11.4%). The
difference between the underlying and reported effective tax rates
is due to the tax effect of adjusting items and amortisation of
acquired intangible assets.
5. Earnings per share
Six months Six months Year
ended ended ended
30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPm GBPm GBPm
--------------------------------------------- ---------- ---------- ------
Earnings: Continuing operations
Earnings attributable to equity holders
of Essentra plc 19.9 6.1 4.5
Adjustments
Amortisation of acquired intangible assets 11.1 10.9 22.6
Adjusting items (5.5) 2.5 17.7
---------------------------------------------- ---------- ---------- ------
5.6 13.4 40.3
Tax relief on adjustments (2.3) (3.2) (9.2)
Adjusted earnings 23.2 16.3 35.6
---------------------------------------------- ---------- ---------- ------
Weighted average number of shares
Basic weighted average ordinary shares
outstanding (million) 301.0 262.2 272.7
Dilutive effect of employee share option
plans (million) 1.2 1.6 2.0
---------------------------------------------- ---------- ---------- ------
Diluted weighted average ordinary shares
(million) 302.2 263.8 274.7
---------------------------------------------- ---------- ---------- ------
Earnings per share: Continuing operations
(pence)
Basic earnings per share 6.6p 2.3p 1.7p
Adjustment 1.1p 3.9p 11.4p
---------------------------------------------- ---------- ---------- ------
Basic adjusted earnings per share 7.7p 6.2p 13.1p
---------------------------------------------- ---------- ---------- ------
Diluted earnings per share 6.6p 2.3p 1.6p
Adjustment 1.1p 3.9p 11.4p
---------------------------------------------- ---------- ---------- ------
Diluted adjusted earnings per share 7.7p 6.2p 13.0p
---------------------------------------------- ---------- ---------- ------
Adjusted earnings per share is provided to reflect the underlying
earnings performance of Essentra.
The basic weighted average number of ordinary shares in issue excludes
shares held in treasury and shares held by an employee benefit
trust.
6. Property, plant and equipment
During the period, the additions of land and buildings, plant
and machinery and fixtures, fittings and equipment amounted to
GBP16.3m (six months ended 30 June 2020: GBP12.6m; year ended
31 December 2020: GBP27.9m) and there was a decrease of GBP6.1m
(six months ended 30 June 2020: increase of GBP10.4m; year ended
31 December 2020: decrease of GBP5.5m) in net book value due to
foreign exchange movements.
Land and buildings, plant and machinery and fixtures, fittings
and equipment with a net book value of GBP3.7m (six months ended
30 June 2020: GBP0.1m; year ended 31 December 2020: GBP0.6m) were
disposed of for proceeds of GBP8.5m (six months ended 30 June
2020: GBP0.1m; year ended 31 December 2020: GBP0.4m).
7. Lease right-of-use assets
Group's non-current assets include right-of-use assets from
asset leasing arrangements. Depreciation is charged to the income
statement so as to depreciate the right-of-use asset from the lease
commencement date to the earlier of the end of the useful life of
the right-of-use asset and the end of the lease term.
During the period, the additions to right-of-use assets amounted
to GBP1.0m (six months ended 30 June 2020: GBP12.5m; year ended 31
December 2020: GBP21.9m) and the depreciation of right-of-use
assets amounted to GBP5.8m (six months ended 30 June 2020: GBP6.2m;
year ended 31 December 2020: GBP12.0m).
During the period the right-of-use assets net book value
decreased by GBP1.6m (six months ended 30 June 2020: increase of
GBP2.0m; year ended 31 December 2020: decrease of GBP1.2m) due to
foreign exchange movements.
Right-of-use assets with a net book value of GBPnil (six months
ended 30 June 2020: GBPnil; year ended 31 December 2020: GBP2.5m)
were acquired through business combinations in the period (see note
11).
8. Intangible assets
During the period, the additions of intangible assets (not through
acquisitions) amounted to GBP6.7m (six months ended 30 June 2020:
GBP6.8m; year ended 31 December 2020: GBP14.2m) and there was
an intangible net book value decrease of GBP10.0m (six months
ended 30 June 2020: increase of GBP23.6m; year ended 31 December
2020: decrease of GBP4.7m) due to foreign exchange movements.
Included within intangibles was goodwill of GBP322.4m (six months
ended 30 June 2020: GBP325.8m; year ended 31 December 2020: GBP328.2m)
and there was a goodwill net book value decrease of GBP5.8m (six
months ended 30 June 2020: increase of GBP14.0m; year ended 31
December 2020: decrease of GBP3.4m) due to foreign exchange movements.
9. Retirement benefit obligations
Movement in pension net assets/(liabilities) during the period
Six months Six months Year
ended ended ended
30 Jun 30 Jun 31 Dec
2021 2020 2020
GBPm GBPm GBPm
------------------------------------------------- ---------- ---------- ------
Movements
Beginning of period (23.9) (17.4) (17.4)
Current service cost and administrative
expense (0.9) (0.6) (2.1)
Employer contributions 5.1 0.9 1.2
Return on plan assets excluding amounts
in net finance income (12.3) 21.0 32.4
Actuarial gains/(losses) arising from changes
in financial assumptions 23.1 (26.0) (38.8)
Actuarial gains arising from change in
demographic assumptions - - 1.9
Actuarial gains/(losses) arising from experience
adjustment 1.1 0.1 (2.2)
Net finance cost (0.3) (0.3) (0.7)
Curtailments - - 0.4
Currency translation 0.7 (2.3) 1.4
-------------------------------------------------- ---------- ---------- ------
End of period (7.4) (24.6) (23.9)
-------------------------------------------------- ---------- ---------- ------
The assets and liabilities of the principal defined benefit schemes
were reviewed by independent qualified actuaries as at 30 June
2021. 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 30 Jun 31 Dec
2021 2020 2020
------------------------------------------------- ---------- ---------- ------
Rate of increase in pensions
At RPI capped at 5% 3.00% 2.80% 2.70%
At CPI capped at 5% 2.50% 1.90% 2.20%
At CPI minimum 3%, capped at 5% 3.20% 3.10% 3.10%
At CPI capped at 2.5% 2.10% 1.70% 1.90%
Discount rate 1.90% 1.50% 1.30%
Inflation rate - RPI 3.10% 2.80% 2.70%
Inflation rate - CPI 2.50% 1.90% 2.20%
-------------------------------------------------- ---------- ---------- ------
US
30 Jun 30 Jun 31 Dec
2021 2020 2020
------------------------------------------------- ---------- ---------- ------
Discount rate 2.78% 2.70% 2.45%
-------------------------------------------------- ---------- ---------- ------
10. Analysis of net debt
30 Jun 31 Dec
2021 2020
GBPm GBPm
---------------------------------------------------- --------- ---------
Cash at bank and in hand 121.0 121.5
Short-term deposits and investments 11.5 14.3
----------------------------------------------------- --------- ---------
Cash and cash equivalents 132.5 135.8
Loans and borrowings due after one year (291.6) (285.2)
Lease liabilities within one year (10.4) (11.9)
Lease liabilities after one year (42.7) (49.1)
----------------------------------------------------- --------- ---------
Net debt (212.2) (210.4)
----------------------------------------------------- --------- ---------
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 2021, the Group's committed facilities primarily comprised
a series of US Private Placement Loan Notes from various financial
institutions totalling US$100.0m and a syndicated multi-currency
revolving credit facilities of GBP285.0m and EUR100.8m from its
banks. At 30 June 2021, the available bank facilities totalled
GBP371.2m (31 December 2020: GBP375.0m) of which GBP221.3m (31
December 2020: GBP213.8m) was drawn down and GBP149.9m (31 December
2020: GBP161.2m) was undrawn.
In addition to the above, the Group has issued $250m of additional
USPP loan notes on 27 July 2021 with terms of 7 ($80m), 10 ($85m)
and 12 ($85m) years.
11. Acquisitions
Acquisition of Hengzhu
On 13 May 2021, Essentra announced that it had signed an agreement
to purchase the business of Jiangxi Hengzhu Electrical Cabinet
Lock Co., Ltd ("Hengzhu"), an access hardware manufacturer and
distributor in China. The transaction is expected to complete
in the third quarter of 2021. Essentra will initially acquire
73% of the business for Yen100m (approximately GBP11m), with the
remaining 27% stake subject to put and call options whereby Essentra
may acquire the minority shareholding for consideration determined
by the future operating performance of the business and capped
at a maximum of Yen37.5m (approximately GBP4m).
Acquisition of 3C!
On 17 September 2020, Essentra acquired 100% of the share capital
of 3C! Packaging, Inc. ("3C!"). 3C!, headquartered in North Carolina,
USA, is a leading designer and manufacturer of folding cartons,
printed literature, foil and flexible packaging and labels focused
on the pharmaceuticals and healthcare sectors. 3C! is reported
under the Packaging division.
During the period, Essentra paid out the remaining deferred consideration
on the acquisition amounting to GBP0.1m.
Establishment of Filters China joint venture
On 2 April 2020, Essentra confirmed that it has completed the
establishment of the new joint venture company, China Tobacco
Essentra (Xiamen) Filters Co., Ltd. Essentra's capital contribution
into this business is US$10.3m, to be paid in three equal instalments
over 18 months following its establishment. As at 30 June 2021
Essentra has paid all three of these instalments. During the period
proceeds from capital contributions from non-controlling interests
into this joint venture company were GBP3.1m.
Acquisition of Innovative Components
During the period, Essentra paid out the remaining deferred consideration
relating to the acquisition of Innovative Components, amounting
to GBP1.8m.
12. Dividends
Per share Total
---------- ---------- --------- ---------- ---------- ------
Six months Six months Year Six months Six months Year
ended ended ended ended ended ended
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2021 2020 2020 2021 2020 2020
p p p GBPm GBPm GBPm
------------------- ---------- ---------- --------- ---------- ---------- ------
2020 final:
paid 1 June 2021 3.3 10.0
2021 interim:
payable 29 October
2021 2.0 6.0
The interim dividend for 2021 of 2.0p per 25p ordinary share
will be paid on 29 October 2021 to equity holders on the register
of shares on 24 September 2021.
In the table above, each dividend is shown in the period that
it is attributable to. For accounting purpose, dividends are
recognised in the period in which they are approved by the
shareholders of the Company (final dividend) or paid (interim
dividend).
13. Related party transactions
Other than the capital injection into the Filters joint venture
entity China Tobacco Essentra (Xiamen) Filters Co., Ltd. Essentra
has not entered into any material transactions with related parties
since the last Annual Report.
14. Financial instruments
Essentra held the following financial instruments at fair value
at 30 June 2021. The only financial instrument with fair value
determined by reference to significant unobservable inputs, which
is classified as level 3 in the fair value hierarchy, is the deferred
contingent consideration relating to the acquisition of Micro
Plastics. The portion relating to Innovative Components has been
paid during the period. The fair value of the deferred contingent
consideration is estimated based on an assessment of the likely
outcome of the acquired business' financial performance. The other
financial instruments included in the table below are determined
to be level 2 in the fair value hierarchy. There have been no
transfers between levels of the fair value hierarchy. There are
no non-recurring fair value measurements.
30 Jun 31 Dec
2021 2020
GBPm GBPm
------------------------------------------------------ ---------- ---------
Financial assets
Derivatives 0.3 0.3
Financial liabilities
Derivatives (0.1) (0.5)
Deferred contingent consideration (2.4) (4.4)
Total (2.2) (4.6)
------------------------------------------------------- ---------- ---------
Essentra had US dollar and euro denominated borrowings which it
designated as hedges of its net investments in subsidiary undertakings.
The exchange gains of GBP0.5m (30 June 2020: GBP8.2m losses) on
the US dollar borrowings and the gains of GBP2.6m (30 June 2020:
GBP4.3m losses) on the euro borrowings were recognised in other
comprehensive income.
At 30 June 2021, the carrying amount of the US Private Placement
Loan Notes were GBP72.5m with a fair value of GBP78.3m. At 30
June 2020, the carrying amount of the US Private Placement Loan
Notes were GBP81.3m with a fair value of GBP88.0m. For all other
financial instruments, the fair value approximates to the carrying
amount.
15. Post balance sheet event
In July 2021, Essentra issued new medium and long-dated private
placement debt amounting to US$250.0m. The issue comprises US$80.0m
notes due 2028, US$85.0m notes due 2031 and US$85.0m notes due
2033. The covenants on the notes are in line with those on the
existing private placement notes and bank revolving credit
facility. The proceeds will be used for general corporate purposes
and to repay shorter-dated bank debt (with net debt level
maintained), thereby diversifying the Company's source of debt
finance and lengthening its maturity profile. Some of the proceeds
have been swapped into sterling, in accordance with the Group's
hedging policies.
16. Contingent liabilities
In April 2019, the European Commission issued its decision in a
state aid investigation into the Group Financing Exemption in the
UK controlled foreign company rules. The European Commission found
that part of the Group Financing Exemption, which was introduced in
legislation by the UK Government in 2013, constitutes state
aid.
In March 2021, Essentra received confirmation from HMRC that
they consider the investigation to be closed with no liability
arising, and the EU Commission Services of the Directorate-General
for Competition had indicated their agreement with this conclusion
based on the evidence provided by Essentra. As at 30 June 2021,
Essentra no longer consider this a contingent liability and have
submitted an annulment application in respect of our previously
submitted appeal to the General Court of the European Union.
Responsibility statement of the directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with UK adopted International Accounting Standard 34
Interim Financial Reporting;
-- the interim management report includes a fair review of the
information required by the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Paul Forman Lily Liu
Chief Executive Chief Financial Officer
30 July 2021
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 2021 of Essentra plc for
the 6 month period ended 30 June 2021 (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.
What we have reviewed
The interim financial statements, comprise:
-- the Condensed consolidated balance sheet as at 30 June 2021;
-- 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 2021 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.
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 2021, 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 2021 in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Results for the Half Year Ended 30 June
2021 based on our review. 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.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Results for
the Half Year Ended 30 June 2021 and considered whether it contains
any apparent misstatements or material inconsistencies with the
information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Milton Keynes
30 July 2021
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END
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