ESSENTRA PLC

("Essentra", the "Group" or the "Company")

RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2024

 Return to growth in the second quarter. FY24 expectations unchanged.

 

Results at a glance

	H1 2024   £m	H1 2023    £m	Change Constant FX	Change Actual    FX
Revenue	159.7	166.3	+1.5%	(4.0)%
Adjusted1 operating profit	21.8	23.0	+7.6%	(5.2)%
Adjusted1 operating margin	13.7%	13.8%	+80bps	(10)bps
Net financing costs	(4.1)	-	-	-
Adjusted1 pre-tax profit	17.7	23.0	(14.0)%	(23.0)%
Adjusted1 basic earnings per share	4.6p	5.9p	(13.3)%	(22.0)%
Adjusted1 net cash flow from operating activities	17.5	20.5	(2.8)%	(14.6)%
Reported operating profit	8.1	10.3	+4.2%	(21.4)%
Reported pre-tax profit	4.0	10.3	(50.7)%	(61.2)%
Reported net profit	2.5	7.7	(54.7)%	(67.5)%
Reported profit per share	0.9p	2.6p	-	(65.4)%
Dividend per share	1.25p	1.20p	-	+4.2%
Reported net cash inflow from operating activities2	14.5	8.9	-	62.9%
Free cash flow2	12.5	15.3	-	(18.3)%
Net debt / (funding surplus)4	59.7	(12.9)	-	-
Net debt / (funding surplus) to adjusted EBITDA3,4	1.1x	(0.3)x	-	-

Numbers reported on a continuing operations basis

Financial performance

·   Revenue of £159.7m (H1 2023: £166.3m), 1.5% growth on a constant currency basis, 4.0% decline on a reported basis

·   Sequential quarterly improvement in revenue year to date, with the business returning to year-on-year growth in Q2 on a like-for-like⁵ ("LFL") basis

·    Gross margin expansion to 46.4% (H1 2023: 43.9%)

·    Adjusted¹ operating profit £21.8m (H1 2023: £23.0m), representing 7.6% growth on a constant currency basis, with adjusted operating margins of 13.7% (H1 2023: 13.8%)

·     Central corporate costs in line with the c.£13m annual run rate previously guided

·     Adjusted¹ basic earnings per share of 4.6p (H1 2023: 5.9p)

·     Adjusted¹ net cash flow from operating activities of £17.5m; conversion of 80.3% (H1 2023: 89.1%)

·     Reported net cash inflow from operating activities of £14.5m (H1 2023: £8.9m)

·    Net debt of £59.7m excluding IFRS16 lease liabilities of £29.4m, representing leverage of 1.1x adjusted EBITDA³ on a pre-IFRS16 basis (1.4x on a post-IFRS16 basis)

·     Progressive interim ordinary dividend of 1.25p per share, in line with the Company's previously stated policy

·    Rolling Credit Facility ("RCF") extension secured with the same terms through to July 2029, ensuring long-term funding

 

Market performance

·    End-market recovery remains mixed, although sales per working day trends across the Group's three trading regions improved through the first half, with gross margin expansion year-on-year

·     EMEA saw a stable LFL⁵ performance, with lower levels of recovery in line with external indicators. Total growth for EMEA, including BMP TAPPI was 6.9% on a constant currency basis

·     The Americas region reported 6.9% constant currency decline in H1, although saw pace of decline ease in Q2 to 4.9% benefiting from stability across distributor end-market channels

·    APAC reported 1.8% constant currency growth. Whilst the domestic China market remains soft, the export market is improving, supported by the growth of access hardware sales and new customer projects

 

Outlook

·   Board expectations for FY 2024 adjusted¹ operating profit remain unchanged and are aligned with market expectations⁶

·     In H1 the Group delivered gross margin and operating profit margin expansion on a constant currency basis in mixed end-market conditions

·    Essentra is well positioned with a right-sized cost base and robust operations to deliver operating leverage as market growth returns

·     Further modest improvements in volumes in the second half of the year are anticipated, underpinned by ongoing recovery of demand in our end-markets

·    The acquisition pipeline remains active and Management continue to assess a number of opportunities, whilst maintaining a disciplined approach to allocating capital for growth

·    Essentra remains focused on enhancing its hassle-free customer proposition, delivering strong profit margins, and continues to invest in growth initiatives

 

Commenting on the Half Year results, Scott Fawcett, Chief Executive, said:

"We are encouraged by the sequential momentum through the first half of 2024, and in particular sales and volume trends returning to year-on-year growth in Q2, while recognising that market sentiment remains mixed by region with modest levels of recovery to date. In the period, the Group delivered financial performance in line with Board expectations, including gross margin expansion to 46.4% and operating margins of 13.7%, reflecting Essentra's resilient track record through the cycle and demonstrating the strength of our differentiated business model. We are also pleased with the performance and contribution so far of BMP TAPPI, which we acquired in October 2023.

In light of the mixed macro environment, the business continues to maintain a balanced approach to cost control, driving further operational efficiencies, whilst also investing appropriately in value-enhancing growth initiatives that will support long-term value creation.

Management remains confident in making further progress in 2024 towards Essentra's medium-term targets. We expect to see further modest improvements in volume in the second half of the year, and as such, FY 2024 expectations are unchanged."

^{1 On a continuing operations basis, before amortisation of acquired intangible assets and adjusting items. Further details can be found in Note 3 of the Condensed Consolidated Interim Financial Statements.}

^{2 A reconciliation of free cash flow and net cash inflow from operating activities is set out in the Financial Review section.}

^{3 Adjusted EBITDA is defined as operating profit before depreciation (and other amounts written off property, plant and equipment), share option expense, amortisation of acquired intangible assets and adjusting items. Net debt to adjusted EBITDA including lease liabilities is 1.4x (H1 2023: 0.2x).}

^{4 Presented on a last twelve months basis excluding lease liabilities. £89.1m (H1 2023: £8.3m) when including lease liabilities.}

^{5 On a constant currency basis, excluding the acquisition of BMP TAPPI, completed October 2023.}

^{6 Company compiled market expectations for 2024 adjusted operating profit are between £48.5m and £50.6m.}

 

Enquiries

Essentra plc Jack Clarke, Chief Financial Officer Claire Goodman, Investor Relations Manager Emma Reid, Company Secretary Tel: +44 (0)1908 359100

FTI Consulting Richard Mountain Ariadna Peretz FTI_essentra@fticonsulting.com Tel: +44 (0)20 3727 1340

 

Presentation

A copy of these results is available on www.essentraplc.com

There will be a presentation to analysts and investors starting at 09:00am (UK time, registration from 08:30am) on Tuesday 30 July 2024 at the offices of Peel Hunt, 100 Liverpool Street, London EC2M 2AT.

There are two options for participating in the event:

1.   To attend in person, please e-mail your details to investorrelations@essentra.com

2.   To join the live webcast of the presentation, please pre-register at http://www.essentraplc.com/en/investors/company-information/webcasts-and-presentations

A recording of the webcast will be made available on the Company's website later in the day. 

Notes to Editors

About Essentra plc

Essentra plc is a FTSE 250 company and a leading global provider of essential components and solutions, focusing on the manufacture and distribution of plastic injection moulded, vinyl dip moulded and metal items.

Headquartered in the United Kingdom, Essentra's global network extends to 28 countries worldwide and includes c.3,000 employees, 14 manufacturing facilities, 24 distribution centres and 33 sales & service centres serving c.69,000 customers with a rapid supply of low cost but essential products for a variety of applications in industries such as equipment manufacturing, automotive, fabrication, electronics, medical and renewable energy. For further information, please visit www.essentraplc.com

LEI: 5493007MOZNA03BVNE96

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.

 

 

The Group delivered revenues of £159.7m in H1 2024, an improvement of 1.5% on a constant currency basis. Like-for-like ("LFL") revenues reduced by 2.2% year-on-year, offset by a positive contribution to revenue of 3.7% from the acquisition of BMP s.r.l ("BMP TAPPI"), which completed in October 2023. The business saw an adverse FX movement in the period of 5.5%, resulting in a reported revenue decline of 4.0% compared to the previous year.

On a constant currency basis, compared to the prior year, Q1 saw LFL revenues decline by 4.6% improving to year-on-year growth of 0.7% in Q2 on an adjusted trading day basis. Whilst performance year-on-year was partly supported by easing comparatives, the Group saw LFL Q2 2024 sales on an adjusted trading day basis increase by 2.7% compared to Q1 2024 and improve by 4.4% compared to H2 2023.

Consistent with the AGM trading update shared in May 2024, momentum was sustained through the first half of 2024, albeit at a modest pace. EMEA achieved a stable performance, with lower levels of recovery in line with external indicators. Softer conditions remain in West Europe, particularly in Germany, offset by notable areas of strength in East Europe and Turkey, supporting the result of the region as a whole. The Americas region saw previous destocking trends ease and stabilise within distributor end-market channels, whilst in the APAC region although the domestic market in China remains weak, export sales to the rest of APAC are improving, supported by the growth of access hardware sales and new customer projects.

The Group experienced reduced levels of input price inflation through the first half, including for raw materials. Combined with proactive procurement activities, this led to more focused customer price increases with the overall pricing benefit for the Group returning to normalised levels in H1. The Group anticipates this focused and selective approach to customer price increases to continue through the second half.

Gross margins in H1 were strong at 46.4% (H1 2023: 43.9%), with all three regions reporting margin expansion. The business continues to focus on controlling costs and driving operational efficiencies, further supported by procurement focus, driving additional margin accretion.

The Group achieved adjusted operating profits of £21.8m (H1 2023: £23.0m) with adjusted operating margins of 13.7% (H1 2023: 13.8%). All three regions continue to balance a disciplined approach to cost management with investment in organic growth opportunities. Central corporate costs totalling £6.5m (H1 2023: £6.2m) remain in line with the £13.0m annual run rate previously guided.

In H1 2024, the Group generated £17.5m of adjusted operating cashflow with operating cash conversion of 80.3% (H1 2023: 89.1%). The business saw a lower cash conversion in the period, as it utilised additional working capital to build inventory within the standard product offer enabling an improvement in our "hassle-free" service to our customers. The Group will continue to review its standard product offer through H2 2024 to further reduce lead times and improve product availability for customers, positioning Essentra well to take market share as volumes return.

Group strategy and medium-term targets.

Essentra is well positioned, with a unique business model in a highly fragmented market combining manufacturing and distribution, enabling breadth and depth of product offer alongside a hassle-free customer offering. The business is diversified, generates high margins and has scope to expand through scale and operational effectiveness. Given strong returns and cash conversion, the business is able to further drive growth through value enhancing M&A. To date Essentra has executed and integrated eleven acquisitions in the previous thirteen years. The M&A pipeline remains active and Management continues to assess a number of opportunities, whilst maintaining a disciplined approach to allocating capital for growth.

The medium-term ambition of the business, as set out at the November 2022 capital markets event, remains to double the revenue and triple operating profits in the medium-term with clear metrics to achieve our strategy, supported by:

·    A clear strategy to drive market share gains, supported by a leading market position in a highly fragmented market

·      Margin expansion from scale, operating efficiencies, and pricing initiatives

·    A highly cash generative business model with continued focus on working capital management and a strong balance sheet

·      A clear capital framework to drive further shareholder returns.

 

Providing a "hassle-free" customer experience. The Group is committed to delivering a "hassle-free" customer proposition and our two closely linked on-time-in-full ("OTIF") performance and Customer Satisfaction KPIs continue to show good progress. Monthly post-purchase questionnaire metrics indicate an excellent and progressive improvement year-on-year, ahead of the annual customer survey which is expected to take place in H2 2024. Improvements continue to be made to our OTIF performance with the June exit rate ahead of the 2023 average of 82.2%. Whilst EMEA saw an initial small period of disruption in Q1 2024 after the new ERP platform was deployed in East Europe, OTIF rates have improved to normalised levels in the region through Q2 2024. It is expected that OTIF service levels for the Group as a whole will continue to progress towards the 95% target through H2 2024.

Ordinary dividend. The Board has declared a 2024 interim dividend of 1.25 pence per share (2023 interim: 1.20p). The interim dividend is in line with the Board's commitment to a progressive dividend policy maintaining full year dividend cover in the order of three times adjusted earnings.

The interim dividend will be paid on 25 October 2024 to shareholders on the share register at the record date, being 20 September 2024. The ex-dividend date will be 19 September 2024. 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 4 October 2024.

Share buyback programme. The £60.0m share buyback programme announced in February 2023, following the completion of the disposals of the Filters and Packaging businesses, continues. As outlined at the FY 2023 results in March 2024, the execution of the programme will be flexible and is dependent on the Group's capital allocation opportunities and priorities, notably acquisitions. It is anticipated that the buyback programme will extend beyond the current financial year.

Since the launch of the programme to 30 June 2024, a total of 15.16m shares have been purchased, at an average purchase price of 178.3 pence per share, totalling £27.0m. As at 30 June 2024, the programme was c.45% complete. Of the shares purchased, 4.14m were transferred into treasury, and 11.02m have subsequently been cancelled, which represented 3.6% of the issued share capital of the Company (excluding treasury shares) when the programme commenced.

Board changes. As previously announced, Steve Good joined the Board as independent non-executive director and chair designate effective from 1 July 2024. Paul Lester will stand down as chair and from the Board on 1 November 2024 after nine years, and in accordance with Provision 19 of the 2018 UK Corporate Governance Code.

Outlook. Group trading in H1 2024 saw a sequential quarterly improvement in revenue, with the business returning to year-on-year growth in Q2 on a like-for-like basis, delivering gross margin and operating margin expansion on a constant currency basis. Management is encouraged by positive new order intake and sales momentum within the first six months of 2024, albeit at a modest pace. Further modest improvements in volumes in the second half of the year are anticipated, underpinned by ongoing recovery of demand in our end-markets. The Group is well positioned with a right-sized cost base and robust and agile operations to deliver operating leverage as volumes continue to return, and as such expectations for FY 2024 are unchanged.

Essentra's global manufacturing and distribution footprint, market-leading positions and focus on delivering excellent customer service will support ongoing organic growth and profitability. The Group remains focused on enhancing its hassle-free customer proposition, delivering strong profit margins, and continues to invest in value-enhancing growth initiatives. Management remains confident that Essentra's robust and differentiated business model will support further progress towards its medium-term targets.

 

 

EMEA

	H1 2024 £m	% growth Constant FX	% growth Actual FX
Revenue	89.4	6.9	(0.4)
Gross profit	47.2	11.8	4.4
Gross margin	52.8%	230bps	250bps

 

Revenue for the half year was £89.4m, a 6.9% increase on a constant currency basis, compared to the prior year. The region benefitted from the acquisition of BMP TAPPI in October 2023 contributing 7.0% to growth year-on-year, with the LFL business stable compared to the prior year. The first quarter saw a LFL constant currency revenue decline of 3.1% improving to 3.7% growth in Q2, compared to the prior year period on a trading day adjusted basis. Although comparatives to the prior year started to ease through Q2 there is sequential 2024 momentum, with +1.1% LFL growth in sales per working day in Q2 2024 compared to Q1 2024.

End-market conditions in EMEA remain mixed, with a continuation of trends as detailed at the 2024 AGM trading update in May 2024. Western Europe, and Germany in particular, have experienced market softening in line with wider industrial trends and indicators. Whilst the business in Turkey has some exposure to the European market, it has sustained stronger momentum due to reduced exposure to cyclical markets and benefitting instead from the growth of electrification end-market trends within data communications and power generation.

BMP TAPPI, acquired in October 2023 is performing in line with expectations and integration is on track. 1,100 standard products from their extensive range of protective caps and plugs have been launched into the Essentra range as part of a phased approach, with inventory held in the two regional distribution hubs and sales and product specialists across Europe leading commercial activities. The sales opportunity pipeline is building, with early cross-sell success within a number of our end-markets, including specialist vehicles and construction agriculture across the existing Essentra customer base within the EMEA region.

The ERP programme deployment across Eastern Europe in January 2024 has concluded successfully, with limited levels of disruption and business operations returned to normalised levels in Q2. Progress in 2024 remains focused on further implementation in European markets in a measured manner, with Germany, Austria and Benelux region expected to deploy in H2 2024, and the remaining European sites expected to deploy in 2025. The costs to date in 2024 are on track, and anticipated to be c.£10m for the year (FY 2023: £10.8m), in line with guidance previously shared.

Gross margins remained strong at 52.8% for the half year (H1 2023: 50.3%), an improvement of 230bps on a constant currency basis, and ahead of FY 2023 reported gross margin of 51.2%. The region will continue to adjust capacity at regional manufacturing and distribution facilities to meet demand, balancing costs to realise operational efficiencies whilst monitoring changes to end-market conditions.

 

AMERICAS

	H1 2024 £m	% growth Constant FX	% growth Actual FX
Revenue	51.3	(6.9)	(9.4)
Gross profit	19.5	(5.0)	(7.1)
Gross margin	38.0%	80bps	90bps

Revenue for the half year was £51.3m, a reduction of 6.9% on a constant currency basis compared to the prior year. Whilst the region has reported year-on-year revenue decline in the first half, the wider customer industrial environment stabilised at the start of 2024, and distributor volumes normalised with destocking trends easing. Americas saw first quarter constant currency revenue declines of 8.7%, improving to 4.9% decline in Q2 on a trading day adjusted basis. Whilst H1 2023 was comparatively strong, trends in the current year are encouraging with sales per working day trending 2.6% higher in Q2 2024 compared to Q1 2024.

The sequential improvements in revenue through 2024 have been led by an increasing opportunity pipeline and levels of customer activity, with a focus on new customer acquisition including more targeted customer and industry marketing campaigns. A selective approach to sales price increases has been taken in H1 as the market recovers, with a second tranche of price increases planned, anticipated to bring benefits in H2.

The region is continuing to focus on driving new business across the customer base within end-markets such as industrial electronics and production machinery that have higher levels of growth and cross-sell opportunities.

The region remains focused on inventory availability, optimising the distribution network, and has further invested in the stocking of the standard product offer through H1 as a continuation of the activities that commenced in H2 2023. Improvements to the "hassle-free" customer proposition have been recognised through the sustained improvement in post-purchase customer surveys scores in the period.

Americas delivered half year gross margins of 38.0% (H1 2023: 37.1%), an 80bps improvement on a constant currency basis and marginally ahead of FY 2023 reported gross margin of 37.9%. A proactive approach to cost management has been maintained as volumes show signs of normalising with further recovery of margin anticipated through H2, with selective pricing activity, and improved operational leverage.       

APAC

	H1 2024 £m	% growth Constant FX	% growth Actual FX
Revenue	19.0	1.8	(4.5)
Gross profit	7.4	15.8	8.8
Gross margin	38.9%	470bps	470bps

The APAC region delivered revenue of £19.0m in H1 2024, an improvement of 1.8% on a constant currency basis compared to the prior year. On a constant currency basis, the first quarter performance was 0.8% ahead of the prior year on a trading day adjusted basis, improving to year-on-year growth of 3.5% in Q2 with sales per working day trends improving 8.9% sequentially between Q1 2024 and Q2 2024.

Aligned with previous trading updates, performance continues to be driven by the market dynamics in China (c.69% of APAC revenue; c.8.3% of Group revenue), which has seen soft domestic market demand sustained. Momentum is building within the export market and the rest of the APAC region, supported by a pipeline of commercial opportunities including the access hardware product range. This is anticipated to bring additional growth through H2, focused on higher growth end-markets, including renewable energy, telecommunications, and power networks.

The APAC commercial and operational footprint review has continued in 2024, ensuring the region aligned for future growth opportunities. Dip moulding manufacturing capabilities across Essentra have been expanded, with new machine capital investment in Ningbo, China. The new dip moulding machinery will service existing demand in the APAC region, securing supply and enhancing the product range, attracting new commercial opportunities to the region. The business has also taken the decision to relocate the regional office headquarters in Singapore to the existing office in Malaysia. The current distribution arrangements in Singapore will remain.

Through H1, the region has successfully controlled costs, balancing investment in future growth and footprint, whilst driving operational efficiencies with improved leverage. The region delivered half year gross margin of 38.9% (H1 2023: 34.2%) 470bps improvement a constant currency basis and ahead of FY 2023 reported gross margin of 35.6%.

Following approval of Essentra's near- and long-term science-based emissions reduction targets including verification of Essentra's net-zero science-based target by 2050 by the Science Based Targets initiative ("SBTi") in February 2024, the Group published its first Climate Transition Plan in May 2024, which received 97.6% approval from shareholders at the 2024 AGM, outlining the Company's emissions reduction targets, goals and focus areas for implementation of its climate strategy. The Group is pleased with the continued significant progress in sustainability in 2024 to date, and is committed to regular reporting on progress in this area.

Essentra has been making good progress in decarbonising its global footprint, focusing on renewable energy tariffs and energy saving initiatives across the manufacturing footprint. Emissions intensity for scope one and two has seen a decrease of 15% compared to FY 2023 and 50% since our 2019 baseline. Renewable electricity is 60% of total electricity usage, an increase of 16% compared to FY 2023.

An additional five sites across Essentra's global footprint are on track to achieve zero waste to landfill in 2024 bringing the expected total for 2024 to 19 sites (FY 2023: 14 sites).

The percentage of materials from sustainable sources across our manufactured polymer ranges reduced marginally to 19% in H1, compared to the 2023 year-end metric of 21%, which is partly due to adding BMP TAPPI products into the Essentra range as well as increased demand across the standard range for specific products which have not yet transitioned to recycled or biopolymers. As part of integration activities and further development of the product offer, we look forward to continuing our progress in obtaining materials from sustainable sources across our manufactured polymer range.

The Centre of Excellence continues to drive the development of new and more sustainable products, and in 2024, following a series of successful trials, has accelerated the development of new bioplastic materials to create more sustainable product ranges. Since operations commenced, 19 trials have been completed using 14 different materials across nine individual products.

Essentra continues to innovate and develop relationships with its customers to identify new commercial opportunities. So far in 2024 the Group has recognised a number of new commercial business wins based on sustainability criteria across all three regions, including customers from HVAC, industrial trucks and general industrial end-markets.

Constant currency, like-for-like, 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 14-15 and 19-20 of the Essentra plc Annual Report 2023.

Constant foreign exchange rates. The constant exchange rate basis adjusts the comparative to exclude the effect of currency movements, to show the underlying performance of the Company. The principal exchange rates for Essentra were:

	-------- Average --------		-------- Closing --------
	H1 2024	H1 2023	H1 2024	H1 2023
US$:£	1.27	1.23	1.26	1.27
€:£	1.17	1.14	1.18	1.17

 

Re-translating at H1 2024 average exchange rates decreases the prior year revenue by £8.8m, decreases prior year gross profit by £4.0m and decreases prior year operating profit by £2.7m.

Like-for-like ("LFL"). The term "like-for-like" describes the performance of the continuing business on a comparable basis, adjusting for the impact of acquisitions, disposals and foreign exchange. The H1 2024 LFL results are adjusted for the acquisition of BMP TAPPI on 26 October 2023.

Discontinued operations. Discontinued operations recognised a £1.2m post-tax loss (H1 2023: £0.8m post-tax loss), as reported in the Condensed Consolidated Interim Income Statement. Refer to Note 12 in the Condensed Consolidated Interim Financial Statements for further information.

Adjusted basis. The term "adjusted" excludes the impact of amortisation of acquired intangible assets and adjusting items, less any associated tax impact. In H1 2024, amortisation of acquired intangible assets was £5.9m (H1 2023: £5.7m), and there was a pre-tax charge for adjusting items of £7.8m (H1 2023: £7.0m). In line with previous guidance, current year adjusting items include £4.8m major software as a service ("SaaS") development expenditure; and £0.8m relating to legacy pension scheme costs. £0.4m was incurred relating to the acquisition of BMP TAPPI and Wixroyd, £0.7m of restructuring activities were incurred and £1.2m relating to historic indemnity claims. Further details on adjusting items are shown in Note 3 to the Condensed Consolidated Interim Financial Statements.

 

Adjusted operating cash flow. Adjusted operating cash flow is net cash flow from operating activities, excluding income tax paid, contributions to legacy pension schemes 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.

Net finance expense. Net finance expense of £4.1m compared to £nil in the prior year period. The prior year period had elevated levels of interest income due to the cash proceeds held at the start of 2023 following the disposal of the Filters and Packaging businesses, prior to a special dividend being paid in April 2023.

Tax. The effective tax on underlying profit before tax (before adjusting items and amortisation of acquired intangible assets) was 25.7% (H1 2023: 23.5%). The underlying effective tax rate for H1 2024 is within the forecast tax rate range of 24% to 26%. Consistent with the disclosure of tax rates at FY 2023 results, this increased tax rate compared to the prior year is primarily driven by the previously announced increase of the UK corporation tax rate from 19% to 25% with effect from 1 April 2023 in addition to increases in corporation tax rates in overseas entities.

Adjusted operating cash flow from continuing operations. Adjusted operating cash flow from continuing operations of £17.5m equating to an operating cash conversion of 80.3% at the half year (H1 2023: 89.1%). Free cash flow was £12.5m (H1 2023: £15.3m).

	H1 2024	H1 2023
	£m	£m
Adjusted operating profit	21.8	23.0
Depreciation and amortisation of non-acquired intangible assets	6.0	6.9
Right-of-use asset depreciation	3.0	2.7
Share option expense / other movements	0.9	(0.6)
Change in working capital	(9.9)	(6.7)
Net capital expenditure	(4.3)	(4.8)
Adjusted operating cash flow from continuing operations	17.5	20.5
Tax1	(1.1)	(1.4)
Cash outflow in respect of adjusting items1,2	(6.2)	(15.0)
Add back: net capital expenditure	4.3	4.8
Net cash inflow from operating activities3	14.5	8.9
Adjusted operating cash flow from continuing operations	17.5	20.5
Tax1	(1.1)	(1.4)
Net interest paid	(3.9)	(3.8)
Free cash flow	12.5	15.3

^{1 Tax paid in 2023 excludes the tax paid in relation to adjusting items and discontinued operations. This is included within the cash outflow in respect of adjusting items and discontinued operations.}

^{2 Pension contribution of £0.5m in H1 2024 for legacy pension schemes has been included within cash outflow in respect of adjusting items (H1 2023: £2.5m).}

^{3 Statutory cash flows from operating activities can be found in the Condensed Consolidated Interim Financial Statements.}

Net debt. Net debt at the end of the period was £89.1m compared to a net debt of £62.5m at 31 December 2023 (excluding lease liabilities of £29.4m). The overall increase in net debt in the first six months of 2024 was driven by the anticipated one off completion accounts payment associated with the sale of the Filters business in the period totalling £24.8m. This has been partly offset by operating cash conversion of 80.3%, and free cash flow of £12.5m in the period.

The Group's financial ratios remain within the 0.5x - 1.5x target range. Net debt to adjusted EBITDA pre-IFRS16 lease liabilities was 1.1x (net debt to adjusted EBITDA including IFRS16 lease liabilities: 1.4x).

 

 

	2024
	£m
Net debt as at 1 January 2024	62.5
Free cash flow	(12.5)
Cash outflow from discontinued businesses including disposal costs	25.8
Cash outflow in respect of adjusting items	6.2
Share buyback	3.1
Acquisitions less cash acquired	1.9
Lease liability movements	1.6
Movement in loan hedging derivatives	(0.4)
Foreign exchange	0.9
Net debt as at 30 June 2024	89.1

 

Banking and refinancing facilities. One of the main sources of funding for the Company is a Revolving Credit Facility ("RCF") provided by a group of six banks totalling £200.0m, which as of December 2023, was set to mature in October 2026. As at 30 June 2024, £32.6m was drawn.

In July 2024 the Company agreed to extend the facility for five years from date of signing and will now mature in July 2029. By evaluating options and refinancing the RCF ahead of the original maturity date, the Company has been able to maintain the existing covenants and secure favourable pricing terms. The extended maturity date provides the Company with a longer-term financing solution and offers greater stability as well as reducing the need for frequent refinancing activities, providing greater liquidity to support our operational and strategic initiatives. The new facility is based on the same terms and size and is provided by a group of five banks, including four from the original RCF facility.

The Company retains $102.5m of long dated US Private Placement debt ("USPP") at an average coupon rate of 3.8%.

Type	Amount	Interest Rate	Maturity
RCF	£200.00m	Floating	July 2029
USPP	$32.80m	3.62%	July 2028
USPP	$34.85m	3.91%	July 2031
USPP	$34.85m	4.00%	July 2033

 

Treasury policy and controls. Essentra has a centralised treasury function to manage funding, liquidity and exposure to interest rate and foreign exchange risk. Treasury policies are approved by the Board and cover the nature of the exposure to be hedged, the types of derivatives that may be employed and the criteria for investing and borrowing cash. The Company intends to use derivatives to manage foreign currency and interest rate risk arising from underlying business activities. Whilst some transactions may be of a more speculative nature, they are in place with a view to manage exchange rate risk only. Underlying policy assumptions and activities are reviewed by the Treasury Committee. Controls over exposure changes and transaction authenticity are in place, and dealings are restricted to those banks with the relevant combination of geographical presence, expertise and suitable credit rating.

Foreign exchange risk. The majority of Essentra's net assets are in currencies other than sterling. The Company's normal policy is to reduce the translation exposure and the resulting impact on shareholders' funds through measures such as borrowing in those currencies in which the Group has significant net assets. The majority of Essentra's transactions are carried out in the functional currencies of its operations, and therefore transaction exposure is limited. However, where such exposure does occur, Essentra uses derivatives to hedge its exposure to movements in the exchange rates on its highly probable forecast foreign currency sales and purchases over a period of up to 18 months.

 

The Board has established and maintains an effective risk management and internal control framework designed to manage the delivery of the Company's strategic objectives. The Risk Assurance team, independent of management, enables and facilitates the risk management process across the Company, acts as the custodian of the Company's risk framework and supports risk management activities.

The Board considers the nature and extent of the Principal Risks it is prepared to take in achieving its strategic objectives - its risk appetite - annually, by evaluating these risks against a three-point scale from "risk-averse" to "risk-neutral" to "risk-tolerant". This informs the development and focus of mitigating actions for each of the Principal Risks with a particular focus on risks that are assessed to be outside the agreed appetite.

At a strategic level, our risk management objectives are to:

·      Identify the Company's material risks and appropriate mitigating actions

·      Formulate the risk appetite and ensure that our business profile and plans are consistent with it

·      Develop plans to bring any exposures that are outside appetite in line with the agreed appetite

·      Ensure that growth plans are properly supported by an effective risk management framework

·      Help management teams to improve the control and co-ordination of risk-taking across the Company.

The Group Executive Committee ("GEC") has responsibility for the day-to-day coordination and management of risk activities throughout the Company. These responsibilities focus on appropriate identification, evaluation, mitigation and management of all key business risks and ensure that, where necessary, adequate controls are in place and are monitored. In addition, the GEC considers the Company's risk appetite, makes recommendations to the Board on appetite levels and the level of mitigation necessary to remain within them.

As an important part of fulfilling its responsibilities the Board receives regular reporting from the Chief Executive in relation to opportunities, risks and exposures to enable the Board to challenge and review the GEC's risk management approach.

The regional and functional leadership teams undertake regular reviews during the course of the year and engage in facilitated discussions with Risk Assurance to consider the risk environment for their particular functional or geographic area of responsibility, and how these could affect the delivery of the Company's strategic objectives.

The Audit and Risk Committee ("ARC"), with assistance from Risk Assurance, oversees compliance with risk management processes and the adequacy of risk management activities related to the Company's operations.

During the period, the Board has considered the Principal and Emerging Risks, as disclosed on pages 65-73 of our 2023 Annual Reports and Accounts, in the context of the objectives noted above and across four risk categories: strategic risks, external risks, operational risks and disruptive risks. These risks, updated to reflect changes since our 2023 Annual Report and Accounts, are summarised as follows. The Company remains confident that the mitigations already in place are sufficient to manage these risks within the previously agreed risk appetite.

 

Strategic risks

·   Macro-economic and geopolitical environment - delivering successfully through the economic cycle and continuing geopolitical events (including elections in many of our end-markets during 2024)

·      Environment - our impact on the environment (including single use plastics) and climate change

·    Digital transformation - the delivery of our Business Process Redesign programme, our eCommerce platforms and the integrity and fidelity of our data

·    Leadership talent and capability - our ability to attract, retain, develop and motivate the talent we need to be successful

·      M&A execution and integration - our ability to successfully deliver on our inorganic growth plans

External risks

·    Governance - ensuring legal and regulatory compliance across the broad range of jurisdictions in which we operate

·      Cyber events - the impact of a cyber security breach or data breach

Operational risks

·      Execution of strategic plan - our ability to deliver on our operational and commercial improvement plans to drive organic growth

·      Health and safety performance - ensuring the physical and emotional wellbeing of our people and the potential impact of significant safety events on our workforce and the communities in which we operate

Disruptive risks

·     Operational and supply chain disruption - the impact of disruptive events, including in relation to supply chain ethics, across our broad operational footprint and diverse supply chains

Emerging risks

·    Regulatory change - compliance with changes in the regulatory environment which is complicated by the geographical breadth of the Company's operations

·     Artificial Intelligence ("AI") - consideration of the various risks and opportunities associated with this emerging technology and how it might affect our business and end-markets

·      'China Plus One ("C+1") - the potential need to implement a portfolio of strategic initiatives to meet our growth commitments

 

The following Principal Risk has been retired since the publication of our 2023 Annual Report and Accounts as exposure levels have reduced and it is managed within other Principal Risks:

·      Social - the impact of our business on our stakeholders and the societies in which we operate

 

 

 

 

 

Condensed consolidated income statement
			Six months	Six months		Year
			ended	ended		ended
		Note	30 Jun 2024	30 Jun 2023		31 Dec 2023
			£m	£m		£m
	Revenue	2	159.7	166.3		316.3
	Gross Profit	2	74.1	73.0		141.8
	Operating profit1		8.1	10.3		10.9
	Finance income		1.4	6.9		11.0
	Finance expense		(5.5)	(6.9)		(13.5)
	Profit before tax		4.0	10.3		8.4
	Income tax charge		(1.5)	(2.6)		(2.6)
	Profit for the period from continuing operations		2.5	7.7		5.8
	Loss from discontinued operations	12	(1.2)	(0.8)		(0.4)
	Profit for the period		1.3	6.9		5.4
	Attributable to:
	Equity holders of Essentra plc		1.3	6.9		5.4
	Profit for the period		1.3​	6.9		5.4
	Earnings per share attributable to equity holders of Essentra plc:
	Basic	5	0.5p	2.3p		1.8p
	Diluted	5	0.5p	2.3p		1.8p
	Earnings per share from continuing operations attributable to equity holders of Essentra plc:
	Basic	5	0.9p	2.6p		2.0p
	Diluted	5	0.9p	2.6p		2.0p
	Adjusted profit measure: continuing operations
	Operating profit		8.1	10.3		10.9
	Amortisation of acquired intangible assets		5.9	5.7		11.3
	Adjusting items	3	7.8	7.0		21.0
	Adjusting operating profit2		21.8	23.0		43.2
Notes:
1	Includes impairment credit on trade receivables of £0.3m (six months ended 30 June 2023: £0.3m charge)
2	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 2024				30 Jun 2023			31 Dec 2023
													£m			£m			£m
			Profit for the period										1.3			6.9			5.4
			Other comprehensive income/(expense):
			Items that will not be reclassified to profit or loss in subsequent periods:
			Remeasurement of defined benefit pension schemes										7.5			1.4			(1.3)
			Deferred tax (charge)/credit on remeasurement of defined benefit pension schemes										(1.9)			(0.4)			0.3
													5.6			1.0			(1.0)
			Items that may be reclassified subsequently to profit or loss in subsequent periods:
			Effective portion of changes in fair value of cash flow hedges:
			Net change in fair value of cash flow hedges transferred to the income statement										(0.2)			2.3			2.4
			Ineffective portion of changes in fair value of cash flow hedges transferred to the income statement										-			0.1			-
			Effective portion of changes in fair value of cash flow hedges										0.2			(0.6)			(1.8)
			Foreign exchange translation differences:
			Attributable to equity holders of Essentra plc:
			Arising on translation of foreign operations										(5.1)			(18.9)			(19.4)
			Arising on effective net investment hedges										0.2			1.0			0.7
			Income tax (expense)/credit										(0.6)			(1.4)			0.6
													(5.5)			(17.5)			(17.5)
			Total other comprehensive credit/(expense) for the period, net of tax										0.1			(16.5)			(18.5)
			Total comprehensive credit/(expense) for the period										1.4			(9.6)			(13.1)
			Attributable to:
			Equity holders of Essentra plc										1.4			(9.6)			(13.1)
			Total comprehensive credit/(expense) for the period										1.4			(9.6)			(13.1)
			Attributable to:
			Continuing operations										2.6			(8.8)			(12.7)
			Discontinued operations										(1.2)			(0.8)			(0.4)
			Total comprehensive credit/(expense) for the period										1.4			(9.6)			(13.1)
Condensed consolidated balance sheet
							Note		30 Jun 2024						30 Jun 2023			31 Dec 2023
									£m						£m			£m
		Assets
		Property, plant and equipment					6		67.2						60.0			68.1
		Lease right-of-use asset					7		24.9						18.5			27.9
		Investment properties					6		3.3						7.0			3.3
		Intangible assets					8		210.9						187.5			215.0
		Long-term receivables							9.8						18.2			10.1
		Derivative assets					15		4.6						6.9			4.2
		Deferred tax assets							10.6						9.8			12.2
		Retirement benefit assets					9		11.1						9.5			7.9
		Total non-current assets							342.4						317.4			348.7
		Inventories							66.6						59.2			64.7
		Income tax receivable							1.0						-			1.4
		Trade and other receivables							73.3						68.8			61.5
		Derivative assets					15		-						0.6			-
		Cash and cash equivalents					10		49.3						96.3			59.7
		Total current assets							190.2						224.9			187.3
		Total assets							532.6						542.3			536.0
		Equity
		Issued share capital					14		72.9						74.6			73.3
		Merger relief reserve							-						385.2			-
		Capital redemption reserve					14		2.8						1.1			2.4
		Other reserve							(132.8)						(132.8)			(132.8)
		Cash flow hedging and cost of hedging reserve							(0.2)						1.0			(0.2)
		Translation reserve							(76.0)						(71.7)			(70.5)
		Retained earnings							408.9						26.2			401.0
		Attributable to equity holders of Essentra plc							275.6						283.6			273.2
		Total equity							275.6						283.6			273.2
		Liabilities
		Interest bearing loans and borrowings					10		113.6						90.3			95.5
		Lease liabilities					10		22.2						16.7			23.8
		Retirement benefit obligations					9		13.7						16.3			17.5
		Provisions							-						0.7			0.2
		Deferred tax liabilities							10.8						6.8			12.4
		Total non-current liabilities							160.3						130.8			149.4
		Lease liabilities					10		7.2						4.5			7.1
		Derivative liabilities							-						0.5			-
		Income tax payable							14.0						15.7			12.0
		Trade and other payables							66.0						68.6			60.7
		Other financial liabilities							3.0						32.1			28.0
		Provisions							6.5						6.5			5.6
		Total current liabilities							96.7						127.9			113.4
		Total liabilities							257.0						258.7			262.8
		Total equity and liabilities							532.6						542.3			536.0