TIDMESNT
RNS Number : 2603R
Essentra plc
05 March 2021
ESSENTRA PLC
(the "Company")
A leading global provider of essential components and
solutions
RESULTS FOR THE FULL YEARED 31 DECEMBER 2020
A resilient performance of improving revenue and order trends
during the year, with all three global divisions well positioned
for growth, and a resumption of dividends
Summary:
-- FY 2020 results displayed a resilient performance,
notwithstanding the impacts of COVID-19 (the 'pandemic'),
demonstrating Essentra's strong market positions, balanced
portfolio and agile operations
o Revenue decline of -6.3% on a like-for-like(1) (LFL) basis,
with steady improvement each quarter following the immediate impact
of the pandemic (-9.8% in Q2, -6.7% in Q3 and -1.0% in Q4)
o Adjusted(2) operating profit down 27.9% (at constant FX) to
GBP62.0m
-- Business disposals completed in 2019 accounted for GBP5.0m of
the GBP24.0m decline, with the remainder driven predominantly by
the effect of volume gearing and temporary manufacturing
inefficiencies linked to the pandemic, partially offset by
continued successful pricing management and cost control
actions
o Reported operating profit of GBP21.7m versus GBP80.0m in 2019;
prior year included an overall adjusting items credit of GBP15.4m
(mainly due to gains on business disposals), whilst 2020 has a
total charge from adjusting items of GBP17.7m (mainly due to
restructuring costs)
o Adjusted(2) basic EPS lower by 37.2% (at constant FX) at 13.1p
(FY 2019: 21.3p)
o Reported basic EPS of 1.7p compares to 14.7p in 2019
o Adjusted(2) operating cash flow of GBP76.3m in 2020, giving a
cash conversion(3) of 123%
-- High customer satisfaction levels leading to deepened customer franchises
-- Well-positioned for growth across the Group:
o Components most affected by the pandemic, but with a steady
recovery in revenue and order trends throughout the year and
further growth expected as end markets recover
o Resilient performance in Packaging, with strategic initiatives
in place to underpin further margin improvement
o Filters made strong progress on game changers with the
commencement of new outsourcing contracts, helping return the
division to marginal growth in H2
-- Value enhancing acquisition of 3C! Packaging completed, with integration progressing well
-- A strengthened balance sheet, providing strategic optionality
o Net debt of GBP210.4m (2019: GBP284.4m), with net debt /
EBITDA at 1.8x (excluding lease liabilities, net debt / EBITDA
ratio is 1.5x)
-- Given the Group's resilient performance, encouraging outlook
and strong financial position, the Board recommends a resumption of
dividend payments, with a FY 2020 final dividend of 3.3p per share.
The dividend payment being proposed is to be funded in full from
cash flows generated from the operations of the Company during
2020
(1) Excludes the impact of acquisitions, disposals and foreign
exchange
(2) Before amortisation of acquired intangible assets and
adjusting items
(3) Cash conversion ratio being: adjusted operating cash flow /
adjusted operating profit
Results at a glance:
FY 2020 FY 2019 % change % change
Actual Constant
FX FX
-------- -------- ---------
Revenue GBP897m GBP974m -8 -7
Adjusted(1) operating profit GBP62m GBP88m -29 -28
Adjusted(1) pre-tax profit GBP46m GBP73m -37 -35
Adjusted(1) net income(2) GBP37m GBP59m -36 -35
Adjusted(1) basic earnings
per share 13.1p 21.3p -38 -37
Dividend per share 3.3p 6.3p -48 -48
Net debt (including lease GBP210m GBP284m -26 n/a
liabilities)
Net debt (excluding lease GBP149m GBP234m -36 n/a
liabilities)
Net debt to EBITDA (including
lease liabilities) 1.8x 2.0x n/a n/a
Net debt to EBITDA (excluding
lease liabilities) 1.5x 1.9x n/a n/a
Free cash flow(3) GBP57m GBP41m n/a n/a
Reported operating profit GBP22m GBP80m -73 -72
Reported pre-tax profit GBP6m GBP66m -91 -91
Reported net income(2) GBP6m GBP41m -85 -84
Reported basic earnings
per share 1.7p 14.7p -88 -88
(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:
31 December Amortisation
2020 of acquired
Acquisitions intangible Adjusting LFL /
Reported and disposals assets items Tax on adjustments FX Adjusted(1)
--------- --------------- ------------- ----------- ------------------- ---
Revenue GBP897m GBP(40)m - - - - GBP857m
Operating GBP22m - GBP22m GBP18m - - GBP62m
profit
Pre-tax GBP6m - GBP22m GBP18m - - GBP46m
profit
Net income GBP6m - GBP22m GBP18m GBP(9)m - GBP37m
------------ --------- --------------- ------------- ----------- ------------------- --- -------------
31 December Amortisation
2019 of acquired
Acquisitions intangible Adjusting Tax on LFL(2)
Reported and disposals assets items adjustments FX / Adjusted(1,2)
--------- --------------- ------------- ----------- ------------------ ---------
Revenue GBP974m GBP(47)m - - - GBP(13)m GBP914m
Operating GBP80m - GBP23m GBP(15)m - GBP(2)m GBP86m
profit
Pre-tax GBP66m - GBP23m GBP(15)m - GBP(2)m GBP72m
profit
Net income GBP41m - GBP23m GBP(15)m GBP10m GBP(2)m GBP57m
------------ --------- --------------- ------------- ----------- ------------------ --------- -----------------
(1) Adjusted operating profit, adjusted pre-tax profit and
adjusted net income relate to total Group
(2) 2019 Adjusted figures are presented at constant FX rates
Commenting on today's results, Paul Forman, Chief Executive,
said:
"2020 was an unprecedented year and, looking back, I am very
proud of and thankful for the incredible energy, commitment and
passion demonstrated by all of our employees in the face of great
pressure.
Through the Company's agility, adaptability and resilience, we
have delivered a full year operating profit result which is in line
with the consensus of analysts' forecasts.
Cash generation has also been strong, improving our liquidity
position, and the company took the decision not to partake in any
employee-related UK government support. Our equity capital raise
enabled us to acquire a 'strategic bullseye' in 3C! Packaging,
whilst further strengthening our balance sheet and providing
greater strategic optionality.
Given the Group's resilient performance, encouraging outlook and
strong financial position, the Board recommends a resumption of
dividend payments.
I believe we have ended the year a closer team with deeper
customer relationships, a stronger balance sheet and a clearer
picture of the future. The resilient platform that we have built
has been proven through the depths of this pandemic and gives us a
fantastic base from which to drive responsible, profitable and cash
generative growth in each of the divisions in 2021 and beyond."
Outlook Statement
Heading into 2021, 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. Although we do not anticipate a material direct
impact to the Company from Brexit, the potential for certain supply
chain disruption - and we are witnessing this to a limited degree
currently - remains a risk that we must monitor closely.
Additionally, it should be noted that the recent GBP appreciation,
most notably against USD and EURO, is causing a translation
headwind in the year thus far.
On a constant currency basis, our underlying business continues
to improve, and the divisional outlook for 2021 suggests that:
Components should see (after a slower start to the year due to
certain logistical challenges) a continuation in the improvement of
LFL trends, with industrial production forecasts predicting a
return to 2019 volumes; Packaging should see the market return to
moderate growth in the second half of 2021, with global healthcare
systems having to catch up on the significant backlog of
prescriptions and elective surgeries; and Filters should see
year-on-year growth driven in part by outsourcing contract volumes
as well as commencement of the China JV.
As previously announced, the Company has undertaken a detailed
review of its global footprint, which has resulted in the proposed
closure of certain sites in 2021 across the Components and
Packaging divisions. The total cost related to these closures is
estimated to be cGBP17m (GBP12.7m of which has been booked in
2020). We expect to start generating savings from these actions in
2021, with annual savings of cGBP13m from 2022 onwards, helping to
underpin the profitability potential of the Company.
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 FY 2020 were:
-------- Average -------- -------- Closing --------
FY 2020 FY 2019 FY 2020 FY 2019
--------- --------------------- -------------------- -------------------- --------------------
US$:GBP 1.29 1.28 1.37 1.32
EUR:GBP 1.13 1.14 1.12 1.18
--------- --------------------- -------------------- -------------------- --------------------
Re-translating at FY 2020 average exchange rates decreases the
prior year revenue and adjusted operating profit by GBP12.3m and
GBP1.5m 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 FY 2020 LFL results are adjusted for the acquisition
of the Innovative Components business on 26 June 2019, the
acquisition of Nekicesa Packaging on 6 September 2019, the
acquisition of 3C! Packaging, Inc. on 17 September 2020, 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 FY 2020, amortisation of
acquired intangible assets was GBP22.6m (2019: GBP22.9m), and there
was a pre-tax charge for adjusting items of GBP17.7m (2019: credit
of GBP15.4m). For the current year charge for adjusting items,
GBP12.7m is driven by the previously announced strategic
initiatives that have resulted in the proposed closure of certain
sites in 2021, across the Components and Packaging divisions. The
remainder is attributable to: GBP4.6m for external professional
costs associated with certain corporate development activities,
GBP1.6m for transaction and integration costs of acquisitions, and
GBP0.2m of external advisory and consultancy costs in relation to
the review of the compliance of certain group companies' export
activities with US laws, as previously disclosed in the 2019 Annual
Accounts. This is offset by a GBP1.4m release of excess provision
held for potential penalties in relation to this activity. Further
details on adjusting items are shown in note 3 to the Consolidated
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 16 to 19 of the 2019 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
Considering the impact of the pandemic, the FY 2020 result for
the Group was resilient. Overall, FY 2020 revenue decreased by 8.0%
(-6.8% at constant exchange) to GBP896.5m, whilst on a LFL basis,
revenue decreased by 6.3%. However, in order to fully understand
LFL Group performance for the FY, 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. Q1 trading was largely
unaffected by the pandemic, however with the advent of Q2 and the
initial shock from the major global onset of COVID-19, the Company
experienced its 'nadir' in trading performance during this second
quarterly period. From thereon, as the year progressed, Group
revenue on a LFL basis showed a steady improvement - going from
-9.8% in Q2, to -6.7% in Q3 and finally further improving to -1.0%
in Q4.
On an adjusted basis, operating profit was down 29.1% (-27.9% at
constant FX) at GBP62.0m, which was driven in part by the disposal
of various businesses in the prior year (GBP5.0m of the GBP24.0m
decline), but mainly by the volume gearing effect from the revenue
decline, which was exacerbated by temporary manufacturing
inefficiencies caused by pandemic related issues, partially being
offset by continued successful pricing management and cost control
actions. Adjusted operating margin dropped by 210bps (200bps at
constant FX) to 6.9%.
Including amortisation of acquired intangible assets of GBP22.6m
and a pre-tax charge from adjusting items of GBP17.7m, operating
profit as reported was GBP21.7m (2019: GBP80.0m); prior year
included an overall adjusting items credit of GBP15.4m (mainly due
to gains on business disposals), whilst 2020 has a total charge
from adjusting items of GBP17.7m (mainly due to restructuring
costs).
Net finance expense was above the prior year at GBP15.7m (2019:
GBP14.5m), this was mainly driven by adverse FX movements on
property leases in Turkey and Hungary that are denominated in
non-local currencies. The effective tax rate on underlying profit
before tax (before adjusting items) was 19.2% (2019: 19.9%). This
reduced tax rate is driven by a change in the geographical split of
profits across the Company.
On an adjusted basis, net income of GBP37.4m was down 36.1%
(34.7% at constant FX) and adjusted basic earnings per share
decreased by 38.5% (37.2% at constant FX) to 13.1p. On a total
reported basis, net income of GBP6.3m and earnings per share of
1.7p compared to GBP41.2m and 14.7p respectively in 2019.
Adjusted operating cash flow was 6% higher than the previous
year at GBP76.3m (2019: GBP71.8m), this equated to an operating
cash conversion of 123% in the year. Adjusted free cash flow of
GBP56.9m compared to GBP40.7m in 2019. The increase in adjusted
operating cash flow, despite the aforementioned lower level of
profitability in the Group, was mainly due to a healthy cash inflow
during the year of GBP6.2m from working capital movements which in
the prior year accounted for a large outflow of cash of GBP10.3m
(current year performance was the result of reduced trading volumes
combined with a concerted effort from the company to implement a
series of initiatives to adapt and optimise working capital levels,
in light of the pandemic), combined with a targeted reduction in
year-on-year capex spend of GBP11.9m. The increase in adjusted free
cash flow was also driven by a year-on-year reduction in tax spend
(excluding tax payments relating to adjusting items) of GBP9.0m,
which in the main resulted from the aforementioned lower
profitability levels in the year as well as a refund of tax in the
US.
As previously advised, the Company had made a voluntary
disclosure to the U.S. Department of the Treasury's Office of
Foreign Assets Control ("OFAC"), with regards to certain historical
transactions by the Filters business dating as far back as 2015. On
16 July 2020, a Deferred Prosecution Agreement was entered into
with the US Department of Justice and a fine of $666,543.88 paid to
settle certain sanctions violations by the Filters business in
Dubai. The Company has co-operated fully with the US authorities
and, whilst cautioned by OFAC on the importance of a robust
sanctions compliance programme, no further enforcement action is
being taken. The Company maintains its focus on continuous
improvement to drive the effectiveness of its response to sanction
regimes and other compliance requirements.
Business Review
Summary growth in revenue by Division
% growth LFL Acquisitions Foreign Exchange Total Reported
/ Disposals
------ ------------- -----------------
Components -10.1 +1.6 -1.5 -10.0
Packaging -4.0 +6.8 +0.2 +3.0
Filters -5.6 - -2.7 -8.3
Specialist Components - -100.0 - -100.0
Total -6.3 -0.5 -1.2 -8.0
----------------------- ------ ------------- ----------------- ---------------
The following review is given at constant exchange rates and on
an adjusted basis, unless otherwise stated.
Components
2020 % growth % growth
GBPm Actual FX Constant FX
------ -----------
Revenue 255.0 -10.0 -8.5
Operating profit* 45.5 -24.5 -23.4
Operating margin* 17.8% -350bps -350bps
------------------- ------ ----------- -------------
* Adjusted basis
Revenue for the year decreased by 8.5% to GBP255.0m. Adjusting
for the acquisition of Innovative Components, LFL revenue was
-10.1%. Within the Group, Components is the division which is most
exposed to industrial cyclicality, hence it has been the most
pandemic-affected out of all the divisions. However, it has seen
the greatest level of quarterly trading performance recovery during
the course of the year.
On a LFL basis, revenue was 5.3% down in Q1, which was
reflective of the pandemic causing disruption in China earlier than
in rest of the world and a soft end-market backdrop in the US. As
we moved into Q2 and as the pandemic took a firm grip across the
globe, we saw an accelerated slowdown in customer demand, with LFL
revenue falling to -20.0% in the quarter. However, from then on, we
have seen a steady recovery in the division's trading performance -
Q3 improved to a level of -13.9%, whilst Q4 improved further to
-0.3%.
Consistent with the commitment to providing customers with a
"hassle-free" experience, along with reliable and timely delivery,
further commercial and operational initiatives were progressed
during the period. Key among these was the continued roll out and
enhancement of a new digital platform, a critical tool in upgrading
the division's online presence. We are seeing increased levels of
online customer activity, driven by new customer engagement,
accelerating the 'shift to digital'. During the year, the European
roll-out of the new digital platform was completed, with a view to
taking this platform in to a number of our Asian markets in 2021
(North America went live in 2019). The new platform provides
greater ease of navigation for customers, a better ability to
compare products, and improved visibility in search engines such as
Google. Moreover, 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. Linked to this,
and in terms of enhancements made to the digital platform during
the year, the most important one was the introduction of cross sell
functionality on the website. Further developments are in progress,
including the use of artificial intelligence, and are being driven
by an agile monthly improvements forum. In order to complement this
increased functionality in our website, the division has carried
out an extensive 'cross selling' training programme for sales
staff, to drive even better knowledge and expertise of the
division's full product portfolio.
Our new fully automated German warehouse commenced operations at
the end of Q3 2020, providing an enhanced logistical platform from
which to drive the European Components business.
In 2020 we decided to consolidate warehouse operations from
three European warehouse sites into the aforementioned German
warehouse. Furthermore, the closure of three manufacturing sites
(one in Sweden and two in the US), as well as the exit of three
smaller warehousing and distribution (express) sites in the US,
have been announced. These actions will all take effect in 2021 and
allow us to improve service for our customers, maximise the
opportunities for automation and support anticipated growth for the
division.
We have continued to invest in our BPR programme during the year
and have launched a new CRM platform in 2020 which will be
integrated with the new ERP platform (that we plan to roll-out
across Europe in 2021).
The division has recently conducted its annual customer survey
and is very pleased to report that despite all of the challenges
faced in 2020 due to the impact of the pandemic, our customers have
rated us with a net promoter score (NPS) of 45 points - which is a
4 point improvement on the prior year.
Adjusted operating profit decreased by 23.4% to GBP45.5m,
equating to a margin of 17.8% (2019: 21.3%). This 350bps dilution
reflected the aforementioned volume impact of a softer macro
environment, which was exacerbated by temporary manufacturing
inefficiencies caused by pandemic related issues , partially being
offset by continued successful pricing management and cost control
actions.
Packaging
2020 % growth % growth
GBPm Actual FX Constant FX
------ -----------
Revenue 363.2 +3.0 +2.8
Operating profit* 13.8 -8.6 -9.6
Operating margin* 3.8% -50bps -50bps
------------------- ------ ----------- -------------
* Adjusted basis
Revenue increased 2.8% to GBP363.2m. On a LFL basis, the revenue
decline was -4.0% for the year. However to better understand
performance through the year, shifts in underlying demand caused by
the impacts of the pandemic need to be taken into account.
In H1, despite the onset of the pandemic, underlying demand
remained relatively robust. LFL performance in H1 was -3.0%. This
was reflective of a tough prior year comparative - H1 2019 was
bolstered by short term customer demand on the back of the new
regulatory requirements as prescribed by the Falsified Medicines
Directive, which took effect in Europe in early 2019. Additionally,
the division was impacted by some pandemic induced supply chain
performance issues and facility closures. These facility closures
were rectified from May and the division delivered positive monthly
revenue growth towards the end of H1. However, with the advent of
H2, underlying demand saw softness in certain end markets owing to
an impact from the reduction in the levels of prescriptions and
elective surgeries through lockdown periods. Having said that, over
the course of H2, there was a steady improvement in performance, as
the pharmaceutical and beauty markets started to slowly recover; Q3
was -8.5%, this improved to -1.3% in Q4.
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 has been awarded more than US $5m
(annualised) of new business as a result of its focus on supporting
customers. Moreover, towards the end of the year, the division ran
its annual customer survey, where it recorded a score of 8.1 out of
10, against last year's 7.9 and a Packaging industry average of
7.6.
The division is proud to have played a part in supporting the
healthcare industry in its fight against the pandemic, helping to
produce secondary packaging for anti-viral and vaccine products. In
November, we received external recognition from a leading industry
publication "Packaging News", with the award of UK Packaging
Company of the Year. In a year of incredible challenge, this
external recognition demonstrates the significant progress,
agility, and resilience within the division.
A major highlight of the year was the acquisition of 3C!
Packaging Inc. in September. The acquisition not only strengthened
the division's position in pharmaceutical and healthcare packaging
in core product areas, but also brought with it valuable new
innovation with its serialisation technology. Integration
activities are progressing well, helped by the business culturally
fitting in efficiently with the wider division, with delivery of
early procurement synergies and growth pipeline opportunities being
progressed.
In 2020 we proposed the closure of our manufacturing sites in
Portsmouth, UK and Moorestown, US in 2021. These actions reflect
the significant reduction in demand in some key areas and
withdrawal of key customer production due to the pandemic, whilst
also supporting supply chain optimisation.
Adjusted operating profit decreased 9.6% to GBP13.8m, equating
to a margin of 3.8% (50 bps decline). This was largely driven by
the volume gearing effect from the revenue decline, which was
exacerbated by temporary manufacturing inefficiencies caused by
pandemic related issues. Netted off against these was the impact of
continued successful pricing management and cost control
actions.
Filters
2020 % growth % growth
GBPm Actual FX Constant FX
------ -----------
Revenue 278.3 -8.3 -5.6
Operating profit* 25.2 -30.4 -29.2
Operating margin* 9.1% -280bps -300bps
------------------- ------ ----------- -------------
* Adjusted basis
Total Filters divisional revenue was 5.6% down on the prior year
period, of which the core Filters business (division excluding Tear
Tapes) was down by 4.9%. However, as with the other divisions, in
order to better understand FY trading numbers, this must be looked
at through the lens of more granular half-yearly performance.
H1 was 11.2% down for the overall division, as it quickly
adapted itself to deal with the challenges presented by the
outbreak. In particular, H1 was affected by two short-term factors;
namely, the impact from government enforced facility closures in
India and Paraguay (compounded by the fact that both of these
territories have a unique route-to-market for tobacco products that
were also closed), and the continued effect on prior period
comparatives due to business disruption in the Middle East
following the sanction compliance issues announced in our year end
2019 results.
As we moved into H2, the division returned to delivering
marginal half-yearly growth, bolstered by the optimisation of
production volumes for the previously announced outsourcing
contract wins . In H2, the overall division recorded growth of
0.2%, whilst the core Filters business delivered growth of 0.7%.
Growth in H2 would have been even better had it not been for
certain logistical challenges towards the end of the period, in
shipping product in Asia, derived from regional container
shortages.
In relation to the division's game changers, as mentioned above,
the two previously announced outsourcing contracts are now
operational, with full production capacity being achieved on both
of these. Additionally during the year, the division also won
another outsourcing contract with an independent customer. The
China JV remains on track to commence production towards the end of
Q2 2021, 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, one
proprietary product launch and joint developments ongoing with
several partners. In regards to the development of biodegradable
filters - as an innovation leader, the division is well placed to
play a leading role. The division has projects ongoing in
collaboration with customers and suppliers and this could create a
number of opportunities in the medium to long-term. As previously
reported, in December 2020 the division has launched three
proprietary products (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.
During the period the division has continued to develop its
cross-functional key account management structure, which will help
to create a more in-depth understanding of customer needs, develop
relevant value propositions and identify mutually beneficial
strategic initiatives. This combined with the division's world
class service and quality metrics having been maintained, despite
any disruptions that have been caused by the pandemic, has further
strengthened and deepened customer relationships .
Adjusted operating profit decreased 29.2% to GBP25.2m, equating
to an operating margin of 9.1% (decline of 300 bps). This was
largely driven by the volume gearing effect from the revenue
decline and a mix effect from proportionally less new product
introduction (NPI) projects. Additionally, temporary manufacturing
inefficiencies caused by pandemic related issues also adversely
impacted profits during the year.
Financial Review
Net finance expense. Net finance expense of GBP15.7m was GBP1.2m
above the prior year period, and is broken down as follows:
GBPm 2020 2019
-----
Net interest charged on net
debt 10.3 11.4
Amortisation of bank fees 0.7 0.8
IAS 19 pension finance charge 0.7 0.7
Interest on leases 2.4 2.1
Net other finance expense 1.6 (0.5)
Total net finance expense 15.7 14.5
------------------------------- ----- ------
The increase in net other finance expenses was mainly driven by
adverse FX movements on property leases in Turkey and Hungary that
are denominated in non-local currencies.
Tax. The effective tax rate on underlying profit before tax
(before adjusting items and amortisation of acquired intangible
assets) was 19.2% (2019: 19.9%). This reduced tax rate is driven by
a change in the geographical split of profits across the
Company.
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 2020 2019
--------
Inventories 102.6 113.1
Trade & other receivables 154.2 166.9
Trade & other payables (155.4) (174.5)
Adjustments 6.7 8.3
Net working capital 108.1 113.8
--------------------------- -------- --------
The decrease in net working capital was largely due to lower
inventory and receivables levels, which were driven by the reduced
trading volumes combined with a concerted effort by the company to
implement a series of initiatives to adapt and optimise working
capital levels, in light of the pandemic. These lower inventory and
receivables were netted off by a decrease in trade and other
payables. It should also be noted that an element of the
year-on-year reduction in overall net working capital is
attributable to FX impact.
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 6% higher than the previous
year at GBP76.3m (2019: GBP71.8m), this equated to an operating
cash conversion of 123% in the year (2019: 82%). Adjusted free cash
flow was GBP56.9m compared to GBP40.7m in 2019. The increase in
adjusted operating cash flow, despite the aforementioned lower
level of profitability in the Group, was due to two key drivers; a
healthy cash inflow of GBP6.2m from working capital movements that
was mainly the outcome of reduced trading volumes combined with a
series of working capital cash management initiatives that were put
in place with the onset of the pandemic (in the prior year working
capital movements accounted for a large outflow of cash of
GBP10.3m), and secondly a targeted reduction in year-on-year capex
spend of GBP11.9m. The increase in adjusted free cash flow was also
driven by a year-on-year reduction in tax spend of GBP9.0m (which
in the main resulted from the aforementioned lower profitability
levels in the year as well as a refund of tax in the US).
In 2020, there was a GBP65.3m net increase in cash and cash
equivalents to GBP135.8m (2019: increase of GBP5.1m to
GBP70.4m).
GBPm 2020 2019
-------
Operating profit - adjusted 62.0 87.5
Depreciation and amortisation of non-acquired
intangible assets 40.2 36.4
Right-of-use asset depreciation 12.0 11.3
Share option expense / other movements 0.6 3.5
Change in working capital 6.2 (10.3)
Net capital expenditure (excluding disposal
proceeds relating to adjusting items) (44.7) (56.6)
Operating cash flow - adjusted 76.3 71.8
Tax* (7.5) (16.5)
Cash outflow in respect of adjusting items (11.1) (34.2)
Pension obligations 0.9 (1.3)
Add back: net capital expenditure (excluding
disposal proceeds relating to adjusting items) 44.7 56.6
Net cash inflow from operating activities 103.3 76.4
Operating cash flow - adjusted 76.3 71.8
Tax* (7.5) (16.5)
Net interest paid (12.8) (13.3)
Pension obligations 0.9 (1.3)
Free cash flow - adjusted 56.9 40.7
Net increase in cash & cash equivalents 65.3 5.1
--------------------------------------------------- ------- -------
* Tax paid excludes the tax paid on business disposals. This is
included within the cash outflow in respect of adjusting items
Net debt. Net debt at the end of the period was GBP210.4m, a
GBP74.0m decrease from 1 January 2020 (including lease
liabilities). The overall decrease was mainly driven by a
combination of the free cashflow generated during the year along
with cash raised from the placement of new share capital in the
Company, being netted off against cash paid for the acquisition of
3C! Packaging Inc. and an increase in lease liability movements
(which are driven by a new lease for the aforementioned Components
Germany warehouse project along with recently extended leases on
our Components Turkey and Filters Hungary facilities).
GBPm 2020
Net debt as at 1 January 2020 284.4
Free cash flow (56.9)
Cash outflow in respect of adjusting items 11.1
Foreign exchange 4.4
Disposals* -
Acquisitions - net cash paid 41.2
Shares issued (net of costs incurred) (96.7)
Shares issued in JV (5.0)
Dividends to minority interest 0.7
Lease liability movements 19.7
Employee trust shares (0.1)
Loans and lease liabilities acquired through
business combinations 6.6
Other 1.0
Net debt as at 31 December 2020 210.4
------------------------------------------------ -------
* Excludes GBP5.0m cash received from the settlement of the
promissory note as this already excluded part of net debt
The Company's financial ratios remain healthy. The ratio of net
debt to EBITDA including lease liabilities was 1.8x (31 December
2019: 2.0x). Net debt to EBITDA excluding lease liabilities was
1.5x (31 December 2019: 1.9x). Interest cover was 4.2x (31 December
2019: 6.6x).
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 year end was set
to mature in its entirety in November 2022. However, for a tranche
involving five of the eight banks (worth GBP225m), we have recently
agreed an extension to the facility based on new terms, which will
now mature in November 2023. The Company continues to review its
financing, including the lenders in the original tranche still set
to mature in November 2022.
Fundraise. On 18 September 2020, the Company successfully
completed the placing and subscription of new ordinary shares in
the Company. In aggregate, the Fundraise comprised of 38,461,538
new ordinary shares, raising net proceeds of GBP96.7m. This
fundraise enabled the acquisition of 3C! Packaging, Inc. and helped
reduce the Company's leverage ratio to within target range of
1x-2x, providing the platform for further strategic
optionality.
Pensions. As at 31 December 2020, the Company's IAS 19 net
pension liability was GBP23.9m (2019: GBP17.4m). This increase in
the liability is a result of an actuarial loss (driven by a
reduction in discount rate) being netted off against a positive
return of plan assets.
Board changes. As reported in the HY 2020 results announcement,
Lorraine Trainer stepped down as a Non-Executive Director and Chair
of the Remuneration Committee, following the Company's 2020 Annual
General Meeting on 21 May 2020. Lorraine has been replaced as Chair
of the Remuneration Committee by Nicki Demby, who has been with the
Company since 1 June 2019.
Tommy Breen will retire as a Non-Executive Director and Senior
Independent Director with effect from the conclusion of the Annual
General Meeting (AGM) to be held on Thursday 21 May 2021. Tommy
leaves having served as a Non-Executive Director for six years and
as Senior Independent Director. The Board are pleased to announce
that Mary Reilly will become Senior Independent Director upon
Tommy's retirement, subject to Mary's re-election at the AGM. Mary
is also Chair of the Audit & Risk Committee and Board Employee
Champion. The Nomination Committee has initiated a process to
appoint a new Non-Executive Director.
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 31
December 2020, Essentra's US dollar-denominated assets were
approximately 27% hedged by its US dollar-denominated borrowings,
while its euro-denominated assets were approximately 32% 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. However, where such exposure does occur,
Essentra uses forward foreign currency contracts to hedge its
exposure to movements in exchange rates on its highly probable
forecast foreign currency sales and purchases over a period of up
to 18 months.
Management of principal risks. The Board considers risk
assessment, identification of mitigating actions and internal
controls to be fundamental to achieving Essentra's strategic
objectives. Our principal risks are detailed later in this
document.
Dividends
Earlier in the year, in light of the unprecedented uncertainty
due to the pandemic, the Company announced that the Board had
concluded that all reasonable steps should be taken to conserve
cash and, accordingly, decided to cancel the 2019 final and 2020
interim dividend. The Board has since reviewed the overall dividend
payment for this financial year and taking into consideration: the
resilient financial performance of 2020, the Company's stronger
balance sheet position, and the encouraging outlook, concluded that
there should be resumption of a payment for the FY 2020 final
dividend of 3.3p per share. The dividend payment being proposed is
to be funded in full from cash flows generated from the operations
of the Company during 2020. Going forwards, a progressive dividend
policy will be adopted.
The final dividend will be paid on 1 June 2021 to equity holders
on the share register on 23 April 2021: the ex-dividend date will
be 22 April 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 10 May 2021.
The UK's Exit from the European Union ("Brexit")
Now that the UK has exited the EU with a trade deal, the
Company's focus has shifted to ensuring effective management of new
customs and delivery arrangements, in order to maintain customer
service levels. Some supply chain disruptions have been noted thus
far in Q1 2021 due to the additional administrative steps,
particularly in the Components business. In response to these
disruptions, certain product lead times have had to be extended. We
are also currently experiencing additional costs and increased
freight rates from the aforementioned additional administrative
steps. 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")
As previously advised, 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 divisions, along with improving process efficiencies
and business controls. We have now completed scoping and process
design, along with development activity of the system, both for
core finance & procurement processes, as well as sales,
manufacturing & warehouse processes for the Components
Division.
We went 'live' with HQ finance & procurement processes in
July 2020 and we are now in User Acceptance/Business Readiness
Testing for our first country launch in Spain in Q2 2021. This will
be followed by the remaining European locations for Components.
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 Tel: +44 (0)20 7353 4200
Director
Tel: +44 (0)1908 359100
Presentation
A copy of these results is available on www.essentraplc.com
The Full 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: 8289709
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: 8289709
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.
MAR Statement
This announcement contains inside information
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 7,065 employees, 50 principal
manufacturing facilities, 32 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, 15 manufacturing
facilities and 25 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 25 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 twelve 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.
Consolidated Income Statement
For the year ended 31 December 2020
Note 2020 2019
GBPm GBPm
-------------------------------------------------- ---- ------ ------
Revenue 2 896.5 974.1
Operating profit 21.7 80.0
Finance income 4 1.9 2.1
Finance expense 4 (17.6) (16.6)
-------------------------------------------------- ---- ------ ------
Profit before tax 6.0 65.5
Income tax credit/(charge) 0.3 (24.3)
-------------------------------------------------- ---- ------ ------
Profit for the year 6.3 41.2
-------------------------------------------------- ---- ------ ------
Attributable to:
Equity holders of Essentra plc 4.5 38.4
Non-controlling interests 1.8 2.8
-------------------------------------------------- ---- ------ ------
Profit for the year 6.3 41.2
-------------------------------------------------- ---- ------ ------
Earnings per share attributable to equity holders
of Essentra plc:
Basic 5 1.7p 14.7p
-------------------------------------------------- ---- ------ ------
Diluted 5 1.6p 14.5p
-------------------------------------------------- ---- ------ ------
Earnings per share from continuing operations
attributable to equity holders of Essentra
plc:
Basic 5 1.7p 14.7p
-------------------------------------------------- ---- ------ ------
Diluted 5 1.6p 14.5p
-------------------------------------------------- ---- ------ ------
Adjusted profit measure:
GBPm GBPm
Operating profit 21.7 80.0
Amortisation of acquired intangible assets 22.6 22.9
Adjusting items 3 17.7 (15.4)
------ ------
Adjusted operating profit 62.0 87.5
------ ------
See note 16 for further details of the adjusted
profit measure.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
2020 2019
Note GBPm GBPm
---------------------------------------------------- ---- ------ ------
Profit for the year 6.3 41.2
Other comprehensive income:
Items that will not be reclassified to profit
or loss:
Remeasurement of defined benefit pension schemes 9 (6.7) (4.9)
Deferred tax income on remeasurement of defined
benefit pension schemes 2.1 1.0
----------------------------------------------------- ---- ------ ------
(4.6) (3.9)
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 (0.5) 0.8
Effective portion of changes in fair value
of cash flow hedges 0.1 (0.6)
Foreign exchange translation differences:
Attributable to equity holders of Essentra
plc:
Arising on translation of foreign operations (9.3) (42.9)
Arising on effective net investment hedges (3.3) 7.5
Income tax (expense)/income (0.5) 1.6
Attributable to non-controlling interests (0.5) (0.6)
----------------------------------------------------- ---- ------ ------
(14.0) (34.2)
Other comprehensive income for the year, net
of tax (18.6) (38.1)
Total comprehensive income for the year (12.3) 3.1
----------------------------------------------------- ---- ------ ------
Attributable to:
Equity holders of Essentra plc (13.6) 0.9
Non-controlling interests 1.3 2.2
----------------------------------------------------- ---- ------ ------
Total comprehensive income for the year (12.3) 3.1
----------------------------------------------------- ---- ------ ------
Consolidated Balance Sheet
At 31 December 2020
============================================================================
31 December 31 December
2020 2019
Note GBPm GBPm
------------------------------------------- ---- ----------- -----------
Assets
Property, plant and equipment 6 263.0 276.0
Lease right-of-use asset 8 52.7 43.4
Intangible assets 7 518.8 486.3
Long-term receivables 4.7 5.6
Deferred tax assets 16.8 13.6
Retirement benefit assets 9 12.6 16.9
------------------------------------------- ---- ----------- -----------
Total non-current assets 868.6 841.8
Inventories 102.6 113.1
Income tax receivable 3.7 7.0
Trade and other receivables 154.2 166.9
Derivative assets 0.3 0.8
Other financial assets - 6.2
Cash and cash equivalents 11 135.8 70.4
------------------------------------------- ---- ----------- -----------
Total current assets 396.6 364.4
Total assets 1,265.2 1,206.2
------------------------------------------- ---- ----------- -----------
Equity
Issued share capital 10 75.6 66.0
Merger relief reserve 385.2 298.1
Capital redemption reserve 0.1 0.1
Other reserve (132.8) (132.8)
Cash flow hedging reserve (0.1) 0.3
Translation reserve (24.1) (11.0)
Retained earnings 313.9 312.4
------------------------------------------- ---- ----------- -----------
Attributable to equity holders of Essentra
plc 617.8 533.1
Non-controlling interests 13.3 7.7
------------------------------------------- ---- ----------- -----------
Total equity 631.1 540.8
------------------------------------------- ---- ----------- -----------
Liabilities
Interest bearing loans and borrowings 11 285.2 249.0
Lease liabilities 11 49.1 39.3
Retirement benefit obligations 9 36.5 34.3
Provisions 8.0 6.0
Other financial liabilities 1.2 3.4
Other payables 2.2 -
Deferred tax liabilities 45.5 45.3
------------------------------------------- ---- ----------- -----------
Total non-current liabilities 427.7 377.3
Interest bearing loans and borrowings 11 - 60.7
Lease liabilities 11 11.9 11.4
Derivative liabilities 0.5 0.3
Income tax payable 33.1 37.9
Trade and other payables 155.4 174.5
Provisions 5.5 3.3
------------------------------------------- ---- ----------- -----------
Total current liabilities 206.4 288.1
Total liabilities 634.1 665.4
------------------------------------------- ---- ----------- -----------
Total equity and liabilities 1,265.2 1,206.2
------------------------------------------- ---- ----------- -----------
Consolidated Statement of Changes in Equity
For the year ended 31 December 2020
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
year 4.5 1.8 6.3
Other
comprehensive
income (0.4) (13.1) (4.6) (0.5) (18.6)
----------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
Total
comprehensive
income for the
year - - - - (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
----------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
2019
---------------- ------- ------- ---------- ------- -------- -------------------------------------------
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
2019 66.0 298.1 0.1 (132.8) 0.1 22.8 338.3 11.6 604.2
Impact on
adoption
of IFRS 16 (5.2) - (5.2)
----------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
Restated total
equity at the
beginning of
the financial
year 66.0 298.1 0.1 (132.8) 0.1 22.8 333.1 11.6 599.0
----------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
Profit for the
year 38.4 2.8 41.2
Other
comprehensive
income 0.2 (33.8) (3.9) (0.6) (38.1)
----------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
Total
comprehensive
income for the
year - - - - 0.2 (33.8) 34.5 2.2 3.1
Acquisition
of
non-controlling
interest (6.3) (5.3) (11.6)
Share options
exercised 0.4 - 0.4
Share option
expense 4.4 - 4.4
Tax relating
to share-based
incentives 0.5 - 0.5
Dividends paid (54.2) (0.8) (55.0)
----------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
At 31 December
2019 66.0 298.1 0.1 (132.8) 0.3 (11.0) 312.4 7.7 540.8
----------------- ------- ------- ---------- ------- -------- ----------- -------- ----------- -------
Consolidated Statement of Cash Flows
For the year ended 31 December 2020
Note 2020 2019
GBPm GBPm
---------------------------------------------------- ---- ------- -------
Operating activities
Profit for the year 6.3 41.2
Adjustments for:
Income tax (credit)/expense (0.3) 24.3
Net finance expense 4 15.7 14.5
Intangible amortisation 7 25.2 23.8
Adjusting items 3 17.7 (15.4)
Depreciation of property, plant and equipment 6 37.6 35.5
Lease right-of-use asset depreciation 8 12.0 11.3
Profit on lease termination (2.0) -
Impairment of fixed assets 0.1 0.5
Share option expense 1.2 3.9
Hedging activities and other movements 1.3 0.4
Decrease/(increase) in inventories 9.6 (1.1)
Decrease in trade and other receivables 14.9 7.3
Decrease in trade and other payables (18.3) (16.5)
Cash outflow in respect of adjusting items (10.9) (24.6)
Adjustment for pension contributions 0.9 (1.3)
Movement in provisions - (1.3)
---------------------------------------------------- ---- ------- -------
Cash inflow from operating activities 111.0 102.5
Income tax paid (7.7) (26.1)
---------------------------------------------------- ---- ------- -------
Net cash inflow from operating activities 103.3 76.4
---------------------------------------------------- ---- ------- -------
Investing activities
Interest received 1.9 1.3
Acquisition of property, plant and equipment (30.9) (48.4)
Proceeds from sale of property, plant and equipment 0.4 2.6
Payments for intangible assets (14.2) (10.5)
Acquisition of businesses net of cash acquired 12 (41.2) (26.1)
Proceeds from sale of businesses net of cash
disposed 12 5.0 113.7
Short-term investments 0.6 (0.6)
---------------------------------------------------- ---- ------- -------
Net cash (outflow)/inflow from investing activities (78.4) 32.0
---------------------------------------------------- ---- ------- -------
Financing activities
Interest paid (14.7) (14.6)
Dividends paid to equity holders - (54.2)
Dividends paid to non-controlling interests (0.7) (0.8)
Acquisition of non-controlling interests - (11.6)
Repayments of short-term loans - (0.1)
Repayments of long-term loans (352.9) (207.3)
Proceeds from long-term loans 318.8 197.3
Lease liability principal repayments (11.9) (12.4)
Proceeds from equity issue 100.0 -
Costs incurred in equity issue (3.3) -
Proceeds from equity issue to non-controlling
interests 5.0 -
Proceeds from sale of employee trust shares 0.1 0.4
---------------------------------------------------- ---- ------- -------
Net cash inflow/(outflow) from financing activities 40.4 (103.3)
---------------------------------------------------- ---- ------- -------
Net increase in cash and cash equivalents 11 65.3 5.1
---------------------------------------------------- ---- ------- -------
Net cash and cash equivalents at the beginning
of the year 70.4 66.2
Net increase in cash and cash equivalents 65.3 5.1
Net effect of currency translation on cash
and cash equivalents 0.1 (0.9)
---------------------------------------------------- ---- ------- -------
Net cash and cash equivalents at the end of
the year 11 135.8 70.4
---------------------------------------------------- ---- ------- -------
1. Basis of preparation
The financial information set out in this document does not
constitute statutory accounts for Essentra plc for the year ended
31 December 2020 but is extracted from the 2020 Annual Report.
The Annual Report for 2020 will be delivered to the Registrar of
Companies in due course. The auditors' report on those accounts was
unqualified and neither drew attention to any matters by way of
emphasis nor contained a statement under either section 498(2) of
Companies Act 2006 (accounting records or returns inadequate or
accounts not agreeing with records and returns), or sec on 498(3)
of Companies Act 2006 (failure to obtain necessary information and
explanations).
The consolidated financial statements have been prepared and
approved by the Directors in accordance with 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 applied in
the European Union.
The financial statements are prepared under the historical cost
convention except for derivatives which are stated at fair value
and retirement benefit obligations which are valued in accordance
with IAS 19 Employee Benefits.
The preparation of financial statements that conform with
adopted IFRS requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of income and
expense during the reporting period. Although these estimates are
based on management's best knowledge of the amount, event or
actions, actual results may ultimately differ from those
estimates.
For the purposes of these financial statements "Essentra" or
"the Group" means Essentra plc ("the Company") and its
subsidiaries.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised and future periods if
relevant.
At 31 December 2020, the Group's financing arrangements amounted
to GBP448.0m, 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 GBP225.0m expires in November 2023 following
extension agreed with lenders in January 2021, and the remaining
amount in November 2022).
At 31 December 2020, GBP161.2m 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
notwithstanding the impact of current events such as Brexit 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 31
December 2020 and as at the date of approval of the 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. Since the first Covid-19 external
announcement issued by the Company in May 2022, the Group has been
cash generative and hence the liquidity position has further
improved. Overall liquidity (defined as available undrawn borrowing
facility plus cash and cash equivalent excluding the amount
attributable to non-controlling interests) at the end of December
was approximately GBP287m, which improved from approximately
GBP260m at half-year, achieved by diligent cash flow management in
the Company.
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. Significant level
of headroom remains in place with regard to liquidity and
compliance with financial covenants. 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 11
and 17 to the financial statements.
The Directors have prepared plans and forecasts for a period of
at least twelve months from the date of signing these financial
statements. Based on these, the Directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future, and accordingly
have adopted the going concern basis in preparing the consolidated
financial statements. This disclosure has been prepared in
accordance with the Financial Reporting Council's UK Corporate
Governance Code.
In these financial statements, the Company has changed the
layout of its consolidated income statement to present adjusted
operating profit measure below the income statement. In addition,
the description previously used for adjusting items has been
changed from "exceptional and other adjusting items" to "adjusting
items", whilst its scope and definition remains unchanged. Details
of these items are provided in note 3.
Changes in accounting policies
The Group adopted the following new pronouncements during 2020,
which did not have a material impact on the Group's financial
statement:
-- Definition of Material (Amendments to IAS 1 and IAS 8) which
clarifies when information is material and incorporate some of the
guidance in IAS 1 about immaterial information.
-- Definition of a Business (Amendments to IFRS 3), which
provides guidance on whether activities and assets acquired are a
business or merely a group of assets, and confirms that a business
must include inputs and a substantive process that together
significantly contribute to the ability to create outputs;
furthermore, there has been a change to the definition of the
'outputs'.
-- Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39
and IFRS 7) which is issued as a first reaction to the potential
effects the IBOR reform could have on financial reporting.
-- Revised Conceptual Framework for Financial Reporting
(Amendments to IFRS 9, IAS 39 and IFRS 7)
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.
Specialist Components was dissolved in 2019, and for the
purposes of the comparative information, it comprised the following
smaller businesses which were divested in 2019:
-- The Extrusion business is a leading custom profile extruder
located in the Netherlands which offers a complete design and
production service.
-- The Pipe Protection Technologies business specialises in the
manufacture of high performance innovative products from commodity
resins to engineering-grade thermoplastics and polymer alloys for
use in the oil & gas industry.
-- The Speciality Tapes business has expertise in coating
multiple adhesive systems in numerous technologies, and its
products range from foam, magnetic, finger lift and acrylic high
bond tapes to hook and loop and non-skid foam.
-- The Card Solutions business is a leading European provider of
ID card printers, systems and accessories to direct and trade
customers.
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.
2020
---------- --------- ------- ----------- ------------ ---------------------
Specialist Central
Components Packaging Filters Components Eliminations Services(1) Total
GBPm GBPm 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
Operating profit/(loss)
before intangible
amortisation
and adjusting
items 45.5 13.8 25.2 - - (22.5) 62.0
Amortisation
of acquired
intangible assets (8.9) (13.6) (0.1) - - - (22.6)
Adjusting items (4.7) (9.1) 0.9 - - (4.8) (17.7)
------------------------ ---------- --------- ------- ----------- ------------ ------------ -------
Operating profit/(loss) 31.9 (8.9) 26.0 - - (27.3) 21.7
------------------------ ---------- --------- ------- ----------- ------------ ------------ -------
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 (2) - - - - - 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 (2) - - - - - 400.8 400.8
------------------------ ---------- --------- ------- ----------- ------------ ------------ -------
Total liabilities 60.4 85.8 56.7 - - 431.2 634.1
------------------------ ---------- --------- ------- ----------- ------------ ------------ -------
Other segment
items
Capital expenditure
(cash spend) 11.8 11.0 8.5 - - 13.8 45.1
Depreciation 7.3 13.7 10.7 - - 5.9 37.6
Average number
of employees 2,355 3,498 1,674 - - 276 7,803
------------------------ ---------- --------- ------- ----------- ------------ ------------ -------
2019
---------- --------- -------- ---------- ------------ ----------- -------
Specialist Central
Components Packaging Filters Components Eliminations Services(1) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- -------------- ---------- --------- -------- ---------- ------------ ----------- -------
External revenue 283.1 352.7 303.3 35.0 - - 974.1
Intersegment
revenue 0.2 - 0.3 0.2 (0.7) - -
---------------------- ---------- --------- -------- ---------- ------------ ----------- -------
Total revenue 283.3 352.7 303.6 35.2 (0.7) - 974.1
Operating
profit/(loss)
before intangible
amortisation
and adjusting
items 60.3 15.1 36.2 4.8 - (28.9) 87.5
Amortisation
of acquired
intangible assets (9.3) (12.7) (0.1) (0.8) - - (22.9)
Adjusting items (1.6) 7.4 (9.2) 19.7 - (0.9) 15.4
---------------------- ---------- --------- -------- ---------- ------------ ----------- -------
Operating
profit/(loss) 49.4 9.8 26.9 23.7 - (29.8) 80.0
---------------------- ---------- --------- -------- ---------- ------------ ----------- -------
Segment assets 164.1 218.9 193.9 - - 28.1 605.0
Intangible assets 171.1 283.6 22.3 - - 9.3 486.3
Unallocated
items (2) - - - - - 114.9 114.9
---------------------- ---------- --------- -------- ---------- ------------ ----------- -------
Total assets 335.2 502.5 216.2 - - 152.3 1,206.2
---------------------- ---------- --------- -------- ---------- ------------ ----------- -------
Segment liabilities 54.1 89.2 59.0 - - 35.6 237.9
Unallocated
items (2) - - - - - 427.5 427.5
---------------------- ---------- --------- -------- ---------- ------------ ----------- -------
Total liabilities 54.1 89.2 59.0 - - 463.1 665.4
---------------------- ---------- --------- -------- ---------- ------------ ----------- -------
Other segment
items
Capital expenditure
(cash spend) 14.1 13.5 16.8 0.6 - 13.9 58.9
Depreciation 7.4 12.0 10.7 0.1 - 5.3 35.5
Average number
of employees 2,409 3,251 1,730 387 - 221 7,998
---------------------- ---------- --------- -------- ---------- ------------ ----------- -------
(1) Central Services includes executive and non-executive management,
group finance, tax, treasury, legal, group assurance, human resources,
information technology, corporate development, investor relations
and other services provided centrally to support the operating
segments.
(2) The unallocated assets relate to income and deferred tax
assets, retirement benefit assets, derivatives, short-term investments,
loan receivables and cash and cash equivalents. The unallocated
liabilities relate to interest bearing loans and borrowings, retirement
benefit obligations, derivatives, deferred tax liabilities and
income tax payable. Intersegment transactions are carried out
on an arm's length basis.
Continuing operations' net finance expense of GBP15.7m (2019:
GBP14.5m) and income tax credit of GBP0.3m (2019: expense of GBP24.3m)
cannot be meaningfully allocated by segment.
No customer accounted for more than 10% of revenue in either 2020
or 2019. Analysed by destination, revenue to Europe & Africa is
GBP443.2m (2019: GBP481.0m), revenue to Americas is GBP277.2m
(2019: GBP296.4m) and revenue to Asia and Middle East is GBP176.1m
(2019: GBP196.7m). Revenue to the UK is GBP81.5m (2019: GBP97.2m),
with other significant countries being the USA with revenue of
GBP210.4m (2019: GBP221.0m), Ireland GBP49.5m (2019: GBP50.9m)
and Germany GBP48.9m (2019: GBP52.5m). Non-current assets in the
UK total GBP167.9m (2019: GBP166.8m), with the other significant
location being the USA with GBP321.6m (2019: GBP293.6m).
3. Adjusting items
=========================================================================================================
2020 2019
GBPm GBPm
------- ----------------------------------------------------------- ------------ ----------- --------
Losses/(gains) and transaction costs relating
to acquisitions and disposals of businesses(1) 5.7 (15.9)
Acquisition integration and restructuring costs(2) 0.5 0.7
Other(3) 11.5 (0.2)
Adjusting items 17.7 (15.4)
------------------------------------------------------------------- ------------ ----------- --------
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.
The previous description "exceptional and other adjusting items"
has been changed to "adjusting items", whilst its scope and definition
remains unchanged.
(1) Losses/gains and transaction costs relating to acquisitions and
disposals of businesses are made up of GBP0.3m gain relating
to a VAT refund on the costs of a previous business disposal,
GBP0.1m consisting of acquisition related costs in relation to
Innovative Components, GBP0.1m costs incurred in establishing
the China JV and GBP1.2m costs incurred in acquiring 3C! Packaging,
Inc. ("3C!"). The remaining GBP4.6m cost relates to external
professional costs associated with certain corporate development
activities during the year.
In 2019 there was a GBP8.9m gain on the disposal of Pipe Protection
Technology, GBP14.9m gain on disposal of Speciality Tapes, offset
by a GBP3.0m loss on disposal of the Extrusion business, GBP1.3m
loss on disposal of the Card Solutions business, GBP1.5m costs
incurred in establishing the Filters China joint venture, GBP0.1m
costs incurred in acquiring non-controlling interest of Dubai,
GBP0.9m costs incurred acquiring Innovative Components, and GBP0.8m
costs incurred acquiring Nekicesa. The remaining GBP0.3m relates
to costs incurred to date in pursuit of acquisition targets.
(2) Acquisition integration and restructuring costs relates to GBP0.3m
of costs incurred in the integration of Nekicesa, acquired in
2019, and 3C!, acquired in 2020, into the existing business.
Remaining GBP0.2m was incurred as a result of restructuring activities
within the Filters division as a result of the integration of
the newly established Filters China joint venture into the existing
business.
In 2019, acquisition integration and restructuring costs relate
to the integration of; Hertila, acquired in 2018, Innovative
Components, acquired in 2019, and Nekicesa, acquired in 2019,
into the existing business. Included within the total is GBP0.1m
credit relating to a release of Micro Plastics integration costs
accrued.
(3) Other adjusting items in 2020 of GBP11.5m relate
to:
-- GBP7.6m costs relating to restructuring activities within the
Packaging division. These relate to costs incurred in the re-evaluation
of the divisional footprint, which resulted in the announced
closure of manufacturing facilities in Portsmouth, UK, and Moorestown,
USA, as well as additional workforce rationalisation costs.
-- GBP2.1m of cost in relation to restructuring activities within
the Components Europe business following a review of the operational
footprint of the region. This comprises GBP0.6m costs incurred
in the transfer of manufacturing activities out of Åstorp,
Sweden into Barcelona and GBP1.5m incurred on moving the warehousing
capabilities of certain central northern European (Bergeijk in
the Netherlands, Geretsried in Germany and Bratislava in Slovakia)
into the newly established North European Distribution Hub in
Nettetal, Germany.
-- GBP2.5m of cost in relation to restructuring activities within
the Components Americas business following a review of the operational
footprint of the region. The review has resulted in the announcement
of closures of manufacturing sites in Schaumburg, Illinois, and
Melbourne, Arkansas and the transfer of production to the Components
site to Flippin, Arkansas, as well as the exit of three smaller
warehousing and distribution express sites in Edison in New Jersey,
Elgin in Illinois and Los Angeles in California.
-- GBP1.2m credit in relation to the review of the compliance of
certain group companies' export activities with US laws, as previously
disclosed in the 2019 Annual Report. This comprises GBP0.2m of
external advisory and consultancy costs, offset by a GBP1.4m
release of excess provision held for potential penalties in relation
to this activity as the Company does not anticipate any significant
enforcement action.
-- GBP0.5m of external advisory costs in relation to a strategic
review of the Group's operational structure and cost profile,
following the significant structural changes in recent years.
Other adjusting items in 2019 of GBP0.2m relate
to:
-- GBP6.2m credit relating to the release of onerous lease liabilities,
originally provided for as part of the closure of the Newport
Cartons business in 2017, as a result of lease surrender being
agreed with the lessor.
-- GBP2.9m credit relating to the release of excess restructuring
and closure provisions relating to the closure of the Largo and
Kilmarnock sites within the Packaging division and Speciality
Tapes business at Nottingham within the now dissolved Specialist
Components division.
-- GBP0.6m cost in relation to the restructure of the Group Finance
function. The programme represents an initiative to streamline
and restructure the Finance function, in line with managements'
vision of the future of the Finance function.
-- GBP7.5m of cost in relation to a review of the compliance of
certain group companies' export activities, as previously disclosed
in the 2019 Annual Report which included GBP3.2m of external
advisory and consultancy costs involved in investigations conducted
by the Group and GBP0.4m of costs of external resources for direct
remediation actions were incurred. As a result of impact on trading
transactions with certain customers, impairment losses of certain
related assets (inventories, trade receivable and property, plant
and equipment) amounting to GBP1.6m were also recognised.
-- GBP0.7m restructuring cost relating to personnel within the now
dissolved Specialist Components division not retained within
the business.
-- GBP0.1m in relation to Filters restructuring.
The tax effect of the adjusting items is a credit of GBP4.1m
(2019: charge of GBP14.9m).
4. Net finance expense
2020 2019
GBPm GBPm
------------------------------------------------ ------ ------
Finance income
Bank deposits 0.8 0.8
Other finance income 0.8 0.8
Net interest on net pension scheme assets (note
9) 0.3 0.5
------------------------------------------------- ------ ------
1.9 2.1
------------------------------------------------ ------ ------
Finance expense
Interest on loans and overdrafts (11.1) (12.2)
Amortisation of bank facility fees (0.7) (0.8)
Other finance expense (2.4) (0.3)
Net interest on net pension scheme liabilities
(note 9) (1.0) (1.2)
Interest on leases (2.4) (2.1)
------------------------------------------------- ------ ------
(17.6) (16.6)
------------------------------------------------ ------ ------
Net finance expense (15.7) (14.5)
------------------------------------------------- ------ ------
5. Earnings per share
========================================================================================================
2020 2019
GBPm GBPm
------- ----------------------------------------------------------- ------------ ----------- -------
Earnings
Earnings attributable to equity holders of Essentra
plc 4.5 38.4
Adjustments
Amortisation of acquired intangible assets 22.6 22.9
Adjusting items 17.7 (15.4)
------------------------------------------------------------------- ------------ ----------- -------
40.3 7.5
Tax (charge)/relief on adjustments (9.2) 9.8
Adjusted earnings 35.6 55.7
------------------------------------------------------------------- ------------ ----------- -------
Weighted average number of shares
Basic weighted average ordinary shares outstanding
(million) 272.7 262.0
Dilutive effect of employee share option plans
(million) 2.0 3.6
------------------------------------------------------------------- ------------ ----------- -------
Diluted weighted average ordinary shares (million) 274.7 265.6
------------------------------------------------------------------- ------------ ----------- -------
Earnings per share (pence)
Basic earnings per share 1.7p 14.7p
Adjustment 11.4p 6.6p
------------------------------------------------------------------- ------------ ----------- -------
Basic adjusted earnings per share 13.1p 21.3p
------------------------------------------------------------------- ------------ ----------- -------
Diluted earnings per share 1.6p 14.5p
------------------------------------------------------------------- ------------ ----------- -------
Diluted adjusted earnings per share 13.0p 21.0p
------------------------------------------------------------------- ------------ ----------- -------
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
2020
Fixtures,
Plant fittings
Land and and and
buildings machinery equipment Total
GBPm GBPm GBPm GBPm
------- ----------------------------------------------- ---------- ------------ ----------- --------
Cost
Beginning of year 81.9 384.8 78.9 545.6
Acquisitions (note 12) 1.5 4.9 0.3 6.7
Additions 2.2 18.9 6.8 27.9
Disposals (0.7) (14.5) (4.2) (19.4)
Transfers - - (1.9) (1.9)
Currency translation (0.1) (6.9) (0.6) (7.6)
------------------------------------------------------- ---------- ------------ ----------- --------
End of year 84.8 387.2 79.3 551.3
------------------------------------------------------- ---------- ------------ ----------- --------
Accumulated depreciation and impairment
Beginning of year 13.4 215.4 40.8 269.6
Charge in period 3.7 25.5 8.4 37.6
Disposals (0.5) (14.2) (4.1) (18.8)
Impairment 0.2 1.7 0.1 2.0
Currency translation 0.4 (2.4) (0.1) (2.1)
------------------------------------------------------- ---------- ------------ ----------- --------
End of year 17.2 226.0 45.1 288.3
------------------------------------------------------- ---------- ------------ ----------- --------
Net book value at end of year 67.6 161.2 34.2 263.0
------------------------------------------------------- ---------- ------------ ----------- --------
2019
Fixtures,
Plant fittings
Land and and and
buildings machinery equipment Total
GBPm GBPm GBPm GBPm
------- ----------------------------------------------- ---------- ------------ ----------- --------
Cost
Beginning of year 89.9 409.3 77.7 576.9
Acquisitions 10.6 3.1 0.3 14.0
Business disposals (18.0) (33.8) (2.3) (54.1)
Additions 4.5 33.2 11.8 49.5
Disposals (1.7) (13.3) (5.6) (20.6)
Transfers 0.2 (1.5) (1.7) (3.0)
Currency translation (3.6) (12.2) (1.3) (17.1)
------------------------------------------------------- ---------- ------------ ----------- --------
End of year 81.9 384.8 78.9 545.6
------------------------------------------------------- ---------- ------------ ----------- --------
Accumulated depreciation and impairment
Beginning of year 20.9 232.6 41.2 294.7
Business disposals (7.6) (22.2) (2.0) (31.8)
Charge in period 2.7 24.5 8.3 35.5
Disposals (1.2) (11.4) (5.6) (18.2)
Transfers - - (0.5) (0.5)
Impairment - 0.2 0.5 0.7
Currency translation (1.4) (8.3) (1.1) (10.8)
------------------------------------------------------- ---------- ------------ ----------- --------
End of year 13.4 215.4 40.8 269.6
------------------------------------------------------- ---------- ------------ ----------- --------
Net book value at end of year 68.5 169.4 38.1 276.0
------------------------------------------------------- ---------- ------------ ----------- --------
Included within land and buildings, plant and machinery and fixtures,
fittings and equipment are assets in the course of construction
of GBP2.1m (2019: GBP14.2m) which were not depreciated during the
year.
Contractual commitments to purchase property, plant and equipment
amounted to GBP1.4m at 31 December 2020 (2019: GBP2.0m).
During the year property, plant and equipment with a net book value
of GBP2.5m was impaired by GBP2.0m to a recoverable amount of GBP0.5m,
which represented fair value less cost to sell. GBP1.9m of this
impairment relates to restructuring projects and has been charged
to adjusting items.
7. Intangible assets
2020
Other
Customer intangible
Goodwill relationships assets Total
GBPm GBPm GBPm GBPm
-------
Cost
Beginning of year 339.0 402.1 23.8 764.9
Acquisitions (note 12) 20.9 25.4 - 46.3
Additions - - 14.2 14.2
Transfer - - 1.9 1.9
Currency translation (3.9) (3.1) (0.2) (7.2)
End of year 356.0 424.4 39.7 820.1
Amortisation and impairment
Beginning of year 28.3 243.8 6.5 278.6
Charge for the year - 22.3 2.9 25.2
Currency translation (0.5) (1.8) (0.2) (2.5)
End of year 27.8 264.3 9.2 301.3
Net book value at end of year 328.2 160.1 30.5 518.8
2019
Other
Customer intangible
Goodwill relationships assets Total
GBPm GBPm GBPm GBPm
-------
Cost
Beginning of year 370.8 430.3 17.1 818.2
Acquisitions 12.6 13.3 0.7 26.6
Business Disposals (34.5) (27.0) - (61.5)
Additions - - 10.5 10.5
Disposals - - (7.3) (7.3)
Transfer - - 3.0 3.0
Currency translation (9.9) (14.5) (0.2) (24.6)
End of year 339.0 402.1 23.8 764.9
Amortisation and impairment
Beginning of year 31.9 246.7 11.4 290.0
Business Disposals (3.0) (17.6) - (20.6)
Charge for the year - 21.9 1.9 23.8
Transfer - - 0.5 0.5
Disposals - - (7.3) (7.3)
Currency translation (0.6) (7.2) - (7.8)
End of year 28.3 243.8 6.5 278.6
Net book value at end of year 310.7 158.3 17.3 486.3
Included within other intangible assets are assets in the course
of construction of GBP15.8m (2019: GBP9.8m) which were not amortised
during the year.
Other intangible assets principally comprise trade names acquired
with Reid Supply, developed technology acquired with Richco, order
backlog, software development and e-Commerce development costs.
The e-Commerce development and software development costs were
not acquired through a business combination, and their amortisation
is included within operating profit before amortisation of acquired
intangibles and adjusting items.
The weighted average remaining useful lives of customer relationships
and other intangible assets at the end of the year were 8.1 years
and 5.8 years (2019: 7.9 years and 6.3 years) respectively.
Essentra tests intangible assets annually for impairment, or more
frequently if there are indications of impairment. A discounted
cash flow analysis is computed to compare the discounted estimated
future operating cash flows to the net carrying value of the goodwill
and other intangible and tangible assets for each cash generating
unit or group of cash generating units as appropriate.
Goodwill is allocated to groups of cash generating units, being
the operating segments, as follows:
Goodwill
2020 2019
GBPm GBPm
Components 95.3 98.5
Packaging 211.2 190.5
Filters 21.7 21.7
---------
328.2 310.7
---------
Intangible assets, apart from goodwill, are allocated to the businesses
to which they relate as shown below:
Customer relationships
and other intangible
assets
2020 2019
Business Operating segment GBPm GBPm
Components - Businesses of former
Moss and Skiffy Components 10.3 10.7
Components - Businesses of former
Richco Components 18.4 22.6
Components - Business of former
Mesan Components 3.0 4.6
Components - Business of former
Abric Components 8.1 8.6
Components - Business of former
MicroPlastics Components 4.0 4.5
Components - Industrial Supply Components 2.4 3.5
Components - Innovative Components Components 7.2 8.1
Components - e-Commerce development
costs Components 12.6 5.2
Components - other businesses Components 3.9 4.8
Packaging - Americas Packaging 50.3 31.9
Packaging - Asia Packaging 1.2 1.5
Packaging - Europe Packaging 49.1 55.5
Packaging - Nekicesa Packaging 4.2 4.2
Filters Filters 0.9 0.6
No allocated to divisions - software
and development costs Central 15.0 9.3
---------
190.6 175.6
---------
At 31 December 2020, management has performed an impairment review
of the assets in each division. Following the impairment assessment,
no impairment loss was recognised in 2020.
The impairment assessment for intangible assets (excluding goodwill)
and property, plant and equipment is performed on the cash generating
units within the divisions. The cash generating units are primarily
the manufacturing sites. Goodwill is tested at the divisional level,
which is the level that management monitor goodwill at. The recoverable
amount is estimated on the basis of value in use, i.e. discounted
cash flow projection expected to be generated by the group of cash
generating units. For assets in the cash generating units assessed
to be impaired, their fair value less costs to sell is also considered
in determining the impairment loss to be recognised, if any. In
these cases, the fair value less costs to sell is based on estimated
market prices reflecting the age and condition of the asset.
The impairment tests for goodwill and intangible assets are based
on the business plan (the "Plan"). Cash flow projections are over
five years using the approved annual budget for the first year
and subsequent years based on the Group's Strategic Plan. The Groups
impairment test incorporates the following assumptions:
-- Impairment reviews take into account the impact of IFRS 16 in
both the calculation of discounted cash flows and the asset
base.
-- The key assumptions in the cash flow projections for the Plan
are the revenue growth and operating margin for each division.
Operating margin is primarily based on historical levels
achieved,
adjusted by targets set for revenue expansion and cost control
and reduction for each individual division within the Plan
period.
The key assumptions underlying the estimation of cash flow
projections
for value in use are operating profit margin and revenue growth
assumptions. The values assigned to these assumptions represent
management's assessment of market condition and scope for cost
and profitability improvement, taking into account realisable
synergies resulting from integration activities. The compound
annual revenue growth rate assumption across all three
divisions
for the next five years ranges from 4.1% to 7.5%. The average
operating profit margin assumption for the next five years
included
within the Packaging division impairment assessment ranges from
8.3% to 11.3%. In respect of Components and Filters, the
combined
average operating profit margin over the five year forecast
period
is assumed to improve by 260 bps from 2020.
-- In relation to the test for the Components and Filters
divisions,
cash flows beyond the first year of the model are based on the
approved annual budget with growth rates specific to each
business
applied to revenue of up to 7.8%.
-- The estimated cash flows are discounted using a pre-tax
discount
rate based upon Essentra's estimated post-tax weighted average
cost of capital of 7.3% (2019: 7.5%). The specific pre-tax
discount
rates applied for each group of cash generating units to which
significant goodwill is allocated are as follows: 8.8% for
Packaging,
9.4% for Components and 9.7% for Filters (2019: 9.0% for
Packaging,
9.7% for Components and 9.5% for Filters).
-- In relation to the test for the Packaging division, management
carried out a detailed assessment of the growth and profit
margin
assumptions for each of the next four years after the Plan
period,
and applied a terminal growth rate of 1.5% p.a. (2019: 1.5%)
subsequently.
The growth and profit margin assumptions are based on
management's
assessment of market condition and scope for cost and
profitability
improvement, taking into account realisable synergies following
the recent integration and reorganisation activities.
The Packaging division impairment test has historically been the
most sensitive to changes in assumptions, therefore management
have performed additional sensitivity analysis to assess the robustness
of the current headroom the recoverable amount has above the carrying
amount. The following change to key assumptions will cause the
carrying amount to exceed the recoverable amount in the Packaging
division:
-- An increase in discount rate of 300 basis points
-- A reduction of 510 basis points in the operating profit margin
in the terminal year
-- A reduction of 410 basis points in the terminal growth rate
Management considered the following reasonably possible changes
in the key assumptions, and the associated impact on the impairment
assessment, in relation to the Packaging division:
-- A 1.0% increase in discount rate would reduce headroom to
GBP143.8m
-- A 1.0% reduction in the terminal growth rate would reduce
headroom
to GBP162.8m
-- A 1.5% reduction in each year's growth rate would reduce
headroom
to GBP218.9m
-- A 2.0% reduction in operating profit margin in the terminal
year
would reduce headroom to GBP153.2m
8. Lease right-of-use assets
2020
Fixtures,
Land and Plant and fittings
buildings machinery and equipment Total
GBPm GBPm GBPm GBPm
Cost
Beginning of year 84.4 14.6 0.2 99.2
Additions 19.5 2.2 0.2 21.9
Terminations (2.5) (2.9) - (5.4)
Acquisitions (note 12) 2.5 - - 2.5
Currency translation (1.9) - - (1.9)
End of year 102.0 13.9 0.4 116.3
Accumulated depreciation
Beginning of year 50.2 5.5 0.1 55.8
Charge for the year 8.8 3.1 0.1 12.0
Terminations (2.3) (2.9) - (5.2)
Impairment 1.7 - - 1.7
Currency translation (0.7) - - (0.7)
End of year 57.7 5.7 0.2 63.6
Net book value at end of year 44.3 8.2 0.2 52.7
2019
Fixtures,
Land and Plant and fittings
buildings machinery and equipment Total
GBPm GBPm GBPm GBPm
Cost
Beginning of year 83.2 11.1 0.2 94.5
Additions 10.6 2.6 0.1 13.3
Terminations (4.4) (2.0) (0.1) (6.5)
Acquisitions 0.3 3.5 - 3.8
Business disposals (2.6) (0.2) - (2.8)
Currency translation (2.7) (0.4) - (3.1)
End of year 84.4 14.6 0.2 99.2
Accumulated depreciation
Beginning of year 48.2 4.8 0.2 53.2
Charge for the year 8.2 3.1 - 11.3
Terminations (2.9) (2.0) (0.1) (5.0)
Business disposals (1.6) (0.2) - (1.8)
Currency translation (1.7) (0.2) - (1.9)
End of year 50.2 5.5 0.1 55.8
Net book value at end of year 34.2 9.1 0.1 43.4
During the year lease right-of-use assets with a net book value
of GBP2.7m was impaired to a net book value of GBP1.0m. This GBP1.7m
impairment charge related to site closures as disclosed in adjusting
items section of note 3. The assets were written down to their
recoverable amount, which represented their fair value.
For the year ended 31 December 2020 the weighted average lessee's
incremental borrowing rate applied to the lease liabilities was
5.1% (2019: 3.9%).
9. Employee benefits
Post-employment benefits
Pension costs of the defined benefit schemes are assessed in
accordance with the advice of independent professionally qualified
actuaries. Full triennial actuarial valuations were carried out on
the principal European defined benefit schemes as at 5 April 2018
and annual actuarial valuations are performed on the principal US
defined benefit schemes. The assets and liabilities of the defined
benefit schemes have been updated to the balance sheet date from
the most recently completed actuarial valuations taking account of
the investment returns achieved by the schemes and the level of
contributions.
The amounts included in the consolidated financial statements
are as follows:
2020 2019
GBPm GBPm
Amounts expensed against operating profit
Defined contribution schemes 7.2 7.5
Defined benefit schemes - current service cost 1.6 1.7
Defined benefit schemes - curtailment gain (0.4) -
Other post-employment obligations 0.5 0.5
Total operating expense 8.9 9.7
Amounts included as finance (income)/expense
Net interest on defined benefit scheme assets
(note 4) (0.3) (0.5)
Net interest on defined benefit scheme liabilities
(note 4) 1.0 1.2
Net finance expense 0.7 0.7
Amounts recognised in the consolidated statement
of comprehensive income
Return on defined benefit scheme assets excluding
amounts in net finance income (32.4) (29.6)
Impact of changes in assumptions and experience
to the present value of defined benefit scheme
liabilities 39.1 34.5
Remeasurement of defined benefit schemes 6.7 4.9
The defined benefit schemes' curtailment gain of GBP0.4m (2019:
GBPnil) has been included within adjusting items (see note 3).
During 2015, the principal defined benefit pension schemes in
the UK and the US were closed to future accrual. Following the
closure of the Group's principal defined benefit pension schemes to
future accruals, the schemes are funded by the Group's subsidiaries
and employees are not required to make any further contribution.
The funding of these schemes is based on separate actuarial
valuations for funding purposes for which the assumptions may
differ from those used in the valuation for IAS 19 purposes.
The principal assumptions used by the independent qualified
actuaries for the purposes of IAS 19 are as follows:
2020 2019
Europe US Europe US
Increase in salaries
(pre-2010)(1) n/a n/a n/a n/a
Increase in salaries
(post-2010)(1) n/a n/a n/a n/a
Increase in pensions(1)
at RPI capped at 5% 2.70% n/a 2.90% n/a
at CPI capped at 5% 2.20% n/a 2.10% n/a
at CPI minimum 3%,
capped at 5% 3.10% n/a 3.10% n/a
at CPI capped at 2.5% 1.90% n/a 1.90% n/a
Discount rate 1.30% 2.45% 2.10% 3.15%
Inflation rate - RPI 2.70% n/a 3.00% n/a
Inflation rate - CPI 2.20% n/a 2.10% n/a
(1) For service prior to April 2010, pension at retirement is
linked to salary at retirement. For service after April 2010,
pension is linked to salary at April 2010 with annual increases
capped at 3%.
Due to the timescale covered, the assumptions applied may not be
borne out in practice.
The life expectancy assumptions (in number of years) used to
estimate defined benefit obligations at the year end are as
follows:
2020 2019
Europe US Europe US
Male retiring today
at age 65 22.5 20.4 22.3 20.6
Female retiring today
at age 65 24.3 22.4 24.2 22.6
Male retiring in 20
years at age 65 23.8 21.9 23.7 22.2
Female retiring in
20 years at age 65 25.7 23.8 25.6 24.1
Movement in fair value of post-employment obligations during the
year
2020 2019
Defined Defined Defined Defined
benefit benefit benefit benefit
pension pension pension pension
scheme scheme scheme scheme
assets liabilities Other Total assets liabilities Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Beginning of year 287.8 (301.2) (4.0) (17.4) 261.3 (272.2) (3.0) (13.9)
Current service
cost and administrative
expense (1.6) - (0.5) (2.1) (1.7) - (0.5) (2.2)
Past service cost - - - - - - - -
Employer contributions 1.1 0.1 - 1.2 3.4 0.1 - 3.5
Return on plan
assets excluding
amounts in net
finance income 32.4 - - 32.4 29.6 - - 29.6
Actuarial (losses)/gain
arising from change
in financial assumptions - (39.0) 0.2 (38.8) - (38.1) (0.2) (38.3)
Actuarial gains
arising from change
in demographic
assumptions - 1.9 - 1.9 - 3.0 - 3.0
Actuarial gains
arising from experience
adjustment - (2.2) - (2.2) - 0.8 - 0.8
Finance income/(expense) 6.4 (6.9) (0.2) (0.7) 8.1 (8.6) (0.2) (0.7)
Benefits paid (12.0) 12.0 - - (11.2) 11.2 - -
Curtailments - - 0.4 0.4 - - - -
Currency translation (2.1) 3.3 0.2 1.4 (1.7) 2.6 (0.1) 0.8
Business disposals - - - - - - - -
End of year 312.0 (332.0) (3.9) (23.9) 287.8 (301.2) (4.0) (17.4)
Sensitivity
For the significant assumptions used in determining defined
benefit costs and liabilities, the following sensitivity analysis
gives the estimate of the impact on the measurement of the scheme
liabilities as at 31 December 2020.
(Increase) / decrease
in schemes net liabilities
Europe US Total
GBPm GBPm GBPm
0.5% decrease in the discount rate (25.2) (5.4) (30.6)
1.0% increase in the rate of inflation (25.0) n/a (25.0)
1.0% increase in rate of salary/pension increases n/a n/a n/a
1 year increase in life expectancy (10.9) (2.8) (13.7)
1 year decrease in life expectancy 11.0 n/a 11.0
0.5% increase in the discount rate 22.0 4.9 26.9
1.0% decrease in rate of salary/pension increases n/a n/a n/a
1.0% decrease in the rate of inflation 18.9 n/a 18.9
10. Issued share capital
2020 2019
GBPm GBPm
Issued, authorised and fully paid ordinary
shares of 25p (2019: 25p) each 75.6 66.0
Number of ordinary shares in issue
Beginning of year 264,129,170 264,129,170
Issue of shares during the year 38,461,538 -
End of year 302,590,708 264,129,170
The issue of share capital during the year was in relation to a placement
offering of 38,461,538 new shares with par value of 25p issued at
260p per share. Company has raised GBP96.7m through this issue of
share capital. An amount of GBP87.1m has recognised within the merger
relief reserve being the excess of net proceeds over the nominal value
of shares issued under s612 of the Companies Act 2006.
At 31 December 2020, the Company held 908,650 (2019: 951,137) of its
own shares with a nominal value of GBP0.2m (2019: GBP0.2m) in treasury.
This represents 0.3% (2019: 0.4%) of the number of ordinary shares
in issue.
11. Analysis of net debt
1 Jan Cash Business Lease Exchange Non-cash 31 Dec
2020 flow combinations additions movements movements 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------
Cash at bank
and
in hand 62.6 57.7 0.7 - 0.5 - 121.5
Short-term
deposits
and
investments 7.8 6.9 - - (0.4) - 14.3
---------
Cash and cash
equivalents
in the
statement
of cash
flows 70.4 64.6 0.7 - 0.1 - 135.8
Debt due
within
one year (60.7) 68.1 (4.1) - (3.3) - -
Debt due
after
one year (249.0) (34.0) - - (1.2) (1.0) (285.2)
Lease
liabilities
due within
one
year (11.4) 14.3 (0.2) (2.6) - (12.0) (11.9)
Lease
liabilities
due after
one year (39.3) - (2.3) (19.3) - 11.8 (49.1)
Debt from
financing
activities (360.4) 48.4 (6.6) (21.9) (4.5) (1.2) (346.2)
Other
financial
assets 5.6 (5.6) - - - - -
---------
Net debt (284.4) 107.4 (5.9) (21.9) (4.4) (1.2) (210.4)
---------
The non-cash movements in debt due after one year represent the amortisation
of prepaid facility fees GBP0.7m. The net non-cash movement in lease
liabilities represents lease liability reduction of GBP2.2m due to
renegotiated lease terms, offset by interest on leases GBP2.4m. During
the year GBP9.6m of lease liabilities moved from due after one year
to due within one year.
During the year GBP5.0m was received in respect of the loan receivables
arising from the disposal of Porous Technologies held in other financial
assets as at 31 December 2019.
1 Jan Impact Cash Business Lease Exchange Non-cash 31 Dec
2019 on flow combinations additions movements movements 2019
adoption
of IFRS
16
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------
Cash at bank
and
in hand 62.3 - 0.8 - - (0.5) - 62.6
Short-term
deposits
and
investments 3.9 - 4.3 - - (0.4) - 7.8
Cash and
cash
equivalents
in the
statement
of cash
flows 66.2 - 5.1 - - (0.9) - 70.4
Debt due
within
one year (0.1) - 0.1 - - - (60.7) (60.7)
Debt due
after
one year (311.2) - 10.0 (13.8) - 6.1 59.9 (249.0)
Lease
liabilities
due within
one
year - (11.7) 14.5 (0.5) (1.6) 0.3 (12.4) (11.4)
Lease
liabilities
due after
one year - (47.7) - (1.7) (11.7) 1.1 20.7 (39.3)
Debt from
financing
activities (311.3) (59.4) 24.6 (16.0) (13.3) 7.5 7.5 (360.4)
Other
financial
assets 5.0 - 0.6 - - - - 5.6
Net debt (240.1) (59.4) 30.3 (16.0) (13.3) 6.6 7.5 (284.4)
The non-cash movements in debt due after one year represent the amortisation
of prepaid facility fees GBP0.8m offset by GBP60.7m of debt moving
to debt due within one year. The net non-cash movement in lease liabilities
represents early lease terminations GBP10.4m offset by interest on
leases GBP2.1m. During the year GBP20.7m of lease liabilities moved
from due after one year to due within one year.
Included within other financial assets is GBP5.0m of loan receivables
arising from the disposal of Porous Technologies and GBP0.6m of short-term
liquid investments. In the year ended 31 December 2019, the loan receivable
arising from the disposal of Porous Technologies moved from non-current
to current assets.
12. Acquisitions and disposals
Establishment of joint venture China Tobacco Essentra (Xiamen) Filters
Co., Ltd.
On 2 April 2020 Essentra plc confirmed that it has completed the
establishment of the new joint venture company, China Tobacco Essentra
(Xiamen) Filters Co., Ltd. The Company'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 31 December 2020
the Company has paid two of these three instalments.
Acquisition of Nekicesa
On 6 September 2019, Essentra acquired 100% of the share capital
of Nekicesa Packaging S.L. ("Nekicesa"). Due to the timing of the
transaction, the purchase price allocations including the goodwill
and fair value adjustments included in the financial statements for
the year ended 31 December 2019 were provisional.
During 2020, Essentra reassessed the fair value adjustments and made
changes to the carrying amounts of certain plant, property and equipment,
inventory, payables and deferred tax balances. The impact on goodwill
is an increase of GBP0.9m.
Acquisition of Innovative Components
On 26 June 2019, Essentra acquired 100% of the share capital of Innovative
Components Inc. and Componentes Innovadores Limitada (together "Innovative
Components"). Due to the timing of the transaction, the purchase
price allocations including the goodwill and fair value adjustments
included in the financial statements for the year ended 31 December
2019 were provisional.
During 2020, Essentra reassessed the fair value adjustments and made
changes to the carrying amounts of certain accruals, payables, receivables,
provisions and deferred tax balances. In addition to this Essentra
received back GBP0.2m of the consideration originally paid from the
vendors on finalisation of the completion accounts. The net impact
on goodwill is an increase of GBP0.2m.
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.
On acquisition the assets and liabilities of the business acquired
were adjusted to reflect their fair value to Essentra. Due to the
timing of the transaction, the purchase price allocations including
the split between goodwill and intangible assets and fair value
adjustments are provisional and subject to finalisation for up to
one year from the date of acquisition.
Had the acquisition been completed on 1 January 2020, the contribution
to the Group's revenue and operating profit would have been GBP28.2m
and GBP3.6m higher respectively.
Within adjusting items in the consolidated income statement are
GBP1.2m of costs incurred in acquiring the business.
The fair value of assets and liabilities acquired as part of the
acquisition of 3C! are detailed below:
3C!
GBPm
Intangible assets 25.4
Property, plant and equipment 7.5
Lease right-of-use asset 2.5
Inventories 2.2
Trade and other receivables 4.8
Cash and cash equivalents 0.7
Deferred tax (6.9)
Debt (4.1)
Trade and other payables (6.9)
Provisions (0.2)
Lease liabilities (2.5)
22.5
Goodwill 19.8
Consideration 42.3
Satisfied by:
Cash consideration 42.1
Deferred consideration 0.2
Cash consideration 42.1
Cash and cash equivalents acquired (0.7)
Net cash outflow in respect of
the acquisition 41.4
Goodwill represents the expected operating and financial synergies,
and the value of an assembled workforce. Goodwill is not deductible
for tax purposes.
Fair values of assets and liabilities, including property, plant
and equipment, acquired for 3C! are provisional and subject to change
as the Group is still permitted to make fair value adjustments up
until 12 months after the date of acquisition.
2019: Disposals
On 14 January 2019, Essentra divested of its Pipe Protection Technologies
business ("PPT") to certain wholly-owned subsidiaries of National
Oilwell Varco, Inc. This disposal resulted in a gain before tax
of GBP11.2m and was treated as an adjusting item. Proceeds of GBP38.5m
were received in respect of this transaction with GBP37.5m received
on completion and GBP1.0m deferred, all of which was received in
2019. Included within the net assets disposed was goodwill attributed
to the business with a carrying value of GBP10.1m.
On 11 June 2019, Essentra divested of its Extrusion business to
Inter Primo A/S. This disposal resulted in a loss before tax of
GBP1.8m and was treated as an adjusting item. Proceeds of GBP14.3m
were received in respect of this transaction. Included within the
net assets disposed was goodwill attributed to the business with
a carrying value of GBP3.7m.
On 28 June 2019, Essentra divested of its Speciality Tapes business
("ST") to OpenGate Capital. This disposal resulted in a gain before
tax of GBP20.0m and was treated as an adjusting item. Proceeds of
GBP60.8m were received in respect of this transaction. Included
within the net assets disposed was goodwill and customer relationship
intangibles attributed to the business with a carrying value of
GBP27.4 and GBP8.6m respectively.
On 23 July 2019, Essentra divested of its Cards Solution business
to Barcodes, Inc. This disposal resulted in a loss before tax of
GBP1.1m and was treated as an adjusting item. Proceeds of GBP1.6m
were received in respect of this transaction. Included within the
net assets disposed was goodwill and customer relationship intangibles
attributed to the business with a carrying value of GBP0.4 and GBP0.8m
respectively.
13. Dividends
Per share Total
2020 2019 2020 2019
p p GBPm GBPm
2019 interim: paid 30 October
2019 6.3 - 16.5
2020 proposed final: payable
1 June 2021 3.3 - 10.0 -
During the year ended 31 December 2019 a final dividend of 14.4p
was initially declared but then subsequently cancelled in 2020.
14. Related parties
Other than the compensation of key management and the capital
injection into the Filters joint venture entity China Tobacco
Essentra (Xiamen) Filters Co., Ltd. (note 12), Essentra has not
entered into any material transactions with related parties since
the last Annual Report.
ITC Essentra Limited is 50% owned by the Group. The results were
fully consolidated within the Group's financial statements as it is
deemed Essentra has control by virtue of having control of the
board. As at 31 December 2020 the entity had gross assets of
GBP24.3m (2019: GBP25.9m) and gross liabilities of GBP7.4m (2019:
GBP10.4m). Operating profit for the year amounted to GBP4.8m (2019:
GBP6.3m) and movement in cash for the year amounted to GBP1.7m
(2019: GBP3.8m).
China Tobacco Essentra (Xiamen) Filters Co., Ltd is 49% owned by
the Group. The results were fully consolidated within the Group's
financial statements as it is deemed Essentra has control by virtue
of having control of the board. As at 31 December 2020 the entity
had gross assets of GBP9.9m (2019: GBPnil) and gross liabilities of
GBPnil (2019: GBPnil). Operating loss for the year amounted to
GBP0.1m (2019: GBPnil) and movement in cash for the year amounted
to GBP9.9m (2019: GBPnil).
15. Post balance sheet events
As noted in note 11, the maturity of GBP225m of the overall
borrowing under the RCF was extended on 11 January 2021 for a
further year to November 2023, with the balance remaining on the
original terms with a maturity date of November 2022.
16. Adjusted measures
Management reviews the adjusted operating profit and operating cash
flow as measures of the performance of the business. Adjusted operating
profit is stated before amortisation of acquired intangible assets
and adjusting items which are considered not relevant to measuring
the underlying performance of the business.
2020 2019
Note GBPm GBPm
Operating profit 21.7 80.0
Amortisation of acquired intangible assets 22.6 22.9
Adjusting items 3 17.7 (15.4)
Adjusted operating profit 62.0 87.5
Finance income 4 1.9 2.1
Finance expenses 4 (17.6) (16.6)
Adjusted profit before income tax 46.3 73.0
Tax on adjusted profit (8.9) (14.5)
Adjusted profit 37.4 58.5
Attributable to:
Equity holders of Essentra plc 35.6 55.7
Non-controlling interests 1.8 2.8
Adjusted profit 37.4 58.5
Adjusted earnings per share 5 13.1p 21.3p
Adjusted diluted earnings per share 5 13.0p 21.0p
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.
2020 2019
GBPm GBPm
Adjusted operating profit 62.0 87.5
Depreciation 37.6 35.5
Lease right-of-use asset depreciation 12.0 11.3
Amortisation of non-acquired intangible assets 2.6 0.9
Share option expense 1.2 3.9
Other non-cash items(1) (0.6) (0.4)
Working capital movements 6.2 (10.3)
Net capital expenditure(2) (44.7) (56.6)
Operating cash flow - adjusted 76.3 71.8
Reconciliation of cash flows from adjusting items:
Adjusting items as shown on income statement 17.7 (15.4)
Non-cash (charge)/credit in adjusting items (9.8) 0.6
Net gain on disposal of businesses - 28.3
Cash outflow on adjusting items recognised in
the year 7.9 13.5
Utilisation of prior period and acquired accruals
and provisions 3.0 11.1
Cash outflow from adjusting items 10.9 24.6
(1) Other non-cash items comprise impairment of fixed assets GBP0.1m
(2019: GBP0.5m), hedging activities and other movements GBP1.3m (2019:
GBP0.4m), and movement in provisions GBPnil (2019: negative GBP1.3m)
less Profit on lease termination GBP2.0m (2019: GBPnil).
(2) Net capital expenditure within adjusted operating cash flow excludes
GBPnil (2019: GBP0.3m) of property, plant and equipment disposal proceeds
realised during site closures which relate to adjusting items.
The calculation of the earnings before interest, tax, depreciation
and amortisation ("EBITDA") is as follows:
2020 2019
GBPm GBPm
Operating profit before intangible amortisation
and adjusting items 62.0 87.5
Plus depreciation and other amounts written
off property, plant and equipment, and amortisation
of non-acquired intangible assets 52.3 48.2
Plus share option expense 1.2 3.9
EBITDA 115.5 139.6
17. Financial risk management
Total financial assets and liabilities
The table below sets out Essentra's accounting categories and
fair value for each class of financial asset and liability.
2020 2019
Total Total
Fair Amortised carrying Fair Amortised carrying
value cost value value cost value
GBPm GBPm GBPm GBPm GBPm GBPm
Trade and other
receivables - 151.8 151.8 - 162.0 162.0
Cash and cash
equivalents - 135.8 135.8 - 70.4 70.4
Other financial
assets - - - - 6.2 6.2
Interest bearing
loans and borrowings - (285.2) (285.2) - (309.7) (309.7)
Lease liabilities - (61.0) (61.0) - (50.7) (50.7)
Trade and other
payables - (143.1) (143.1) - (166.5) (166.5)
Level 2 of fair
value hierarchy
Derivative assets 0.3 - 0.3 0.8 - 0.8
Derivative liabilities (0.5) - (0.5) (0.3) - (0.3)
Level 3 of fair
value hierarchy
Trade and other
payables (3.2) - (3.2) (3.4) - (3.4)
Other non-current
financial liabilities (1.2) - (1.2) (0.9) - (0.9)
(4.6) (201.7) (206.3) (3.8) (288.3) (292.1)
Total trade and other receivables carried at GBP158.9m (2019:
GBP172.5m) include prepayments of GBP7.1m (2019: GBP10.5m) which
are not financial assets and are therefore excluded from the above
analysis. Fair values of forward foreign exchange contracts and
cross currency swaps have been calculated at year end forward
exchange rates compared to contracted rates. These are determined
to be level 2 in the fair value hierarchy.
Included within trade and other payables and other non-current
financial liabilities, which is classified as level 3 in the fair
value hierarchy, is the deferred consideration of GBP4.4m relating
to the acquisitions of Micro Plastics, Innovative Components and
3C! (2019: GBP4.3m). There are no non-recurring fair value
measurements. During the year, no fair value gain or loss (2019:
GBPnil) was recognised in respect of financial instruments at level
3 fair value hierarchy, and GBPnil (2019: GBPnil) was settled in
cash. No other fair value gains or losses were recorded in profit
or loss and other comprehensive income.
Included within interest bearing loans and borrowings are $100m
(2019: $155m) US Private Placement Loan Notes. The Loan Notes are
held at amortised cost with a carrying value of GBP72.6m (2019:
GBP117.1m). The Group estimates that the total fair value of the
Loan Notes at 31 December 2020 is GBP78.5m (2019: GBP121.1m).
18. Cautionary forward-looking statements
This Report contains forward-looking statements based on current
expectations and assumptions. Various known and unknown risks,
uncertainties and other factors may cause actual results to differ
from any future results or developments expressed or implied from
the forward-looking statements. Each forward-looking statement
speaks only as of the date of this document. The Company accepts no
obligation to publicly revise or update these forward-looking
statements or adjust them to future events or developments, whether
as a result of new information, future events or otherwise, except
to the extent legally required.
19. Directors' responsibility statement
We confirm that to the best of our knowledge
-- the Group financial statements, which have been prepared in
accordance with International accounting standards in conformity
with the requirements of the Companies Act 2006 and international
financial reporting standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union, give a true and
fair view of the assets, liabilities, financial position and profit
of the Group; and
-- the announcement includes a fair review of the development
and performance of the business and the position of the Group and
company, together with a description of the principal risks and
uncertainties that it faces
On behalf of the Board
Paul Forman Lily Liu
Chief Executive Chief Financial Officer
5 March 2021
Risk Management Report
RESPONDING TO COVID-19 DISRUPTION IN 2020
The preparation of the Essentra risk management report for 2019
was completed before COVID-19 escalated from an issue apparently
confined to China to a global pandemic leading to disruption to
societies and economies on a scale that few ever imagined.
Similar to many we did not have pandemic as a Principal Risk or
as an emerging threat likely to cause major disruption to our
business at the beginning of 2020 but as we moved through the year
we continued to challenge our assessment of our Principal Risks,
our risk mitigation activities and our overall risk profile to
ensure it appropriately reflected the changes in the risk
environment, particularly given the uncertainties which dominated
global business prospects and operations due to COVID-19.
As the likely extent of the pandemic became clearer, so the
Company's crisis management response saw the GMC meeting at least
three times a week and the Board at least once, enabling swift
response and action to changes in the risk profile with a focus on
health and safety, supporting our customers and the cash position.
As time progressed, the cadence of such meetings has decreased but
the GMC continues to meet at least once a week to assess the latest
COVID-19 developments and to ensure that we are well positioned for
future growth in the context of the changes in the business and
social environments.
Whilst during 2020 we and our employees faced many new and
different challenges as a result of COVID-19 we believe our risk
management approach and framework enabled us to respond quickly and
robustly to the issues which arose across our sites and in
international supply chains.
As a result of COVID-19 we identified a number of learnings we
are confident we can take to drive further improvement in our risk
management activities to enhance our capability to identify, assess
and respond effectively to potential threats or future disruption
to our business and to ensure a strong foundation to support our
future growth objectives.
Looking ahead to 2021, the COVID-19 pandemic, including the
potential impact of further variants, remains a global crisis, and
at the date of this report the situation remains volatile and
uncertain across many areas of the world. Whilst the Company's risk
landscape has changed to reflect the impacts of COVID-19 we believe
that our focused risk management efforts across the Company have
enabled an agile and resilient response to the unrivalled
challenges posed by the pandemic and delivered effective mitigating
actions.
The impact of COVID-19 has tested and challenged the
effectiveness of our approach to risk and its management. We
adapted our ways of working as needed and are confident that our
risk management framework responded effectively in protecting value
during the year. As we build for the future there remains a
continued focus on enhancing our approach to risk management and
building on the lessons learnt in 2020 to ensure risk management
practices continue to not only protect stakeholder value but to
support its creation in line with our strategic growth
objectives.
There are risks emerging that the second or subsequent further
waves of COVID-19 will handicap recovery and return-to-work plans
with continued disruption across supply chains and societies. The
successful adoption of a new working model, based around social
distancing requirements, workspace and office transformations,
augmented work schedules, reduced travel and continued remote
working will require careful planning and successful change
management to ensure a transition which provides opportunity and
benefit for our business and our people as opposed to a threat to
our operations and the wellbeing of our employees.
Whilst COVID-19 has taken the majority of the headlines in 2020,
it has also been important for us to continue to scan the horizon
for additional new, emerging or disruptive risks which could
significantly impact the Company's ability to meet its strategic
growth objectives. Despite the focus on mitigating the impacts of
COVID-19, we have paid close attention to the increasing momentum
associated with the risk agendas for ESG and climate change, whilst
the potential impacts of international trade deals and the US
election results have also been on our risk radar during the
year.
RISK MANAGEMENT APPROACH
Our risk management activities aim to drive performance aligned
to our purpose, encourage growth through innovation and support the
achievement of our strategic objectives. In doing this, we take a
balanced approach that puts risk management at the core of the
senior management agenda. We are committed to managing risks in a
proactive and effective manner to protect and enhance value, and
provide assurance to the Board and our stakeholders.
We have continued to make good progress in improving our risk
management processes in 2020 as we continue to ensure our risk
management processes are aligned with FTSE 250 upper quartile
practice. This included a number of initiatives to drive enhanced
risk reporting and further embed risk activities to improve risk
culture across the Company. Particular focus was placed on
assigning responsibility and accountability for Principal and
Emerging Risks, particularly those risks that cut across divisions
and enabling functions. The approach continues to be adopted from
ISO 31000 Risk Management guidelines and includes a RACI
(responsible, accountable, consult and inform) matrix to drive
clear responsibility and accountability.
RISK MANAGEMENT FRAMEWORK
There is a risk management framework for identifying and
managing 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 to enable informed decision-making.
Our risk management framework continues to evolve in line with
best practice to ensure that it supports the Company's growth and
strategic objectives. A robust, but flexible, approach to the
management of risk is fundamental to the continued success of the
Company. In 2020 the challenges presented by the COVID-19 pandemic
included relocation of staff, remote working and temporary
inaccessibility of some business locations. A clear focus was
placed on accommodating new ways of working and ensuring the
continued operation of our risk management framework. Through
regular discussions and virtual workshops with all divisional and
enabling function leadership teams, we ensured clear accountability
for the identification, assessment, and mitigation of risks
throughout the Company.
Risk can present itself in many forms and has the potential to
impact health and safety, the environment, our community, our
reputation, regulatory compliance, market and financial performance
and therefore the achievement of our corporate purpose. By
understanding and managing risk, we provide greater certainty and
confidence to our shareholders, employees, customers, suppliers,
and the communities in which we operate.
The Board confirms its risk appetite biannually by mapping its
Principal Risks against a sliding scale from "risk-averse" to "risk
neutral" to "risk-tolerant" and this informs the development of
mitigating actions for each of the Principal Risks.
At a strategic level, our risk management objectives are to:
-- identify the Company's significant risks and appropriate
mitigating actions
-- formulate the risk appetite and ensure that our business
profile and plans are consistent with it
-- ensure that growth plans are properly supported by an
effective risk infrastructure
-- help management teams to improve the control and
co-ordination of risk-taking across the Company
STRENGTHENING OUR FRAMEWORK
To achieve the objective of implementing FTSE 250 upper quartile
risk management practice, we have made good progress in
implementing our risk management improvement plan in line with best
practice and ISO 31000 guidelines.
In 2020 the Group Assurance team engaged directly with
divisional and enabling functions leadership teams on the
development of their risk registers and risk reporting practices.
This included conducting virtual risk knowledge workshops, in line
with ISO 31000, to drive a consistent understanding and application
of risk. Each workshop included a discussion of the Board-approved
rating criteria for financial and reputational impact and
likelihood, to ensure that a consistent rating based on risk to the
Company is applied. In 2020 we paid particular attention to
emerging risks and on ensuring clarity across roles and
responsibilities for those risks that cut across divisions and
enabling functions. Principal Risks were subject to deep dives
during the year at Board and GRC meetings using a standard
reporting template. This enabled consistency of risk reporting
across the Company.
In 2021 we will build on lessons learnt from COVID-19 as we seek
to further improve our risk management practices. A key focus will
be placed on further embedding risk culture and streamlining
processes across the Company, ensuring risk management remains an
integral part of all business activities.
RISK GOVERNANCE STRUCTURE AND OVERSIGHT
The Board has established a risk and internal control structure
designed to manage the achievement of strategic business
objectives. The Group Assurance team, separate from line
management, enables and facilitates the risk management process
across the Company and acts as the custodian of the Company's risk
architecture and its management. In addition, all divisions and
enabling functions have appointed Risk Champions to drive risk
management practices into their businesses.
The GRC met eight times in 2020, each meeting with a full
attendance. The GRC is chaired by the Chief Executive and its
membership comprises the GMC members, Head of Legal, Group Head of
Assurance and Head of Communications. Non-member standing attendees
are the Group Health, Safety and Environment Director and the Group
Financial Controller. Other members of senior management are also
invited to present reports on risk activities. We also welcomed
external presentations from subject matter experts on topics
including ESG and sustainability. The Chair of the Audit and Risk
Committee has a standing invite to attend all GRC meetings and
receives copies of the minutes of every meeting.
The GRC's responsibility is to focus and co-ordinate risk
management activities throughout the Company and to facilitate the
appropriate identification, evaluation, mitigation and management
of all key business risks. In addition, the GRC reviews the risk
appetite and ongoing risk management approach, and makes
recommendations on risk appetite to the Board and actions required
to ensure adequate controls and mitigating actions are in place
against identified key risks.
As an important part of fulfilling its responsibilities the
Board receives regular reporting from the Chief Executive in his
capacity as GRC Chairman to enable the Board to challenge and
review the GRC's views on key risks.
The Audit and Risk Committee (ARC) engages directly with the
divisions and the enabling functions, including deep dive reviews,
as part of fulfilling its oversight responsibilities on the risk
management processes. The ARC, with assistance from Group
Assurance, oversees compliance with risk management processes and
the adequacy of risk management activities related to the Company's
operations.
The divisional and enabling functions leadership teams undertake
regular reviews during the course of the year and engage in
facilitated discussions with Group Assurance to consider the risk
environment for their particular functional or geographic area of
responsibility and how these could impact on the achievement of the
Company's strategic objectives.
PRINCIPAL RISKS
The GRC has responsibility for overseeing Essentra's Principal
Risks. Our Risk Management approach in relation to COVID-19 has
been to consider the completeness and appropriateness of our
Principal Risks. Whilst COVID-19 has not been identified as a
standalone Principal Risk, we have considered its impact on each of
our Principal Risks and our risk appetite. Where necessary we have
identified suitable mitigating actions. A top-down and a bottom-up
assessment is undertaken to identify our Principal Risks. The
assessment is performed against the four risk categories.
As part of the bottom-up process, the divisional and enabling
functions leadership teams have also undertaken a detailed risk
assessment, facilitated by Group Assurance using a consistent
workshop methodology, the outputs of which were reflected in
updated risk registers. These risk registers were then analysed to
ensure completeness and appropriateness of the Principal Risks.
As part of our top-down process, an updated assessment was
completed for each Principal Risk by the GRC. This top-down
assessment required each GRC risk owner to provide analysis on
material changes in the risk they manage and whether they consider
it to have more or less impact during the course of the year on
achievement of our strategic objectives.
These individual responses were consolidated, the GRC then
discussed and reached a consensus regarding Principal Risks that
can seriously affect the performance, future prospects or
reputation of Essentra. The outputs from the GRC assessments were
then presented to the Board for approval along with the
recommendation of Principal Risks to be included in the longer term
viability (LTVS) testing.
The Board believes the Principal Risks are specific to Essentra
and reflect the risk profile of the Company at the current time.
All Principal Risks are managed within their individual risk
appetite. As a result, the 12 Principal Risks are a combination of
one new, as disclosed at half year, and 11 previously disclosed
risks.
The Board and GRC evaluate the potential effects of Principal
Risks materialising over a three-year period to understand how they
could impact the Company's long-term viability.
The evaluation is based on plausible worst case scenarios.
To make this evaluation, the estimated financial impact of each
Principal Risk crystallising was considered. The Board and GRC
assessed the potential impact on the Company's viability, based on
selected severe plausible risk scenarios. These were developed in
conjunction with senior management.
In addition to the Principal Risks, Emerging Risks and wider key
risks have been identified and are being monitored by the Company.
Mitigation actions in response to such risks are an important part
of the divisional and enabling functions risk reporting to the GRC
and Board.
KEY CHANGES DURING THE YEAR
During 2020 we undertook a robust review of our risk profile. At
half year we disclosed the following key changes:
-- One new Principal Risk, Exposure to the Cyclical Industrial
Market (Components division), was identified to capture the risk
that changes to the Components division cost base and business
model do not happen quickly enough or are not robust enough to
minimise the impact on operating margins as a result of cyclical
downturns in global industrial production.
-- Geopolitical Risk was removed as an Emerging Risk and
incorporated within the Macro-economic and Trade Deal Uncertainty
Principal Risk.
-- An additional Emerging Risk in relation to the changing
structure of the debt market was identified.
-- The likelihood assessment of six Principal Risks was
increased: PR3 Delivery of Strategic Projects, PR5 Cyber Attack,
PR7 Business Continuity Planning and Management, PR8 Environmental,
Social and Governance, PR9 Internal Processes and Control and PR10
Safety, Health and Wellbeing. The impact assessment of PR7 Business
Continuity Planning and Management was also increased. Since our
half year disclosure we undertook further review of risk profile
and do not believe there has been any further change the impact or
likelihood assessments of our Principal Risk profiles.
A key change since our half year disclosure includes:
-- Removal of Climate Change risk as an Emerging Risk. We have
elevated the profile of this risk and considered it as part of our
wider ESG Principal Risk. Please refer to the detailed Principal
Risk disclosure which details the initiatives being undertaken in
this area including fulfilment our obligations under TCFD
requirements.
EMERGING RISKS
We define Emerging Risk as a changing risk or a novel
combination of risks for which there is no track record or previous
experience by which the impact, likelihood or costs can be
understood. Its potential impact is viewed as being two years or
more in the future. We strongly believe that identification and
appropriate challenge to the management and mitigation of Emerging
Risks is critical to our long-term success.
Emerging Risks have the potential to increase in significance
and affect the performance of the Company and as such are
continually monitored through our existing risk management
processes. Our risk management process ensures Emerging Risks are
identified and aids the GRC and the Board's assessment of whether
the Company is adequately prepared for the potential opportunities
and threats they present. The process enables new and changing
risks to be identified at an early stage so we can analyse them
thoroughly and assess any potential exposure. We undertake a
top-down and a bottom up assessment to identify Emerging Risks.
Risk management workshops for divisional and enabling functions
leadership teams were facilitated by the Group Assurance function
this year, to provide a bottom-up view of Emerging Risks. These
workshops include discussion of potential Emerging Risks based on
externally sourced Emerging Risk data. The Company's potential
exposure is assessed against the Board's approved risk measurement
criteria. The process enables new and changing risks to be
identified at an early stage so we can analyse them thoroughly and
assess potential exposure. The preliminary view on Emerging Risks
were consolidated and discussed by the GRC to reach a consensus
regarding Emerging Risks that can seriously affect the performance,
future prospects or reputation of Essentra. The outputs from the
GRC assessments were presented to the Board for approval along with
the recommendation to develop appropriate response strategies. The
GRC and the Board have undertaken a rigorous assessment of Emerging
Risks during 2020 and have established procedures to closely
monitor Emerging Risks on an ongoing basis including:
-- the GRC's terms of reference require it to review the Group's
ability to identify Emerging Risks
-- Emerging Risks is a standing agenda item at each GRC meeting
and each Emerging Risk will be subject to a deep dive
-- external specialist input will be sought where required
-- identified Emerging Risks have been assigned an owner who is
both a GRC and GMC member. The Emerging Risk owner is responsible
for providing an update on the development of Emerging Risks and
activities in response at each meeting
The Board can confirm that it has completed a robust assessment
of the Company's Principal, Key and Emerging Risks. We continue our
focus on ensuring the adequate mitigation of risks faced by the
Company to ensure alignment with the Board-approved risk
appetite.
STRATEGIC RISKS
Failure to Achieve Acceptable Returns from the Packaging
Division
Change in risk level: Unchanged
Ownership: Packaging Division Managing Director
Relevance: Company specific
Description
The potential for a failure to deliver improving returns each
year and demonstrating delivery of industry average returns by end
of 2021 has been identified as a Principal Risk since 2017. This
risk includes the potential of the Packaging business failing to
deliver new business wins, expected cost savings or acceptable
returns. COVID-19 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 H1 2021,
the division is on track to deliver margin in line with the lower
end of the industry average range by 2021.
Mitigation
This Principal Risk is addressed annually with the development
of the business strategy and plan. Both strategy and plan reflect
this risk, and key initiatives are developed to further improve
business performance. Key mitigation actions include:
-- strengthening the existing value proposition for customers
using the knowledge and expertise from our recent acquisition of
3C! and Nekicesa to support the continuing top line growth and
margin improvement
-- continuing to drive cost savings through operational
continuous improvement projects at each manufacturing site,
efficiency improvements through investment in new equipment,
procurement initiatives
-- continuing to optimise the manufacturing supply chain and
overhead costs
-- maintaining our focus on key account management and enhancing
this with capabilities to support local customer site problem
solving
-- continued delivery against key customer performance metrics
of quality, On-Time-In Full, manufacturing lead times, safety and
supply chain efficiency.
The delivery of these actions, and ongoing performance of the
division, are subject to close monitoring and reporting at
divisional and GMC level each month and quarter. The Board also
continues to maintain close oversight across progress of these
actions. Leading and lagging KPIs are used to monitor performance
including order lead times, on time and in full order fulfilment,
complaints, achievement of sales plan, recovery of inflation cost
increases through pricing, cost savings and overhead as a
percentage of sales.
Tobacco Industry Dynamics
Change in risk level Unchanged
Ownership: Filters Division Managing Director
Relevance: Company specific
Description
The Filters division supplies filter products and packaging
solutions to manufacturers in the tobacco industry. Changes in the
traditional tobacco market present both opportunities and risks for
the division. 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.
COVID-19 2020 saw a notable impact of COVID-19 accelerating
volume declines in the combustible market, postponement of new
product introductions and disruption of the duty free market due to
global travel restrictions. These factors have, in turn, placed
further cost pressures on both our customers and suppliers. There
was considerable disruption in the first half of the year caused by
the global pandemic but a strong second half of the year
demonstrated that underlying demand remains in place. Greater
stability should also be achieved through full year impact of the
two significant outsourcing contracts in 2021 and first commercial
production from our Joint Venture Company in China, the world's
largest tobacco market. In addition, our focus on innovation is
delivering a pipeline of new products that we believe can deliver a
competitive advantage in 2021 and beyond. Essentra is well placed
to compete and succeed as we continue to drive our operational and
innovation capabilities in line with key market trends. A number of
initiatives are targeted to be completed in 2021 which are
anticipated to minimise the risk over time.
Mitigation
Essentra is mitigating the risk associated with changes in the
tobacco market dynamics by focusing on activities with longer-term
viability and exploiting potential growth opportunities. This
includes progressing on our "game changers" and increasing our
innovation capabilities especially around NGP and sustainability.
Key mitigating actions include:
-- establishing the manufacturing facility of our China JV to
allow first product shipments in H1 2021 within the world's largest
tobacco market
-- implementation of the two outsourcing contracts agreed in
2019, now both in full supply. One additional contract has been
agreed with an independent customer in 2020
-- enhanced innovation capabilities resulting in multiple
product patent applications in the key segments of NGP and
sustainability
-- operational KPIs continue to improve with an additional focus
on lead time reduction in 2020 to ensure our customers continue to
get the best possible service
-- implementation of key account management has provided a more
robust pipeline, as demonstrated by continued outsourcing wins
-- the integration of the Tapes business provides new growth
opportunities in Food and Beverage and e-Commerce segments
-- building on lessons learnt to further enhance our compliance
programme to further develop a robust regulatory framework.
Delivery of Strategic Projects
Change in risk level: Increased
Ownership: Strategy and Commercial Director
Relevance: Company specific
Description
The Company's success is dependent on its ability to deliver key
strategic projects on time and within budget, to realise their full
potential. The Company invests in, and delivers, significant
strategic, operational and capital expenditure projects in order 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. COVID-19
During 2020 as a result of COVID-19 impacts and restrictions; we
encountered some delays in project delivery. This added complexity
in project co-ordination due to remote working and travel
restrictions. Additionally, there has been a need to review our
project pipeline from both a strategic and budgetary perspective as
we continue to build for the future. Our ability to successfully
deliver strategic projects given the prolonged period of COVID-19
requires us to also manage our employee wellbeing through effective
change management.
Mitigation
Strategy and Governance
-- an annual strategic review with the Board and the GMC where
we proactively monitor the market, review our strategy and our
strategic programmes, particularly in light of the impact of
COVID-19. This process is led by the Strategy and Commercial
Director
-- review and approval of key, strategic projects by Board and
GMC, as appropriate with robust governance and detailed reporting
of project KPIs and key milestones Project Management
-- a portfolio of key strategic projects has been developed and
is maintained to ensure appropriate focus of key projects by a
Group Project Management (PMO) team to monitor and control major
strategic programmes, investments and capital expenditure
projects
-- day-to-day project management using a standard project
management methodology based on PMI PMBOK ("Project Management Body
of Knowledge") established a standard Project Management tool based
on Microsoft Project to further enhance visibility and
governance
-- interventions, as required, by Group PMO, to initiate, course
correct and undertake remedial actions on programmes and
projects
M&A
-- acquisition pipeline management to identify suitable
acquisition targets with best value creation potential
-- an annual post-investment review and project lessons learnt
to identify key learnings to embed into future initiatives
-- use of external advisers to provide expertise, assistance and
rigorous due diligence, as appropriate Employee
-- maintain strong focus on the capability of our employees.
This is achieved by mobilising teams which possess the right skills
to deliver our strategic programmes
-- support project managers' development through a variety of
training programmes and professional qualifications
-- increased use of technology and video conferencing to support
teams and project activities
-- In order to ensure a continued focus on the people element in
projects, relevant change management principles are being embedded
in all key strategic projects and more broadly, change management
training introduced across the Company.
Exposure to the Cyclical Industrial Market (Components
Division)
Change in risk level: Year on year - New risk in 2020 as
disclosed at half year
Ownership: Components Division Managing Director
Relevance: Company Specific
Description
The Components division serves industrial OEM customers and
hence, is exposed to overall Industrial Production trends. Global
Industrial Production has tended to be cyclical in nature with
major economic downturns leading to a downturn in Industrial
Production. From the Global Financial Crisis in 2008-2009 to the
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.
Mitigation
Key mitigating actions being undertaken to protect the division
from future industrial declines include the following:
-- Optimising our fixed cost base such that it is a lower
proportion of operating costs The Components division undertakes
continuous review of its operating footprint to optimise
manufacturing and distribution cost to serve. Our new distribution
facility in Nettetal, Germany provides an opportunity for this as
we leverage delivery network capabilities to reduce our
distribution footprint while delivering enhanced service level to
our customers. Our increased investment in the automation of
production and distribution activities enabled by robotics will
further help to reduce fixed costs
-- Increased variability of our cost base We also undertake
reviews of how better to manage labour, striking the right balance
between permanent and temporary employees, so that we are able to
effectively manage our cost base
-- Diversification across the market sectors we sell to; both
within the industrial sector and also beyond it We have introduced
a category management approach focusing on faster growing and
resilient markets. We continue to explore entry opportunities in
new markets to further mitigate this risk
-- Innovation We continue to exploit our innovation capabilities
to secure new opportunities and diversify with the use of new
materials in the event of future restrictions on the use of
plastics
Environmental, Social and Governance
Change in risk level: Increased
Ownership: Company Secretary and General Counsel
Relevance: Industry general
Description
Environmental, Social and Governance (ESG) issues are becoming
increasingly fundamental for all companies. For Essentra, this
includes exposure to tobacco-related products cigarette filters,
potential changes 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
Governance-related issues are managed through the Company's
comprehensive risk management processes. In addition, environmental
and social topics are managed via the Board Sustainability
Committee, chaired by a Non-Executive Director, and including
membership from Board and GMC. The role of this Committee is
to:
-- review and assess the Company's exposure to
sustainability-related issues
-- assess the Company's responses to these issues
-- understand whether these responses are consistent with the
risk appetite of the Company
-- identify potential gaps in approach and high level approaches
to closing those gaps. The Board Sustainability Committee's
recommendations link into and inform the work of the GMC, the
divisions and the enabling functions, to reduce risk exposure
appropriately. The Company is also establishing a Sustainability
Working Group comprising representatives from the divisions, Group
HSE, Group HR, Group LRG, Group Communications and Group Investor
Relations to monitor and respond to ESG and sustainability
related-topics on a day-to-day basis.
Specifically, the GRC is also reviewing our approach to managing
climate change risk, including fulfilling our obligations under
TCFD requirements. The Components division is exposed to potential
impacts of ESG initiatives and climate change risks including
reduction in single use plastics. The division is actively working
to incorporate more sustainable materials and believes it has the
innovation capabilities to enable future growth opportunities with
the use of these materials. Similarly, Filters is exposed to single
use plastic legislation and is actively developing new innovative
products including the recently launched ECO range of biodegradable
filters.
Talent to Deliver Our Future
Change in risk level: Unchanged
Ownership: Group Human Resources Director
Relevance: Industry general
Description
Failure to acquire, retain, develop and motivate the required
management and leadership necessary to evolve our business, develop
our culture and meet future customer needs. The change agenda
coupled with the impact of COVID-19 creates a need to focus on
retention of key talent, avoiding burn-out and presenteeism.
Additionally, we must continue to grow the agile skills required to
build for the future. COVID-19 The impact of COVID-19 changes the
talent landscape in the short-term, with a focus on retention of
the key leaders to transition and change to a post pandemic working
model. As we move forward, retention will need to be balanced with
attraction to boost the talent needed to deliver our strategy in
key areas such as digital. The market conditions are predicted to
change with great speed post COVID, with key talent in areas such
as agility and change leadership predicted to be in high demand and
therefore we need to consider:
-- our ability to retain talented leaders and managers who have
the agility and skills we will need going forward
-- ensure we have the right retention tools to motivate and
drive performance
-- ensuring the resilience of our leadership and management
teams as the pandemic continues; the prolonged period is having a
toll on the emotional wellbeing of our people
-- recognising the impact of COVID-19 on employees and the real
issues of presenteeism and fatigue. COVID-19 will reshape business
needs, the talent market as well as the expectations of our
managers and leaders. We must continue to be proactive and forward
looking in order to balance the needs of our business today and its
requirements tomorrow.
Mitigation
Key mitigations include reviewing the people strategy to ensure
it underpins the approach to enhance the employee experience, drive
changes needed and have skilled leaders for the future. This
strategy considers:
-- ensuring the variable pay schemes are adequate to retain key
talent and reward high performance
-- building management capability across the wider team to
ensure we manage through the change journey in an engaged and
considered way
-- talent mapping and succession planning that considers current
and future business requirements
-- develop the health and wellbeing strategy with a specific
consideration of the actions needed to aid retention of our wider
workforce
-- communication with employees is a critical step to ensure
engagement, drive a sense of purpose and belonging across the
workforce
-- assessing what training and support we can provide to future
leaders, middle managers on resilience and developing their
personal career path in a considered way
EXTERNAL RISKS
Regulatory - Governance
Change in risk level: Unchanged
Ownership: Company Secretary and General Counsel
Relevance Industry general
Description
The Company operates across many international jurisdictions and
engages with a wide range of stakeholders, including a diverse
employee, customer and supplier base. Some locations we operate in
are high risk. We are required 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. COVID-19 Changes in supply
chains and the adoption of remote working environments as a result
of COVID-19 potentially increase compliance and control risks.
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.
Mitigation
The Company deploys a range of controls to manage regulatory
risk including:
-- a "tone from the top" from the Board and GMC on the
importance of ethics and compliance
-- through the Company's compliance programme (including
employee training), we aim to conform with all applicable laws and
regulations, and encourage a culture of openness, honesty and
integrity
-- improved compliance communication with "Be smart, be sure"
campaign
-- continuous improvement of the Group compliance framework to
ensure effective compliance programme with appropriate policies,
processes, reporting and monitoring.
-- a Group Compliance Committee that directs and oversees the
Company's implementation of compliance programmes, policies and
procedures required to meet legal, compliance and regulatory
requirements
-- strengthening of internal divisional resources to support
embedding of regulatory compliance within the respective businesses
and continued investment to drive better governance
-- extensive focus on third party due diligence, sanctioned
market activity to take account of lessons learnt from the past
-- the Company's Legal, Risk and Governance team continuously
monitors changes in regulations and emerging good practice seeking
external support or guidance as necessary.
Cyber Attack
Change in risk level: Increased
Ownership: Chief Information Officer
Relevance: Industry general
Description
The Company is dependent on the IT systems for day-to-day
operations. Should the Company be affected by a cyber security
breach, this 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. COVID-19 The
risk has been heightened, primarily due to a significant increase
in remote working as part of COVID-19 crisis management. The
Company is mitigating 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.
Mitigation
The Company has an ongoing cyber security improvement programme.
This aims to mitigate the risks and operational disruption caused
by cyber attacks. This programme includes:
-- endpoint protection, encryption of data, network firewalls,
web and email content protection
-- deployment of strong authentication for remote access and
cloud based services
-- continued cyber security awareness training for all
employees
-- vulnerability and penetration testing for all external facing
Company services and websites
-- pending implementation of cloud-to-cloud data service
monitoring (CASB)
-- improvements to security operations capability across
monitoring and alerting (people, processes and tools)
-- Enhanced IT security team capabilities complemented by third
party advisory services
-- ISO 27001 certification (renewed in Dec 2020).
Macroeconomic and Trade Deal Uncertainty (including Brexit)
Change in risk level: Unchanged
Ownership: Group Programme Director
Relevance: Industry general
Description
As a global business, changes to global economic conditions or
trading arrangements have the potential to impact us. Our
international trade flows expose the Company to tariffs, duties or
quotas imposed through trade sanctions and also to macroeconomic
effects due to regional or global industrial output changes.
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
has 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.
Mitigation
Essentra has an international customer base which dilutes the
effect of downturns in specific geographies. The economic
environment is constantly monitored as part of our business
planning cycle and budgeting, enabling a degree of forward planning
in the event of a period of economic instability. This is performed
in close coordination with each division to pinpoint trends likely
to impact our individual business activities. The annual budgets
that result from the planning process are a control, against which
monthly results are monitored, surfacing any effects of economic
instability and informing commercial decision-making. Movements in
currency can have positive and negative impacts on the Company's
reported earnings. This is managed through proactive hedging of
currency exposures. The Board also considers potential impacts of
specific macroeconomic events, including the UK's decision to leave
the EU. The breadth of the Company's portfolio and its
diversification across markets, geographies and products provides
some natural mitigations of potential impacts. Our divisions
consider the wider economic situation in their strategies as part
of the budgeting and strategic planning process.
Brexit
Over the past few years, the Company conducted a thorough review
of Brexit risks and implemented a series of changes to minimise raw
material and finished product flows across the EU-UK border, and to
mitigate the associated risks including supply chain disruption and
to ensure the appropriate customs processes and procedures are in
place to allow for effective and efficient flow of goods and
materials between the UK and the EU. We continue to work with our
supply chain partners to minimise disruption and ensure flow of
goods across the EU-UK border.
OPERATIONAL RISKS
Business Continuity Planning and Management
Change in risk level: Increased
Ownership: Group Programme Director
Relevance: Industry general
Description
We operate a global manufacturing footprint and supply chain.
Making this supply chain resilient is a critical factor in serving
our customers, to minimise the impact of potential disruptions.
Business continuity management issues can be focused on particular
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,
during 2020. The vast majority of sites remained operational, with
a small number of sites temporarily shut due to government imposed
lockdowns.
Mitigation
The Company continues to review and refresh its business
continuity management and planning frameworks and processes.
Mitigating factors that the Company has in place for single
location issues include:
-- leveraging our global manufacturing footprint to provide
alternative manufacturing locations
-- fire and other risk prevention systems
-- assessing and managing operational risks via the enterprise
risk management process
-- ensuring comprehensive maintenance plans are in place for key
manufacturing equipment, and/or alternative manufacturing routes
are identified
-- maintaining an insurance programme and working closely with
our insurers, FM Global, to ensure complete and comprehensive cover
to prevent losses.
Additional measures to mitigate against multisite issues
include:
-- enhancing our multi-site capabilities and manufacturing
flexibility
-- identifying alternative sources of supply for key raw
materials and supply guarantees where necessary and feasible
-- global, standard site/network assessment approaches for
pandemic and other issues. During 2021 the company will work with
our insurers to model the potential impact of climate change
Internal Processes and Control
Change in risk level: Increased
Ownership: Chief Financial Officer
Relevance: Company specific
Description
Processes and controls play an important part in our ability to
prevent and detect inappropriate and unethical behaviour. This
includes fraud, deliberate financial misstatement 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. COVID-19 In response to COVID-19 there has been greater
adoption of flexible and remote working arrangements. There is an
ongoing need to adapt our controls and processes to these changing
ways of working.
Mitigation
During the year, Minimum Control Standards (MCS) continued to be
rolled out across various sites in the Group, establishing a
consistent minimum standard of financial controls across the
Company. The MCS steering group continued in its role as the
governing body overseeing activities. A total of 70 out of 79 sites
now have had the MCS roll-out, which account for approximately 94%
of Group revenue. MCS implementation action plans were continually
assessed and tracked through the course of the year. The primary
responsibility for site roll-outs and embedding of MCS rests with
divisional management, with central coordination by Group Finance.
With the MCS framework now rolled out to a large majority of the
sites, the Company is shifting its focus onto the implementation of
internal testing methodology to ensure continuing compliance with
the framework. Furthermore, the MCS project has been conducted in
close collaboration with other wider business initiatives, such as
Business Process Redesign, which saw the first implementation of
the new system at the head office during the year. The new system
entails establishment of standard operating procedures, and
improves the landscape around enforcement of internal controls. In
the face of the challenges posed by COVID-19, the Company has
ensured continued communications to the sites regarding the
importance of continuing robustness in internal controls.
Group Assurance audit procedures were carried out to assess
performance of internal controls. These reviews were temporarily
disrupted in the first half of the year due to COVID-19, but
resumed in the second half of the year. Additionally, Group Finance
performed a separate layer of independent testing to further
evaluate the effectiveness of implementation thus far. The Company
has also started reviewing the potential additional requirements in
the UK with regards to internal controls, and this will continue
into 2021. Monitoring controls and processes continue to be
performed to prevent and detect inappropriate and unethical
behaviour. This includes fraud, deliberate financial misstatement
and improper accounting practices.
Safety, Health and Wellbeing
Change in risk level: Increased
Ownership: Group Human Resources Director
Relevance: Industry general
Description
The safety, health and wellbeing of our employees is of the
highest priority for the Company. Essentra has many manufacturing
facilities across the world, along with non-manufacturing 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 is
becoming 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 and the potential impact of
further variants increases risks in this area.
Mitigation
The "tone from the top" has continued to reinforce safety,
health and wellbeing across all of the businesses. Management teams
have been instructed to give a high priority to establishing
appropriate Safety Management Systems and reinforcing the desired
behaviours by all who are employed by the Company. Some of the key
mitigations which are in place include:
-- regular reporting to the GMC, GRC and the Board on Health,
Safety and Environment (HSE) related matters
-- a Group HSE policy detailing required standards, governance,
roles and responsibilities at all sites
-- launch of our health and wellbeing strategy with a specific
workstream that considers our leaders, managers and employees
-- performance monitoring and Health and Safety Audits,
incorporating reporting and escalation arrangements to ensure all
actions are closed
-- root cause analysis is conducted for any issues identified
through investigation of serious incidents, including Near
Misses
-- our Global "Stop, Think, Examine, Proceed" ("STEP") programme
is a hazard identification and process improvement initiative. This
empowers the entire workforce to recognise and address
opportunities with corrective actions assigned clear owners for
completion within 48 hours
-- focused HSE events throughout the year to highlight
particular risks and help keep safety at the forefront of our
minds.
With the increased focus on mental and emotional health and
wellbeing, we have introduced awareness training for leaders and
mangers. We have developed training materials for employees and are
now moving towards introducing proactive steps for employees to
manage their own wellbeing. Our health and wellbeing strategy,
Essentra Thrives, launched with the introduction of the global
assistance programme for all employees. We are continually looking
at areas where we can enhance the health, safety and wellbeing of
our employees.
EMERGING RISKS
Emerging Risk owner Risk description Controls
risk
Regulatory Company Secretary Essentra is a global We remain alert to longer-term
change and General company that must comply regulatory developments
Counsel with regulatory requirements including those related
in many countries. to single use plastics
Regulation is increasing and tobacco-related and
worldwide and may potentially tobacco alternative products.
impact our products, The Company's Legal,
operations, workforce Risk and Governance team
and relationships with continuously monitors
suppliers, customers changes in regulations
and stakeholders. COVID-19 and emerging good practice
has significantly impacted seeking external support
supply chains and the or guidance as necessary.
working environment, Strengthening of internal
potentially leading divisional resources
to new or additional to identify market and
areas of regulatory product changes and any
scrutiny and subsequent potential associated
regulatory change. regulatory requirements.
Technology Chief Information The risk that Essentra We continue to monitor
disruptors Officer does not manage its and review developments
response to evolving in the external market
technologies effectively. through our networks.
This may include losing This includes innovation
competitive advantage and futures sessions
as rivals deploy advanced with existing suppliers.
manufacturing technologies, We are also involved
artificial intelligence in a range of external
and robotics to strengthen technical focus groups.
product development,
marketing, production,
distribution and support
functions.
Evolving Chief Financial The debt market is We remain alert to the
conditions Officer evolving, and the lending change in investors'
of the Debt condition and appetite appetite and we continue
Market can be impacted by to respond to this and
key events, we have maintain our profile
recently observed the in the debt market. The
effect from the COVID treasury team monitors
pandemic. Essentra changes in the debt markets
continues to have strong and is in regular contact
liquidity and we will with banks inside of
stay alert to the change the Essentra bank group
of investors' appetite and other financial institutions
and respond optimally to ensure that we have
to it and maintain the widest variety of
our profile in the market options that are
debt market. available.
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END
FR JAMMTMTIMMTB
(END) Dow Jones Newswires
March 05, 2021 02:00 ET (07:00 GMT)
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