TIDMESNT

RNS Number : 9932G

Essentra plc

30 July 2021

ESSENTRA PLC

(the "Company")

A leading global provider of essential components and solutions

RESULTS FOR THE HALF YEARED 30 JUNE 2021

Encouraging H1 performance, with a positive full year outlook, focused on delivering organic growth and accretive M&A

Summary:

-- The Company delivered an encouraging H1 2021 results performance, demonstrating a continuously improving rebound from COVID-19 ("the pandemic"), driven by Essentra's strong market positions, balanced portfolio and agile operations

-- Revenue increase of 7.5% vs H1 2020 on a like-for-like (1) (LFL) basis, with continued positive momentum resulting in a return to quarterly growth

o Compared to H1 2019, H1 2021 revenue is down 1.9% on a LFL basis

   o   Adjusted(2) operating profit up 34.0% vs H1 2020 (at constant FX) to GBP35.7m 
   o    Reported operating profit of GBP30.1m versus GBP15.6m in H1 2020 

o Adjusted(2) basic EPS higher by 39.9% (at constant FX) at 7.7p (H1 2020: 6.2p)

o Reported basic EPS of 6.6p compares to 2.3p in H1 2020

o Adjusted(2) operating cash flow of GBP22.4m in H1 2021

o Reported net cash inflow from operating activities of GBP26.1m in H1 2021

-- Well positioned for sustained growth in all divisions with clear and successful strategies based on innovation, sustainability and strong customer partnerships

o Components - improving trend since the onset of the pandemic has led to a strong H1 2021 performance

o Packaging - whilst the impact to the underlying market continued to affect H1 2021, customer relationships continue to strengthen and we are expecting to see the market return to moderate growth in H2 2021

o Filters - strong performance seen in H1 2021, led by outsourcing contracts won

-- Margin expansion in Q2 (vs Q2 2020 and Q1 2021) across all Divisions driven by self-help actions and operational leverage, despite cost inflation

o Price increases being implemented to offset the impact of inflationary cost pressures

o Progress made on strategic initiatives, underpinning future profitability and providing the platform for industry average margin delivery in Packaging towards the end of the year

-- Value enhancing and strategic acquisition of Hengzhu announced in Components, 3C! integration on plan in Packaging

   --    Strong balance sheet maintained, providing strategic optionality 

o Net debt of GBP212.2m (H1 2020: GBP297.0m), with net debt / EBITDA at 1.7x (excluding lease liabilities, net debt / EBITDA ratio is 1.5x)

   --    Issue of $250m private placement debt in July, securing more long term funding 
   --    Interim dividend of 2.0p per share declared, in line with our progressive policy 

(1) Excludes the impact of acquisitions, disposals and foreign exchange

(2) Before amortisation of acquired intangible assets and adjusting items

Results at a glance:

 
                                  HY 2021   HY 2020   % change    % change 
                                                        Actual    Constant 
                                                            FX          FX 
                                 --------  --------  --------- 
 Revenue                          GBP475m   GBP448m         +6         +12 
 Adjusted(1) operating profit      GBP36m    GBP29m        +23         +34 
 Adjusted(1) pre-tax profit        GBP29m    GBP21m        +35         +51 
 Adjusted(1) net income(2)         GBP24m    GBP17m        +39         +55 
 Adjusted(1) basic earnings 
  per share                          7.7p      6.2p        +24         +40 
 Dividend per share                  2.0p         -        n/a         n/a 
 Net debt (including lease        GBP212m   GBP297m        -29         n/a 
  liabilities) 
 Net debt (excluding lease        GBP159m   GBP238m        -33         n/a 
  liabilities) 
 Net debt to EBITDA (including 
  lease liabilities)                 1.7x      2.5x        n/a         n/a 
 Net debt to EBITDA (excluding 
  lease liabilities)                 1.5x      2.3x        n/a         n/a 
 Free cash flow(3)                  GBP5m    GBP12m        n/a         n/a 
 
 Reported operating profit         GBP30m    GBP16m        +93        +118 
 Reported pre-tax profit           GBP23m     GBP8m       +192        +273 
 Reported net income(2)            GBP21m     GBP7m       +194        +265 
 Reported basic earnings 
  per share                          6.6p      2.3p       +187        +266 
 Reported net cash inflow          GBP26m    GBP38m        n/a         n/a 
  from operating activities 
 
 
   (1)   Before amortisation of acquired intangible assets and adjusting items 
   (2)   Net income is defined as profit after tax, before minority interests 
   (3)   A reconciliation of free cash flow is set out in the Financial Review 

Statutory to Adjusted Reconciliation:

 
 30 June                                  Amortisation 
  2021                                     of acquired 
                           Acquisitions     intangible    Adjusting                                    LFL / 
              Reported    and disposals         assets        items   Tax on adjustments   FX    Adjusted(1) 
             ---------  ---------------  -------------  -----------  -------------------  --- 
 Revenue       GBP475m         GBP(17)m              -            -                    -    -        GBP458m 
 Operating      GBP30m                -         GBP11m      GBP(5)m                    -    -         GBP36m 
  profit 
 Pre-tax        GBP23m                -         GBP11m      GBP(5)m                    -    -         GBP29m 
  profit 
 Net income     GBP21m                -         GBP11m      GBP(5)m              GBP(3)m    -         GBP24m 
-----------  ---------  ---------------  -------------  -----------  -------------------  ---  ------------- 
 
 
 30 June                                  Amortisation 
  2020                                     of acquired 
                           Acquisitions     intangible    Adjusting                                             LFL(2) 
              Reported    and disposals         assets        items   Tax on adjustments         FX    / Adjusted(1,2) 
             ---------  ---------------  -------------  -----------  -------------------  --------- 
 Revenue       GBP448m                -              -            -                    -   GBP(22)m            GBP426m 
 Operating      GBP16m                -         GBP11m        GBP2m                    -    GBP(2)m             GBP27m 
  profit 
 Pre-tax         GBP8m                -         GBP11m        GBP2m                    -    GBP(2)m             GBP19m 
  profit 
 Net income      GBP7m                -         GBP11m        GBP2m              GBP(3)m    GBP(2)m             GBP15m 
-----------  ---------  ---------------  -------------  -----------  -------------------  ---------  ----------------- 
 

(1) Adjusted operating profit, adjusted pre-tax profit and adjusted net income relate to total Group

(2) 2020 Adjusted figures are presented at 2021 constant FX rates

Commenting on today's results, Paul Forman, Chief Executive, said:

"I am extremely pleased with the start to the year that we have had. The first half of 2021, much like the bulk of 2020, brought with it numerous challenges due to the ongoing pandemic, and I am very proud of how we have navigated through these difficult times, to deliver strong top and bottom line growth, with margin expansion across all divisions in Q2. Encouragingly, we are now trading ahead of 2019 levels with Q2 revenue up by 2.5% LFL.

In particular, I am profoundly grateful for the incredible energy, commitment and passion demonstrated by all of our employees in the face of continued pressures.

Components and Filters have had a particularly strong H1 2021, whilst Packaging has made good progress in margin initiatives and is coping well with continued difficult conditions within its underlying market. Whilst we remain mindful of external pressures in the current environment, we have been quick to take proactive actions to mitigate any headwinds, such as the pricing actions we have taken in Components and Packaging in order to protect margins.

The recent issuance of our private placement debt provides us with optimal long term funding. The strength of our balance sheet and liquidity position means we are well positioned to pursue attractive bolt-on acquisition opportunities, just like the one we will be completing on shortly in Components (Hengzhu) - which provides us with the ideal platform to take our fastest growing product range (access hardware) into our top target geographic market (China).

Whilst there is more for us still to do, our H1 2021 results demonstrate our ability to deliver financial progress despite a challenging market backdrop. We are well positioned for the remainder of 2021 and are on track to deliver full year adjusted operating profit in-line with the Board's expectations".

Outlook Statement

The Company has had an encouraging start to the year , but the pandemic continues to contribute to an uncertain macro-economic environment. The portfolio of end-markets served across the Group provides a degree of resilience against this uncertainty. The Company has dealt with some supply chain disruption in the year thus far - and this remains a risk that we must continue to monitor closely.

On a constant currency basis, revenue in our underlying business continues to improve, and the divisional outlook for the remainder of 2021 suggests that: both Components and Filters should see a continuation in growth (albeit the rate of growth may moderate as comparatives become tougher), whilst in Packaging we expect to see the market return to moderate growth in the second half of 2021 with global healthcare systems expected to start catching up on the significant backlog of prescriptions and elective surgeries.

The Company expects to deliver a FY 2021 operating profit in line with the Board's expectations. Our profit margin percentage target expectations for 2022 from a divisional perspective are: Components to return to pre-pandemic margin levels, as the division benefits from volume leverage and adjusts to operating in a new supply chain environment, notwithstanding continued reinvestment to support further growth; Packaging to achieve industry average margin of 8-10% by the end of 2021 (barring any major unforeseen macro-economic events or extended lockdowns), with full year delivery of this industry average margin being achieved in 2022, driven by volume leverage and the already executed strategic footprint initiatives; and finally Filters to return to pre-pandemic margin levels, as the division benefits from further progress in the delivery of its 'gamechangers' as well as expected improvement in NPI volume. Clearly this will be dependent on continued macroeconomic progress and some recovery in healthcare markets specifically.

 
 Alternative Performance Measures 
 

Constant foreign exchange rates. Movements in exchange rates relative to sterling affect actual results as reported. The constant exchange rate basis ("constant FX") adjusts the comparative to exclude such movements, to show the underlying performance of the Company. The principal exchange rates for Essentra in HY 2021 were:

 
                            -------- Average --------                   -------- Closing -------- 
                         HY 2021               HY 2020               HY 2021               HY 2020 
---------  ---------------------  --------------------  --------------------  -------------------- 
 US$:GBP                    1.39                  1.27                  1.38                  1.23 
 EUR:GBP                    1.15                  1.14                  1.17                  1.10 
---------  ---------------------  --------------------  --------------------  -------------------- 
 

Re-translating at HY 2021 average exchange rates decreases the prior year revenue and adjusted operating profit by GBP22.8m and GBP2.4m respectively.

Like-for-like ("LFL"). The term "like-for-like" describes the performance of the continuing business on a comparable basis, adjusting for the impact of acquisitions, disposals and foreign exchange. The HY 2021 LFL results (when compared to HY 2020) are adjusted for the acquisition of 3C! Packaging, Inc. on 17 September 2020. Additionally, when HY 2021 LFL performance is compared against HY 2019, then the following are also adjusted for: the acquisition of the Innovative Components business on 26 June 2019, the acquisition of Nekicesa Packaging on 6 September 2019, the divestment of the Pipe Protection Technologies business on 14 January 2019, the divestment of the Extrusion business on 11 June 2019, the divestment of the Speciality Tapes business on 28 June 2019 and finally the divestment of the Card Solutions business on 23 July 2019.

Adjusted basis. The term "adjusted" excludes the impact of amortisation of acquired intangible assets and adjusting items, less any associated tax impact. In HY 2021, amortisation of acquired intangible assets was GBP11.1m (HY 2020: GBP10.9m), and there was a pre-tax credit for adjusting items of GBP5.5m (HY 2020: charge of GBP2.5m). The current half year net credit for adjusting items is driven mainly by the release of provisions relating to prior business disposals (GBP4.5m) and the gain made on the sale of the Moorestown facility (GBP4.3m), being netted off against costs incurred for strategic initiatives relating to footprint optimisation (GBP2.9m) as well as transaction costs associated with the proposed acquisition of Jiangxi Hengzhu Electrical Cabinet Lock Co., Ltd (GBP0.5m). Further details on adjusting items are shown in note 3 to the condensed consolidated interim financial statements.

Constant FX, LFL and adjusted measures are provided to reflect the underlying financial performance of Essentra. For further details on the performance metrics used by Essentra, please refer to pages 27 to 30 of the 2020 Annual Report.

Adjusted operating cash flow. Adjusted operating cash flow is net cash flow from operating activities, excluding income tax paid, pensions adjustments, and cash flows relating to adjusting items, less net capital expenditure. It is a measure of the underlying cash generation of the business. Net capital expenditure is included in this measure as management regard investment in operational assets (tangible and intangible) as integral to the underlying cash generation capability of the Company.

 
 Operating Review 
 

The HY 2021 result for the Group was encouraging. Overall, compared to the prior period, HY 2021 revenue increased by 5.9% (11.6% at constant exchange) to GBP474.9m, whilst on a LFL basis, revenue increased by 7.5%. However, in order to fully appreciate LFL Group performance, progressive quarterly trading needs to be considered, as this gives more clarity on how, over time, the Company became increasingly proficient at dealing with the impacts and challenges of the pandemic. A trend of positive quarterly LFL revenue momentum has built up ever since the major onset of the pandemic - going from -9.8% in Q2 2020, to -6.7% in Q3 2020, to -1.0% in Q4 2020, and then marking a return to positive quarterly growth in 2021 with +1.4% in Q1 2021 and +13.7% in Q2 2021.

Direct comparisons with prior year are inevitably skewed due to the impact of the pandemic taking its full grip from April last year. Compared to H1 2019, H1 2021 revenue is down 1.9% on a LFL basis (though on quarterly basis vs 2019, Q1 was down 6.2% whilst Q2 rebounded being up by 2.5%).

On an adjusted basis, operating profit was up 23.1% (34.0% at constant FX) at GBP35.7m, which was driven mainly by the volume gearing effect from the revenue increase and cost savings emanating from the strategic initiatives, being partially offset by general inflationary costs pressure and increased costs pertaining to performance related pay incentives. Adjusted operating margin increased by 100bps (130bps at constant FX) to 7.5%. Q2 adjusted operating margin was 9.8%, with margin expansion being delivered by each of the divisions (in comparison to both Q2 2020 and Q1 2021).

Including amortisation of acquired intangible assets of GBP11.1m and a pre-tax credit from adjusting items of GBP5.5m, operating profit as reported was GBP30.1m (HY 2020: GBP15.6m); prior half year included an overall adjusting items charge of GBP2.5m, whilst HY 2021 has a total credit from adjusting items of GBP5.5m.

Net finance expense was below the prior year at GBP7.0m (2020: GBP7.7m), which was mainly driven by lower interest costs on a reduced level of net debt. The effective tax rate on underlying profit before tax (before amortisation of acquired intangible assets and adjusting items) was 16.7% (HY 2020: 19.2%). This reduced tax rate is primarily driven by a one-off non-cash benefit on the remeasurement of deferred tax assets as a result of the enacted change in UK Corporation Tax rates, being partially offset by a change in the geographical split of profits across the Group.

On an adjusted basis, net income of GBP23.9m was up 39.0% (55.4% at constant FX) and adjusted basic earnings per share increased by 24.2% (39.9% at constant FX) to 7.7p. On a total reported basis, net income of GBP20.6m and earnings per share of 6.6p compared to GBP7.0m and 2.3p respectively in 2020.

Adjusted operating cash flow was 1% higher than the previous half year at GBP22.4m (2020: GBP22.1m). The increase in adjusted operating cash flow was mainly driven by the improvement in adjusted operating profit against HY 2020 of GBP6.7m, offset by increased working capital outflows of GBP5.1m in order to support growth. Adjusted free cash flow was GBP4.7m (compared to GBP11.5m in 2020), after payments for tax, net interest and pensions. Reported net cash inflow from operating activities is GBP26.1m (2020: GBP37.7m).

 
  Business Review 
 

Summary growth in revenue by Division

 
 % growth        LFL   Acquisitions   Foreign Exchange   Total Reported 
                        / Disposals 
              ------  -------------  ----------------- 
 Components    +20.3              -               -5.9            +14.4 
 Packaging      -5.1           +9.7               -3.7             +0.9 
 Filters       +12.8              -               -8.2             +4.6 
 Total          +7.5           +4.1               -5.7             +5.9 
------------  ------  -------------  -----------------  --------------- 
 

The following review is given at constant exchange rates and on an adjusted basis, unless otherwise stated.

Components

 
                      HY 2021     % growth       % growth 
                         GBPm    Actual FX    Constant FX 
                     --------  ----------- 
 Revenue                148.4        +14.4          +20.3 
 Operating profit*       27.0        +13.0          +17.3 
 Operating margin*      18.2%       -20bps         -50bps 
-------------------  --------  -----------  ------------- 
 

* Adjusted basis

The Components division delivered a strong performance in H1 2021, with revenue increasing by 20.3% to GBP148.4m. On a per day basis, adjusting for one less trading day in H1 2021, revenue was up by c21%.

Since the onset of the pandemic, the division has rebounded to deliver consistently improving quarterly trading performance, and the positive momentum seen in the second half of 2020 has carried across into 2021. In Q1, the business recorded revenue per day growth of c5% (adjusting for two less trading days during Q1 2021), which improved further as we moved in to Q2, where revenue per day growth of c38% was delivered (adjusting for one more trading day during Q2 2021). The pandemic took its full grip in April 2020, hence prior year comparatives for Q2 are somewhat skewed due to this reason. However, when compared to Q2 2019, current year Q2 is up by c7% on a LFL revenue per day basis.

Consistent with the commitment to providing customers with a "hassle-free" experience, the division has made further progress on its 'digital journey' - including the continued roll out and enhancement of our new digital platform, which has proven to be a critical tool in upgrading the division's online presence and has continued to differentiate us from our competitors. During the half year, the Asian roll-out of the new digital platform commenced, with our Singaporean and Malaysian websites going live in May. We are taking this platform to our remaining Asian markets in H2 2021 (Europe and North America went live in prior years). This platform has given the division the stage on which to promote an expanding range of products that have both been organically introduced and added from acquisitions. Further developments are in progress, including the use of artificial intelligence. In order to complement the ever-increasing functionality of our website, the division has also been working on various other commercial initiatives - key amongst these is our category management approach - whereby our commercial teams are focused on global product category expertise, rather than being totally regionally aligned - an approach for which we have begun to reap rewards during the half year, and that we will look to continue enhancing into the future.

It should be noted that the growth in Components in the half year has been delivered against a backdrop of supply chain challenges, which have been exacerbated by the strong and relentless rebound in demand seen . In the earlier part of half year, the challenges were mainly driven by Brexit induced supply chain disruptions, requiring additional administrative steps. In response to these disruptions, certain product lead times had to be permanently extended. As the half year progressed the challenges have shifted more towards labour availability, mainly in the US. These supply chain challenges are beginning to improve, as we continue to drive proactive remediation actions. Our fully automated German warehouse, which provides an enhanced logistical platform from which to drive the European Components business, is performing in line with expectations.

During the half year, the division has experienced inflationary cost pressures - in terms of raw materials, labour and freight. To counteract the impact of this inflation, and in order to protect our margins, the business is implementing price increases in H2.

In 2020 we announced a set of strategic footprint initiatives in the Americas and Europe that would allow us to improve service for our customers, maximise the opportunities for automation and support anticipated growth for the division. Whilst we have made some progress with the various initiatives, others have had to be temporarily put on hold whilst we concentrate on remedying the supply chain challenges highlighted above.

We have continued to invest in our BPR programme during the year and have gone live with our first operational site in Spain in early July. We plan to continue with our European roll out in the remainder of 2021.

The division has continued with its drive on improving sustainability, and during the half year has launched 40% recycled content in UK manufactured LDPE ranges. Overall recycled material is 7% for H1 2021.

In May, the business announced the acquisition of Jiangxi Hengzhu Electrical Cabinet Lock Co., Ltd which is on track to complete soon. This acquisition strengthens our position in China, enabling us to expand our 'hero' access hardware range. We have proven strong cross selling opportunities for this product range in Europe and Hengzhu provides us with the ideal platform to further penetrate Asia. There is also scope to leverage our operations expertise to increase the efficiency of the business. The acquisition is earnings accretive and will deliver sustainable value to Essentra over the long-term.

Adjusted operating profit increased by 17.3% to GBP27.0m, equating to a margin of 18.2% (decrease of 50 bps). This was driven mainly by general inflationary costs pressure and increased costs pertaining to performance related pay incentives, being partially offset by the volume gearing effect from the revenue increase and continued successful pricing management. Q2 adjusted operating margin was 19.2%.

Packaging

 
                      HY 2021     % growth       % growth 
                         GBPm    Actual FX    Constant FX 
                     --------  ----------- 
 Revenue                187.0         +0.9           +4.6 
 Operating profit*        9.6        +95.9         +102.1 
 Operating margin*       5.1%      +250bps        +250bps 
-------------------  --------  -----------  ------------- 
 

* Adjusted basis

Revenue increased by 4.6% to GBP187.0m. On a LFL basis, the revenue decline was 5.1% for the half year, which was driven by the continued impact of a reduction in the level of prescriptions and elective surgeries through lockdown periods (as seen since H2 2020). It should be noted that the prior half year comparator was relatively unaffected by the pandemic - in fact during the early days of the pandemic, volumes were actually boosted by enhanced 'over the counter' trade, which became particularly buoyant as consumers starting stock piling medicines in their homes.

Over the course of H1 2021, there was a slight improvement in performance: in Q1 the division delivered a LFL revenue decline of 5.4%, this marginally improved to -4.8% in Q2. The division is operationally well poised for when the underlying end market returns to growth.

During the pandemic, the combination of maintained high levels of service, along with a clear key account management structure, has meant that dialogue with customers has continued to be further strengthened and deepened, with the division collaborating with its customers to help meet a range of needs and objectives during these unprecedented times. The division continued to win new business as a result of its focus on supporting customers, and is very proud to be playing a part in supporting the healthcare industry in its fight against the COVID-19 virus, helping to produce secondary packaging for anti-viral and vaccine products (now supplying three of the five major vaccine producers). Moreover, the division has recently run its annual customer survey, where it recorded an upper quartile score of 8.4 out of 10, up from 8.1 achieved in the previous survey.

The post-acquisition integration of 3C! Packaging is progressing well. Two main highlights of the integration during the half year have been: the highly experienced management team of 3C! have now been given the responsibility of running the entire US Packaging business, and the leveraging (into the wider division) of innovation, value added products and services that the 3C! business brought with it e.g. 3C!'s ClearCode technology is gaining a lot of interest from the European market, and is being trialled by a major customer.

Strategic cost reduction initiatives, in particular the recent closure of our Portsmouth (UK) and Moorestown (USA) sites, continue to support margin improvement. Whilst input costs have increased in H1, we are implementing pricing actions to mitigate these effects.

Adjusted operating profit increased 102.1% to GBP9.6m, equating to a margin of 5.1% (250 bps increase). This was largely driven by the delivery of savings emanating from gross margin initiatives, procurement and organisational changes made in the prior year. Netted off against this was the volume gearing effect from the revenue decline . Q2 adjusted operating margin was 6.1%. We maintain our target FY 2021 exit rate of delivering an 8-10% margin, in line with the industry average, by the end of 2021 (barring any major unforeseen macro-economic events or extended lockdowns).

Filters

 
                      HY 2021     % growth       % growth 
                         GBPm    Actual FX    Constant FX 
                     --------  ----------- 
 Revenue                139.5         +4.6          +12.8 
 Operating profit*       11.5         +6.5          +18.2 
 Operating margin*       8.2%       +10bps         +40bps 
-------------------  --------  -----------  ------------- 
 

* Adjusted basis

Total Filters divisional revenue was 12.8% up on the prior half year period, of which the core Filters business (division excluding Tear Tapes) was up by 14.6%.

Q1 2021 was up by 10.0% compared to Q1 2020 for the overall division, mainly driven by the strong delivery of production volumes for the previously announced outsourcing contract wins.

Q2 2021 was up by 15.5% as compared to the Q2 2020, with continued benefit coming from the outsourcing contract volumes, and also due to a softening in the prior period comparatives due to the impact from government enforced facility closures in India and Paraguay in April 2020. However, even when compared to Q2 2019, current year Q2 revenue is up by 3.4%.

In relation to the division's game changers, as mentioned above, the three previously announced outsourcing contracts are now operating with full production volumes being achieved on all of these. The division also has a healthy pipeline of potential outsourcing contract opportunities. The China JV commenced production in June, providing a great platform to capture the many opportunities available in the world's largest tobacco market. We continue to build our pipeline of next generation products (NGP) opportunities - with one further patent application made and several projects underway. In regards to the three proprietary products launched in late 2020 (Eco Sensation, ECO Cavitec and ECO Cavitec Sensation), which are intended to meet EU Single Use Plastics Directive initiatives for plastic-free and biodegradable products, we are very pleased with the ever-increasing levels of interest the market is showing towards these new products, with a rapidly growing number of projects already underway, that could materialise into a significant number of opportunities. The division has also actively been helping customers

with developing and commercialising other sustainable products into market. We are partnering with a large customer who is trialling these products in Europe in Q3 2021. In addition, there are plans to launch Eco-Filters with another large customer in early 2022.

In the Tear Tapes business, during the half year, we have re-organised our sales teams into a global market category approach to focus on specific categories of markets, customers and end uses, whilst adopting an overall key account management approach for mutual customers with the core Filters business.

Adjusted operating profit increased 18.2% to GBP11.5m, equating to an operating margin of 8.2% (increase of 40 bps). This was largely driven by the volume gearing effect from the revenue increase, netted off against costs incurred for the set up for the China JV. Q2 adjusted operating margin was 10.8%.

 
  Financial Review 
 

Net finance expense. Net finance expense of GBP7.0m was GBP0.7m below the prior year period, and is broken down as follows:

 
 GBPm                             HY 2021   HY 2020 
                                 -------- 
 Net interest charged on net 
  debt                                4.3       5.7 
 Amortisation of bank fees            0.5       0.4 
 IAS 19 pension finance charge        0.3       0.3 
 Interest on leases                   1.4       1.0 
 Net other finance expense            0.5       0.3 
 Total net finance expense            7.0       7.7 
-------------------------------  --------  -------- 
 

Tax. The effective tax rate on underlying profit before tax (before adjusting items and amortisation of acquired intangible assets) was 16.7% (2020: 19.2%). This reduced tax rate is primarily driven by a one-off non-cash benefit on the remeasurement of deferred tax assets as a result of the enacted change in UK Corporation Tax rates, being partially offset by a change in the geographical split of profits across the Group.

Net working capital. Net working capital is defined as Inventories plus Trade & Other Receivables less Trade & Other Payables, adjusted to exclude Deferred Consideration Receivable / Payable, Interest Accruals and Capital Payables ("Adjustments").

 
 GBPm                         HY 2021   HY 2020 
                             -------- 
 Inventories                    110.3     125.4 
 Trade & other receivables      185.0     177.6 
 Trade & other payables       (179.9)   (180.4) 
 Adjustments                      4.5       5.3 
 Net working capital            119.9     127.9 
---------------------------  --------  -------- 
 

The decrease in net working capital was largely driven by an FX impact. Lower inventory levels, emanated primarily from the Components and Filters divisions, both of which had a concerted effort last half year to have a contingency build of inventory (in light of the pandemic backdrop). This decrease in inventory levels was netted off by an increase in trade and other receivables - which is a function of the enhanced trading volumes in HY 2021 vs HY 2020. During the period, there has been no deterioration in the recoverability of trade and other receivables across all three divisions.

Cash flow. Adjusted operating cash flow is net cash flow from operating activities, excluding income tax paid, pensions adjustments, and cash flows relating to adjusting items, less net capital expenditure. It is a measure of the underlying cash generation of the business. Net capital expenditure is included in this measure as management regard investment in operational assets (tangible and intangible) as integral to the underlying cash generation capability of the Company.

Adjusted operating cash flow was 1% higher than the previous year at GBP22.4m (HY 2020: GBP22.1m), this equated to an operating cash conversion of 63% in the half year (HY 2020: 76%). The increase in adjusted operating cash flow was mainly driven by the improvement in adjusted operating profit against HY 2020 of GBP6.7m, offset by increased working capital outflows of GBP5.1m in order to support growth. Adjusted free cash flow was GBP4.7m (compared to GBP11.5m in 2020), after payments for tax, net interest and pensions.

In HY 2021, there was a GBP0.4m net decrease in cash and cash equivalents to GBP132.5m (HY 2020: increase of GBP87.2m to GBP160.2m).

 
 GBPm                                                 HY 2021   HY 2020 
                                                     -------- 
 Operating profit - adjusted                             35.7      29.0 
   Depreciation and amortisation of non-acquired 
    intangible assets                                    19.6      19.8 
    Right-of-use asset depreciation                       5.8       6.2 
     Share option expense / other movements             (1.0)     (0.5) 
   Change in working capital                           (15.1)    (10.0) 
   Net capital expenditure (excluding disposal 
    proceeds relating to adjusting items)              (22.6)    (22.4) 
 Operating cash flow - adjusted                          22.4      22.1 
   Tax                                                  (7.3)     (4.3) 
   Cash outflow in respect of adjusting items           (7.4)     (2.2) 
   Pension obligations                                  (4.2)     (0.3) 
   Add back: net capital expenditure (excluding 
    disposal proceeds relating to adjusting items)       22.6      22.4 
 Net cash inflow from operating activities               26.1      37.7 
 
 Operating cash flow - adjusted                          22.4      22.1 
   Tax                                                  (7.3)     (4.3) 
   Net interest paid                                    (6.2)     (6.0) 
   Pension obligations                                  (4.2)     (0.3) 
 Free cash flow - adjusted                                4.7      11.5 
 
 Net increase in cash & cash equivalents                (0.4)      87.2 
---------------------------------------------------  --------  -------- 
 

Net debt. Net debt at the end of the period was GBP212.2m, a GBP1.8m increase from 1 January 2021 (including lease liabilities). The overall increase was mainly driven by dividends paid to shareholders and payouts for deferred consideration on acquisitions, being offset by the net cash inflow from the free cash flow generated by the Company during the half year and capital contributions from non-controlling interests in the China Joint Venture.

 
 GBPm                                            HY 2021 
 Net debt as at 1 January 2021                     210.4 
   Free cash flow                                  (4.7) 
   Cash inflow in respect of adjusting items       (0.9) 
   Foreign exchange                                (1.9) 
   Acquisitions - net cash paid                      1.9 
   Capital contributions from non-controlling 
    interests in the China JV                      (3.1) 
   Dividends                                         9.9 
   Lease liability movements                           - 
   Other                                             0.6 
 Net debt as at 30 June 2021                       212.2 
----------------------------------------------  -------- 
 

The Company's financial ratios remain healthy. The ratio of net debt to EBITDA including lease liabilities was 1.7x (30 June 2020: 2.5x). Net debt to EBITDA excluding lease liabilities was 1.5x (30 June 2020: 2.3x). Interest cover was 4.9x (30 June 2020: 4.8x).

Refinancing activities . One of the main sources of funding for the Company is a Revolving Credit Facility (RCF) provided by a group of eight highly-rated banks, which as at the prior year end was set to mature in its entirety in November 2022. However, for a tranche involving five of the eight banks (worth GBP250m), during the half year we have agreed an extension to the facility based on new terms, which will now mature in November 2023. Additionally, another bank has also joined this new syndicate, with a commitment of a further GBP25m.

In July, the Company has agreed the issue of US $250 million of medium and long-dated private placement debt. The issue comprises US $80 million notes due 2028, US $85 million notes due 2031, and US $85 million notes due 2033. The covenants on the notes are in line with those on the Company's existing private placement notes and its bank revolving credit facility. The proceeds will be used for general corporate purposes and to repay shorter-dated bank debt (with net debt level maintained), thereby diversifying the Company's source of debt finance and lengthening its maturity profile. Some of the proceeds have been swapped into Sterling, in accordance with the Group's hedging policies.

Pensions. As at 30 June 2021, the Company's IAS 19 net pension liability was GBP7.4m (FY 2020: GBP23.9m). This decrease in the liability is a result of an actuarial gain (driven by an increase in discount rate) being netted off against an adverse return of plan assets.

Dividends . The Board of Directors has approved an interim dividend of 2.0 pence per 25 pence ordinary share (HY 2020: nil). The interim dividend will be paid on 29 October 2021 to equity holders on the share register on 24 September 2021: the ex-dividend date will be 23 September 2021. Essentra operates a Dividend Re-Investment Programme ("DRIP"), details of which are available from the Company's Registrars, Computershare Investor Services PLC: the final date for DRIP elections will be 8 October 2021.

Going forwards, a progressive dividend policy will continue to be adopted.

Board changes. As reported previously, Tommy Breen retired as a Non-Executive Director and Senior Independent Director, with effect from the conclusion of the Annual General Meeting (AGM), held on Thursday 20 May 2021. Mary Reilly became Senior Independent Director upon Tommy's retirement, adding to her already existing role as Chair of the Audit & Risk Committee and Board Employee Champion.

Adrian I. Peace has been appointed as a Non-Executive Director with effect from 28 June 2021. Adrian will also be an Employee Champion for the North American region. Adrian brings extensive experience in US and Global markets having operated in a range of businesses including light and heavy manufacturing, distribution and services sectors. Adrian has experience of leading full P&Ls, digitising businesses and driving operational efficiencies that have transformed the businesses he has worked in.

Treasury policy and controls. Essentra has a centralised treasury function to manage funding, liquidity and exposure to interest rate and foreign exchange risk. Treasury policies are approved by the Board and cover the nature of the exposure to be hedged, the types of derivatives that may be employed and the criteria for investing and borrowing cash. Essentra uses derivatives only to manage currency and interest rate risk arising from the underlying business activities. No transactions of a speculative nature are undertaken. Underlying policy assumptions and activities are reviewed by the Treasury Committee.

Controls over exposure changes and transaction authenticity are in place, and dealings are restricted to those banks with the relevant combination of geographical presence, expertise and suitable credit rating.

Foreign exchange risk. The majority of Essentra's net assets are in currencies other than sterling. The Company's normal policy is to reduce the translation exposure and the resulting impact on shareholders' funds through measures such as borrowing in those currencies in which the Group has significant net assets. As at 30

June 2021, Essentra's US dollar-denominated assets were approximately   27%   hedged by its US dollar-denominated borrowings, while its euro-denominated assets were approximately   30% hedged by its euro-denominated borrowings. 

The majority of Essentra's transactions are carried out in the functional currencies of its operations, and therefore transaction exposure is limited. Essentra uses forward foreign currency contracts to hedge its exposure to movements in exchange rates on its highly probable forecast foreign currency sales and purchases over a period of up to 18 months.

Management of principal risks. The Board considers risk assessment, identification of mitigating actions and internal controls to be fundamental to achieving Essentra's strategic objectives. Our principal risks are detailed later in this document.

The UK's Exit from the European Union ("Brexit")

Post-Brexit, the Company's focus has shifted to ensuring effective management of new customs and delivery arrangements, in order to maintain customer service levels. The supply chain disruptions noted in Q1 2021 have settled down in Q2 2021 as both business and logistics partners get used to the new arrangements. Compared to pre-Brexit, there are additional administrative steps/costs and longer lead times to get products and raw materials into/out of Continental Europe, but these issues have now stabilised. We continue to foresee no material direct impact to the Company from Brexit, however the potential for certain supply chain disruption remains a risk that we must continue to monitor closely.

Business Process Redesign ("BPR")

The Company is currently part way through a business process redesign project, supported by implementation of a new ERP system. This project will support the strategic growth agenda of the Company, along with improving process efficiencies and business controls. We have completed scoping, process design and development activity of the system, both for core finance & procurement processes, as well as sales, manufacturing & warehouse processes for the Components Division.

To date, the Dynamics365 system has been rolled out to cover HQ finance & procurement processes (in July 2020) and Components Spain (in early July 2021). We are now working on data and configuration activity for the next set of countries in Components Europe. In addition, the Dynamics365 CRM system (CE) has been rolled out across the Components Division.

Over the cycle, the tangible benefits of the BPR programme are estimated to offset the cost. With streamlined processes and modern technology, the Company expects to become a much more agile and nimble business.

Enquiries

 
 Essentra plc                            Tulchan Communications LLP 
  Aamir Mohiuddin, Investor Relations      Martin Robinson 
  Director                                 Olivia Peters 
  Lucy Yank, Group Communications          Hollie Ralston 
  Director                                 Tel: +44 (0)20 7353 4200 
  Tel: +44 (0)1908 359100 
 

Presentation

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

The Half Year Results presentation to analysts and investors will start at 08:30 (UK time), and will be held virtually.

There are two options for participating in the event:

   1)   View and listen in to a webcast of the presentation, which can be accessed at https://www.essentraplc.com/en/investors/company-information/webcasts-and-presentations 

Please note that this option will not allow you to ask any questions - it will be listen only mode.

2) If you wish to ask a question, or are unable to listen to the audio via the webcast, please dial in to the audio conference call using the details below:

 
 Dial-in number:         +44 (0)20 7192 8338 (UK / international 
                          participants) 
                          +1 646 741 3167 (US participants) 
 Toll-free number:       0800 279 6619 (UK participants) 
                          +1 877 870 9135 (US participants) 
 Event Plus Passcode:    9073105 
 

A recording of the presentation will be made available on the website later in the day. A replay will additionally be available as follows:

 
    Replay number:           +44 (0)333 300 9785 (UK / international 
                              participants) 
                              +1 917 677 7532 (US participants) 
    Toll-free number:         0808 238 0667 (UK participants) 
                               +1 866 331 1332 (US participants) 
 
   Replay access code:      9073105 
 
   Replay available:        For 7 days 
 

Cautionary forward-looking statement

These results contain forward-looking statements based on current expectations and assumptions. Various known and unknown risks, uncertainties and other factors may cause actual results to differ from future results or developments expressed or implied from the forward-looking statements. Each forward-looking statement speaks only as of the date of this document. The Company accepts no obligation to revise or update these forward-looking statements publicly or adjust them to future events of developments, whether as a result of new information, future events or otherwise, except to the extent legally required.

Notes to Editors

About Essentra plc

Essentra plc is a FTSE 250 company and a leading global provider of essential components and solutions. Organised into three global divisions, Essentra focuses on the light manufacture and distribution of high volume, enabling components which serve customers in a wide variety of end-markets and geographies.

Headquartered in the United Kingdom, Essentra's global network extends to 34 countries and includes 7,430 employees, 48 principal manufacturing facilities, 30 sales & distribution operations and 3 research & development centres. For further information, please visit www.essentraplc.com .

Essentra Components

Essentra Components is a global market leading manufacturer and distributor of plastic injection moulded, vinyl dip moulded and metal items. Operating in 25 countries worldwide, 14 manufacturing facilities and 23 sales & distribution centres serve more than 82,000 customers with a rapid supply of low cost but essential products for a variety of applications in industries such as equipment manufacturing, automotive, fabrication, electronics and construction. The division also includes the Reid Supply business, which provides a wide range of branded hardware supplies to a broad base of industrial customers, largely located in the US Mid-West.

Essentra Packaging

Essentra Packaging is one of only two multicontinental suppliers of a full secondary packaging range to the health and personal care sectors, with 23 facilities across three geographic regions. The division's innovative products include cartons, leaflets, self-adhesive labels and printed foils used in blister packs, which help customers to meet the rapidly-changing requirements of these end-markets and can also be combined with Essentra's authentication solutions to help the fight against counterfeiting.

Essentra Filters

Essentra Filters is the only global independent cigarette filter supplier. The thirteen sites across nine countries, including three R&D centres, provide a flexible infrastructure strategically positioned to serve the tobacco sector. The business supplies a wide range of value-adding high quality innovative filters, packaging solutions to the roll your own segment and analytical laboratory services for ingredient measurement to the industry: Essentra's offering also includes Heat Not Burn and e-cigarette solutions to the rapidly evolving market for Next Generation Products. The division also includes the Tear Tapes business, which is globally recognised as the leading manufacturer and supplier of pressure-sensitive tear tapes, that are largely used in the tobacco, food and drink and specialist packaging sectors

Risk Report

Our risk management activities aim to drive performance aligned to our purpose, encourage growth through innovation and support the achievement of our strategic objectives. In doing this we take a balanced approach that puts risk management at the core of the senior management agenda. We remain committed to managing risks in a proactive and effective manner to protect and enhance value, and provide assurance to the Board and our stakeholders.

A risk management framework is in place to identify and manage risk within defined appetite levels, in relation to both operations and strategy. The framework has been designed to provide the Group Risk Committee (GRC) and the Board with a clear line of sight over risk and opportunity and to enable informed decision making. Our risk management framework continues to evolve as we seek to ensure our risk management processes are aligned with FTSE 250 upper quartile practice.

Risk can present itself in many forms and has the potential to impact health and safety, the environment, our communities, our reputation, regulatory compliance, market and financial performance and therefore the achievement of our corporate objectives. By understanding and managing risk, we provide greater certainty and confidence to our shareholders, employees, customers, suppliers and the communities in which we operate.

The Board confirms its risk appetite biannually by mapping its Principal Risks against a scale from "risk-averse" to "risk neutral" to "risk tolerant" and this informs the development of mitigating actions for each of the Principal Risks.

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

   --    identify the Company's significant risks and appropriate responses 

-- formulate the risk appetite and ensure that our business profile and plans are consistent with it

   --    ensure that growth plans are properly supported by an effective risk infrastructure 

-- help management teams to improve the control and co-ordination of risk-taking across the Company

COVID-19

The COVID-19 pandemic remains a global crisis and, at the date of this report, the situation remains volatile and uncertain across many parts of the world. Whilst the Company's risk landscape has changed during the COVID-19 pandemic, we believe that our focused risk management activities across the Company have enabled an agile and resilient response to the unrivalled challenges posed by the pandemic and continue to deliver effective mitigating actions.

The impact of COVID-19 continues to test and challenge the effectiveness of our approach to risk and its management. We continue to operate with adapted ways of working as required and we believe that our risk management framework continues to respond effectively in protecting value. As we look to the future, there remains a continued focus on enhancing our risk management framework and building on the lessons learnt over the past 18 months to ensure our approach not only protects stakeholder value but also supports its creation in line with our strategic growth objectives.

There are risks emerging that subsequent waves of COVID-19, or further variants, might delay recovery and return to work plans with continued disruption across supply chains and the societies in which we operate. Whilst our adoption of a new working model, based around social distancing, workspace and facility transformation, adapted work schedules, reduced travel and continuing remote working, has proved successful, careful planning is required for a transition back to normal working practices to ensure the ongoing wellbeing of our employees.

We continue to scan the horizon for additional new, emerging or disruptive risks which could significantly affect the Company's ability to meet its strategic growth objectives. We continue to note increasing momentum associated with the risk agendas for ESG and climate change and our ability to effectively manage our talent in a post COVID-19 working model has been on our risk radar during the first half of the year.

Principal Risks

The GRC has responsibility for overseeing Essentra's Principal Risks. Given the continue disruption and uncertainly caused by COVID-19, our risk management approach has been to consider the ongoing completeness and appropriateness of our Principal Risks. As part of our approach we have considered the impact on each of our Principal Risks and our risk appetite. Where necessary we have modified our risk response.

A number of our risks were amplified as a result of COVID-19 in 2020 and this reassessment remains appropriate. We have not identified any new Principal or Emerging risks in the first half of the year. The table below sets out movements in our Principal Risks.

 
 Principal Risk         Movement    Description 
                         from 
                         2020 
 PR1 Failure            No change   The potential for a failure to deliver improving 
  to Achieve                         returns each year and demonstrating delivery 
  Acceptable                         of industry average returns by end of 2021 
  Returns from                       has been identified as a Principal Risk since 
  the Packaging                      2017. This risk includes the potential of 
  Division                           the Packaging business failing to deliver 
                                     new business wins, expected cost savings 
  (Managing Director,                or acceptable returns. 
  Packaging)                         There has been no change in the risk profile; 
                                     COVID-19 has impacted our ability to deliver 
                                     growth in 2020 with the underlying pharmaceutical 
                                     market in particular disrupted by the lack 
                                     of patient visits to GPs and significantly 
                                     fewer elective surgeries resulting in lower 
                                     demand for branded and generic drugs, however 
                                     subject to the pharmaceutical market recovering 
                                     in 2021, the division is on track to deliver 
                                     margin in line with the lower end of the 
                                     industry average range by 2021. 
                       ----------  ------------------------------------------------------- 
 PR 2 Tobacco           No change   The Filters division supplies filter products 
  Industry Dynamics                  and packaging solutions to manufacturers 
                                     in the tobacco industry. Changes in the traditional 
  (Managing Director,                tobacco market present both opportunities 
  Filters)                           and risks for the division. Whilst the Company 
                                     has a strong market position the future growth 
                                     opportunities may be affected by dynamics 
                                     of the tobacco industry such as the declining 
                                     combustible markets, shifting towards Next 
                                     Generation Products (NGP) as well as moving 
                                     towards other tobacco substitutes. The focus 
                                     of stakeholders on ESG objectives provides 
                                     an additional area of challenge for the business. 
                                     There is continued legislation to reduce 
                                     smoking prevalence and promote the use of 
                                     more sustainable products and practices, 
                                     for example the EU Single Use Plastics Directive. 
                                     This presents an opportunity for growth through 
                                     our sustainable product portfolio. The change 
                                     in global consumption and end markets for 
                                     our products requires increased oversight 
                                     of where our products are used and a robust 
                                     regulatory framework. Tobacco-related litigation 
                                     could also affect Essentra, although there 
                                     is no history of the Company being involved 
                                     in such a claim. 
                                     There has been no change to the overall assessment 
                                     of this risk. 
                       ----------  ------------------------------------------------------- 
 PR 3 Delivery          No change   The Company's success is dependent on its 
  of Strategic                       ability to deliver key strategic projects 
  Projects                           on time and within budget, to realise their 
                                     full potential. The Company invests in, and 
  (Strategy and                      delivers, significant strategic, operational 
  Commercial                         and capital expenditure projects in order 
  Director)                          to drive the business forward, for example 
                                     our ongoing Business Process Redesign implementation. 
                                     In line with our strategic plans, this project 
                                     approach also includes the acquisition and 
                                     disposal of businesses. Failure to deliver 
                                     such key projects effectively and efficiently 
                                     could result in significantly increased project 
                                     costs and impede our ability to execute our 
                                     strategic plans. 
                                     There has been no change to the overall assessment 
                                     of this risk. 
                       ----------  ------------------------------------------------------- 
 PR 4 Regulatory        No change   The Company operates across many international 
  Governance                         jurisdictions and engages with a wide range 
                                     of stakeholders, including a diverse employee, 
  (Company Secretary                 customer and supplier base. Some locations 
  and General                        we operate in are high risk. We are required 
  Counsel)                           to comply with multiple areas of legislation, 
                                     regulation and good practice for areas such 
                                     as Anti-Trust, Anti-Bribery, Sanctions and 
                                     Data Protection and Privacy. Our operations 
                                     are subject to an external environment which 
                                     is seeing increasing levels of scrutiny and 
                                     oversight from regulators and enforcement 
                                     agencies. Failure to manage effectively the 
                                     scrutiny and oversight and/or comply with 
                                     new laws and regulations could result in 
                                     significant fines, costs and reputational 
                                     damage to the Company. Changes in supply 
                                     chains and the adoption of remote working 
                                     environments as a result of COVID-19 potentially 
                                     increase compliance and control risks. Additionally, 
                                     COVID-19 has potentially increased the risk 
                                     in relation to data privacy given the additional 
                                     collection of personal data. We have not 
                                     seen a significant change in other regulatory 
                                     risks. Whilst the external environment is 
                                     generating additional compliance demands 
                                     and undertaking increased levels of enforcement, 
                                     the Company continues to drive continuous 
                                     improvements in its compliance activities 
                                     and overall the level of risk to the Company 
                                     has remained the same. 
                       ----------  ------------------------------------------------------- 
 PR 5 Cyber-Attack      No change   The Company is dependent on its IT systems 
                                     for day-to-day operations. Should the Company 
  (Chief Information                 be affected by a cyber security breach, this 
  Officer)                           could result in suspension of some IT services 
                                     and loss of data. Subsequently, the Company 
                                     could receive fines, lose customer confidence 
                                     and suffer reputational damage. The risk 
                                     was heightened during the early phase of 
                                     the pandemic as a result of a significant 
                                     increase in remote working as part of COVID-19 
                                     crisis management. The Company continues 
                                     to mitigate these additional risks through 
                                     consistent deployment of our security controls 
                                     to devices away from the office, maintaining 
                                     software updates and the introduction of 
                                     stronger authentication for remote access 
                                     services. Cyber-attacks are a serious threat 
                                     to the smooth running of our business. We 
                                     continue to invest in our cyber security 
                                     programme which includes mitigation and risk 
                                     reduction activities across people, process 
                                     and technology. 
                       ----------  ------------------------------------------------------- 
 PR 6 Macro-economic      Down      As a global business, changes to global economic 
  and Trade Deal                     conditions or trading arrangements have the 
  Uncertainty                        potential to impact us. Our international 
  (including                         trade flows expose the Company to tariffs, 
  Brexit)                            duties or quotas imposed through trade sanctions 
                                     and also to macroeconomic effects due to 
  (Group Programme                   regional or global industrial output changes. 
  Director)                          Essentra will need to adapt to geopolitical 
                                     changes that impact on patterns of trade 
                                     and the movement of labour and capital. A 
                                     trend towards protectionism, regionalism 
                                     and a rebalancing from West to East creates 
                                     risks and opportunities that Essentra will 
                                     need to manage and exploit. In light of the 
                                     Trade and Co-operation Agreement being agreed 
                                     between the UK and the EU, our Brexit focus 
                                     moved to continuing to ensure we are following 
                                     robust customs and shipment processes and 
                                     proactive management of goods across the 
                                     UK-EU border, to minimise delays to our customers, 
                                     and our working capital. The geopolitical 
                                     landscape is becoming gradually less uncertain, 
                                     as such, our assessment is that the probability 
                                     of this risk manifesting has reduced. 
                       ----------  ------------------------------------------------------- 
 PR 7 Business          No change   We operate a global manufacturing footprint 
  Continuity                         and supply chain. Making this supply chain 
  Planning and                       resilient is a critical factor in serving 
  Management                         our customers, to minimise the impact of 
                                     potential disruptions. Business continuity 
  (Group Programme                   management issues can be focused on particular 
  Director)                          locations, driven by single point supply 
                                     chain failures. Here, our global footprint 
                                     provides risk diversification, via alternative 
                                     manufacturing routes. Equally, business continuity 
                                     issues can be broader in nature and impact 
                                     a number of sites simultaneously as has been 
                                     the potential with COVID-19. Our global footprint 
                                     may expose us to a broader set of potential 
                                     multi-site disruption risks, than more focused 
                                     companies. Robust business continuity planning 
                                     and management practices are required to 
                                     minimise the impact on production capability, 
                                     supply chain management, customer relationships, 
                                     reputation, revenue and profit. The Company 
                                     experienced some minor disruption through 
                                     COVID-19 related issues last year and the 
                                     risk of sites being temporarily shut due 
                                     to government imposed lockdowns remains. 
                       ----------  ------------------------------------------------------- 
 PR 8 Environmental,       Up       Environmental, Social and Governance (ESG) 
  Social Governance                  issues are becoming increasingly fundamental 
  (ESG)                              for all companies. For Essentra, this includes 
                                     our exposure to tobacco-related products 
  (Group Programme                   in our cigarette filters, potential changes 
  Director)                          in regulation related to single-use plastics, 
                                     climate change and other topics. Failure 
                                     to meet stakeholder expectations on increasing 
                                     environmental and/or social governance obligations 
                                     could lead to reputational or commercial 
                                     risk for the Company. This includes risks 
                                     arising from changing investor attitudes, 
                                     increasing customer expectations, social 
                                     attitudes towards the health and environmental 
                                     impact of our products which may impact on 
                                     our ability to market them, along with ability 
                                     to attract and retain talent, given increasing 
                                     employee focus on sustainability-related 
                                     topics 
                                     Mitigation efforts are managed through the 
                                     Board Sustainability Committee and include 
                                     reviewing and assessing the Company's exposure 
                                     and response to sustainability related issues 
                                     and considering whether these are consistent 
                                     with the Company's risk appetite. 
                                     Given the increasing focus on the ESG agenda, 
                                     our assessment is that this risk has increased. 
                       ----------  ------------------------------------------------------- 
 PR 9 Internal          No change   Processes and controls play an important 
  Processes and                      part in our ability to prevent and detect 
  Control                            inappropriate and unethical behaviour. This 
  (Chief Financial                   includes fraud, deliberate financial misstatement 
  Officer)                           and improper accounting practices. If the 
                                     design, operation or the assurance over these 
                                     controls is ineffective or ownership is not 
                                     defined or controls are overridden, there 
                                     is a greater risk of operational loss. In 
                                     response to COVID-19 there has been greater 
                                     adoption of flexible and remote working arrangements 
                                     resulting in an ongoing need to adapt our 
                                     controls and processes to these changing 
                                     ways of working. 
                                     Our roll-out of Minimum Control Standards 
                                     (MCS) across the Company helps maintain a 
                                     consistent standard and, as such, our assessment 
                                     is that there is no change to this risk. 
                       ----------  ------------------------------------------------------- 
 PR 10 Safety,          No change   The safety, health and wellbeing of our employees 
  Health & Wellbeing                 is of the highest priority for the Company. 
                                     Essentra has many manufacturing facilities 
  (Group Programme                   across the world, along with non-manufacturing 
  Director)                          sites and internationally mobile employees. 
                                     Factory manufacturing can be inherently risky 
                                     given the use of industrial machinery and 
                                     high speed manufacturing processes. In addition, 
                                     the Company must comply with national safety 
                                     regulation in multiple jurisdictions. Should 
                                     an injury or fatality occur involving our 
                                     employees or visitors, or should there be 
                                     any breach of safety regulation resulting 
                                     in prosecution, considerable reputational 
                                     damage is anticipated as well as potentially 
                                     significant financial costs. Increasingly, 
                                     especially given recent COVID-19 related 
                                     events, the mental and emotional wellbeing 
                                     of our leaders, managers and workforce remains 
                                     a focus. The organisation is working in a 
                                     different way, which is impacting individuals 
                                     physically as well as emotionally. The prolonged 
                                     period of COVID-19 working practices and 
                                     the potential impact of further variants 
                                     increases risks in this area. 
 
                                     There has been no change to the assessment 
                                     of this risk. 
                       ----------  ------------------------------------------------------- 
 PR 11 Talent              Up       Failure to acquire, retain, develop and motivate 
  to Deliver                         the required management and leadership necessary 
  our Future                         to evolve our business, develop our culture 
                                     and meet future customer needs. The change 
  (Group HR Director)                agenda, increased movement in the recruitment 
                                     market, the continued stimulus and the impact 
                                     of COVID-19 overall creates a need to address 
                                     focus on attracting and retaining key talent 
                                     along with taking steps to avoid burn-out 
                                     and presenteeism. Additionally, we must continue 
                                     to evaluate and grow the agile skills required 
                                     to build for the future. 
                                     Talent attraction and retention challenges 
                                     continue to evolve across the Company with 
                                     many different underlying reasons. Immediate 
                                     steps have been taken to address the large 
                                     skills gap in the US with a more structured 
                                     plan established to consider the longer term 
                                     actions needed. In addition, new ways of 
                                     working and internal challenges is resulting 
                                     in fatigue and resilience is being challenged 
                                     which is likely to impact the talent pool, 
                                     potentially for the long term. Our assessment 
                                     is that this risk has increased. 
                       ----------  ------------------------------------------------------- 
 PR 12 Exposure         No change   The Components division serves industrial 
  to the Cyclical                    OEM customers and hence, is exposed to overall 
  Industrial                         Industrial Production trends. Global Industrial 
  Market - Components                Production has tended to be cyclical in nature 
  Division                           with major economic downturns leading to 
                                     a downturn in Industrial Production. From 
  (Managing Director,                the Global Financial Crisis in 2008-2009 
  Components)                        to the current COVID-19 crisis, economic 
                                     cycles have impacted demand in the broad 
                                     industrial market. The Components division 
                                     sells to a broad base of key end markets 
                                     including Automotive, Capital Goods and Electronics. 
                                     This broad base of customers provides some 
                                     risk diversification, however, future downturns 
                                     in Industrial Production are almost certain 
                                     to happen, albeit with an uncertain timeframe. 
                                     The Components division can make changes 
                                     to its cost base and business model to maintain 
                                     operating margins against fluctuations in 
                                     demand. The risk is that such changes do 
                                     not happen quickly enough, or are not robust 
                                     enough to minimise the impact on operating 
                                     margins. 
                                     The key mitigating actions being taken include 
                                     optimising the Division's fixed cost base 
                                     such that it is a lower proportion of the 
                                     operating costs. Additionally, focus is being 
                                     given to d iversifying the market sectors 
                                     that we sell to; both within the industrial 
                                     sector and also beyond it. 
                       ----------  ------------------------------------------------------- 
 

Emerging Risks

The Group's risks are continually reviewed and reassessed through a bottom up and top down process as well as input from external sources with escalation and reporting to the Board. The process fully considers all relevant internal and external factors and captures those risks which are current but have not yet fully crystallised, as well as those which are expected to crystallise in future periods.

The Emerging Risks remain broadly unchanged to those set out in the 2020 Annual Report and Accounts. Further detail is set out in the table below:

 
     Risk (Owner)        Risk Description 
 ER1 Regulatory          Essentra is a global company that must comply 
  change                  with regulatory requirements in many countries. 
  (Company Secretary      Regulation is increasing worldwide and may potentially 
  and General Counsel)    impact our products, operations, workforce and 
                          relationships with suppliers, customers and stakeholders. 
                          COVID-19 continues to affect supply chains and 
                          the working environment, potentially leading to 
                          new or additional areas of regulatory scrutiny 
                          and subsequent regulatory change. 
                        ----------------------------------------------------------- 
 ER2 Technology          The risk that Essentra does not manage its response 
  disruptors              to evolving technologies effectively. This may 
  (Chief Information      include losing competitive advantage as rivals 
  Officer)                deploy advanced manufacturing technologies, artificial 
                          intelligence and robotics to strengthen product 
                          development, marketing, production, distribution 
                          and support functions. 
                        ----------------------------------------------------------- 
 ER3 Evolving            The debt market is evolving, and the lending condition 
  conditions of           and appetite can be impacted by key events, we 
  the Debt Market         have recently observed the effect from the COVID-19 
  (Chief Financial        pandemic. Essentra continues to have strong liquidity 
  Officer)                and we will stay alert to the change of investors' 
                          appetite and respond optimally to it and maintain 
                          our profile in the debt market. 
                        ----------------------------------------------------------- 
 

Further detail on these risks and how they are managed is available in the 2020 Annual Report and Accounts.

 
Condensed consolidated income statement 
 
                                                       Six months  Six months    Year 
                                                            ended       ended   ended 
                                                 Note      30 Jun      30 Jun  31 Dec 
                                                             2021        2020    2020 
                                                             GBPm        GBPm    GBPm 
 ----------------------------------------------  ----  ----------  ----------  ------ 
 
 Revenue                                          2         474.9       448.4   896.5 
 
 Operating profit                                            30.1        15.6    21.7 
 Finance income                                               1.1         0.7     1.9 
 Finance expense                                            (8.1)       (8.4)  (17.6) 
 ----------------------------------------------  ----  ----------  ----------  ------ 
 Profit before tax                                           23.1         7.9     6.0 
 Income tax expense                                         (2.5)       (0.9)     0.3 
 ----------------------------------------------  ----  ----------  ----------  ------ 
 Profit for the period                                       20.6         7.0     6.3 
 ----------------------------------------------  ----  ----------  ----------  ------ 
 
 Attributable to: 
 Equity holders of Essentra plc                              19.9         6.1     4.5 
 Non-controlling interests                                    0.7         0.9     1.8 
 ----------------------------------------------  ----  ----------  ----------  ------ 
 Profit for the period                                       20.6         7.0     6.3 
 ----------------------------------------------  ----  ----------  ----------  ------ 
 
 Earnings per share attributable to equity 
  holders of Essentra plc: 
 Basic                                            5          6.6p        2.3p    1.7p 
 ----------------------------------------------  ----  ----------  ----------  ------ 
 Diluted                                          5          6.6p        2.3p    1.6p 
 ----------------------------------------------  ----  ----------  ----------  ------ 
 
 Earnings per share from continuing operations 
  attributable to equity holders of Essentra 
  plc: 
 Basic                                            5          6.6p        2.3p    1.7p 
 ----------------------------------------------  ----  ----------  ----------  ------ 
 Diluted                                          5          6.6p        2.3p    1.6p 
 ----------------------------------------------  ----  ----------  ----------  ------ 
 
 Adjusted profit measure: 
 Operating profit                                            30.1        15.6    21.7 
 Amortisation of acquired intangible assets                  11.1        10.9    22.6 
 Adjusting items                                  3         (5.5)         2.5    17.7 
 ----------------------------------------------  ----  ----------  ----------  ------ 
 Adjusted operating profit                                   35.7        29.0    62.0 
 ----------------------------------------------  ----  ----------  ----------  ------ 
 See note 3 for further details of the 
  adjusted profit measure. 
 ----------------------------------------------  ----  ----------  ----------  ------ 
 
 
 
Condensed consolidated statement of comprehensive income 
 
                                                        Six months  Six months    Year 
                                                             ended       ended   ended 
                                                            30 Jun      30 Jun  31 Dec 
                                                              2021        2020    2020 
                                                              GBPm        GBPm    GBPm 
 ----------------------------------------------------   ----------  ----------  ------ 
 Profit for the period                                        20.6         7.0     6.3 
 
 Other comprehensive income: 
 Items that will not be reclassified to 
  profit or loss: 
 Remeasurement of defined benefit pension 
  schemes                                                     11.9       (4.9)   (6.7) 
 Deferred tax (expense)/income on remeasurement 
  of defined benefit pension schemes                         (3.8)         1.1     2.1 
 -----------------------------------------------------  ----------  ----------  ------ 
                                                               8.1       (3.8)   (4.6) 
 Items that may be reclassified subsequently 
  to profit or loss: 
 Effective portion of changes in fair value 
  of cash flow hedges: 
      Net change in fair value of cash flow 
       hedges transferred to the income statement            (0.2)       (0.8)   (0.5) 
      Effective portion of changes in fair value 
       of cash flow hedges                                     0.3         0.3     0.1 
 Foreign exchange translation differences: 
     Attributable to equity holders of Essentra 
      plc: 
        Arising on translation of foreign operations        (19.3)        32.0   (9.3) 
        Arising on effective net investment hedges             3.2       (9.8)   (3.3) 
        Income tax income/(expense)                            0.1       (1.6)   (0.5) 
 Attributable to non-controlling interests                   (0.7)         0.1   (0.5) 
 -----------------------------------------------------  ----------  ----------  ------ 
                                                            (16.6)        20.2  (14.0) 
 
 Other comprehensive income for the period, 
  net of tax                                                 (8.5)        16.4  (18.6) 
 
 Total comprehensive income for the period                    12.1        23.4  (12.3) 
 -----------------------------------------------------  ----------  ----------  ------ 
 
 Attributable to: 
 Equity holders of Essentra plc                               12.1        22.4  (13.6) 
 Non-controlling interests                                       -         1.0     1.3 
 -----------------------------------------------------  ----------  ----------  ------ 
                                                              12.1        23.4  (12.3) 
  ----------------------------------------------------  ----------  ----------  ------ 
 
 
Condensed consolidated balance sheet 
                                              Note   30 Jun   30 Jun   31 Dec 
                                                       2021     2020     2020 
                                                       GBPm     GBPm     GBPm 
 -------------------------------------------  ----  -------  -------  ------- 
 Assets 
 Property, plant and equipment                 6      250.7    279.2    263.0 
 Lease right-of-use asset                      7       45.9     51.4     52.7 
 Intangible assets                             8      502.9    505.7    518.8 
 Long-term receivables                                  4.6      5.9      4.7 
 Deferred tax assets                                   14.4     13.1     16.8 
 Retirement benefit assets                     9       18.3     18.8     12.6 
 -------------------------------------------  ----  -------  -------  ------- 
 Total non-current assets                             836.8    874.1    868.6 
 Inventories                                          110.3    125.4    102.6 
 Income tax receivable                                  3.9      9.2      3.7 
 Trade and other receivables                          185.0    177.6    154.2 
 Derivative assets                             14       0.3      0.4      0.3 
 Cash and cash equivalents                     10     132.5    160.2    135.8 
 Total current assets                                 432.0    472.8    396.6 
 Total assets                                       1,268.8  1,346.9  1,265.2 
 -------------------------------------------  ----  -------  -------  ------- 
 
 Equity 
 Issued share capital                                  75.6     66.0     75.6 
 Merger relief reserve                                385.2    298.1    385.2 
 Capital redemption reserve                             0.1      0.1      0.1 
 Other reserve                                      (132.8)  (132.8)  (132.8) 
 Cash flow hedging reserve                                -    (0.2)    (0.1) 
 Translation reserve                                 (40.1)      9.6   (24.1) 
 Retained earnings                                    332.9    314.0    313.9 
 -------------------------------------------  ----  -------  -------  ------- 
 Attributable to equity holders of Essentra 
  plc                                                 620.9    554.8    617.8 
 Non-controlling interests                             16.4     11.6     13.3 
 -------------------------------------------  ----  -------  -------  ------- 
 Total equity                                         637.3    566.4    631.1 
 -------------------------------------------  ----  -------  -------  ------- 
 
 Liabilities 
 Interest bearing loans and borrowings         10     291.6    398.1    285.2 
 Lease liabilities                             10      42.7     47.1     49.1 
 Retirement benefit obligations                9       25.7     43.4     36.5 
 Provisions                                             2.5      6.4      8.0 
 Other financial liabilities                            1.2      4.4      1.2 
 Other payables                                         1.1        -      2.2 
 Deferred tax liabilities                              44.2     45.7     45.5 
 -------------------------------------------  ----  -------  -------  ------- 
 Total non-current liabilities                        409.0    545.1    427.7 
 Lease liabilities                             10      10.4     12.0     11.9 
 Derivative liabilities                        14       0.1      0.8      0.5 
 Income tax payable                                    28.2     40.7     33.1 
 Trade and other payables                             179.9    180.4    155.4 
 Provisions                                             3.9      1.5      5.5 
 -------------------------------------------  ----  -------  -------  ------- 
 Total current liabilities                            222.5    235.4    206.4 
 Total liabilities                                    631.5    780.5    634.1 
 -------------------------------------------  ----  -------  -------  ------- 
 Total equity and liabilities                       1,268.8  1,346.9  1,265.2 
 -------------------------------------------  ----  -------  -------  ------- 
 
 
Condensed consolidated statement of changes in equity 
 
                                                                                        Six months ended 30 June 
                                                                                                            2021 
 ----------------   -------  -------  ----------  -------  --------  ------------------------------------------- 
                                                               Cash 
                              Merger     Capital               flow                                Non- 
                     Issued   relief  redemption    Other   hedging  Translation  Retained  controlling    Total 
                    capital  reserve     reserve  reserve   reserve      reserve  earnings    interests   equity 
                       GBPm     GBPm        GBPm     GBPm      GBPm         GBPm      GBPm         GBPm     GBPm 
 ----------------   -------  -------  ----------  -------  --------  -----------  --------  -----------  ------- 
 At 1 January 
  2021                 75.6    385.2         0.1  (132.8)     (0.1)       (24.1)     313.9         13.3    631.1 
 Profit for the 
  period                                                                              19.9          0.7     20.6 
 Other 
  comprehensive 
  income                                                        0.1       (16.0)       8.1        (0.7)    (8.5) 
 -----------------  -------  -------  ----------  -------  --------  -----------  --------  -----------  ------- 
 Total 
  comprehensive 
  income for the 
  period                  -        -           -        -       0.1       (16.0)      28.0            -     12.1 
 Capital 
  contributions 
  from 
  non-controlling 
  interests                                                                              -          3.1      3.1 
 Share option 
  expense                                                                            (0.5)            -    (0.5) 
 Tax relating 
  to share-based 
  incentives                                                                           1.4            -      1.4 
 Dividends paid                                                                      (9.9)            -    (9.9) 
 -----------------  -------  -------  ----------  -------  --------  -----------  --------  -----------  ------- 
 At 30 June 2021       75.6    385.2         0.1  (132.8)         -       (40.1)     332.9         16.4    637.3 
 -----------------  -------  -------  ----------  -------  --------  -----------  --------  -----------  ------- 
 
                                                                                        Six months ended 30 June 
                                                                                                            2020 
 ----------------   -------  -------  ----------  -------  --------  ------------------------------------------- 
                                                               Cash 
                              Merger     Capital               flow                                Non- 
                     Issued   relief  redemption    Other   hedging  Translation  Retained  controlling    Total 
                    capital  reserve     reserve  reserve   reserve      reserve  earnings    interests   equity 
                       GBPm     GBPm        GBPm     GBPm      GBPm         GBPm      GBPm         GBPm     GBPm 
 ----------------   -------  -------  ----------  -------  --------  -----------  --------  -----------  ------- 
 At 1 January 
  2020                 66.0    298.1         0.1  (132.8)       0.3       (11.0)     312.4          7.7    540.8 
 Profit for the 
  period                                                                               6.1          0.9      7.0 
 Other 
  comprehensive 
  income                                                      (0.5)         20.6     (3.8)          0.1     16.4 
 -----------------  -------  -------  ----------  -------  --------  -----------  --------  -----------  ------- 
 Total 
  comprehensive 
  income for the 
  period                  -        -           -        -     (0.5)         20.6       2.3          1.0     23.4 
 Equity issue 
  to 
  non-controlling 
  interest                                                                               -          2.9      2.9 
 Share options 
  exercised                                                                            0.1            -      0.1 
 Share option 
  expense                                                                            (0.3)            -    (0.3) 
 Tax relating 
  to share-based 
  incentives                                                                         (0.5)            -    (0.5) 
 At 30 June 2020       66.0    298.1         0.1  (132.8)     (0.2)          9.6     314.0         11.6    566.4 
 -----------------  -------  -------  ----------  -------  --------  -----------  --------  -----------  ------- 
 
 
 
Condensed consolidated statement of changes in equity (continued) 
 
                                                                                          Year ended 31 December 
                                                                                                            2020 
 ----------------   -------  -------  ----------  -------  --------  ------------------------------------------- 
                                                               Cash 
                              Merger     Capital               flow                                Non- 
                     Issued   relief  redemption    Other   hedging  Translation  Retained  controlling    Total 
                    capital  reserve     reserve  reserve   reserve      reserve  earnings    interests   equity 
                       GBPm     GBPm        GBPm     GBPm      GBPm         GBPm      GBPm         GBPm     GBPm 
 ----------------   -------  -------  ----------  -------  --------  -----------  --------  -----------  ------- 
 At 1 January 
  2020                 66.0    298.1         0.1  (132.8)       0.3       (11.0)     312.4          7.7    540.8 
 Profit for the 
  period                                                                               4.5          1.8      6.3 
 Other 
  comprehensive 
  income                                                      (0.4)       (13.1)     (4.6)        (0.5)   (18.6) 
 -----------------  -------  -------  ----------  -------  --------  -----------  --------  -----------  ------- 
 Total 
  comprehensive 
  income for the 
  period                  -        -           -        -     (0.4)       (13.1)     (0.1)          1.3   (12.3) 
 Issue of share 
  capital               9.6     87.1                                                                        96.7 
 Equity issue 
  to 
  non-controlling 
  interest                                                                                          5.0      5.0 
 Share options 
  exercised                                                                            0.1            -      0.1 
 Share option 
  expense                                                                              1.2            -      1.2 
 Tax relating 
  to share-based 
  incentives                                                                           0.3            -      0.3 
 Dividends paid                                                                          -        (0.7)    (0.7) 
 -----------------  -------  -------  ----------  -------  --------  -----------  --------  -----------  ------- 
 At 31 December 
  2020                 75.6    385.2         0.1  (132.8)     (0.1)       (24.1)     313.9         13.3    631.1 
 -----------------  -------  -------  ----------  -------  --------  -----------  --------  -----------  ------- 
 
 
Condensed consolidated statement of cash flows 
                                                    Six months  Six months     Year 
                                                         ended       ended    ended 
                                                        30 Jun      30 Jun   31 Dec 
                                                          2021        2020     2020 
                                                          GBPm        GBPm     GBPm 
 ---------------------------------------------      ----------  ----------  ------- 
 Operating activities 
 Profit for the period                                    20.6         7.0      6.3 
 Adjustments for: 
   Income tax expense                                      2.5         0.9    (0.3) 
   Net finance expense                                     7.0         7.7     15.7 
   Intangible amortisation                                12.5        12.3     25.2 
   Adjusting items                                       (5.5)         2.5     17.7 
   Depreciation of property, plant and 
    equipment                                             18.2        18.4     37.6 
   Lease right-of-use asset depreciation                   5.8         6.2     12.0 
   Profit on disposal of fixed assets                    (0.1)           -    (2.0) 
   Impairment of fixed assets                              0.2           -      0.1 
   Share option expense                                  (0.5)       (0.3)      1.2 
   Hedging activities and other movements                (0.7)           -      1.3 
 (Increase)/decrease in inventories                     (10.9)       (7.6)      9.6 
 (Increase)/decrease in trade and other 
  receivables                                           (35.5)       (3.3)     14.9 
 Increase/(decrease) in trade and other 
  payables                                                31.3         0.9   (18.3) 
 Cash outflow in respect of adjusting 
  items                                                  (7.4)       (2.0)   (10.9) 
 Adjustment for pension contributions                    (4.2)       (0.3)      0.9 
 Movement in provisions                                    0.1       (0.2)        - 
 ---------------------------------------------      ----------  ----------  ------- 
 Cash inflow from operating activities                    33.4        42.2    111.0 
 Income tax paid                                         (7.3)       (4.5)    (7.7) 
 ---------------------------------------------      ----------  ----------  ------- 
 Net cash inflow from operating activities                26.1        37.7    103.3 
 ---------------------------------------------      ----------  ----------  ------- 
 
 Investing activities 
 Interest received                                         1.0         1.2      1.9 
 Acquisition of property, plant and equipment           (16.1)      (15.6)   (30.9) 
 Proceeds from sale of property, plant 
  and equipment                                            8.5         0.1      0.4 
 Payments for intangible assets                          (6.7)       (6.8)   (14.2) 
 Acquisition of businesses net of cash 
  acquired                                               (1.9)         0.2   (41.2) 
 Proceeds from sale of businesses net 
  of cash disposed                                           -         5.0      5.0 
 Short term investments                                      -         0.6      0.6 
 ---------------------------------------------      ----------  ----------  ------- 
 Net cash outflow from investing activities             (15.2)      (15.3)   (78.4) 
 ---------------------------------------------      ----------  ----------  ------- 
 
 Financing activities 
 Interest paid                                           (7.2)       (7.2)   (14.7) 
 Dividends paid to equity holders                        (9.9)           -        - 
 Dividends paid to non-controlling interests                 -           -    (0.7) 
 Prepaid facility fees                                   (1.0)       (0.1)        - 
 Repayments of long-term loans                               -     (119.7)  (352.9) 
 Proceeds from long-term loans                            10.0       195.2    318.8 
 Lease liability payments                                (6.3)       (6.4)   (11.9) 
 Proceeds from equity issue                                  -           -    100.0 
 Costs incurred in equity issue                              -           -    (3.3) 
 Capital contributions from non-controlling 
  interests                                                3.1         2.9      5.0 
 Proceeds from sale of employee trust 
  shares                                                     -         0.1      0.1 
 ---------------------------------------------      ----------  ----------  ------- 
 Net cash (outflow)/inflow from financing 
  activities                                            (11.3)        64.8     40.4 
 ---------------------------------------------      ----------  ----------  ------- 
 
 Net (decrease)/increase in cash and cash 
  equivalents                                            (0.4)        87.2     65.3 
 ---------------------------------------------      ----------  ----------  ------- 
 
 Net cash and cash equivalents at the 
  beginning of the period                                135.8        70.4     70.4 
 Net (decrease)/increase in cash and cash 
  equivalents                                            (0.4)        87.2     65.3 
 Net effect of currency translation on 
  cash and cash equivalents                              (2.9)         2.6      0.1 
 ---------------------------------------------      ----------  ----------  ------- 
 Net cash and cash equivalents at the 
  end of the period                             10       132.5       160.2    135.8 
 ---------------------------------------------      ----------  ----------  ------- 
 

1. Basis of preparation

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. Essentra plc ("the Company") transitioned to UK-adopted international accounting standards in its consolidated financial statements on 1 January 2021. There was no impact or changes in accounting policies from the transition.

Except as described below, the accounting policies applied in these condensed consolidated interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2020 which comply with applicable law and UK-adopted international accounting standards and also in accordance with UK-adopted IAS 34 Interim Financial Reporting and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. The financial statements have been reviewed not audited by the Company's auditor.

The interim report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 December 2020, which has been prepared in accordance with both international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, and any public announcements made by Essentra plc during the interim reporting period.

The preparation of the condensed consolidated interim financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities at 30 June 2021. If in the future such estimates and assumptions, which are based on management's best judgement at the date of the condensed set of financial statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change.

The comparative figures for the financial year ended 31 December 2020 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

For the purpose of the condensed consolidated interim financial statements 'Essentra' or 'the Group' means Essentra plc and its subsidiaries.

Income tax expense is recognised based upon the best estimate of the weighted average income tax rate on profit before tax expected for the full financial year, taking into account the weighted average rate for each jurisdiction.

In April 2021, the IFRS Interpretation Committee ('IFRIC') of the International Accounting Standards Board ('IASB') published an agenda decision which addresses how the costs for configuring or customising a cloud-based software that is determined to be a service contract should be accounted for. Given the recentness of the agenda decision and the complexity of judgements involved, our evaluation of the impact of the agenda decision is in progress. These condensed consolidated interim financial statements do not reflect any potential impact from the agenda decision, and we expect to complete our assessment for the preparation of the 2021 annual financial statements.

Going concern

At 30 June 2021, the Group's financing arrangements amounted to GBP443.6m, comprising United States Private Placement (USPP) of US$100.0m (with a range of expiry dates from November 2024 to April 2030) and a multi-currency revolving credit facility (RCF) of GBP375.0m (of which GBP275.0m expires in November 2023 following extension agreed with lenders in January 2021, and the remaining amount in November 2022). In addition, the Group has also recently completed further financing through the issue of new USPP of US$250.0m on 27 July 2021, of which US$80.0m expires in 2028, US$85.0m in 2031 and US$85.0m in 2033.

At 30 June 2021, GBP149.9m of the RCF facility was undrawn. The facility is subject to two covenants, which are tested semi-annually: net debt to EBITDA (leverage) and EBITA to net finance charges. Despite the macroeconomic uncertainty, the Group has not sought to change either of the two covenants. The Directors believe that the Group is well placed to manage its business risks and, after making enquiries including a review of forecasts and predictions, taking account of reasonably possible changes in trading performances and considering the existing banking facilities, including the available liquidity, have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least the next 12 months following the date of approval of the financial statements, and no breaches of covenants are expected.

The uncertainty as to the future impact on the Group of the Covid-19 pandemic has been considered as part of the Group's adoption of the going concern basis, taking into account the experience during 2020 and the most recent circumstances. As at 30 June 2021 and as at the date of approval of these financial statements, all of the Group's manufacturing and distribution facilities are operational and have broadly resumed to pre-pandemic levels of service. Across the Group, public health measures advised by governments are being followed in support of their efforts to contain the spread of the virus, and the supply chain is being proactively managed as are operating costs and the timing of capital expenditure.

As part of the going concern assessment, the Board has also considered a downside scenario that reflects the current uncertainty in the global economy and which we consider to be severe but plausible. The results of this scenario show that there is sufficient liquidity in the business for a period of at least 12 months from the date of approval of these financial statements, and do not indicate any covenant breach during the test period. The scenario includes assumption for similar extent of disruptions as seen in 2020. Set against this were mitigating actions including tight management of capital expenditure, sales and general overhead, and working capital. Overall level of liquidity (defined as available undrawn borrowing facility plus cash and cash equivalent excluding the amount attributable to non-controlling interests) at the end of June 2021 remains strong.

The severe but plausible scenario does not indicate a material uncertainty which may cast significant doubt over the Company's and Group's ability to continue as a going concern. Therefore, the Directors continue to adopt the going concern basis of accounting in preparing the financial statements.

Further information on the Group's borrowing facilities, cash resources and other financial instruments can be found in notes 10 and 14 to the financial statements.

Critical Accounting Judgements and Estimates

The following provides information on those policies that management considers critical because of the level of judgement and estimation required which often involves assumptions regarding future events which can vary from what is anticipated. The Directors believe that the financial statements reflect appropriate judgements and estimates and provide a true and fair view of Essentra's performance and financial position.

Accounting Estimates

   i               Business combinations and intangible assets 

IFRS 3 requires the identification of acquired intangible assets as part of a business combination. The methods used to value such intangible assets require the use of estimates and judgements such as customer attrition, cash flow generation from the existing relationships with customers and returns on other assets. Future results are impacted by the amortisation periods adopted and changes to the estimated useful lives would result in different effects on the income statement and balance sheet.

Goodwill is not amortised but is tested at least annually for impairment, along with the finite-lived intangible assets and other assets of the Group's cash generating units. Tests for impairment are based on discounted cash flows and assumptions (including discount rates, timing and growth prospects) which are inherently subjective. Judgement is also required in identifying the events which indicate potential impairment, and in assessing fair value of individual assets when allocating an impairment loss in a cash-generating unit or groups of cash-generating units. The Group performs various sensitivity analyses in respect of the tests for impairment.

The useful lives of the Group's finite-lived intangible assets are reviewed following the tests for impairment at least annually.

Judgement may also be required in determining the fair value of other assets acquired and liabilities (including contingent liabilities) assumed.

In preparing the condensed consolidated interim financial statements, the Group has considered the impact that climate change may have on key accounting judgements and estimates including asset useful economic lives and asset valuations and impairments. The Group continues to introduce initiatives designed to reduce the carbon emissions from its operations. As a result, the Group considers the environmental assumptions embedded within the Group's strategic business plan to support the key forward looking accounting judgements and estimates.

   ii              Taxation 

Liabilities for tax contingencies require management judgements and estimates in respect of tax audit issues and exposures in each of the jurisdictions in which it operates. Management is also required to make an estimate of the current tax liability together with an assessment of the temporary differences which arise as a consequence of different accounting and tax treatments. Where management conclude that a tax position is uncertain, a current tax liability is held for anticipated taxes that are considered probable based on the information available.

Included in the tax payable is a liability of GBP9.7m (31 December 2020: GBP12.0m) for transfer pricing matters and GBP19.5m (31 December 2020: GBP20.2m) for other uncertain tax positions. The movement is due to adjustments for current year transactions including foreign exchange movements, expiry of statute of limitations following the passage of time and agreement reached with tax authorities on previous matters.

Management may engage with professional advisors in making their assessment and, if appropriate, will liaise with the relevant taxation authorities to resolve the matter. The tax liability is reassessed in each period to reflect management's best estimate in light of information available. If the final outcome of these matters differs to the liability held in the financial statements, the difference may impact the income tax expense/(credit) in the year the matter is concluded.

   iii             Pensions 

Essentra accounts for its defined benefit pension schemes in accordance with IAS 19. The application of IAS 19 requires the exercise of judgement in relation to the assumptions used and for each assumption there is a range of possible outcomes. In consultation with Essentra's actuaries, management decides the point within those ranges that most appropriately reflects Essentra's circumstances. Small changes to these assumptions can have a significant impact on valuations. The Group performs a sensitivity analysis for the significant assumptions used in determining post-employment costs and liabilities, as detailed in note 18 of the Essentra Annual Report 2020.

Accounting Judgements

   i               Adjusting items 

Judgement is required to determine whether items should be included within adjusting items by virtue of their size or incidence. Details of the items categorised as adjusting items are disclosed in note 3.

As restructuring and reorganisation costs are recognised (for instance with respect to site rationalisation initiatives), estimates are often involved in relation to property-related costs (such as restoration and dilapidation costs, recoverable amount of lease right-of-use assets and potential sublet income) and asset impairment charges (in assessing recoverable amount such as fair value from potential sale of assets). Where appropriate and possible, management may engage with professional advisors in making these assessments.

   ii              Consolidation of subsidiary 

Judgement is required to establish whether control exists over an entity in which Essentra holds part of the share capital. Essentra has a 49% shareholding in China Tobacco Essentra (Xiamen) Filters Co., Ltd which has been consolidated as a subsidiary within the consolidated interim financial statements because management have assessed that Essentra has control over the entity to direct the relevant activities (including approval of budgets and capital investments, and appointment of key management personnel) that significantly affect the entity's returns and the ability to use its power to affect those returns, through a majority of membership in the entity's governing body (primarily the board of directors). Subsidiaries are fully consolidated during the period which the Group holds control.

   iii             Leases and lease right-of-use assets 

A key judgement in determining the right-of-use asset and lease liability is establishing whether it is reasonably certain that an option to extend the lease will be exercised. Distinguishing whether a lease will be extended or otherwise could have a material impact on the value of the right-of-use assets and lease liabilities recognised on the balance sheet, but may not have a material impact on the income statement.

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee.

2. Segment analysis

In accordance with IFRS 8, Essentra has determined its operating segments based upon the information reported to the Group Management Committee.

The operating segments are as follows:

Components is a global market leading manufacturer and distributor of plastic injection moulded, vinyl dip moulded and metal items.

Packaging is one of only two multi-continental suppliers of a full secondary packaging range to the health and personal care sectors.

Filters is the only global independent supplier of innovative cigarette filters and related solutions to the tobacco industry.

The adjusted operating profit/loss presented for each operating segment includes the effect of allocation of certain functional costs such as finance, human resources, legal and IT, as well as costs relating to management of the divisions on an internal management methodology.

 
                                                                   June 2021 
                       ----------  ---------  -------  --------------------- 
                                                            Central 
                       Components  Packaging  Filters   Services(1)    Total 
                             GBPm       GBPm     GBPm          GBPm     GBPm 
 --------------------  ----------  ---------  -------  ------------  ------- 
 
 External revenue           148.4      187.0    139.5             -    474.9 
 Total revenue              148.4      187.0    139.5             -    474.9 
 
 Adjusted operating 
  profit/(loss) 
  (2)                        27.0        9.6     11.5        (12.4)     35.7 
 --------------------  ----------  ---------  -------  ------------  ------- 
 
 Segment assets             163.8      217.1    191.4          24.2    596.5 
 Intangible 
  assets                    159.4      302.9     22.7          17.9    502.9 
 Unallocated 
  items (3)                     -          -        -         169.4    169.4 
 --------------------  ----------  ---------  -------  ------------  ------- 
 Total assets               323.2      520.0    214.1         211.5  1,268.8 
 --------------------  ----------  ---------  -------  ------------  ------- 
 
 Segment liabilities         69.6       83.0     60.4          28.7    241.7 
 Unallocated 
  items (3)                     -          -        -         389.8    389.8 
 --------------------  ----------  ---------  -------  ------------  ------- 
 Total liabilities           69.6       83.0     60.4         418.5    631.5 
 --------------------  ----------  ---------  -------  ------------  ------- 
 
 
2. Segment analysis (continued) 
 
                                                                     June 2020 
                        -----------  ---------  -------  --------------------- 
                                                              Central 
                         Components  Packaging  Filters   Services(1)    Total 
                               GBPm       GBPm     GBPm          GBPm     GBPm 
 ---------------------  -----------  ---------  -------  ------------  ------- 
 
 External revenue             129.7      185.3    133.4             -    448.4 
 Total revenue                129.7      185.3    133.4             -    448.4 
 
 Adjusted operating 
  profit/(loss)(2)             23.9        4.9     10.8        (10.6)     29.0 
 ---------------------  -----------  ---------  -------  ------------  ------- 
 
 Segment assets               174.3      233.1    207.9          24.2    639.5 
 Intangible 
  assets                      178.5      293.0     22.3          11.9    505.7 
 Unallocated 
  items (3)                       -          -        -         201.7    201.7 
 ---------------------  -----------  ---------  -------  ------------  ------- 
 Total assets                 352.8      526.1    230.2         237.8  1,346.9 
 ---------------------  -----------  ---------  -------  ------------  ------- 
 
 Segment liabilities           65.3       92.2     58.2          36.1    251.8 
 Unallocated 
  items (3)                       -          -        -         528.7    528.7 
 ---------------------  -----------  ---------  -------  ------------  ------- 
 Total liabilities             65.3       92.2     58.2         564.8    780.5 
 ---------------------  -----------  ---------  -------  ------------  ------- 
 
 
                                                                 December 2020 
                        -----------  ---------  -------  --------------------- 
                                                              Central 
                         Components  Packaging  Filters   Services(1)    Total 
                               GBPm       GBPm     GBPm          GBPm     GBPm 
 ---------------------  -----------  ---------  -------  ------------  ------- 
 
 External revenue             255.0      363.2    278.3             -    896.5 
 Total revenue                255.0      363.2    278.3             -    896.5 
 
 Adjusted operating 
  profit/(loss)(2)             45.5       13.8     25.2        (22.5)     62.0 
 ---------------------  -----------  ---------  -------  ------------  ------- 
 
 Segment assets               149.1      218.5    186.6          23.0    577.2 
 Intangible 
  assets                      165.2      316.0     22.6          15.0    518.8 
 Unallocated 
  items (3)                       -          -        -         169.2    169.2 
 ---------------------  -----------  ---------  -------  ------------  ------- 
 Total assets                 314.3      534.5    209.2         207.2  1,265.2 
 ---------------------  -----------  ---------  -------  ------------  ------- 
 
 Segment liabilities           60.4       85.8     56.7          30.4    233.3 
 Unallocated 
  items (3)                       -          -        -         400.8    400.8 
 ---------------------  -----------  ---------  -------  ------------  ------- 
 Total liabilities             60.4       85.8     56.7         431.2    634.1 
 ---------------------  -----------  ---------  -------  ------------  ------- 
 
 
(1) Central Services includes executive and non-executive 
 management, group finance, tax, treasury, legal, group assurance, 
 human resources, information technology, corporate development, 
 group operations, corporate affairs and other services provided 
 centrally to support the operating segments. 
(2) Operating profit before acquired intangible amortisation 
 and adjusting items. 
(3) The unallocated assets relate to income and deferred 
 tax assets, retirement benefit assets, derivatives, other 
 financial assets and cash and cash equivalents. The unallocated 
 liabilities relate to interest bearing loans and borrowings, 
 retirement benefit obligations, derivatives, deferred tax 
 liabilities and income tax payable. Intersegment transactions 
 are carried out on an arm's length basis. 
 
 
3. Adjusting items 
                                                              Six months  Six months    Year 
                                                                   ended       ended   ended 
                                                                  30 Jun      30 Jun  31 Dec 
                                                                    2021        2020    2020 
                                                                    GBPm        GBPm    GBPm 
---  -----------------------------------------------------   -----------  ----------  ------ 
 
 (Gains)/losses and transaction costs relating 
  to acquisitions and disposals of businesses(1)                   (4.3)         3.5     5.7 
 Acquisition integration and restructuring 
  costs(2)                                                           0.2         0.2     0.5 
 Other(3)                                                          (1.4)       (1.2)    11.5 
 ------------------------------------------------------      -----------  ----------  ------ 
 Adjusting items                                                   (5.5)         2.5    17.7 
 ------------------------------------------------------      -----------  ----------  ------ 
 
 
 Adjusting items are separately presented from other items by 
  virtue of their nature, size and/or incidence (considered for 
  each operating segment). They are identified separately in order 
  for the reader to obtain a clearer understanding of the underlying 
  results of the ongoing Group's operations, by excluding the impact 
  of items which, in management's view, do not form part of the 
  Group's underlying operating results, such as gains, losses or 
  costs arising from business acquisition and disposal activities, 
  significant restructuring and closure costs and other items which 
  are non-recurring or one-off in nature (such as the costs of 
  fundamental strategic review and reorganisation). Operating profit 
  before adjusting items and acquired intangible amortisation is 
  called adjusted operating profit, which forms the primary basis 
  of management's review and assessment of operational performance 
  of the Group's businesses. 
 
  1  Losses/gains and transaction costs relating to acquisitions and 
      disposals of businesses are made up of a credit of GBP4.4m in 
      relation to the reversal of certain claim provisions in relation 
      to prior disposals, following the conclusion of negotiation with 
      the purchasers; a gain of GBP0.4m in relation to a prior acquisition 
      for claims made against the vendor; and a GBP0.1m gain from the 
      Pipe Protection Technology disposal in relation to recharges 
      to sub-tenant for dilapidations. These are offset by acquisition-related 
      costs of GBP0.5m in relation to the acquisition of Jiangxi Hengzhu 
      Electrical Cabinet Lock Co., Ltd ("Hengzhu"), and GBP0.1m of 
      costs in setting up the Filters China joint venture. 
  2  Acquisition integration and restructuring costs relate to the 
      integration of the 3C! business, acquired in 2020, into the existing 
      business. 
  3  The other adjusting items gain of GBP1.4m for the six months 
      ended 30 June 2021 relates to: 
 
--   GBP4.3m profit on disposal of Moorestown property following the 
      restructuring activities in the Packaging division initiated 
      in 2020. 
--   GBP1.1m restructuring costs in the Packaging division, involving 
      management restructuring and redundancies at various European 
      sites. 
--   GBP0.8m in relation to Filters restructuring, including rationalisation 
      of the division's R&D facilities in the US. 
--   GBP0.8m of advisory costs in relation to a strategic review of 
      the Group's operational structure and cost profile, and certain 
      redundancies in enabling functions as part of the review. 
--   GBP0.2m net charge relating to Components restructuring, comprising 
      GBP0.6m costs in relation to restructuring activities within 
      the Components Europe and Americas businesses, offset by a GBP0.4m 
      credit relating to adjustment on the carrying value of lease 
      right-of-use assets. 
 
 

4. Taxation

The taxation charges for the six months ended 30 June 2021 and 30 June 2020 are based on the expected effective tax rate for the full year, including the impact of prior period tax adjustments. The enacted tax rates and forecast profits of the jurisdictions the Group operate in determines this effective tax rate.

Finance Act 2021 was substantively enacted on 24 May 2021 which included increasing the main rate of UK corporation tax to 25% from 1 April 2023. As a consequence of this legislation change the Group has a one-off non-cash tax credit of GBP2.2m arising in the period as a result of revaluing UK deferred tax assets expected to reverse after 1 April 2023 to 25%. The impact of this change on the Group's expected underlying effective tax rate for the full year is a reduction of 3.2%. Compared to the prior period the reduction in rate is partially offset by the impact of a change in the geographical split of profits across the Group.

The effective tax rate on underlying profit before tax before adjusting items is 16.7% (six months ended 30 June 2020: 19.2%) including the impact of the rate change. The reported effective tax rate is 10.8% (six months ended 30 June 2020: 11.4%). The difference between the underlying and reported effective tax rates is due to the tax effect of adjusting items and amortisation of acquired intangible assets.

 
5. Earnings per share 
                                                 Six months  Six months    Year 
                                                      ended       ended   ended 
                                                     30 Jun      30 Jun  31 Dec 
                                                       2021        2020    2020 
                                                       GBPm        GBPm    GBPm 
 ---------------------------------------------   ----------  ----------  ------ 
 Earnings: Continuing operations 
 Earnings attributable to equity holders 
  of Essentra plc                                      19.9         6.1     4.5 
 Adjustments 
 Amortisation of acquired intangible assets            11.1        10.9    22.6 
 Adjusting items                                      (5.5)         2.5    17.7 
 ----------------------------------------------  ----------  ----------  ------ 
                                                        5.6        13.4    40.3 
 Tax relief on adjustments                            (2.3)       (3.2)   (9.2) 
 Adjusted earnings                                     23.2        16.3    35.6 
 ----------------------------------------------  ----------  ----------  ------ 
 
 Weighted average number of shares 
 Basic weighted average ordinary shares 
  outstanding (million)                               301.0       262.2   272.7 
 Dilutive effect of employee share option 
  plans (million)                                       1.2         1.6     2.0 
 ----------------------------------------------  ----------  ----------  ------ 
 Diluted weighted average ordinary shares 
  (million)                                           302.2       263.8   274.7 
 ----------------------------------------------  ----------  ----------  ------ 
 
 Earnings per share: Continuing operations 
  (pence) 
 Basic earnings per share                              6.6p        2.3p    1.7p 
 Adjustment                                            1.1p        3.9p   11.4p 
 ----------------------------------------------  ----------  ----------  ------ 
 Basic adjusted earnings per share                     7.7p        6.2p   13.1p 
 ----------------------------------------------  ----------  ----------  ------ 
 
 Diluted earnings per share                            6.6p        2.3p    1.6p 
 Adjustment                                            1.1p        3.9p   11.4p 
 ----------------------------------------------  ----------  ----------  ------ 
 Diluted adjusted earnings per share                   7.7p        6.2p   13.0p 
 ----------------------------------------------  ----------  ----------  ------ 
 
 
Adjusted earnings per share is provided to reflect the underlying 
 earnings performance of Essentra. 
 
The basic weighted average number of ordinary shares in issue excludes 
 shares held in treasury and shares held by an employee benefit 
 trust. 
 
 
6. Property, plant and equipment 
 
 During the period, the additions of land and buildings, plant 
 and machinery and fixtures, fittings and equipment amounted to 
 GBP16.3m (six months ended 30 June 2020: GBP12.6m; year ended 
 31 December 2020: GBP27.9m) and there was a decrease of GBP6.1m 
 (six months ended 30 June 2020: increase of GBP10.4m; year ended 
 31 December 2020: decrease of GBP5.5m) in net book value due to 
 foreign exchange movements. 
 
Land and buildings, plant and machinery and fixtures, fittings 
and equipment with a net book value of GBP3.7m (six months ended 
30 June 2020: GBP0.1m; year ended 31 December 2020: GBP0.6m) were 
disposed of for proceeds of GBP8.5m (six months ended 30 June 
2020: GBP0.1m; year ended 31 December 2020: GBP0.4m). 
 
 

7. Lease right-of-use assets

Group's non-current assets include right-of-use assets from asset leasing arrangements. Depreciation is charged to the income statement so as to depreciate the right-of-use asset from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset and the end of the lease term.

During the period, the additions to right-of-use assets amounted to GBP1.0m (six months ended 30 June 2020: GBP12.5m; year ended 31 December 2020: GBP21.9m) and the depreciation of right-of-use assets amounted to GBP5.8m (six months ended 30 June 2020: GBP6.2m; year ended 31 December 2020: GBP12.0m).

During the period the right-of-use assets net book value decreased by GBP1.6m (six months ended 30 June 2020: increase of GBP2.0m; year ended 31 December 2020: decrease of GBP1.2m) due to foreign exchange movements.

Right-of-use assets with a net book value of GBPnil (six months ended 30 June 2020: GBPnil; year ended 31 December 2020: GBP2.5m) were acquired through business combinations in the period (see note 11).

 
8. Intangible assets 
 
During the period, the additions of intangible assets (not through 
 acquisitions) amounted to GBP6.7m (six months ended 30 June 2020: 
 GBP6.8m; year ended 31 December 2020: GBP14.2m) and there was 
 an intangible net book value decrease of GBP10.0m (six months 
 ended 30 June 2020: increase of GBP23.6m; year ended 31 December 
 2020: decrease of GBP4.7m) due to foreign exchange movements. 
Included within intangibles was goodwill of GBP322.4m (six months 
 ended 30 June 2020: GBP325.8m; year ended 31 December 2020: GBP328.2m) 
 and there was a goodwill net book value decrease of GBP5.8m (six 
 months ended 30 June 2020: increase of GBP14.0m; year ended 31 
 December 2020: decrease of GBP3.4m) due to foreign exchange movements. 
9. Retirement benefit obligations 
Movement in pension net assets/(liabilities) during the period 
                                                     Six months  Six months    Year 
                                                          ended       ended   ended 
                                                         30 Jun      30 Jun  31 Dec 
                                                           2021        2020    2020 
                                                           GBPm        GBPm    GBPm 
 -------------------------------------------------   ----------  ----------  ------ 
 Movements 
 Beginning of period                                     (23.9)      (17.4)  (17.4) 
 Current service cost and administrative 
  expense                                                 (0.9)       (0.6)   (2.1) 
 Employer contributions                                     5.1         0.9     1.2 
 Return on plan assets excluding amounts 
  in net finance income                                  (12.3)        21.0    32.4 
 Actuarial gains/(losses) arising from changes 
  in financial assumptions                                 23.1      (26.0)  (38.8) 
 Actuarial gains arising from change in 
  demographic assumptions                                     -           -     1.9 
 Actuarial gains/(losses) arising from experience 
  adjustment                                                1.1         0.1   (2.2) 
 Net finance cost                                         (0.3)       (0.3)   (0.7) 
 Curtailments                                                 -           -     0.4 
 Currency translation                                       0.7       (2.3)     1.4 
 --------------------------------------------------  ----------  ----------  ------ 
 End of period                                            (7.4)      (24.6)  (23.9) 
 --------------------------------------------------  ----------  ----------  ------ 
 
The assets and liabilities of the principal defined benefit schemes 
 were reviewed by independent qualified actuaries as at 30 June 
 2021. The assets of the schemes have been updated to the balance 
 sheet date to take account of the investment returns achieved by 
 the schemes and the contributions made during the period. The liabilities 
 of the schemes at the balance sheet date have been updated to reflect 
 the latest discount rates and other assumptions as well as benefit 
 payments. The principal assumptions used by the independent qualified 
 actuaries were as follows: 
Europe 
                                                         30 Jun      30 Jun  31 Dec 
                                                           2021        2020    2020 
 -------------------------------------------------   ----------  ----------  ------ 
 
 Rate of increase in pensions 
     At RPI capped at 5%                                  3.00%       2.80%   2.70% 
     At CPI capped at 5%                                  2.50%       1.90%   2.20% 
     At CPI minimum 3%, capped at 5%                      3.20%       3.10%   3.10% 
     At CPI capped at 2.5%                                2.10%       1.70%   1.90% 
 Discount rate                                            1.90%       1.50%   1.30% 
 Inflation rate - RPI                                     3.10%       2.80%   2.70% 
 Inflation rate - CPI                                     2.50%       1.90%   2.20% 
 --------------------------------------------------  ----------  ----------  ------ 
 
US 
                                                         30 Jun      30 Jun  31 Dec 
                                                           2021        2020    2020 
 -------------------------------------------------   ----------  ----------  ------ 
 
 Discount rate                                            2.78%       2.70%   2.45% 
 --------------------------------------------------  ----------  ----------  ------ 
 
 
10. Analysis of net debt 
 
                                                           30 Jun     31 Dec 
                                                             2021       2020 
                                                             GBPm       GBPm 
 ----------------------------------------------------   ---------  --------- 
 Cash at bank and in hand                                   121.0      121.5 
 Short-term deposits and investments                         11.5       14.3 
 -----------------------------------------------------  ---------  --------- 
 Cash and cash equivalents                                  132.5      135.8 
 Loans and borrowings due after one year                  (291.6)    (285.2) 
 Lease liabilities within one year                         (10.4)     (11.9) 
 Lease liabilities after one year                          (42.7)     (49.1) 
 -----------------------------------------------------  ---------  --------- 
 Net debt                                                 (212.2)    (210.4) 
 -----------------------------------------------------  ---------  --------- 
Lease liabilities are measured at the present value of future 
 lease payments, including variable lease payments and the exercise 
 price of purchase options where it is reasonably certain that 
 the option will be exercised, discounted using the interest rate 
 implicit in the lease, if readily determinable, or alternatively 
 the lessee's incremental borrowing rate. 
At 30 June 2021, the Group's committed facilities primarily comprised 
 a series of US Private Placement Loan Notes from various financial 
 institutions totalling US$100.0m and a syndicated multi-currency 
 revolving credit facilities of GBP285.0m and EUR100.8m from its 
 banks. At 30 June 2021, the available bank facilities totalled 
 GBP371.2m (31 December 2020: GBP375.0m) of which GBP221.3m (31 
 December 2020: GBP213.8m) was drawn down and GBP149.9m (31 December 
 2020: GBP161.2m) was undrawn. 
In addition to the above, the Group has issued $250m of additional 
 USPP loan notes on 27 July 2021 with terms of 7 ($80m), 10 ($85m) 
 and 12 ($85m) years. 
 
 
11. Acquisitions 
 
Acquisition of Hengzhu 
On 13 May 2021, Essentra announced that it had signed an agreement 
 to purchase the business of Jiangxi Hengzhu Electrical Cabinet 
 Lock Co., Ltd ("Hengzhu"), an access hardware manufacturer and 
 distributor in China. The transaction is expected to complete 
 in the third quarter of 2021. Essentra will initially acquire 
 73% of the business for Yen100m (approximately GBP11m), with the 
 remaining 27% stake subject to put and call options whereby Essentra 
 may acquire the minority shareholding for consideration determined 
 by the future operating performance of the business and capped 
 at a maximum of Yen37.5m (approximately GBP4m). 
 
Acquisition of 3C! 
On 17 September 2020, Essentra acquired 100% of the share capital 
of 3C! Packaging, Inc. ("3C!"). 3C!, headquartered in North Carolina, 
USA, is a leading designer and manufacturer of folding cartons, 
printed literature, foil and flexible packaging and labels focused 
on the pharmaceuticals and healthcare sectors. 3C! is reported 
under the Packaging division. 
 
During the period, Essentra paid out the remaining deferred consideration 
on the acquisition amounting to GBP0.1m. 
Establishment of Filters China joint venture 
On 2 April 2020, Essentra confirmed that it has completed the 
 establishment of the new joint venture company, China Tobacco 
 Essentra (Xiamen) Filters Co., Ltd. Essentra's capital contribution 
 into this business is US$10.3m, to be paid in three equal instalments 
 over 18 months following its establishment. As at 30 June 2021 
 Essentra has paid all three of these instalments. During the period 
 proceeds from capital contributions from non-controlling interests 
 into this joint venture company were GBP3.1m. 
Acquisition of Innovative Components 
During the period, Essentra paid out the remaining deferred consideration 
 relating to the acquisition of Innovative Components, amounting 
 to GBP1.8m. 
 
 
12. Dividends 
 
                                              Per share                           Total 
                      ----------  ----------  ---------  ----------  ----------  ------ 
                      Six months  Six months       Year  Six months  Six months    Year 
                           ended       ended      ended       ended       ended   ended 
                          30 Jun      30 Jun     31 Dec      30 Jun      30 Jun  31 Dec 
                            2021        2020       2020        2021        2020    2020 
                               p           p          p        GBPm        GBPm    GBPm 
 -------------------  ----------  ----------  ---------  ----------  ----------  ------ 
 
 2020 final: 
 paid 1 June 2021                                   3.3                            10.0 
 2021 interim: 
 payable 29 October 
  2021                       2.0                                6.0 
 
 
The interim dividend for 2021 of 2.0p per 25p ordinary share 
 will be paid on 29 October 2021 to equity holders on the register 
 of shares on 24 September 2021. 
In the table above, each dividend is shown in the period that 
 it is attributable to. For accounting purpose, dividends are 
 recognised in the period in which they are approved by the 
 shareholders of the Company (final dividend) or paid (interim 
 dividend). 
 

13. Related party transactions

Other than the capital injection into the Filters joint venture entity China Tobacco Essentra (Xiamen) Filters Co., Ltd. Essentra has not entered into any material transactions with related parties since the last Annual Report.

 
14. Financial instruments 
 
Essentra held the following financial instruments at fair value 
 at 30 June 2021. The only financial instrument with fair value 
 determined by reference to significant unobservable inputs, which 
 is classified as level 3 in the fair value hierarchy, is the deferred 
 contingent consideration relating to the acquisition of Micro 
 Plastics. The portion relating to Innovative Components has been 
 paid during the period. The fair value of the deferred contingent 
 consideration is estimated based on an assessment of the likely 
 outcome of the acquired business' financial performance. The other 
 financial instruments included in the table below are determined 
 to be level 2 in the fair value hierarchy. There have been no 
 transfers between levels of the fair value hierarchy. There are 
 no non-recurring fair value measurements. 
                                                              30 Jun     31 Dec 
                                                                2021       2020 
                                                                GBPm       GBPm 
 ------------------------------------------------------   ----------  --------- 
 Financial assets 
 Derivatives                                                     0.3        0.3 
 
 Financial liabilities 
 Derivatives                                                   (0.1)      (0.5) 
 Deferred contingent consideration                             (2.4)      (4.4) 
 
 Total                                                         (2.2)      (4.6) 
 -------------------------------------------------------  ----------  --------- 
 
Essentra had US dollar and euro denominated borrowings which it 
 designated as hedges of its net investments in subsidiary undertakings. 
 The exchange gains of GBP0.5m (30 June 2020: GBP8.2m losses) on 
 the US dollar borrowings and the gains of GBP2.6m (30 June 2020: 
 GBP4.3m losses) on the euro borrowings were recognised in other 
 comprehensive income. 
At 30 June 2021, the carrying amount of the US Private Placement 
 Loan Notes were GBP72.5m with a fair value of GBP78.3m. At 30 
 June 2020, the carrying amount of the US Private Placement Loan 
 Notes were GBP81.3m with a fair value of GBP88.0m. For all other 
 financial instruments, the fair value approximates to the carrying 
 amount. 
 

15. Post balance sheet event

In July 2021, Essentra issued new medium and long-dated private placement debt amounting to US$250.0m. The issue comprises US$80.0m notes due 2028, US$85.0m notes due 2031 and US$85.0m notes due 2033. The covenants on the notes are in line with those on the existing private placement notes and bank revolving credit facility. The proceeds will be used for general corporate purposes and to repay shorter-dated bank debt (with net debt level maintained), thereby diversifying the Company's source of debt finance and lengthening its maturity profile. Some of the proceeds have been swapped into sterling, in accordance with the Group's hedging policies.

16. Contingent liabilities

In April 2019, the European Commission issued its decision in a state aid investigation into the Group Financing Exemption in the UK controlled foreign company rules. The European Commission found that part of the Group Financing Exemption, which was introduced in legislation by the UK Government in 2013, constitutes state aid.

In March 2021, Essentra received confirmation from HMRC that they consider the investigation to be closed with no liability arising, and the EU Commission Services of the Directorate-General for Competition had indicated their agreement with this conclusion based on the evidence provided by Essentra. As at 30 June 2021, Essentra no longer consider this a contingent liability and have submitted an annulment application in respect of our previously submitted appeal to the General Court of the European Union.

Responsibility statement of the directors in respect of the half-yearly financial report

We confirm that to the best of our knowledge:

-- the condensed set of financial statements has been prepared in accordance with UK adopted International Accounting Standard 34 Interim Financial Reporting;

-- the interim management report includes a fair review of the information required by the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

   Paul Forman                                                         Lily Liu 
   Chief Executive                                                    Chief Financial Officer 

30 July 2021

Independent review report to Essentra plc

Report on the Condensed consolidated interim financial statements

Our conclusion

We have reviewed Essentra plc's condensed consolidated interim financial statements (the "interim financial statements") in the Results for the Half Year Ended 30 June 2021 of Essentra plc for the 6 month period ended 30 June 2021 (the "period").

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements, comprise:

   --      the Condensed consolidated balance sheet as at 30 June 2021; 

-- the Condensed consolidated income statement and Condensed consolidated statement of comprehensive income for the period then ended;

   --      the Condensed consolidated statement of cash flows for the period then ended; 
   --      the Condensed consolidated statement of changes in equity for the period then ended; and 
   --      the explanatory notes to the interim financial statements. 

The interim financial statements included in the Results for the Half Year Ended 30 June 2021 of Essentra plc have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Results for the Half Year Ended 30 June 2021, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Results for the Half Year Ended 30 June 2021 in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Results for the Half Year Ended 30 June 2021 based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Results for the Half Year Ended 30 June 2021 and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

Milton Keynes

30 July 2021

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(END) Dow Jones Newswires

July 30, 2021 02:00 ET (06:00 GMT)

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