Essentra earnings down as Forman attempts turnaround

Plastic and fibre products producer Essentra reported declines in revenue, adjusted profit and earnings per share in its first half results on Friday, which it said reflected a continuation of tough trading conditions seen recently.

The FTSE 250 firm did report a “good performance” in component solutions, however, offset by ongoing operational challenges in health and personal care packaging and the pricing impact of raw material pass-through in filter products.

Revenue was ahead 6% at £523m, although it was down 4% at constant currencies, while adjusted operating profit was down 28% at £43m, or down 35% at constant currencies.

Adjusted pre-tax profit was off 29%, or 37% at constant currencies, at £37m, while adjusted net income fell 30% and 37% at constant currencies at £30m.

Essentra’s adjusted basic earnings per share were 30% softer - or 38% at constant currencies - at 11.2p.

The board declared a dividend per share of 6.3p, precisely in line with the interim dividend in 2016.

“Following a period of turbulence, we have done much in the first six months of 2017 to stabilise Essentra,” said chief executive Paul Forman.

“This is not only with regard to our operational performance metrics, but also in terms of starting to win back lost credibility with our customers, improving engagement with our employees and creating a stable balance sheet supported by markedly improved cash flow control.

“There is clearly much for us all to do, and this will take time; however, now seven months into my tenure, I am encouraged by the progress we have made to date and by the positive energy for change across the organisation.”

Looking at the period strategically, the board said Essentra's major businesses had “leading positions” within the segments they serve, adding that recent poor financial performance had been caused by internal, rather than external, factors.

It said several strategic initiatives had been identified to accelerate revenue growth and improve returns on capital, with margins across the businesses said to be sustainable or able to be improved.

The organisation was to be focused on three larger activities of components, health and personal care packaging and filter products, with the firm’s smaller businesses to be managed as a separate division.

Incremental capex of £20m was to be put into equipment upgrades in health and personal care packaging, as well as a £10m IT investment over the next three years, which the board said was to “improve capabilities” and support its “growth agenda”.

It claimed there was scope to drive underlying cash flow generation, with clear financial and capital allocation policies.

“The in-depth strategy review process we have just undergone endorses my initial assessment of the company; namely that I firmly believed that the fundamental strengths exist across all our businesses which we can build upon, and that the issues which have recently impacted Essentra were predominantly self-inflicted, and therefore capable of reversal,” Paul Forman commented.

“Having begun to stabilise most aspects of the business and started to refocus on doing ‘the basics’ better, we now have a clear and robust corporate strategy from which to drive our future development.”

Forman said that, given the scale of the task, Essentra would need to prioritise its objectives and strategies would evolve further over time.

“Nonetheless, the vast majority of what we need to do is within our hands, and we are already well on our way to rebuilding the foundations from which we can restore sustainable growth in the company.”