Essentra proposes closure of Newport carton facility

Essentra announced a proposal to end the production of folding cartons for the consumer goods industry at its site in Newport on Thursday, and as a result close the site.

The FTSE 250 company said that as part of its strategic review, which would be fully announced on 28 July, it identified healthcare and certain segments of the beauty industry as offering the most attractive, profitable future growth opportunities for its range of specialist secondary packaging solutions.

In addition, it said IP5 remained “structurally challenged” in terms of its operational and financial performance, notwithstanding the short-term focus and remedial action of the senior management team - together with the significant improvement efforts of the site general manager and employees.

For the six months ended 30 June, Essentra said the facility generated an operating loss of £3.4m on revenue of £6.1m, and claimed it did not anticipate it to make a “realistic improvement” to profitability in the near or long term.

“Against this backdrop, a number of strategic options for IP5 have been assessed by the senior management team, supported by an independent expert third party, in terms of their respective financial, implementation and stakeholder implications,” Essentra’s board said in its statement.

“Having given each of these options their careful consideration, the board of Essentra has concluded that the proposal to close the IP5 facility is the most appropriate route.”

If the proposal is confirmed, the production of folding cartons in Newport will cease by the end of 2017 and will be overseen by a dedicated project management team, supported by selective external expertise.

The proposed closure of IP5 was expected to result in an exceptional charge in the second half of 2017 of approximately £35m, of which around £13m represented a non-cash charge.

“As a result of this proposal, Essentra will now undertake a formal consultation process to discuss the options in more detail with those involved.

“The company appreciates that this announcement will cause a great deal of uncertainty for its IP5 employees, and intends to provide as much support as possible as matters progress through the consultation process.”

Essentra said it would also work closely with customers who are affected by the proposal, to avoid disruption to their organisations and to ensure a smooth transition of their activities.

The proposed closure of IP5 would not impact the company's adjacent labels site in Newport, known as IP4, where Essentra would continue to provide its range of specialist labels and primary foiling capabilities.

In addition, the Design Hub - established in 2016 to bring structural and creative packaging design together with manufacturing expertise, to reduce complexity in the supply chain - was similarly unaffected by the proposal.

“Specialist secondary packaging is strategically important for Essentra, given the size of the underlying market and our extensive product portfolio and expertise,” said chief executive Paul Forman.

“However, if we are to rebuild solid foundations from which we can restore growth in our global health and personal care packaging business, it is imperative that we focus our capabilities on those activities which provide the most attractive, profitable opportunities in which we can add value to our customers.”

“It is clearly with regret that we are entering into consultation on this proposal, and I and the project management team are committed to undertaking this process in an open, honest and respectful way.”

Forman said the possible closure of the IP5 site in Newport was in no way a reflection on the quality or commitment of the company’s employees.

“Rather, the proposed closure of the facility will help to underpin the company's strategic objective of becoming the leading supplier of innovative packaging solutions and services, from a cost-effective and operationally efficient site footprint.”