Essentra returns to growth in Q2, first-half revenue slips

Essentra reported a return to growth in its second quarter on Tuesday, and maintained its full-year expectations.

The FTSE 250 company reported first-half revenue of £159.7m, a 1.5% increase on a constant currency basis, despite a 4.0% decline on a reported basis from the first six months of 2023.

Gross margins improved to 46.4%, up from 43.9% in the same period last year.

Adjusted operating profit grew 7.6% on a constant currency basis to £21.8m, with operating margins slightly down to 13.7% from 13.8% year-on-year.

Adjusted basic earnings per share were 4.6p, down from 5.9p.

The firm reported a net cash inflow from operating activities of £14.5m, up from £8.9m, and net debt excluding IFRS16 lease liabilities stood at £59.7m, with a leverage ratio of 1.1x adjusted EBITDA.

Essentra declared a progressive interim dividend of 1.25p per share and secured an extension of its rolling credit facility through July 2029, ensuring long-term funding.

Its market performance showed mixed end-market recovery, with the EMEA region achieving a stable performance and total growth of 6.9% on a constant currency basis.

The Americas saw a 6.9% decline in constant currency terms, with the pace of decline easing to 4.9% in the second quarter.

Essetra said the Asia-Pacific region reported 1.8% growth, supported by improvements in the export market and growth in access hardware sales.

Looking ahead, Essentra’s board said it expected adjusted operating profit for 2024 to align with market expectations.

The company anticipated further modest volume improvements in the second half, driven by ongoing recovery in end-markets.

The acquisition pipeline remained active, with management maintaining a disciplined approach to capital allocation.

Essentra said it continued to focus on enhancing its customer proposition, delivering strong profit margins, and investing in growth initiatives.

“We are encouraged by the sequential momentum through the first half of 2024, and in particular sales and volume trends returning to year-on-year growth in the second quarter, while recognising that market sentiment remains mixed by region with modest levels of recovery to date,” said chief executive officer Scott Fawcett.

“In the period, the group delivered financial performance in line with board expectations, including gross margin expansion to 46.4% and operating margins of 13.7%, reflecting Essentra's resilient track record through the cycle and demonstrating the strength of our differentiated business model.

“We are also pleased with the performance and contribution so far of BMP TAPPI, which we acquired in October 2023.”

Fawcett said that in light of the mixed macro environment, the business continued to maintain a balanced approach to cost control, driving further operational efficiencies, while also investing appropriately in value-enhancing growth initiatives that would support long-term value creation.

“Management remains confident in making further progress in 2024 towards Essentra's medium-term targets.

“We expect to see further modest improvements in volume in the second half of the year, and as such, 2024 expectations are unchanged.”

At 0901 BST, shares in Essentra were down 4.85% at 157p.

Reporting by Josh White for Sharecast.com.