Essentra warns on profits after China softness and slow synergies

Essentra has cut its sales and profit guidance for the year due to delays in delivering projects, a “soft” Chinese market and the slow integration of an acquisition.

The FTSE 250 plastics company now expects the calendar year will see a 7% like-for-like revenue decline in line with the first half of the year, with adjusted operating profit of £137-142m, which was revised down from £155-165m.

The ramp-up in new contracts won in the filtration products business has been slower than forecast, while the transfer of a line of existing business from the US to Asia has been delayed until early 2017.

This, along with “softness” in the Chinese markets, has resulted in lower-than-expected volume across the site footprint, which has affected revenue and operating profit.

Trading in the components business was in line with expectations with growth in continental Europe and Asia. Due to initiatives in the UK and the US, there are early signs that the revenue declines that the company saw in the first half of the year are abating, albeit that the US “has yet to establish a consistently improving trend”.

The FTSE 250 company said that the performance of the Pipe Protection Technologies in the components business remained “subdued”, despite the Extrusion business benefitting from new contract wins and a greater focus on higher value-added technical profiles in growth sectors.

It expects to complete the consolidation of the final two Clondalkin Specialist Packaging Division operations in the UK into its new site in Newport by the end of the year, following the acquisition completed early last year.

However, the three facilities in the US and UK which had experienced integration issues in the first half of the year, are performing at improved levels but “they are not delivering the required rate of month-on-month uplift in both revenue and operating profit” which was expected and has “constrained the ability to grow the business”.