Essentra continues turnaround with decent first half performance

Essentra reported that its half-year results built on the “inflection point” it saw in the 2018 full-year results on Friday, with revenue and profit growth in each of the three global divisions and “significant” portfolio simplification.

The FTSE 250 company said positive momentum was maintained in its packaging, division, having returned to growth in the second half of 2018.

It said revenue was ahead 1.3% on a like-for-like basis in the six months ended 30 June, or 3.7% adjusting for the closure of the Kilmarnock and Largo consumer packaging sites and the cessation of speciality tapes in Nottingham at the end of 2018.

On a reported basis, however, revenue was down 1% to £507m, or off 3% at constant currencies.

Essentra’s adjusted operating profit rose 9.6% at constant exchange rates to £48.3m, after applying IFRS 16, or by 7.2% at constant currency to £47.3m, before applying IFRS 16.

It said that figure was actually up 10.8%, when adjusting for disposals, site closures and business cessation.

Reported operating profit stood at £60.1m, compared to £26.0m at the 2018 half-year.

Adjusted basic earnings per share rose 7.5% at constant exchange rates to 12.0p, while reported basic earnings per share of 11.6p surged from 5.7p a year earlier.

Essentra said its net debt stood at £242.0m its and net debt-to-EBITDA ratio was 1.6x, after applying IFRS 16.

Net debt was £192.8m and the net debt-to-EBITDA ratio was 1.4x, before applying IFRS 16.

The board left its half-year dividend unchanged at 6.3p per share.

It said it saw “further good progress” on all of its key operating and employee metrics of its stability programme.

The simplification of the portfolio continued during the period, allowing the specialist components division to be dissolved by the end of the third quarter.

Essentra said the funds from that would be used for two value-creating acquisitions, and net debt reduction.

Its maintained its “stable” full-year outlook, with further financial, operational and portfolio progress expected in the second half.

“At our 2018 full-year results, I stated my confidence that 2018 represented an inflection point for our business and that we had restored Essentra to a position where future revenue and profit growth can be sustained,” said Essentra chief executive Paul Forman.

“With each of components, packaging and filters showing improvement in this respect, combined with further improvement in our key operational and people metrics, this belief has strengthened.

“We have also made significant progress in simplifying the Essentra Group, with the sale of pipe protection technologies, extrusion, speciality tapes and card solutions in the year to date.”

Forman said further to those disposals, the firm would absorb tear tapes and industrial supply into the filters and components divisions respectively which, given the complementary end-markets served, would provide each of those two businesses with a strong platform for future successful growth, and allow Essentra to dissolve the specialist components division.

“At the same time, we have reallocated the disposal proceeds into two value-creating acquisitions in areas where we have identified we have real strategic strength, while also reinforcing our balance sheet.”