Essentra Regulatory News (ESNT)

ESSENTRA PLC(the "Company")

RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2019

ENCOURAGING FINANCIAL PROGRESS & SIGNIFICANT PORTFOLIO RATIONALISATION, WITH THREE FOCUSED, GLOBAL DIVISIONS SET FOR CONTINUED GROWTH

Summary:

·; Half year results build on the inflection point in FY 2018, with revenue and profit growth in each of the three global divisions and significant portfolio simplification.

− Positive momentum maintained in Packaging, having returned to growth in H2 2018. 

·; Revenue +1.3% on a like-for-like1 basis (+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).

·; Adjusted2 operating profit up 9.6% (at constant FX) to £48.3m, after applying IFRS 16.

− Adjusted2 operating profit up 7.2% (at constant FX) at £47.3m, before applying IFRS 16.

o +10.8%, adjusting for disposals, site closures and business cessation.

− Reported operating profit of £60.1m compares to £26.0m in HY 2018.

·; Adjusted2 basic EPS higher by 7.5% (at constant FX) at 12.0p.

− Reported basic EPS of 11.6p compares to 5.7p in HY 2018.

·; Net debt of £242.0m and net debt to EBITDA ratio of 1.6x, after applying IFRS 16.

− Net debt of £192.8m and net debt to EBITDA of 1.4x, before applying IFRS 16.

·; Half year dividend unchanged at 6.3p per share.

·; Further good progress on all key operating and employee metrics of the stability programme.

·; Simplification of the portfolio, allowing the Specialist Components division to be dissolved by the end of Q3 2019.

− Funds used for two value-creating acquisitions and net debt reduction.

·; Stable FY 2019 outlook reiterated, with further financial, operational and portfolio progress expected in H2.

1 Excludes the impact of acquisitions, disposals and foreign exchange

2 Before amortisation of acquired intangible assets and exceptional and other adjusting items

Results at a glance:

1 HY 2018 results are unadjusted for IFRS 16 (see Basis of Preparation)

2 Y-o-Y changes are calculated by comparing data for HY 2019 after applying IFRS 16 with data for HY 2018 (which is unadjusted for IFRS 16)

3 Before amortisation of acquired intangible assets and exceptional and other adjusting items

4 Net income is defined as profit after tax, before minority interests5 A reconciliation of free cash flow is set out in the Financial Review

Commenting on today's results, Paul Forman, Chief Executive, said:

"At our FY 2018 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. With each of Components, Packaging and Filters showing improvement in this respect in HY 2019 - 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. Further to these disposals, we will absorb Tear Tapes and Industrial Supply into the Filters and Components divisions respectively which - given the complementary end-markets served - will not only provide each of these two businesses with a strong platform for future successful growth, but also allow us 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.

I would like to thank all our employees for their ongoing commitment and hard work, as we make further progress versus our stated change plan. While there is more for us still to do, our HY 2019 results demonstrate our ability to deliver encouraging financial progress while substantially simplifying our portfolio of businesses. I am proud of what we have achieved as a team and of the meaningful improvement that we are making together as we restore sustainable, profitable growth to Essentra."

The Company's outlook for FY 2019 is unchanged. While the macro environment remains uncertain which, as previously stated, impacts the Components division, Essentra continues to focus on delivering the stated objectives for each of its divisions.

Accordingly, the Company expects to make further strategic progress in 2019.

IFRS 16. The results for HY 2019 have been prepared under IFRS 16 which came into effect from 1 January 2019. The Company has adopted IFRS 16 for HY 2019 and has elected not to restate HY 2018, consistent with IFRS accounting standards. The impact of reporting under IFRS 16 is set out in note 1 to the Interim Consolidated Financial Statements.

Constant foreign exchange rates. Movements in exchange rates relative to sterling affect actual results as reported. The constant exchange rate basis ("constant FX") adjusts the comparative to exclude such movements, to show the underlying performance of the Company. The principal exchange rates for Essentra in HY 2019 were:

Re-translating at HY 2019 average exchange rates increases the prior year revenue and adjusted operating profit by £7.4m and £0.6m respectively.

Like-for-like ("LFL"). The term "like-for-like" describes the performance of the continuing business on a comparable basis, adjusting for the impact of acquisitions, disposals and foreign exchange. The HY 2019 LFL results are adjusted for the acquisition of Nolato Hertila ("Hertila") on 5 July 2018 until 8 February 2019 (further to which it was fully integrated into the existing Components activities in Sweden and no longer separately identifiable), the divestment of the trade and assets of the Swiftbrook paper merchant business on 3 September 2018, the divestment of the Pipe Protection Technologies business on 14 January 2019 and the divestment of the Extrusion business on 11 June 2019.

The Speciality Tapes business was divested on 28 June 2019 and, subsequent to the end of the period, the Card Solutions business was sold on 23 July 2019. The results of both of these businesses are therefore included in the like-for-like results for HY 2019.

Adjusted basis. The term "adjusted" excludes the impact of amortisation of acquired intangible assets and exceptional and other adjusting items, less any associated tax impact. In HY 2019, amortisation of acquired intangible assets was £11.1m (HY 2018: £11.2m), and there was an exceptional pre-tax credit of £22.9m (HY 2018: charge of £6.3m). This exceptional credit mainly relates to net gains on the divestment of the afore-mentioned businesses less costs associated, together with the release of provisions with regard to certain site closures; there was also an exceptional cost incurred in relation to a review and investigation currently in progress of certain Group companies' export activities with US laws involving external consultants. Further details on exceptional and other adjusting items are shown in note 3 to the Interim Consolidated Financial Statements.

Constant FX, LFL and adjusted measures are provided to reflect the underlying financial performance of Essentra. For further details on the performance metrics used by Essentra, please refer to pages 18 to 21 of the 2018 Annual Report.

Adjusted operating cash flow. Adjusted operating cash flow is presented to exclude the impact of tax, exceptional and other adjusting items, interest and other non-cash items in operating profit. Net capital expenditure is included in this measure as management regards investment in operational assets as integral to the underlying cash generation capability of the Company.

In relation to net debt and the cash flow statement, the application of IFRS 16 has the following impact:

·; Depreciation of the lease right-of-use assets is added back to operating profit to arrive at operating cash flows. This increases the Group's EBITDA.

·; Lease liabilities are treated as part of net debt.

·; Payment of the principal amount of leases is treated as a financing cash flow within the cash flow statement. It is not included within the definition of free cash flow under IFRS 16. Such payment does not have an impact on net debt (under IFRS 16).

·; With changes in EBITDA and net debt, the net debt to EBITDA ratio is significantly impacted by the adoption of IFRS 16. The ratio of 1.8x previously reported for the FY 2018 year end (as disclosed in note 18 to the 2018 Annual Financial Statements) will be restated to 2.1x under IFRS 16.

HY 2019 revenue decreased 1.3% (-2.7% at constant FX) to £506.6m owing to disposals during the period: on a LFL basis, revenue increased 1.3% (+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). The underlying result reflected a solid result in Components, a strong performance in Packaging and a return to growth in Filters, partially offset by a moderate decline in Specialist Components.

On an adjusted basis, operating profit was ahead 11.0% (9.6% at constant FX) at £48.3m. The 100bps uplift in the margin (100bps at constant FX) to 9.5% was driven by the strong revenue performance in Packaging, boosted by the impact of price increases in Components, further operational efficiency gains in Filters and the benefit of previously-communicated improvement initiatives in Specialist Components.

Including amortisation of acquired intangible assets of £11.1m and an exceptional pre-tax credit of £22.9m - mainly relating to net gains on the divestment of the afore-mentioned businesses less costs associated - operating profit as reported was £60.1m (HY 2018: £26.0m).

Net finance expense was above the prior year at £7.0m (HY 2018: £5.2m), mainly due to interest on leases from having adopted IFRS 16 together with a higher average level of sterling-denominated debt during the period. The effective tax rate on underlying profit before tax (before exceptional and other adjusting items) was unchanged at 20.0% (HY 2018: 20.0%).

On an adjusted basis, net income of £33.1m was up 8.1% (7.0% at constant FX) and adjusted basic earnings per share increased by 9.1% (7.5% at constant FX) to 12.0p. On a total reported basis, net income of £32.2m and earnings per share of 11.6p compared to £16.6m and 5.7p respectively in HY 2018.

Adjusted operating cash flow was 0.5% higher than the previous year at £36.6m (HY 2018: £36.4m), mainly due to the impact of adopting IFRS 16 of £6.8m offset by an increase in net working capital: this equated to operating cash conversion of 76%. Adjusted free cash flow of £22.6m was unchanged versus £22.6m in HY 2018.

With effect from 1 January 2019, the results of the Speciality Tapes Express distribution locations have been included within the Specialist Components division. A restatement of the HY 2018 revenue and adjusted operating profit on this basis is set out in note 2 to the Consolidated Financial Statements.

Summary growth in revenue by Division

The following review is given at constant exchange rates and on an adjusted basis, unless otherwise stated.

Components

* Adjusted basis

Revenue increased 1.1% to £136.2m. Adjusting for the acquisition of Hertila on 5 July 2018 until 8 February 2019, like-for-like growth was 0.8% (+1.7%, adjusting for one less trading day during HY 2019 versus the prior year period).

The modest increase in revenue reflected successful pricing initiatives which were partially offset by the impact of a softer end-market backdrop and greater macroeconomic uncertainty, with Industrial Production levels declining across all geographical regions during the period. Notwithstanding this, however, good progress continued to be made across a number of key strategic objectives.

The range of access hardware maintained its strong performance, benefiting from investment in the two facilities in Istanbul, Turkey in the prior year and the launch of a number of new lock, hinge and handle solutions. Fasteners also performed well, boosted by the successful cross-selling of Micro Plastics' range to Essentra's customer base in the US, Europe and Asia. In addition - and reinforcing its strength in the division's core ranges - catalogues were relaunched in Europe featuring c. 1,500 new products, introducing a new range of cable terminals within cable management, general protection range extensions from Hertila and further access hardware products that have been developed to give the business greater penetration of the Heating, Ventilation and Air Conditioning ("HVAC") sector.

Consistent with its commitment to providing customers with a "hassle-free" experience and reliable and timely delivery, further commercial and operational initiatives commenced during the period. Key among these was the launch of a new digital platform, a critical tool in upgrading the division's online presence; local language websites were rolled out in five countries during the first half of the year, with a further 21 markets on track to go live in H2 2019 / early 2020. Providing greater ease of navigation for customers and better ability to compare products as well as improved visibility in search engines such as Google, early customer feedback has been very encouraging thus far. In addition, the development of new hub warehouses was progressed in Houston, US and in Northern Germany which will go-live in Q3 2019 and in Q2 2020 respectively and will enable even better customer service in each region.

Recently-acquired Hertila performed in line with expectations, with the full integration of the business into the existing Components activities in Sweden from early February 2019. The cross-selling of Essentra products to Hertila's c. 1,000 customers commenced during HY 2019 as anticipated, with the wider Continental European region also benefiting from the greater flexibility in the manufacturing footprint which has followed from the deployment of certain equipment from Sweden to the Spanish facility in Barcelona.

Adjusted operating profit increased 3.0% to £31.3m, equating to a margin of 23.0%. This 40bps improvement reflected the afore-mentioned successful pricing initiatives, combined with ongoing synergy delivery from both Micro Plastics and Hertila and further operational efficiency initiatives, partially offset by the volume impact of a softer macro environment.

In line with its strategic objective of complementing organic growth with value-creating transactions, on 27 June 2019 the acquisition of Innovative Components was announced. As a leading provider of knobs, pins and handles, Innovative Components both strengthens and extends the division's product range while adding further valuable manufacturing capacity in the Americas.

Packaging

* Adjusted basis

Revenue increased 2.3% to £176.8m. Excluding the divestment of the trade and assets of Swiftbrook, Ireland on 3 September 2018, like-for-like revenue growth was 3.2% (+9.4%, adjusting for both the disposal and the closure of the Kilmarnock, UK and Largo, US consumer packaging sites at the end of 2018).

As anticipated - and building on the return to growth in H2 2018 - the division maintained its strong volume momentum, with both the European and Americas regions performing well and being underpinned by further progress in key service and quality metrics. In addition, price increases to recover higher raw material costs were successfully implemented.

Complex literature continued to perform strongly across all geographies and was boosted by good growth in both folding cartons and labels. The division also successfully supported customers with artwork generation and in their supply chain management, to ensure they were well placed to meet the new regulatory requirements entailed by the Falsified Medicines Directive which took effect in Europe in early 2019. In combination with the benefits from the clear Key Account Management structure which was established in the prior year, the dialogue with customers thus continued to be further strengthened and deepened, with the business collaborating to help meet a range of needs and objectives.

During the period, there was further investment in machine upgrades and value-added service capabilities to underpin the ongoing improvement in both commercial and operational effectiveness. This incremental investment included complex literature folding equipment in response to increasing demand trends, as well as the ongoing roll out of colour management technology across the site footprint which has resulted in a further material reduction in quality-related issues. New equipment and people were also added to the Design Hub in the US, while the recent additional digital / hybrid carton and label printing capability is allowing the division to better respond to the increasing requirement for smaller batch manufacturing in a cost-effective manner. As industry trends (such as patient adherence and serialisation) and legislative requirements continue to evolve, the division is therefore well-placed to respond to customer needs as they require even greater agility and value-added solutions from their packaging suppliers.

Adjusted operating profit increased 397.1% to £7.9m, equating to a margin of 4.5%. This was largely driven by the volume gearing effect from the strong revenue growth, boosted by price increases to offset higher raw material costs, a one-time benefit of £1.7m from the release of previous provisions and the benefit of closing the loss-making Kilmarnock and Largo facilities. Adjusting for both the divestment and site closures, the margin was ahead by 290bps.

Filters

* Adjusted basis

Revenue increased 1.3% to £130.5m, with the return to growth being underpinned by an improved product mix and with further good progress with independent customers. In addition, the division continued to advance each of its three potential "game changers" which were identified in the 2017 strategic review of the division - namely, a joint venture in China, Next Generation Products ("NGP") and further outsourcing.

During the period, the division continued to build upon its proven track record of developing innovative products which meet the evolving needs of customers. In the combustible market, there was further demand for products which incorporate one or more capsules and / or are visually differentiated (such as tube filters), particularly from the independent segment. At the same time, the consumer trend in China for smaller diameter and increasingly complex formats continued to increase, with good growth in the "slim" products segment. The business also leveraged its significant experience with regard to the issue of degradability and littering of cigarette butts, where a number of customer and supplier development projects to address this key regulatory and consumer concern are ongoing.

Beyond traditional combustible filters, there was further progress in NGP in HY 2019. Although a relatively modest contributor to divisional revenue and operating profit, the business continued to work with various multinationals and independents to advance their respective potential - or next phase - Heat Not Burn offers. In addition, the Scientific Services unit performed well, further building on its extensive experience and range of accredited testing methods for both combustible and NGP products.

Consistent with its strategic objective of continuous improvement in its innovation capabilities and customer relationships, the division undertook certain important commercial initiatives during the period. First, the Global Innovations organisation was refocused and strengthened, to provide a clear distinction between combustibles and NGP new product development; not only will this enable even more value-added solutions and greater efficiency, it will also facilitate the identification of new customer opportunities as the industry continues to rapidly evolve. And second, the division embarked upon the implementation of a full, cross-functional Key Account Management structure which - in conjunction with the restructuring of the Innovations team - will help to create a more in-depth understanding of customer needs, develop relevant value propositions to meet their respective needs and identify mutually beneficial strategic initiatives.

Adjusted operating profit increased 5.1% to £16.8m, with the 50bps uplift in the margin to 12.9% driven by further significant efficiency improvements and productivity gains resulting from the division's world-class operational metrics.

On 19 March 2019, the acquisition of the 49% minority interest in the Filters joint venture, Essentra (MEA) Pte. Ltd was announced, from Aberdeen International FZE (part of the BBM Bommidala group) for a cash consideration of £11.6m. Essentra (MEA) Pte. Ltd is the holding company of Essentra FZE, which undertakes the Company's Filters activities in Dubai.

Specialist Components

* Adjusted basis

Revenue declined 24.6% to £64.5m owing to the divestment of businesses in HY 2019. Excluding the divestment of PPT on 14 January 2019 and Extrusion on 11 June 2019, there was a like-for-like decline of 3.9% (-0.8%, adjusting for the cessation of Speciality Tapes in Nottingham at the end of 2018).

A recovery in Tear Tapes was boosted by good growth in the Tobacco segment, with the result in Speciality Tapes reflecting improvement in the retail Point of Purchase sector. The Industrial Supply (Reid) business was impacted by a softer macro backdrop in the US industrial market, while progress in Extrusion with its more complex, technical profiles was offset by weakness in the Furniture segment. Revenue in Card Solutions was broadly unchanged. 

Adjusted operating profit was 13.5% lower at £5.9m, equating to a margin of 9.1%. This 110bps improvement was largely driven by the previously communicated operational improvement initiatives, particularly in the Tear Tapes business. Adjusting for both the divestment and site closures, the margin was ahead by 50bps. 

Consistent with Essentra's objective of maximising the value-creation potential of the diverse activities within the Specialist Components division, there was significant portfolio rationalisation during the period. First, on 14 January 2019, the Company announced the divestment of its Pipe Protection Technologies ("PPT") business to certain wholly-owned subsidiaries of National Oilwell Varco, Inc.; the transaction valued PPT at US$48.0m, free of cash and debt. On 11 June 2019, the disposal of Extrusion to Inter Primo A / S was then announced, which valued the business at €16.2m, free of cash and debt. Subsequently, on 20 June 2019, Essentra announced that it had signed an agreement to divest its Speciality Tapes business to certain wholly-owned subsidiaries of OpenGate Capital; the transaction valued Speciality Tapes at US$77m, free of cash and debt, and completed on 28 June 2019. Finally, shortly after the end of the period, on 11 July 2019 the Company signed an agreement to divest Card Solutions to Barcodes, Inc., free of cash and debt; the sale completed on 23 July 2019. In each case, it was clear that the unique capabilities of these respective leading businesses could be better developed by a third party with real strategic strength and investment capacity in the relevant end-markets. As a result, these four disposals not only represent good value for Essentra's shareholders, but also provide each of these Specialist Components businesses with a strong platform for future growth.

Further to the completion of the sale of Card Solutions, the remaining Tear Tapes and Industrial Supply (Reid) businesses will be absorbed into the Filters and Components divisions respectively owing to the complementary nature of the end-markets served. As a result, the Specialist Components division will be dissolved by the end of Q3 2019.

Net finance expense. Net finance expense of £7.0m was £1.8m above the prior year period, and is broken down as follows:

Tax. The effective tax rate on underlying profit before tax (before exceptional and other adjusting items and amortisation of acquired intangible assets) was 20.0% (HY 2018: 20.0%).

Net working capital. Net working capital is defined as Inventories plus Trade & Other Receivables less Trade & Other Payables, adjusted to exclude Deferred Consideration Receivable / Payable, Interest Accruals and Capital Payables ("Adjustments").

The decrease in net working capital was largely due to business divestments within Specialist Components offset by increases in working capital in Components and Packaging. The average net working capital / revenue ratio was 13.9% (HY 2018: 14.1%, at constant FX).

Cash flow. Adjusted operating cash flow is presented to exclude the impact of tax, exceptional and other adjusting items, interest and other non-cash items in operating profit. Net capital expenditure is included in this measure as management regards investment in operational assets as integral to the underlying cash generation capability of the Company. In HY 2019, net capital expenditure excludes £0.3m of exceptional property, plant and equipment ("PP&E") disposal proceeds realised during site closures.

Adjusted operating cash flow of £36.6m was £0.2m higher than the prior year period. This is due to the increase in adjusted operating profit and the adoption of IFRS 16, offset by the change in working capital. Adjusted free cash flow of £22.6m was unchanged versus £22.6m in HY 2018.

In HY 2019, there was a £118.4m net increase in cash and cash equivalents (HY 2018: £8.1m).

* Tax paid excludes the exceptional tax paid on business disposals. This is included within the cash outflow in respect of exceptional and other adjusting items

Net debt. Net debt at the end of the period was £242.0m, a £58.1m reduction from 1 January 2019 (after applying IFRS 16), primarily due to proceeds from Specialist Components disposals and free cash flow generation, partially offset by dividend payments and cash exceptional and other adjusting items.

* Includes exceptional tax paid on business disposals

The Company's financial ratios remain strong. The ratio of net debt to EBITDA as at 30 June 2019 was 1.6x (31 December 2018: 2.1x) after applying IFRS 16 (1.4x before applying IFRS 16), and interest cover was 7.8x (31 December 2018: 7.9x) after applying IFRS 16.

Pensions. As at 30 June 2019, the Company's IAS 19 net pension liability was £17.5m (HY 2018: £2.4m), as a result of a change in discount rate partially offset by an increase in asset valuations. The net liability has been calculated after updating the asset values and certain liability assumptions as at 30 June 2019.

The Company concluded the triennial valuation of the two closed defined benefits sections of the Essentra UK Pension Plan with the Trustees of the Plan, with a settlement of £1m to be paid in three equal payments in December 2019, June 2020 and December 2020.

Dividends. The Board of Directors has approved an interim dividend of 6.3 pence per 25 pence ordinary share (HY 2018: 6.3 pence). The interim dividend will be paid on 30 October 2019 to equity holders on the share register on 27 September 2019: the ex-dividend date will be 26 September 2019. Essentra operates a Dividend Re-Investment Programme ("DRIP"), details of which are available from the Company's Registrars, Computershare Investor Services PLC: the final date for DRIP elections will be 9 October 2019.

Board changes. On 1 March 2019, the Board announced the appointment of Nicki Demby as a Non-Executive Director and Remuneration Committee Chairman Designate, with effect from 1 June 2019. After six years, Lorraine Trainer has advised the Board of her intention to step down as a Non-Executive Director and Chairman of the Remuneration Committee following the Company's 2020 Annual General Meeting, and will work closely with Nicki in the meantime to ensure a smooth transition of responsibilities.

Treasury policy and controls. Essentra has a centralised treasury function to manage funding, liquidity and exposure to interest rate and foreign exchange risk. Treasury policies are approved by the Board and cover the nature of the exposure to be hedged, the types of derivatives that may be employed and the criteria for investing and borrowing cash. Essentra uses derivatives only to manage currency and interest rate risk arising from the underlying business activities. No transactions of a speculative nature are undertaken. The treasury function is subject to periodic independent reviews by the Group Assurance department. Underlying policy assumptions and activities are reviewed by the Treasury Committee.

Controls over exposure changes and transaction authenticity are in place, and dealings are restricted to those banks with the relevant combination of geographical presence, expertise and suitable credit rating.

Foreign exchange risk. The majority of Essentra's net assets are in currencies other than sterling. The Company's normal policy is to reduce the translation exposure and the resulting impact on shareholders' funds through measures such as borrowing in those currencies in which the Group has significant net assets. As at 30 June 2019, Essentra's US dollar-denominated assets were approximately 44% hedged by its US dollar-denominated borrowings, while its euro-denominated assets were approximately 34% hedged by its euro-denominated borrowings.

The majority of Essentra's transactions are carried out in the functional currencies of its operations, and therefore transaction exposure is limited. However, where such exposure does occur, Essentra uses forward foreign currency contracts to hedge its exposure to movements in exchange rates on its highly probable forecast foreign currency sales and purchases over a period of up to 18 months.

Management of principal risks. The Board considers risk assessment, identification of mitigating actions and internal controls to be fundamental to achieving Essentra's strategic objectives. There have been no significant changes in the material risks faced by the Essentra Group since the publication of the 2018 Annual Report. The processes by which the Board safeguards shareholder value and the assets of the Group, and the risks and uncertainties that would have a significant impact on long-term value generation, are set out in the 2018 Annual Report and detailed on pages 30 to 41.

As previously communicated, while there is still uncertainty as to when and under what circumstances the UK will exit the EU, the Company is currently assuming a "no deal" scenario for its planning processes and is taking various actions, such as changing supply routings, as well as building of stocks of finished goods and relevant raw materials to mitigate against short-term supply chain disruption, and ensuring that logistics providers have the required status and processes in place to facilitate smooth customs handling.

With effect from 1 January 2019, the Company has initiated a Business Process Redesign ("BPR") programme, which is expected to run for five years and will ultimately support the strategic growth agenda, enhance process efficiency and improve business controls. Starting with the Components division and the Finance and Procurement functions, this phased programme will focus on business process redesign enabled by ERP investment.

Over the cycle, the tangible benefits of the BPR programme are estimated to offset the cost. With streamlined processes and modern technology, the Company expects to become a much more agile and nimble business, which will not only deliver better service to customers but also allow the better attraction and retention of high quality talent.

The Company's outlook for FY 2019 is unchanged. While the macro environment remains uncertain which, as previously stated, impacts our Components division, we continue to focus on delivering the stated objectives for each of our divisions.

Accordingly, we expect to make further strategic progress in 2019.

Enquiries

Presentation

A copy of these results is available on www.essentraplc.com

There will be a presentation for analysts and investors at 08:30 (UK time, registration from 08:00), which will be held at The Auditorium, Deutsche Bank, Winchester House, 1 Great Winchester Street, London, EC2N 2DB.

There are three options for participating in the presentation:

·; Attend in person

·; View a live webcast of the presentation at http://www.essentraplc.com/en/investors/company-information/webcasts-and-presentations

·; Dial in to the live webcast of the presentation, using the following details:

A recording of the presentation will be made available on the website later in the day. A replay will additionally be available as follows:

Cautionary forward-looking statement

These results contain forward-looking statements based on current expectations and assumptions. Various known and unknown risks, uncertainties and other factors may cause actual results to differ from future results or developments expressed or implied from the forward-looking statements. Each forward-looking statement speaks only as of the date of this document. The Company accepts no obligation to revise or update these forward-looking statements publicly or adjust them to future events of developments, whether as a result of new information, future events or otherwise, except to the extent legally required.

Notes to Editors

About Essentra plc

Essentra plc is a FTSE 250 company and a leading global provider of essential components and solutions. Organised into four global divisions, Essentra focuses on the light manufacture and distribution of high volume, enabling components which serve customers in a wide variety of end-markets and geographies.

Essentra Components

Essentra Components is a global market leading manufacturer and distributor of plastic injection moulded, vinyl dip moulded and metal items. Operating in 29 countries worldwide, 14 manufacturing facilities and 29 logistics centres serve more than 85,000 customers with a rapid supply of low cost but essential products for a variety of applications in industries such as equipment manufacturing, automotive, fabrication, electronics and construction.

Essentra Packaging

Essentra Packaging is one of only two multicontinental suppliers of a full secondary packaging range to the health and personal care sectors, with 22 facilities across four geographic regions. The division's innovative products include cartons, leaflets, self-adhesive labels and printed foils used in blister packs, which help customers to meet the rapidly-changing requirements of these end-markets and can also be combined with Essentra's authentication solutions to help the fight against counterfeiting.

Essentra Filters

Essentra Filters is the only global independent cigarette filter supplier. The seven worldwide locations, plus a dedicated Technology Centre supported by three regional development facilities, provide a flexible infrastructure strategically positioned to serve the tobacco sector. The business supplies a wide range of value-adding high quality innovative filters, packaging solutions to the roll your own segment and analytical laboratory services for ingredient measurement to the industry: Essentra's offering also includes e-cigarette and Heat Not Burn solutions to the rapidly evolving market for Next Generation Products.

Essentra Specialist Components

The division includes Essentra's two smaller businesses and these activities largely have strong positions in the markets in which they operate.

The Tear Tapes business is globally recognised as the leading manufacturer and supplier of pressure-sensitive tear tapes, which are largely used in the tobacco, food and drink and specialist packaging sectors.

The Industrial Supply (Reid) business provides a wide range of branded hardware supplies to a broad base of industrial customers, largely located in the US Mid-West.

By the end of Q3 2019, the Tear Tapes business will be absorbed into the Filters division and the Industrial Supply (Reid) business will be absorbed into the Components division, further to which the Specialist Components division will be dissolved.

Headquartered in the United Kingdom, Essentra's global network extends to 34 countries and includes c. 8,000 employees, c. 45 principal manufacturing facilities, c. 30 sales & distribution operations and 4 research & development centres. For further information, please visit www.essentraplc.com.

1. Basis of preparation

Except as described below, the accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2018 which comply with International Financial Reporting Standards as adopted by the EU and also in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure and Transparency Rules ('DTR') of the Financial Conduct Authority. The financial statements have been reviewed not audited.

The preparation of the condensed set of financial statements requires management to make estimates and assumptions that affect the reporting amounts of revenues, expenses, assets and liabilities at 30 June 2019. If in the future such estimates and assumptions, which are based on management's best judgement at the date of the condensed set of financial statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change.

In the view of the Directors, the Group has adequate resources to continue its activities for the foreseeable future and therefore it is appropriate to continue to adopt the going concern basis in the preparation of the condensed set of financial statements.

The comparative figures for the financial year ended 31 December 2018 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

For the purpose of the condensed set of financial statements 'Essentra' or 'the Group' means Essentra plc ('the Company') and its subsidiaries.

Income tax expense is recognised based upon the best estimate of the weighted average income tax rate on profit before tax and exceptional and other adjusting items expected for the full financial year, taking into account the weighted average rate for each jurisdiction.

IFRS 16 Leases

The Group has adopted IFRS 16 Leases from 1 January 2019. The adoption of these standards has a material effect on the Group's financial statements, as disclosed in the Group's 2018 consolidated financial statements. The quantitative impact of IFRS 16 on the group's retained earnings at 1 January 2019 was a reduction of £5.2m.

IFRS 16 Leases which is effective from 1 January 2019, eliminates the classification of leases as either operating leases or finance leases and introduces a single lessee accounting model under which a lessee is required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value, and present depreciation of lease right-of-use assets separately from interest as a result of unwinding of discount on lease liabilities in the income statement.

The Group has performed the impact assessment of adopting this accounting standard, which involved collating information on lease obligations and contractual arrangements across the Group. This data was then used to compare the impact of the new standard under different transitional options.

The Group has decided to select the modified retrospective approach on transition primarily on grounds of practicality. Under this approach, comparative information is not restated and the impact of adopting IFRS 16 is presented as an opening retained earnings adjustment as at 1 January 2019.

Under this transition option a methodology for determining the incremental borrowing rate has been developed to calculate the initial lease liability for each lease. This methodology incorporates three key elements: risk-free rate (reflecting specific country and currency), credit spread (reflecting the specific risk for each subsidiary within the Group) and an asset class adjustment (reflecting the variation in risk between asset categories).

Approximately 85% of the Group's future lease obligations under IAS 17 relate to property leases and as a consequence makes up the majority of the impact of adopting IFRS 16. A key judgement in determining the right-of-use asset and lease liability is establishing whether it is reasonably certain that an option to extend the lease will be exercised. Distinguishing whether a lease will be extended or otherwise will have a material impact on the value of the right-of-use assets and lease liabilities recognised on the balance sheet, but will not have a material impact on the income statement.

The Group will elect to use the exemptions proposed by the standard on lease contracts for which the lease terms ends within 12 months as of the date of initial application and lease contracts for which the underlying asset is of low value. The Group has leases of certain equipment (e.g. printing and photocopying machines) that are considered of low value.

2. Segment analysis

In accordance with IFRS 8, Essentra has determined its operating segments based upon the information reported to the Group Management Committee.

The operating segments are as follows:

Components is a global market leading manufacturer and distributor of plastic injection moulded, vinyl dip moulded and metal items.

Packaging is one of only two multi-continental suppliers of a full secondary packaging range to the health and personal care sectors.

Filters is the only global independent supplier of innovative cigarette filters and related solutions to the tobacco industry.

Specialist Components comprises the following six smaller businesses of Essentra:

·; The Extrusion business is a leading custom profile extruder located in the Netherlands which offers a complete design and production service.

·; The Pipe Protection Technologies business specialises in the manufacture of high performance innovative products from commodity resins to engineering-grade thermoplastics and polymer alloys for use in the oil & gas industry.

·; The Speciality Tapes business has expertise in coating multiple adhesive systems in numerous technologies, and its products range from foam, magnetic, finger lift and acrylic high bond tapes to hook and loop and non-skid foam.

·; The Tear Tapes business is globally recognised as the leading manufacturer and supplier of pressure-sensitive tear tapes, which are largely used in the tobacco, food & drink and specialist packaging sectors.

·; The Industrial Supply business provides a wide range of branded hardware supplies to a broad base of industrial customers, largely located in the US mid-west.

·; The Card Solutions business is a leading European provider of ID card printers, systems and accessories to direct and trade customers.

With effect from 1 January 2019 the Group has altered the organisational structure by transferring the Speciality Tapes Express distribution locations in the US from the Components division into the Specialist Components division. As a consequence, segmental information for the half year ended 30 June 2018 and year ended 31 December 2018 has been restated to reflect these changes.

As at the half year ended 30 June 2019, the Group had disposed of the Extrusion, Pipe Protection Technologies and Speciality Tapes businesses. Further details of this can be found in note 9.

The adjusted operating profit/loss presented for each operating segment includes the effect of allocation of certain functional costs such as finance, human resources, legal and IT, as well as costs relating to management of the divisions on an internal management methodology.

As explained in note 1, the comparative information is not restated for IFRS 16.