# Essentra plc report a strategically transformational year

- Link: https://www.directorstalkinterviews.com/essentra-plc-report-a-strategically-transformational-year/4121112471
- Published: 2023-03-29T07:31:29+01:00
- Author: Jacob Brown

**Essentra plc** (LON:ESNT) have today provided results for the full year ended 
31 December 2022.

**Overview**

·     A strategically transformational year for Essentra

·    Disposals of the Filters and Packaging businesses completed in Q4 2022, resulting
in a market leading pure-play Components business and commitment to return c.£150m
to shareholders

·   The Group announced the acquisition of Wixroyd in December 2022, in line with
the stated strategy of acquiring bolt-on acquisitions

·     FY 2022 performance of the continuing business in line with the Board’s expectations

·     FY 2023 Board expectations are unchanged

 **Components financial highlights^(2)**

·     Revenue growth of 12.0%, to £337.9m, 9.5% on a constant currency basis

·     Adjusted^(1) operating profit growth of 12.0% to £63.7m, before central costs

·     Adjusted^(1) operating margin increases on a constant currency basis to 18.9%
before central costs, driven by strong pricing delivery offsetting inflation, and
management of our cost base

·    Pro-forma^(3) adjusted operating profit of £43.0m (2021: £40.3m), after allocating
on-going central service costs of £20.7m

·     Adjusted^(1) operating cash flows of £20.2m (2021: £17.8m) and cash conversion
of 80% (2021: 67%)

·     Strong balance sheet to support investment in organic and inorganic growth

**Group Reported financial highlights^(2)**

·    Operating loss of £11.3m (2021: £7.7m profit) after recognising central costs
previously allocated to the discontinued operations, and including adjusting items
and amortisation of acquired intangibles

·   Discontinued post-tax loss of £152.7m (2021: £33.2m profit), including the impairment
of goodwill and other intangibles for the Packaging business of £182.7m

·     Group net cash inflow from operating activities of £64.0m (2021: £63.2m)

**Ordinary dividend and shareholder return**

·     Year-end net funding surplus of £113.8m (incl. IFRS lease liabilities) after
the acquisition of Wixroyd

·    £150m capital return announced, consisting of £90.0m special dividend (29.8p
per share) and £60.0m share buyback

·     Recommended final ordinary dividend of 1.0p per share, FY 2022 3.3p per share

**Outlook**

·     The Board’s expectations for 2023 remain unchanged

·    The business has the ability to manage volume impacts through implementation
of pricing actions, and careful cost management, validated by historical through-
cycle margin resilience

·    Distributors have continued to show signs of destocking impacting the US in
particular, whilst there are improvements in China, and Europe continues to be robust.
To date, new order intake is c.8% ahead of 2022 on a like-for-like basis

·     Our strong balance sheet will drive investment in value enhancing bolt-on 
M&A opportunities; we have a strong pipeline that we are actively managing

·     A robust and differentiated business model, with the expectation of making
further progress against the medium-term targets shared at the Capital Markets Event
in November 2022

^(1 Refer to Note 16 of the Consolidated Financial Statements for definition of 
Adjusted performance measures)

^(2 Prior year has been re-presented to remove the disposed Packaging and Filters
businesses. See Note 1 to the Consolidated Financial Statements)

^(3 Pro-forma operating profit is an additional Alternative Performance Measure,
which has been used to present the continuing Components business on a standalone
basis, using historical cost allocation methodologies. The Components adjusted operating
profit has been adjusted for the central service costs that are allocated to continuing
operations)

> **Commenting on the Full Year results, Scott Fawcett, Essentra plc** **Chief Executive,
> said:**
> _“2022 saw the conclusion of a transformational chapter and I am excited to be
> leading Essentra on the next stage of our strategy, as a leading global manufacturer
> and distributor of industrial components._
> _While 2022 brought a number of changes for the organisation as a whole, it has
> laid the foundations to capture future growth opportunities. We have continued
> to invest organically and inorganically, supporting the business to make progress
> commercially, whilst maintaining strong operating margins._
> _We have remained focussed on serving our customers, and enhancing our hassle-
> free proposition. Our NPS has improved by 11 points to 34, and we continue to 
> invest in digitalisation and cross-selling tools. I am proud of our people who
> are working hard to deliver for customers, and delighted that we received an industry
> leading employee engagement score of 83%, in our most recent survey._
> _We are focussed on strong profit margins and managing our cost base and we are
> pleased to see new order intake to date c.8% ahead of 2022 on a LFL basis. We 
> will continue to invest in organic growth initiatives as well as value accretive
> bolt-on M&A, for which our pipeline is active. Our expectations for 2023 are unchanged.”_

**Results at a glance:**

|  | **FY 2022 | FY 2021^(4) | % change Actual FX | % change Constant FX | 
| _Continuing operations_ |  |  |  |  | 
| Revenue | £338m | £302m | +12 | +10 | 
| Components adjusted^(1) operating profit | £64m | £57m | +12 | +12 | 
| Central service costs allocated to continuing operations | £(21)m | £(17)m | +25 | +23 | 
| Pro-forma adjusted^(1) operating profit^(7) | £43m | £40m | +7 | +7 | 
| Central service costs allocated to discontinued operations | £(18)m | £(14)m | +29 | +22 | 
| Adjusted^(1) operating profit | £25m | £26m | -5 | -1 | 
| Adjusted^(1) pre-tax profit | £7m | £12m | -37 | -36 | 
| Adjusted^(1) net income^(2) | £6m | £11m | -49 | -48 | 
| Adjusted^(1) basic earnings per share | 1.9p | 3.7p | -49 | -48 | 
| _Continuing operations_ |  |  |  |  | 
| Reported operating (loss) / profit | £(11)m | £8m | n/a | n/a | 
| Reported pre-tax (loss) / profit | £(29)m | £(7)m | n/a | n/a | 
| Reported net (loss) / profit^(2) | £(31)m | £(5)m | n/a | n/a | 
| Reported (loss) / profit per share | (10.3)p | (1.6)p | n/a | n/a | 
| Reported net cash inflow / (outflow) from operating activities | £4m | £(3)m | n/a | n/a | 
| Free cash flow^(3) | £6m | £(1)m | n/a | n/a | 
| _Total Group_ |  |  |  |  | 
| Dividend per share | 3.3p | 6.0p | -45 | n/a | 
| Net funding surplus / (debt)^(6) | £114m | £(235)m | n/a | n/a | 
| Net funding surplus / (debt) to adjusted EBITDA^(5,6) | 2.3x | (1.7)x | n/a | n/a |

^(1 Refer to Note 16 of the Consolidated Financial Statements for definition of 
Adjusted performance measures)

^(2 Net income is defined as profit / (loss) after tax
3 A reconciliation of free
cash flow on continuing operations is set out in the Financial Review section

^(4 Prior year has been re-presented to remove the disposed Packaging and Filters
businesses. See Note 1 to the Consolidated Financial Statements)

^(5 EBITDA is defined as operating profit before depreciation (and other amounts
written off property, plant and equipment), share option expense, intangible amortisation
and adjusting items. For 2022 EBITDA is calculated on a continuing basis and for
2021 on a total Group basis)

^(6 Presented including lease liabilities. Net fund surplus excluding lease liabilities
£137m; 3.3x net fund surplus to EBITDA (2021: £(177)m net debt, (1.5)x net debt 
to EBITDA). For 2022 EBITDA is calculated on a continuing basis and for 2021 on 
a total Group basis)

^(7 Pro-forma operating profit is an additional Alternative Performance Measure,
which has been used to present the business on a continuing Components standalone
basis, using historical cost allocation methodologies. The Components adjusted operating
profit has been adjusted for the central service costs that are allocated to continuing
operations)

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