ENPNewswire-March 4, 2019--ESSENTRA PLC - Results for the Full Year Ended 31 December 2018
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Release date- 01032019 - Commenting on today's results, Paul Forman, Chief Executive, said: 'At our HY 2018 results, when we reported profit growth from a stable revenue base for the first time in three years, I stated my firm conviction that we had turned a corner.
We have maintained this strategic momentum during H2 - importantly, with our Packaging division returning to growth as anticipated, underpinned by continuing improvement in our customer relationships - and I am confident that we have restored Essentra to a position where future revenue and profit growth can be sustained.
Underpinning this improvement has been further progress in all aspects of our stability programme, from our key service and quality metrics to our IT systems. Importantly, we are seeing tangible evidence of the positive cultural shift which has been implemented, with a material uplift in our employee engagement to levels which are in line with global and manufacturing benchmarks as well as significant gains in our health and safety performance.
Of course, there is more for us still to do. However, I am proud of the great strides we have taken in FY 2018 versus our stated change plan to restore sustainable growth, and have every faith in our ability to deliver further improvement and achieve success together as a team.'
Heading into 2019, the macro economic environment is uncertain. However, while our Components division - and elements of Specialist Components - are more exposed to industrial segments with a certain degree of cyclicality, much of our Group serves end-markets which are non-cyclical in nature.
Accordingly, as we continue to drive the agenda and deliver the stated objectives for each of our divisions, we expect to make further strategic progress in 2019.
Basis of Preparation
Unless otherwise stated, the FY 2018 results and narrative contained herein reflect the performance of the Essentra Group on a continuing operations basis (ie, excluding Porous Technologies, which was divested on 6 March 2017).
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.
Re-translating at FY 2018 average exchange rates decreases the prior year revenue and adjusted operating profit by GBP21.3m and GBP1.5m 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 FY 2018 LFL results are adjusted for the divestment of the Bristol consumer packaging site on 5 June 2017, the acquisition of Micro Plastics on 12 December 2017, the acquisition of Nolato Hertila ('Hertila') on 5 July 2018 and the divestment of the trade and assets of the Swiftbrook paper merchant business on 3 September 2018.
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 FY 2018, amortisation of acquired intangible assets was GBP22.7m (FY 2017: GBP22.9m), and there was an exceptional pre-tax charge of GBP20.8m (FY 2017: GBP56.2m) mainly relating to costs associated with the afore-mentioned acquisitions / disposals and with the strategic review of the Company, as well as rationalisation of the site footprint, simplification of the organisational structure and the departure of certain senior management during the year. Further details on exceptional and other adjusting items are shown in note 2 to the 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 page 21 of the 2017 Annual Report.
Cash flow. Adjusted operating cash flow is presented to exclude the impact of tax, exceptional and other adjusting items, interest and other items not impacting 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.
FY 2018 revenue decreased 0.2% (increased 1.9% at constant FX) to GBP1,025.6m, with LFL growth of 0.2% (+1.4%, adjusting for the closure of the Newport IP5 cartons site at the end of 2017). The underlying result reflected a continued robust performance in Components and a return to growth in Packaging in H2, partially offset by a modest like-for-like decline in Filters and Specialist Components.
On an adjusted basis, operating profit was ahead 7.2% (9.1% at constant FX) at GBP90.7m. The 60bps uplift in the margin (50bps at constant FX) to 8.8% was driven by the sequential improvement in revenue performance in Packaging and further operational efficiency gains in Filters, mitigated by measured investment in Components to underpin future revenue growth opportunities and a less profitable revenue and segment mix in Specialist Components.
Including amortisation of acquired intangible assets of GBP22.7m and an exceptional pre-tax charge of GBP20.8m - mainly relating to costs associated with acquisitions / disposals and with the strategic review of the Company, as well as rationalisation of the site footprint, simplification of the organisational structure and the departure of certain senior management during the year- operating profit as reported was GBP47.2m (2017: GBP5.5m).
Net finance expense was slightly above the prior year at GBP10.9m (FY 2017: GBP10.4m), due to a higher average net debt position. The effective tax rate on underlying profit before tax (before exceptional & other adjusting items) was lower at 19.5% (FY 2017: 20.0%).
On an adjusted basis, net income of GBP64.2m was up 8.4% (6.0% at constant FX) and basic earnings per share increased by 4.5% (2.3% at constant FX) to 23.1p. On a total reported basis, net income of GBP28.1m and earnings per share of 9.3p compared to GBP115.8m and 43.7p respectively in FY 2017, as a result of the exceptional gain resulting from the disposal of Porous Technologies in FY 2017.
Adjusted operating cash flow was 3.5% lower than the previous year at GBP77.2m (FY 2017: GBP80.0m) largely due to the increase in adjusted operating profit (after adding back share option expense / other non-cash movements), being offset by an uplift in net capital expenditure: this equated to operating cash conversion of 85.1% (FY 2017: 94.6%). Adjusted free cash flow of GBP50.2m compared to GBP56.4m in FY 2017, a decrease of 11.0%.
With effect from 1 January 2018, the Company is now organised into four divisions. A restatement of the FY 2017 revenue and adjusted operating profit on this basis is set out in note 1 to the Consolidated Financial Statements.
Revenue increased 14.8% to GBP271.1m. Adjusting for the acquisition of Micro Plastics on 12 December 2017 and Hertila on 5 July 2018, like-for-like growth was 5.9%.
This strong performance reflected good progress across a number of key strategic objectives, with refinement of the...